DAILY SUMMARY May 20

[National Dialogue Moderator <moderator>]

Title: Daily Summary

Daily Summary

Thursday, May 20

Panelists' Comments:

Carolyn Weaver ("Discussion Questions") posed two questions for the forum:

--What would happen if we had another Great Depression or at least another "rotten period" for the stock market like in the 70s. What a system of personal accounts collapse? How can you guarantee people they won't end up with nothing?

-- Even if we adopt personal accounts, we should invest the reserve funds in the Trust Funds in securities other than low-yielding government bonds. Describe how the government can invest in a neutral way, without any political interference?

-- Responses to public comments: Commenters yesterday noted that the "replacement rates" (retirement benefits to pre-retirement income) for a personal stock investing program during periods of poor stock market performance are still equal to or greater than the rates under the current Social Security program (as calculated in the Burtless study cited by Reischauer). Weaver stated further that the rates under the Social Security program cannot be maintained in the future with the current level of payroll taxes. If the nation sticks with pay-as-you-go financing, benefit levels and replacement rates will have to be reduced significantly to close the long-range deficit.

Public Comments from Thursday, May 20

• Michael Jones ("Re: Discussion Questions") stated that 401(k) plans were enacted into law in 1978, that the country has experienced many recessions since that time, that the Oct. 1987 stock market crash was greater percentage-wise than the 1929 crash; and the stock market and the 401(k) plans all survived. The trick to achieve gains is to dollar cost average over a long period of time. He points to the long term returns in the stock market of over 7 percent per year and gains that can be earned over the long term; and compares those returns to the far lower returns a worker receives in Social Security. He says a major stock market downturn would offer an opportunity to increase his long term return by buying in low.

• M. Rohrs ("Re: Investing in Stocks") noted his/her disappointment in the generational sniping of many of the messages. Rohrs prefers actual constructive suggestions that try to take some of the very good thoughts and put them together into a workable solution. Rohrs states that young people and retirees both have advantages and disadvantages in governmental programs. Rohrs points to the tax treatment of IRAs, 401(k)s and Roth accounts as programs that benefit younger people. Rohrs states that in all fairness benefits to current retirees cannot be reduced - although there may be some "means testing". Privatizing is contrary to the very basic reason Social Security came into being in the first place. For those who propose privatization and letting everyone shift for themselves, Rohrs suggests that they look closely at what life was like in the 30's with breadlines and extremely widespread poverty. Rohrs states that "[w]e may not be our brother's keeper, but we surely cannot totally ignore him either."

• Reed Davis ("Re: Discussion Questions") states that the impact of a stock market collapse on a system involving personal accounts depends on the role of personal accounts in the system. There would be a major problem if the accounts were used for basic survival and a somewhat lower standard of living if they were used for discretionary retirement income. Davis says it's not clear that government should be mandating or guaranteeing personal accounts. Davis states that the government's role with personal accounts should be limited to education and, perhaps, incentives.

Other comments:

• Michael Jones ("Pensions are Dead") noted that there has been a trend away from "defined benefit" plans toward "defined contribution" plans, with defined contribution plans overtaking defined benefit plans in total assets in 1997. Social Security benefits are similar to "defined benefit" plans, where benefits are calculated based upon factors such as years of service and age. "Defined contribution" plans determine benefits based upon the contributions made to the plan by the employee and employer, plus the returns on those assets. Jones suggests that the trend proves the superiority of defined contribution plans.

• Stephen Wyman ("Re: Example of Treasury Snake Oil") included a pointer to the Concord Coalition website that states that a surplus in Social Security taxes was the reason for last year's budget surplus. It states that final Treasury figures for Fiscal Year 1998 (which ended September 30) show that last year's Federal government budget deficit was $29 billion. But most news reports claimed a $70 billion surplus. The Concord Coalition stated that the $70 billion surplus was achieved by using the $99 billion surplus from Social Security and the Postal Service. http://www.concordcoalition.org/federal_budget/qdr1298.html

• James ("Re: More Responses/Questions") states that paying back bonds issued to the Trust Fund does not mean higher income taxes. It means converting the internal debt to public debt, leaving the total where it would have been without Social Security.

• Don Hutchison ("Q to C. Weaver - return on investment") asked a general question about the fairness of the Social Security system - whether it's fair for someone to contribute to the system and have no private right to the contributions or benefits (that Congress cannot adjust) when a person retires.