Truth About Social Security ("TASS") Plan 2

Contents

Summary of Proposed Plan
Benefits
Funding
Transition
Tier I Benefits
Current
Proposed
Spouse and Dependant Benefits
Disabled Workers
Tier II Benefits
Financial Analysis

Summary of Proposed Plan

A two-tiered program:

Tier I guarantees that no retiree with sufficient work credits will live in poverty
Tier II provides private savings accounts to supplement that minimum guarantee.

Benefits

Tier I of the plan pays workers (and widows/widowers) guarantees payments of 120% of poverty, adjusted only for length of work record and variance in retirement date from normal retirement age. The effect is that, at any point, everyone who retires at normal retirement age with 160 quarters (40 years) of participation in social security will receive the same monthly benefit - 120% of the elderly poverty level - regardless if their age and how long they have been retired at the time the payments are issued. The Tier I program will also provide survivors' and disability benefits.

Tier II consists of mandatory private savings accounts which may be invested in a mix of stocks, corporate bonds and government debt. While a number of combinations may be offered through certified private plans, all must be deemed prudent long term growth strategies and emphasis should be placed on age-adjusted portfolio mixes (closer to retirement, the heavier the tilt towards fixed return assets).

Funding

One major change is envisioned in permanent program funding levels. The cap on subject salary will be removed entirely (today it is $90,000.)

A second change is proposed, although it is intended to redistribute the burden, not increase revenues - we propose replacing the employee contribution with a surtax on all taxable income.

The Tier I Program will be paid for by determining the percentage of total Social Security revenues necessary to provide an actuarially determined level that assures the long term liabilities are funded at suitable level, after accounting for any interest and non-FICA revenues received. Each worker's social security contribution will be assessed that percentage of his (and his employer's) contribution.

The Tier II program will receive the balance of the revenues, allocated to individual employee accounts.

Transition

Transition from the current structure to the new structure should be accomplished over forty years, with transition of benefits starting for those reaching retirement age ten years after enactment based on a mix of programs shifting by 3.3% per year, based on normal retirement age. While that means that retirees may stll be receiving some portion of their benefits under the old calculation for 75 years or more, for practical considerations paying for the transition will be substantially completed will within the 40 year time frame.

We do not have the data to determine the costs of the transition, but we believe that the change in funding will provide substantial relief in this area. It is envisioned that a temporary tax not to exceed 1%-2% of payroll (distributed equally to employee and employer) should be sufficient to fund the transition, while permitting the creation of adequate Tier II programs.

Tier I Benefits

Current

Current Social Security benefits are based on the Primary Insurance Amount (PIA) - an average of the 35 years highest subject earnings, wage adjusted to reflect a general rise in wages. These wages are then credited at three progressively smaller percentages to arrive at the PIA for normal retirement age, individuals who retire early or late have the PIA adjusted to provide the same lifetime benefit. Qualified dependants increase the benefit up to a family maximum.

Proposed

The proposed Tier I Primary Insurance Amount will be pegged to 120% of poverty level for workers who have 40 years of salary contributions at normal retirement age. Those who have fewer or more years will have the benefits reduced or increased, respectively, by 2.5% of PIA per year. Early retirement will be available up to three years prior to normal retirement age with the same actuarial adjustment based on life expectancy at normal retirement age.

Spouse and Dependant Benefits

The spouse of a surviving worker will be entitled to the greater of any benefit earned on the spouse's own work record or 50% the spouse's benefit. In the event of the death of one spouse, the surviving spouse is entitled to 100% of the benefit accorded the spouse with the greater benefit.

The spouse with the greater benefit may receive supplemental payments for children under 18 (under 19 if a full time student) equal to 12.5% of the full benefit accorded that spouse. Dependants of deceased workers will continue to receive the same level of benefit unless both parents are deceased, in which case the family benefit (assuming one surviving parent) shall be distributed evenly among the children eligible at time of the last parent's death. A simple example - widowed worker (or spouse) received standard benefit (120% of poverty) and had two children, increasing the total benefit by 25%, to 160% of poverty level. In this case, each child is entitled to 80% of poverty level (160% divided by 2) until reaching age 18 (19 if a full time student).

Disabled Workers

Workers who are disabled before normal retirement date are entitled to a proportional benefit based on percentage of years worked to age since age 18 (20 with an associate's degree from a recognized institution or 22 with a baccalaureate degree). In other words, a worker, aged 30, who has an associate's degree and 8 years of work experience at the time of disability is entitled to 80% of the "normal" benefit - or 96% of poverty level.

Tier II Benefits

Tier II benefits are based on the values built up in the private accounts. Individuals who have sufficient work credits for the standard Tier I benefit may use their Tier II benefit in any way they choose, including delaying removing of the funds, purchasing a lifetime annuity or taking a lump-sum payment.

Individuals who do not have sufficient work credits at time of retirement will be required to use the private savings accounts to purchase a supplemental annuity, up to the level that Tier I benefits and an annuity with the same guarantees as Tier I benefits equals the standard Tier I benefit. Remaining funds (if any) may be used as the retiree sees fit.

Financial Analysis

(To follow....)