WASHINGTON - A national task force on Social Security has failed to agree on how to fix the ailing system.
As a result, lawmakers will unlikely be swayed by a long-awaited report of the task force, due next month, and probably will continue to postpone action to revamp Social Security.
"They would take it more seriously if we could get behind one plan, but we can't, so we do the best we can," conceded Edward M. Gramlich, chairman of the 13-member Advisory Council on Social Security and an economist at the University of Michigan, after the group's recent meeting.
A straw poll at the council's mid-December meeting showed six members supported a proposal to leave the Social Security system largely intact, five voted for a plan that would partially privatize the system and set up IRA-type accounts for working Americans, and two tentatively threw their support behind a more moderate combination of the two.
The council, appointed every four years, set to work in June 1994 to produce a blueprint for lawmakers to begin overhauling the system, which is expected to go broke in less than 30 years. The council probably will not present its report to Congress until early next year.
But the inability of the members to throw their weight behind a single plan lets lawmakers off the hook from taking up the thankless task of examining ways to overhaul the current system until the problem becomes acute, observed Gary Burtless, an economist and Social Security expert at The Brookings Institute.
"Because we have a divided council, the chance that this Congress and this president would take action has been greatly reduced. There is no immediate necessity to change Social Security, and I'm sure the leadership of Congress and the president will find plenty of reasons to defer action," he noted.
The question of the Social Security system's viability is expected to be an issue in the 1996 presidential election and members of both parties have tentatively begun examining proposals to restore the system to financial health.
But the recent loud and contentious debate in Congress over reforming the other big government-run program, Medicare, has made legislators wary of broaching an issue in an election year.
This expected delay could prove costly because the system's financial health is predicted to worsen in the next decade, even as larger numbers of Americans become eligible for Social Security, said David M. Walker, a partner at Arthur Andersen & Co. in Atlanta and a former trustee of the Social Security trust funds. "The longer we wait, the more dramatic the reforms will have to be, and the tougher they will be to achieve."
Nonetheless, Dallas Salisbury, president of the Employee Benefits Research Institute, Washington, said the council's divided report might actually work to its advantage. Instead of either embracing or rejecting the report, lobbyists and legislators might all find something they like in it. "Individuals will pull from it pieces that support their beliefs. You get an irony that the report may be more heavily used as a result of (members) not reaching a consensus," he said.
Even so, last-minute changes by members to the three plans, in an effort to jockey for more votes, made it hard to predict just exactly what the final proposals will look like. Mr. Gramlich made it clear the Dec. 15 vote was not final. Members were still squabbling over such details as whether all three plans should get equal play in the final report.
"I hope to persuade some more members over to my approach, but I haven't yet been able to," said Mr. Gramlich, whose plan drew just two votes at the last meeting.
Meanwhile, Robert Ball, a former commissioner of the Social Security Administration and head of the National Academy of Social Insurance, whose plan drew the most votes at the December meeting, condemned a competing proposal as "a terrible plan. It costs a lot and the average worker is worse off," he said about the plan to let Americans set aside five percentage points of their payroll tax to fund individual accounts that ultimately would replace a portion of the old-age benefits now provided by Social Security. Mr. Ball made it clear he did not want the report to give equal prominence to all three plans because of his anathema for this proposal to partially privatize the Social Security system.
Mr. Gramlich, however, said the report probably would lay out all three recommendations side by side. "But as you know, these discussions are fluid right now," he added.
The disagreement between council members became even more apparent in private comments made by another member who asked not to be identified.
"They kind of cooked the council to begin with," the member noted, adding Mr. Ball's presence made it hard to engineer major changes in the Social Security system because of his zealous support for keeping the system intact.
For several months this year, members of the council had been split into two camps. One supported Mr. Gramlich's plan to give all older Americans a flat monthly benefit as well as a variable amount based on a percentage of their average lifetime earnings. The other backed Mr. Ball, who favored hiking the payroll tax and bringing in local and state local employees to pay benefits for future generations.
But at the council's final meeting, Mr. Ball rewrote his plan by assuming the Social Security system would need less of a fix because the Bureau of Labor Statistics and lawmakers will revise the manner in which inflationary increases are calculated. Thus, older Americans would get smaller adjustments in their Social Security benefits to compensate for rising prices in consumer goods and services.
Mr. Ball also would alter the way Americans are taxed on Social Security benefits, so they would have to pay taxes on all benefits they receive beyond their initial contributions. And, finally, Mr. Ball would require the federal government to invest 0.375% of the Social Security trust funds in passively managed domestic stock funds, which would hike the returns on the Social Security assets to 3.8% from the 2.2% returns now assumed by investing those assets solely in special government bonds.
Mr. Ball also would institute a one percentage point hike in employer and employee contributions to the Social Security system in 2050, just in case current assumptions about the Social Security system turn out to be too optimistic "and as a fail-safe provision," he said.
The individual account proposal was drafted by Sylvester J. Schieber, head of research at Watson Wyatt Worldwide, Washington. It was inspired by a proposal introduced earlier this year by Sens. Bob Kerrey, D-Neb., and Alan K. Simpson, R-Wyo., to partially privatize the system.
This plan would mandate individual Social Security investment accounts for younger Americans along the lines of individual retirement accounts or 401(k) plans. Older Americans 10 or fewer years away from retirement age would continue to receive current Social Security benefits. Those under 55 would have to contribute 5%, or approximately half of their payroll taxes, to fund the new IRA-type accounts, which could be invested in passively managed equity or bond funds. Access to these funds would be limited until retirement. The remainder of their payroll taxes would continue to finance Social Security benefits.
In addition to drawing on these accounts at retirement, younger workers also would receive a proportionate piece of a flat benefit, around $360 (in 1995 dollars) a month - depending on the number of years they participate on the new system - and a third piece, based on their contributions to the Social Security system before the changes were instituted.
Mr. Schieber's plan also would assume the age at which Americans would become eligible for Social Security would gradually rise to 68 in 2017, and subsequent increases would be linked to longevity increases in the American population. The early retirement age at which Americans would be eligible for partial benefits would rise to 65, from 62.
The cost of moving to this partially funded system ultimately could be the deciding factor in how workable it is. Preliminary estimates by actuaries advising the council suggest it could cost as much as 2% of the nation's gross domestic product a year for a period of 60 years.
Finally, Mr. Gramlich's modified plan would overlay a smaller version of the individual accounts (into which Americans would contribute two percentage points of their payroll taxes) on top of somewhat reduced current Social Security benefits. The key difference between Mr. Gramlich's plan and the others is that the government, not individuals, would manage these accounts, although individuals would be able to choose between investing in an indexed stock fund and an indexed bond fund. What's more, the money in these accounts would be converted into monthly checks older Americans would receive upon retirement.