Cong. Sanford's Response

[National Dialogue Moderator <moderator>]

		Richard Arsinow Response by Cong. Sanford


Thank you, Rep. Sanford, for your innovative proposal. Please answer
the following questions:

*If "every working American would receive his or her share of the
Social Security Surplus", doesn't this mean that your rebate would
exactly balance the Social Security budget, that there would be
neither deficit nor surplus? How is it, then, that "The trust fund
will continue to grow as long as Social Security is running
Surpluses"? Is it strictly from the reinvestment of earnings on
the trust fund? Or do all our shares not add up to the whole surplus?
Or do you exempt employer shares and require that they be put into
the trust fund?

CONG. SANFORD'S RESPONSE: Right now, the trust fund earns interest
on money borrowed (in the billions). This bill does not change the
amount of money owed to the trust fund, so the interest obligations
will continue to grow.


*Will it be easy to see the relationship between the amounts rebated
to PRAs, which are considered early payment of future Social Security
benefits, and the reductions in formula benefits which result? Will
it be exact, or will some receive more in PRA rebates and see less
future benefit reductions, while others receive less in PRA rebates
and see more future benefit reductions? If the effect is uneven,
can you generalize as to which groups will fare better under your
plan and which groups worse?

CONG. SANFORD'S RESPONSE:  The effect would be even and fair for
everyone.  The total amount of the rebates to the account over
one's career, adjusted by present value calculations, would offset
dollar for dollar the expected present value of your benefits.
So, if you had received the present value of $25,000 to your account
over your working lifetime, and the cash value of your expected
Social Security benefit stream is $100,000, then your monthly
payments would be reduced by 25%, since you had already received
25% of your money before retirement. In that example, if you would
have received $1,000 a month, now you would receive $750 per month.


*If the 401(k) model were used, participants would have several
choices in which to invest funds, and each would decide his or her
own investment mix.  You seem to require a fixed portfolio, selected
by the plan administrator.  Why?

CONG. SANFORD'S RESPONSE: First off, folks do have plenty of choice
under my plan.  They can choose which plan administrator they want
to use, and then they can even choose which plan from a particular
administrator that they want.  Once enrolled in a plan, people can
decide how to mix their investments among the 5-15 investment
options chosen by the plan administrator.  By limiting the number
of investment options, which is the 401(k) model, you save substantial
administrative costs compared to a completely self-directed brokerage
account.  There is tremendous efficiency for a plan administrator
to be able to invest all the accounts in a given plan in trust as
one big account, like with 401(k) s.



*You state that earnings on the additional after-tax contributions
would come out tax-free. Just so that we're clear on this, the
principal amounts consisting of the partial rebates of after-tax
FICA and the additional contributions themselves would also come
out tax-free, right? How about the earnings on the after-tax FICA
rebates?

CONG. SANFORD'S RESPONSE: Because we are trying to work within the
existing structure as much as possible, people would have to pay
taxes on distributions from the account on amounts attributable to
the Social Security rebates, the actual rebates plus the interest
earned.  As for the voluntary after-tax contributions, they would
receive the same treatment as contributions to a Roth IRA.


*By what mechanism would people pass on Social Security benefits
to their children and grandchildren? How would the future series
of benefits be valued?

CONG. SANFORD'S RESPONSE: People would leave the money to their
estate, and the money would be distributed according to the terms
of someone's will.


*Obviously this program has a limited time horizon, due to the
impending baby boomer retirement. Would it automatically come back
into play if Social Security ever developed a surplus again? While
there is no surplus to rebate, may new workers open PRAs using only
their optional after-tax contributions?

CONG. SANFORD'S RESPONSE: When structural reforms are combined with
us paying down future liabilities, the operational surplus of Social
Security is extended indefinitely.


Congressman Mark Sanford