Proposals

Truth About Social Security ("TASS") Plan
Plan Options

The plan offers two distinct programs, at the election of the employee -- the traditional "defined benefits" plan and a new "defined contributions" alternative.

Traditional (defined benefit) plan

This plan operates similarly to the current social security plan, with benefits based on adjusted salaries and length of employment. Because employees may elect to shift between plans, the number of years to qualify for defined benefits is the number of years of contributions to either plan, but the actual benefit is determined solely by the years the employee has contributed to the defined plan.

For example, if the individual has been employed for 35 years (more than enough to qualify for benefits and the "standard" used in calculating the benefit) but has elected the defined contribution plan for only 8 of those years, the guaranteed benefit would be based on 8/35 of the of benefit payable on the average (adjusted) salary.

Assets held for payment of defined contribution benefits would be invested in a mix of corporate stocks, commercial debt and government bonds consistent with prudent long term growth of assets over the infinite horizon. Because of the dollar size of the reserves, the reserve account would be able to cushion shifts in market conditions without transferring market risk to the beneficiaries.

New (Defined Contribution) Plan

The new plan will operate much as envisioned by the President's Commission. The employee may elect to divert part or all of his share of the payroll tax collected to an individual account. While this election is made prior to the start of the year, actual distribution of funds will not occur until 3-6 months following the close of the year, since individual income data is not received from employers until the close of the year. It would make sense, therefore, that funds that are to be invested in individual accounts be credited along with at least some of the interest earned during the interval (during which time the money has been invested in the same manner as the funds earmarked for the traditional plan).

The government would operate three or more pools of funds, using various mixes of stock, investment grade corporate debt and government debt into which individuals direct their individual account contributions, based on the individual's propensity for/aversion to risk. The pools would be based on an index of funds selected by criteria, not name. The indices would be broad enough so that the combination of government pools held a relatively small percentage (5% or less) of each company's publicly held stock. All investment selections would be mechanistic and distributed over the range of companies, with annual adjustments, where necessary, to restore the portfolio to the stated mixtures of investments. These are the Tier I funds referred to by the Presidential Commission.

Periodic transfers from these funds to privately managed, but federally certified funds would be permitted.

Employee Selection

Employee selection for future contributions (distribution among plans and, if defined contribution plan, which pool) would be submitted at least three months prior to the start of a calendar year for which the determination is made. The determination would remain in effect for subsequent years, until changed. While it might be allowable for the individual to shift existing assets among the pools in the defined contribution plan, no transfer of accumulated assets (benefits) between the two primary plans would be allowed.

Transfer to outside funds

Periodically, an employee might elect to transfer funds from the SSA-administered defined contribution pools to pools managed by outside organizations. Such pools could provide a wider array of investment opportunities but such transfers would be made only to federally certified organizations and pools established to meet conservative investment goals consistent with long term growth of assets. To further reduce risks of underfunding retirement needs and insuring against short term market fluctuations just prior to retirement, certain pools might considered unsuitable for inclusion during the ten years before normal retirement, requiring a shift in funds during that period.

Maximum chargeable fees and costs (as a percentage of managed assets) would be established and certified funds would be required to be insured against all risks not related to market fluctuations. Any increases in fees (within the maximum established) would require sufficient advance notice to allow individuals to transfer assets without penalties or administrative costs.

Next: Benefit payouts