The Truth About Social Security

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Truth About Social Security ("TASS") Plan

Features

Feature		Comments
Private Accounts	Yes
Optional/Mandatory	Optional	Individuals may select "traditional" SS program or private accounts
Maximum Contribution	6.2% of payroll
Limit Inflation Indexed	Not Applicable	Limit is percent of salary
Effect on basic benefit	Yes	Individual selects traditional or personal program, mixes prorated
Monthly Benefit Calculation
Wage/Inflation Indexed	Wage	Traditional program, private account benefit based on account balance at retirement.
Bend Points Moved	No
Bend Point Pct changed	No
Subject Income Capped	No
Cap Indexed	N/A
Minimum Benefit	Yes	120% elderly poverty level
Min Benefit Indexed	Yes	To changes in elderly poverty level
Change in Tax Rate	Yes (temp)	.9% employer and employee to fund transition
Change in Normal Retirement Age	Yes	Index at half of change in life expectancy at normal retirement age
Projected change in 1st year benefits
Low wage earners	None	Unless raised by minimum
Medium-Wage Earners	None
High wage earners	None
Transition Costs	Yes	Funded by temporary additional tax
Years	TBD

Evaluation:

Current (traditional) plan shortfall eliminated by:

Change in Trust fund investment strategy
60%

Further Indexing retirement Age
25%

Removing cap in subject income (and benefit)
75%

TOTAL (Reduction In Shortfall)
160%

The reduction represents a shift from an eventual shortfall of approximately 30% to a surplus of slightly less than 20% (over 15% with additional costs for improvements in minimum and survivor benefits -- or an eventual reduction in the tax rate from 12.4% to approximately 11%.

Transition costs (estimated at $3.5 trillion) are funded by temporary supplemental payroll tax of 1.8% (half paid by employees and half by employers) over 45 years until transition is complete.

It is expected that individuals who are not subject to the increase from minimum benefit will experience a net gain in benefits at retirement, based on improved ROI available from investment in diversified portfolio, but no additional benefits from private accounts are projected here.

Finally, the TASS plan offers an optional change in tax base for the employee contribution -- from a direct tax on payroll to a surtax on all taxable income. Because this change makes cost comparisons to other plans far more complex, we have chosen to make the above comparisons based on using the current tax base.

Sources:

Plan: TASS Plan Details
Financial Impact: Not available