Compliance January 16, 2004

Bush Reviving Social Security Investment Proposal

January 16, 2004 (PLANSPONSOR.com) - In his annual State of the Union address, President Bush is expected to revive a proposal allowing younger workers to invest a portion of their Social Security taxes in the stock market.

Reported by

Eric Hazard

>The revived proposal comes as the President looks toward reelection and sees shoring up future funding for Social Security as a major priority. Under Bush’s plan, workers would have the option of receiving a smaller Social Security benefit when they retire that would be supplemented by earnings from investment accounts funded with their Social Security contributions, aides to the President told the Associated Press.

The current Social Security system faces increasing financial strains in the next decade with the retirement of the baby boom generation. By 2018, the retirement system will pay out more than it collects in taxes and the fund will be exhausted by 2042 if benefits are not reduced or taxes are not increased to maintain the current levels of funding.

Even in the face of enormous deficits going forward, opponents of private accounts argue they will only increase the financial strains on the Social Security system and cite the recent stock market scandals as reason to support keeping the basic benefit of Social Security intact.

Undeterred by criticisms, other politicians have submitted Social Security reform proposals of their own. In November,Senator Lindsey Graham (R – South Carolina) unveiled a Social Security proposal that would permitworkers under the age of 55 to invest 4% of their Social Security taxes in individual accounts, while those 55 and older would remain in the current Social Security system (See Senator Graham Introduces Social Security Reform ).

In addition to Social Security reform, Bush is considering whether to renew his push for lifetime savings accounts (LSA) that could be used for any purpose, with tax-free withdrawals, and for retirement savings accounts in which money could not be withdrawn tax-free until the accountholder reached a set age. As originally proposed last year, contributions to the accounts would not be tax-deductible. Yearly contributions would likely be capped at $7,500 (See ERSAs on Comeback Trail ).

Bush’s State of the Union address will be delivered on January 20, 2004.