Bill Clinton could be remembered in history -- his impeachment aside -- as the president who blew a chance to save Social Security while hurting the private pension system and the economy.
A look at President Clinton's key proposals, put forward in one of the most ambitious private pension and Social Security agendas in many years, shows the potential improvement to retirement income and the economy is illusory.
Universal Savings Accounts. The administration has released few details about the USA proposal, but from what information is available, USAs are an ill-conceived and totally unnecessary government-sponsored retirement program. The costs and complications of USA accounts could outweigh their savings benefits.
USAs would add to the swelling alphanumeric soup of retirement programs available. They include, among others, such programs as 401(k), 457, 403(b), SIMPLE, IRA, Roth IRA, and defined benefit. With so many such programs, there is no need to start another one, when existing programs could be used as vehicles for USA's features.
A USA program would have its own administration, its own statements, its own set of rules, its own channel of contribution payments, all in addition to the administrative costs and investment management fees and statements people already receive from 401(k)s and IRAs and the like.
And a poorly designed USA program could cause harm to existing programs, such as 401(k) plans, for instance, if lower-paid workers divert their contributions to USAs, causing the 401(k)s to fail to meet non-discrimination tests.
A government match for USA participants doesn't make sense; the government has to run a budget surplus to have the money for the match. If it has a surplus, that means taxpayers are overpaying just to get some money back through a USA contribution.
The best thing about the USA proposal is the lack of details, and the administration's stated willingness to work them out with the private sector. That gives hope the final proposal might make sense and enhance and not hurt the private pension system.
Investing Social Security. Alan Green-span, chairman, Federal Reserve Board, thinks it's a bad idea to allow the government to invest Social Security assets in the stock market. He's been around Washington a long time, and he does not believe such assets invested could be insulated from politics. The idea of government owning part of the stock market is frightening.
As it grew, a Social Security stock portfolio could be a plum for Congress to plunder for favorite programs, or for "emergency" spending.
As evidence the government can't be trusted with a pile of money, look at the U.S. Department of Treasury's recent takeover of the District of Columbia Retirement Board. It is now liquidating the DCRB's portfolio of stocks and bonds to finance the administration's project to hire 100,000 teachers. As for the district's pensions, the Treasury will put them on a pay-as-you-go basis. Meantime, it is wasting money on commissions as it sells the assets.
Budget surplus. In plain English, minus the temporary Social Security surplus, there is none. With that taken out, the first real budget surplus won't come until 2001, according to the Congressional Budget Office. When a true budget surplus does arrive it will simply mean taxpayers are giving the government more than it needs at the moment. If the government could be trusted to use the surplus to redeem some of the national debt, that would be healthy for the economy; it would increase the savings rate and reduce interest rates further.
But as we see from Mr. Clinton's budget, the urge is to spend it on programs that will grow in the future and will be hard to end.
The surplus, if it happens, should be all refunded to taxpayers through tax cuts. The refunds and tax cuts would flow into the economy through increased consumer spending and saving and some would even flow back to government in various taxes.
Portability, etc. The administration's proposals on portability, transfers between such plans as 401(k)s and 403(b)s by workers moving to new employers, should be welcomed, as should its thrust to give small employers and lower-income workers incentives to start pension programs.
Still, much of the administration's retirement proposals is bad policy for private pensions, Social Security and the economy.