Social Security Solvency
and Wealth Creation Plan

Establishes Progressive Personal Retirement Accounts

Directs between 2-4% of the current 12.4% payroll tax into personal retirement accounts (PRAs) modeled after the federal Thrift Savings Plan. These accounts would be individually owned and controlled by each worker. PRAs will improve the rate of return that beneficiaries receive from the Social Security system and pre-fund a portion of the future liabilities of Social Security, thereby significantly reducing the tax burden on future generations.

The PRAs offer a high degree of progressivity, giving lower-income workers PRAs that reflect a greater portion of their covered wages. The PRA structure provides incremental contributions as workers move up the pay scale:

• 4% PRA for individuals with covered Social Security wages up to 1/4 of the wage cap (the first $18,150 of covered earnings in 1999);

PLUS

• 3% additional contribution to PRA for individuals with covered Social Security wages in excess of 1/4 of the wage cap and up to 1/2 of the wage cap;

PLUS

• 2% additional contribution to PRA for individuals with covered Social Security wages in excess of 1/2 of the wage cap and up to 3/4 of the wage cap;

PLUS

• 1% additional contribution to PRA for individuals with covered Social Security wages in excess of 3/4 of the wage cap and up to 100% of the wage cap.

Remaining FICA taxes are used to pay benefits for existing and near-to-be retirees, for partially funding individual old-age benefits similar to current Social Security, for non-aged survivor benefits, as well as disability benefits.

Maintains and Enhances Social Security's Strong Safety Net Protections

Maintains a strong federal safety net protection for retirees, survivors, dependents and the disabled. At retirement, individuals would receive tax-free a portion of PRA accumulations as a lump-sum, and the rest would go toward funding their full Social Security benefits. Adds personal savings incentives which allow voluntary savings contributions and also a progressive government savings match. Increases survivor benefits.

Restores Actuarial Solvency to the Social Security System

Restores actuarial solvency and stability to the traditional Social Security system. Assures that changing demographics and the progression of time will not adversely affect the program's financial soundness. Balances the outlays and revenues of traditional Social Security by slowing the rate of growth of benefits for higher-wage earners, continuing the already scheduled increase in the normal retirement age so as to treat successive birth cohorts equally, bringing state and local employees into the system, gradually increasing the number of years in the benefit computation formula and gradually dedicating all income taxation of Social Security benefits to the Social Security Trust Funds.

Adds Work-Rewarding Incentives

Reforms a number of elements of the Social Security system to reward work. Repeals earnings limit for workers age 65-70, and provides incentives to work longer.

Preserves Social Security for current and nearing retirees.

• Secures the long-term actuarial solvency of the Social Security program.
• Honors benefit obligations to current and near-to-be retirees who depend on Social Security.
• Strengthens Social Security in making it a partially funded system that is no longer vulnerable to changing demographics and remains actuarially sound.

Protects all beneficiaries in maintaining Social Security's strong safety net for lower-income workers, survivors and the disabled.

• Maintains Social Security's strong safety net protections for lower-income workers and other beneficiaries. Enhances poverty protection for elderly widow(er)s.
• Builds greater retirement security than traditional proposals to keep the system in balance.
• Adds work-rewarding incentives to help assure that Social Security maintains a healthy worker-to-retiree ratio.

Personalizes Social Security to offer younger workers more and better options to receive an adequate return on taxes paid into Social Security, and opens the door for all workers to save, build wealth and increase retirement income.

• Creates personal savings accounts that are administratively feasible, give workers freedom and choice, and enable them to build private retirement savings for increasing retirement income and accumulating wealth.
• Significantly reduces the unfunded liabilities of the current system, thus vastly reducing the tax burden on future generations.
• Achieves all of the above without raising taxes or imposing additional savings mandates on employers and workers.

Common Sense Provisions to Fund the Transition

• Slows the rate of growth of benefits for higher-wage workers.
• Reindexes the Normal Retirement Age's current law adjustment to treat successive birth cohorts equally.
• Extends Social Security coverage to state and local employees.
• Gradually increases the length of the computation period for benefits from 35 to 40 years, allowing for up to 5 "drop-off" years for stay-at-home spouses.
• Temporarily utilizes a portion of projected general revenue budget surpluses to shore up Social Security Trust Funds.