Response to Carolyn Cox

[National Dialogue Moderator <moderator>]

Thank you, Carolyn, for your question.  I appreciate your willingness 
to get involved in Social Security's future and discuss this issue 
with those in your community and elsewhere.

Let me start off by echoing some of the sentiments that Senator Gregg 
and Congressmen Kolbe and Stenholm have been discussing -- discussions 
which are central to any serious long-term reform of Social Security.  
The Social Security system of today is severely underfunded for future 
generations of retirees -- to the tune of some $9 trillion, and 
growing each year we fail to act.  We must take steps to bring Social 
Security's costs into line with its sustainable expenditures, or else 
we will be placing a crushing burden of taxation on our children and 
grandchildren.  As Senator Gregg pointed out, by 2060 19% of very 
dollar gained in wages would go toward funding benefits, growing 
larger every year, and that would be on top of the mounting 
liabilities of Medicare.

This having been said, I must agree with my colleagues who have stated 
before that there is no "free lunch" as far as Social Security is 
concerned.  No solution is perfect or avoids difficult trade-offs.

This fact became ever clearer to me as I have Co-Chaired the Senate 
Task Force on Social Security.  I set out to construct a reform plan 
that combines the necessity of slowing the rate of growth of Social 
Security outlays while also keeping in mind a healthy balance between 
FDR's founding twin pillars of social adequacy and individual equity.

The progressivity of PRAs under my plan -- the partial pre-funding of 
benefits -- is a facet that mirrors the current system's benefit 
formula.  This is to say, lower-wage workers and families would have a 
higher portion of their covered wages given to them in a personal 
savings and investment account.    

In terms of addressing the system's unfunded liability, I have proposed 
a number of solutions, which are all ways to slow the rate of growth of 
expenditures for the OASDI program.  There are a number of ways to 
address Social Security's financing problems, and I believe that my 
plan puts some fiscally responsible and actuarially sound ideas on the 
table.  And I would like to add that I applaud all of my colleagues in 
this forum for putting forth other ideas.  It is only from having an 
open, honest discussion about these issues that we will be able to save 
and strengthen Social Security and keep it fair to all generations.  

Some of this may seem technical, and I'd be glad to explain further any 
provisions should you have further questions:

1.  Slow the rate of growth of benefits for higher-wage workers:  This 
provision would gradually phase-in a third "bend point" as well as 
corresponding bend point factor for computing Social Security benefits. 
As you may know, current law Social Security has a progressive benefit 
formula (monthly benefits are called "Primary Insurance Amounts" -- 
PIA) applied to what is known as one's "Average Indexed Monthly 
Earnings" (AIME).  This is one's average monthly covered earnings, 
indexed to reflect the growth of real wages.  In applying for old-age 
benefits, after one's AIME is computed, that individual's monthly SS 
benefit (PIA) is computed by receiving 90% of the first $505 of the 
AIME; 32% of AIME in excess of $505 and up to $3,043; and 15% of AIME 
in excess of $3,043.

The new third bend point under my plan would be equal to about 165% 
of the present-law second bend point.  There would be a new 
corresponding PIA factor of 5% (versus the 15% factor in current law) 
for AIME in excess of the new third bend point.  And the second and 
third bend points would gradually slow their rate of growth.

2.  Reindex the Normal Retirement Age's current law adjustment to treat 
successive birth cohorts equally:  As you may know, current law is 
scheduled to adjust upward the Normal Retirement Age from 65 to 67.  
But there is a period of 11 years where the NRA stays at 66.  I do not 
support raising either the early eligibility age (62) or the NRA.  
Rather, I propose to continue the phase-in without any arbitrary 
interruptions.

3.    Extend Social Security coverage to newly hired state and local 
workers.  

4.  Gradually phase-in an increase in the computation period for benefits 
from 35 to 40 years.  Like the Gregg-Breaux plan, this provision would not 
apply to the lesser earner of a two-earner, dually entitled couple.  

5.  Revise the actuarial adjustments to early retirement and delayed 
retirement to add more work-rewarding incentives.

My plan does not provide for expanding the PRA wage percentage, and I 
do not believe that we should move to a fully defined contribution 
system.  I firmly believe that Social Security should always remain 
essentially a universal social insurance system to protect all of its 
current beneficiary classes:  seniors, widow(er)s, dependents and the 
disabled.  In looking at the retirement portion of Social Security 
(OASI) -- the facet of the program that has most beneficiaries and 
faces the greatest liability -- we need to remember that part of 
social insurance is to protect against having an unsuccessful 
experience in the labor market.  This is a an example of one of Social 
Security's amazing successes:  a democratic people coming together to 
provide for the common good.  I believe a social insurance system must 
always remain, albeit one that is fiscally sustainable and actuarially 
sound.

There is another part of Social Security's old-age insurance that I 
believe has come to be distorted through the evolution of the Social 
Security program and also conflicting and counterproductive retirement 
security policies:  insuring against the failure of one's need to save some 
of their career earnings for retirement.  It is in this realm that I 
believe a partially funded system of mandatory savings for younger workers 
can help put Social Security on solid ground in and also increase overall 
retirement security for America. 

I am familiar with retirement plans like PERA, and can understand your 
views.  In response, I would point to my earlier comments about my belief 
in social insurance in old-age, and also the fiscal issues concerning 
transitioning toward a partially funded system so well laid out in Senator 
Gregg's comments on Wed., May 26 on "Transition to Private Accounts."


	Senator Rick Santorum