Administrative costs and issues

[National Dialogue Moderator <moderator>]

Many of the discussants in this dialogue favor individual accounts.  I 
would like to caution people that administrative issues are important 
and complex. Experience in Chile and Mexico has shown that costs can 
be quite high for small accounts.  They will of course depend on 
whether private firms are used to manage the accounts, or it is a 
government system.  Other management issues which surfaced in Chile 
were insolvency of some of the investment funds and noncompliance, 
that is, individuals for whom no money is sent in, so that they have 
no account. 

Remitting funds to individual account plans like 401(k) is a common 
function performed by many US employers.  Employers would generally be 
responsible for remitting funds.  This works smoothly for large 
companies with automated payrolls and electronic transfer of funds.  
How will it work for the self employed and small business with no 
automated payroll?  Will funds be remitted right and on-time?  With 
individual accounts, if money is late or credited incorrectly, there 
is loss of investment income.  Would the individual lose or would 
taxpayers make up the difference?

For people who want a better understanding of these issues, the 
Employee Benefit Research Institute (EBRI) (www.ebri.org) has 
published an excellent report on this topic, Individual Social 
Security Accounts: Issues in Assessing Administrative Feasibility and 
Costs.  This research includes practical considerations around 
ownership and sharing of individual accounts for couples, comparisons 
to 401(k) administration, and an analysis of special problems for 
small business.

Anna Rappaport