From: Richard Arsinow <richard.arsinow@rauland.com>
Subject: RE: We should look at Senator Rod Grams Plan
Senator Grams' bill bears much similarity to Rep. Porter's H.R. 874 bill. Either bill would be the basis for an appropriate solution. The desirable attributes of these bills include:
*After transition, the final system will be simple and easy to understand and manage. Contrast this with 'hybrid' systems which continue all of Social Security's complexity and add more.
*Participants will be able to watch all of their their retirement funds grow, not just a small fraction.
*The government will not 'claw back' any funds from personal accounts at retirement time.
*Everyone will be able to amass funds to provide greater benefits in retirement than the Social Security formula would yield.
*Life and disability insurance coverage would be immediate, not delayed as under Social Security. Coverage would be based on current salary, not prorated based on work history as Social Security does.
*Exposing retirement funds to stock market risk is not required. A participant could invest 100% in Treasury bonds and still have retirement benefits which exceed the Social Security formula.
*In future years, the 1.2% employee and 1.2% employer Social Security payroll deduction for transition can be eliminated. This would reduce the amount withheld by over 19%.
*Each participant would decide when to retire. The only requirement is sufficient funds for the minimum retirement annuity. If a person reached normal retirement age without sufficient funds, the government would make up the difference. This is the 'safety net'.
*Past contributions to Social Security will be fully recognized. The funds associated with this recognition will become available at normal retirement age.
*Despite all these advantages, current workers may opt to remain under Social Security if they so choose.
In the introduction of his plan to the Senate, Senator Grams illustrated the potential of compounding contributions over 35 to 44 years. This is an excerpt from his introduction:
"PRAs will put the power of compound interest to work and provide improved benefits for everyone. Under my plan, the average annual retirement benefits for two average-income, full-time-working spouses could reach over $200,000, compared to $33,000 under today's Social Security. For one spouse earning an average income, the benefit could be $140,000; Social Security, meanwhile, would provide only $29,000. Low-income families also do better under my plan: the current Social Security program would provide $18,000 in annual benefits, but under this legislation their benefits could reach as high as $100,000."
Of course, not everyone will achieve such astounding results due to conservative investment decisions which reduce their risk exposure. That of course would be his or her right under either of these plans. The point is that everyone would have the choice and the opportunity to use his or her own money to provide benefits superior to what Social Security can do, and that the resulting system is perpetually prefunded and self-sustaining.
