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| Briefing Book |
| White House Conference |
ERISA Industry Committee1400 L Street, N.W., Suite 350,Washington, DC 20005-3509 (202) 789-1400 - FAX (202) 789-1120
SOCIAL SECURITY REFORM MUST PROTECT PRIVATE PLANSTo redress the projected imbalance in the Social Security program, Social Security benefits must be reduced and/or revenue to the Social Security program increased. There are no "easy solutions," and it is important that all players understand -- and prepare for -- the tradeoffs and ramifications of the tradeoffs that will be made. Today, retirement plans voluntarily sponsored by employers for their employees provide the largest source of retirement income other than Social Security for the middle three income quintiles of the elderly population. They are expected to be an even greater source of retirement income in the future. Employers, employees, and policy makers need to understand and assess the impact of Social Security reform on retirement plans in order to design a reform program that will support and encourage the creation and maintenance of employer-sponsored plans in the future. The ERISA Industry Committee (ERIC), an association representing the employee benefit interests of the nation's largest employers, recently released a report that examines the impact of various Social Security reforms on the financing, design, and administration of employer-sponsored plans. ERIC's report draws the following five conclusions about the reform process: Early action on reform will be critical to its success. The potential impact of many reform proposals on the financing, design, and administration of employer-sponsored plans is significant, but can be mitigated in part if employers are provided a long time to adjust their plans. For example, employers and employees were provided 17 years notice of changes to the Social Security retirement age enacted in 1983. Precipitous changes will not provide employers the time needed to design, finance, and administer plans that will be effective in delivering retirement income in a new environment, or employees the time they will need to accumulate benefits in those plans. Many proposals impose financial costs that have not been fully examined. In today's competitive business climate, employers will not be able to absorb increases in compensation costs due to changes in Social Security. Potential employer cost increases due to Social Security reform may be offset by reductions in other expenses, which can include reductions in benefits and/or contributions under employer-sponsored retirement plans. Payroll tax increases in any form, transition costs imposed to facilitate changes in Social Security, and reducing the ability of employer plans to take Social Security into account in determining benefits under the plan each can result in substantial increases in compensation costs. Both reductions in the Social Security defined benefit and the creation of Social Security individual savings accounts can reshape the plans employers offer to employees in the future. Employer-sponsored plans assume the existence of a Social Security benefit similar to that provided by current law. If the size of the benefit is substantially reduced or is replaced with a defined contribution account, employer plans will have to change. Social Security reform may also have dramatic effects on the disability and dependents' benefits provided under employer plans. Imposition of a means test would undermine the attractiveness of employer plans. Making receipt of a Social Security benefit contingent on a means test will act as an incentive for some employees not to save money for their own retirement, can encourage employers not to offer retirement plans, and will frustrate the ability of employers who do offer plans to design plans that provide uniform benefits to employees at varying wage levels in their workforce. Administrative issues may prove the most critical and the most intractable in crafting successful reform. Employers might find it impractical to design plans that are appropriate for older workers who remain under the current Social Security system, young workers under a different system, and middle-age workers under one or more transition systems. Regarding the establishment of Social Security individual savings accounts, it is critical to recognize that no universal system currently exists -- either in government or in the private sector -- to maintain such accounts, and that employers are not an appropriate choice to manage many aspects of them. Avoiding problems such as these will determine whether Social Security reform will earn the confidence of the American public. It can be done if we craft reform with the facts in mind. Building a Secure Foundation The national debate must expand to include the impact of Social Security reform on other key components of retirement security -- most critically on employer-sponsored retirement plans. It must lead to the enactment of reforms that build a more secure foundation for Social Security while preserving and enhancing savings opportunities provided through employer-sponsored retirement plans. Employer-sponsored retirement plans are adaptable. They can thrive under Social Security reform if that reform thoughtfully takes their needs into account. Millions of workers and their families count on employer-sponsored plans to provide a major portion of their retirement income. Social Security reform must be shaped in a way that permits employer-sponsored plans not only to adapt, but to flourish, so that they can increase national savings and continue to provide a critical part of the Nation's retirement security. For a copy of ERIC's report, "The Vital Connection: An Analysis of the Impact of Social Security Reform on Employer-Sponsored Retirement Plans, " go to ERIC's website, ERIC OnLine (www.eric.org), or call the ERIC office. Board of Directors
Chairman: Kenneth W. Porter,
Du Pont Co.
Members Emeritus
President & Treasurer:
Mark J. Ugoretz,
Vice President:
Janice M. Gregory
Website: http://www.eric THE ERISA INDUSTRY COMMITTEE is a non-profit association committed to the advancement of the employee retirement, health care coverage, and welfare benefit plans of America's major employers. |
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