DAILY SUMMARY April 29 - May 4

[National Dialogue Moderator <moderator>]

		DAILY SUMMARIES FOR APRIL 29TH-MAY 4,1999

			Discussion on Values
			   Why Reform Now?


This summary covers a number of topics that were discussed in the
Values and Why Reform Now forums and have not been included in
previous summaries.

A GENERAL NOTE- In a May 1st post, Bob Myers, one of our consulting
experts, framed a key issue for this dialogue -- the distinction
between a "floor of economic protection" and a safety net. He
pointed out that Social Security system was designed to provide
benefits to retirees at a higher level of economic security than
a safety net payment based on dire need.  As a result the present
system has left only 10% of current retirees in poverty and that
without benefits based on the "floor of economic protection" 50 %
of the retired would be living in poverty. This distinction is a
helpful one to maintain because it clarifies just what level of
benefits a reformer seeks to maintain in any plan that he offers.
It is also important to note that in today's work force only slightly
more than bare majority of workers has access to an employer funded
retirement plan.

THE "SUSTAINABILITY" DEBATE- Several participants engaged in a
discussion about how to judge the sustainability of the existing
system with those who advocate maintaining the current structure.
One privatizer suggested that the appropriate questions are how
much are you willing to pay for a system that will not pay you a
reasonable benefit and are you willing to pay higher taxes to
sustain this system. Another contributor suggested that the system
was only sustainable if it treats each generation uniformly in the
distribution of benefits. In rebuttal, one contributor stated that,
although his combined employer/employee contributions would fund
twice the benefit that he will receive, he thought this disparity
was way down his list of the unfair things in this world.

THE PRIVATIZATION DEBATE- An actuary who works for the PBGC (who
is not speaking for his employer) offered two criticisms of private
accounts.  He pointed out that statistically it is" far cheaper to
guarantee a level of income with pooled funds for a group than with
individual accounts. In addition he pointed out that the inheritability
of a private accounts leaks income out of the retirement system as
a whole.  Two others aspects of privatization were also critiqued.
Transition Costs in Privatizing the present system – A large debate
arose over the transition costs in switching to a private system.
One group opposed to privatization stated that the cost of funding
the liabilities of the present system during any transition would
be enormous.  Some of the privatizers countered that this issue
was a myth and pointed to the Chilean experience in rebuttal.

ADMINISTRATIVE COSTS- A debate arose about administrative costs.
One privatizer had argued that due to governmental inefficiencies
only 30 cents of every dollar collected in social welfare payments
gets delivered to beneficiaries with the remaining 70 cents lost
to administrative costs. An actuary responded that this certainly
was not true for Social Security which is extremely efficient with
only 0.5% of benefit expenditures used for administration. [This
agrees with the information provided on this site at FAQ 1.29, 1.34
& 1.35]. He contrasts this with life insurance and annuities where
the administrative expenses run to 9-10%.

INTERGENERATIONAL EQUITY- This debate went on with a particular
focus on what was owed to the WW II generation. Those who advocate
means testing prompted a post that there was too much "sniping at
the elderly" and that while many did have comfortable retirement
incomes, many others did not. He pointed out that his generation
was not responsible for the falling birth rate and abortion, which
created the present problem.

REDISTRIBUTIVE BENEFIT FORMULA- While some participants object on
principle to redistributing effect of the benefits formula, most
commenters do not. One participant, who supports redistribution,
points out that it is primarily the middle class that is supporting
this subsidization under the payroll tax system and shouldn't the
wealthier be required to do more in this area.

WOMEN'S ISSUES- One contributor strongly objects to the gender and
class discrimination in the existing benefit formulas. . She finds
it unfair that a widow who never worked a day can receive benefits
based on her husband's contributions that are more generous than
the benefits received by a woman who worked in a low paying job
with no pension plan.

THE ABOLITIONIST WING OF THE PRIVATIZATION SIDE- Most of the
privatizers in this dialogue recognize the need to provide a safety
net.  However some members of this group do go much further and
advocate such measures as no benefits for the baby boom, no more
COLAs, and a moratorium on disability payments.

DOUBLE-DIPPING- A spirited debate arose about this issue. Many
participants argue for further reform to curb the perceived unfairness
of this practice whereas several posters have objected to the
impacts previous reforms have had on their retirement incomes.

DIFFERENT FUNDING SOURCES- Participants again advocated different
funding schemes for Social Security because they endorsed the values
embodied in their tax scheme over the present payroll tax. On the
left, many advocated funding the system through a more progressive
tax on all sources of income. Another advocated a 1% tax on wealth
for those whose assets exceed a million dollars. One contributor
suggested funding Social Security on consumption taxes and another
strain advocated a flat tax.

RAISING THE RETIREMENT AGE- Several contributors suggested that
the retirement age should be raised because of increased life
expectancies and changes in the nature of work. Under these
circumstances, some would recognize that disability rules should
be relaxed for those who have held physically demanding jobs during
the majority of their working life. Another commenter strongly
objected because he thought it made the present system more like
a lottery for those who die early. [Several participants have been
confused about the present retirement age rules; FAQ 19.3 provides
some answers.]

Much of the debate in both dialogues focused on the nature of the
trust fund's indebtedness and how best to save the surplus in the
trust funds. I have not summarized this aspect of the debate because
both these issues bear directly on the issues to be discussed in
the present roundtable on Options for Reform and the upcoming
roundtable on investing in stocks.

Barbara Brandon