A discussion with some consultants of Towers Perrin raised the question of whether Social Security can be reformed, at least in the next decade.
None of them held out hope any major reform would occur before 2005, if then.
Issues they raised led them to believe reform won't come for years. As discussed by them, the issue isn't mainly just whether Social Security is a bad investment deal. The investment issue is only one of many issues they cited.
An indefinite wait for action on Social Security reform is awful to contemplate. Discussion with Chicago-based consultants of Towers Perrin shows consensus for reform may be tough to put together.
"No one really understands Social Security now," said Gary Pines, consultant.
To take his remark further, one can see the confusion over Social Security has become its refuge, shielding it from reform.
Mr. Pines and his colleagues see little chance of any major legislative action on Social Security until at least after the presidential election of 2004, although they can't say it will occur then.
Even though President Clinton's State of the Union address called for saving the program, they predict its reform will not be a high priority in this administration or in Congress. They see little chance of it becoming a major issue in the 2000 political campaign. They cite not only lack of political will as a reason for the neglect, but also the lack of demand by the public for major change. Some segments of the public want change, but Mr. Pines and his colleagues see no groundswell that will motivate Washington to hurry reform.
One reason is Social Security is running a "surplus," as budgeted. Even though it will begin to fall into deficit, that still is some years away. The public has a tendency to wait until a crisis nears before adopting a major reform.
Mr. Pines and the others believe Social Security needs some kind of reform, especially because life expectancy is increasing. Mr. Pines said people are vibrant into their 80s. He suggests life expectancy could be 150 by the mid-21st century.
Can any Social Security program afford to have people live as long in retirement as their working lives? Congress, which raised the Social Security retirement age to 67, could have to raise it further.
Mr. Pines favors setting up personal accounts to allow individuals to invest all Social Security contributions. Tim Marnell and John Whitney, both consultants, take a more cautious approach. Their concern isn't so much about people investing their Social Security contributions, but spending their benefits. Specifically, they worry about people squandering their Social Security quickly, rather than spreading the spending over their lifetimes. What happens when the money runs out?
Mr. Whitney suggests hedging, by allowing individuals to invest their contributions, while the employer contributions will remain with the Social Security system, paying an annuity.
Social Security reform raises countless issues, including the free rider problem of economics, that is, someone getting benefits for which someone else has to pay. It's unlikely some omnibus legislation can solve all of these issues to most people's satisfaction. So it's incumbent to quickly tackle the main issue, financing benefits, by privatizing the system soon to increase returns to participants. Legislation should commit to return to the issue annually if necessary to satisfy other concerns.
