Response to Amy Eunice

[National Dialogue Moderator <moderator>]

Ms. Eunice,

Many lawmakers -- myself included -- share your concern about the investment
savvy of all workers.  There is no doubt that some people have more
investment experience than others.  This has significant implications for
Social Security reform plans that incorporate personal accounts.

The beauty of the Kolbe-Stenholm bill and the Gregg-Breaux-Kerrey bill is
that they do not require workers to be expert stock pickers.  The investment
model in these bills are based on the federal employee's Thrift Savings Plan
(TSP).  This is a 401k-type plan that is available to all employees of the
federal government.  Here is how it works: workers may choose from three
different index funds in which to invest their payroll taxes: a Treasury
securities index fund, a corporate bond index fund, and a stock index fund.
Workers may put all of their money in one fund or spread it out among all
three - it is the worker's choice.  The individual selects his/her own risk
profile of their investment.  If you don't want to invest your payroll taxes
in the stock market, you are free to invest your money in safe, risk-free
Treasury securities.  In the Kolbe-Stenholm bill and the Gregg-Breaux-Kerrey
bill, if a worker does not designate how their funds are to be invested, or
cannot designate a choice (due to impairment or other circumstance), a
default option is provided.  The default potfolio in our bill is 50% in the
stock index fund and 50% in the Treasury securities index fund.  Lastly, any
reform proposal that incorporates personal accounts will include an
education campaign.  It is the responsible thing to do.

Some opponents to personal accounts posit that the federal government is
better suited to make these investment decisions for workers.  This is known
as "collective investment" or "government-directed investment."  In this
scheme, the government holds the payroll taxes and decides where the money
is invested.  I object to this notion on many levels.  First, collective
investment will make the federal government one of the single largest
shareholders in America.  Do you really want Uncle Sam in the boardroom
determining how corporate America runs?  How is this different from
socialism?

Second, collective investment will result in significant conflicts of
interest.  Imagine the Social Security Administration as a shareholder in
Microsoft -- a wise investment in the 1990s.  What do you think will happen
to the value of Microsoft stock when the Department of Justice -- another
federal agency -- sues Microsoft for anti-trust violations?  In this
situation, you can see plainly the potential for direct conflict between the
federal government's fiduciary responsibility and it's regulatory
responsibility. Which interest has priority?

Third, proponents of collective investment often cite this method as being
less risky than investments controlled by individuals.  This is not correct.
Since the government is investing for everyone -- current retirees and
future retirees, young, old, black, white, etc -- chances are the government
will be investing in stocks you would consider too risky on your own.  But
since the government is investing for you, you have no choice in the
selction of the risk profile of the portfolio.  Moreover, as people age and
move closer to retirement, they move their investments out of risky
instruments like stocks and into principal protection instruments like bonds
and CDs.  Under collective investment, the federal government is investing
for everyone, so there will be no shift towards safer assets as you move
closer to retirement.

There are many more reasons I do not support collective investment, but this
email already is too long.  I hope I have addressed your question
adequately.  Thank you for your input.

-- Jim Kolbe