The Wall Street Journal
Supplementing Social Security
By RAHM EMANUEL
September 13, 2007; Page A17
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Republicans have long advanced the idea of personal accounts inside of Social Security. An accounts-based system that supplements, not supplants, Social Security can work. Democrats have argued that 401(k)s and personal savings are important supplements to Social Security, but we should ensure that fees are low and that lower-income Americans have the same opportunity to save that upper-income Americans enjoy. Building on the principles of personal accounts, universal savings and the desire in the marketplace for simplicity, I believe we should create Universal Savings Accounts. Like 401(k)s, the accounts would supplement Social Security. Employers and employees would contribute 1% of paychecks on a tax-deductible basis. Additional contributions could be made to the accounts at the discretion of the company or individual worker.
To ensure low management fees, these accounts would be managed by the private sector but overseen by a quasi-public board that would be given fiduciary responsibility for the types of investment options that workers could select. This system is used by the successful federal 401(k) program, or Thrift Savings Plan, where the annual management fees have averaged 30 cents for every $1,000 invested. By comparison, the typical mutual fund charges $15.50 per $1,000 invested. With this approach, Americans will know that money put away for retirement will be available for retirement.
To help achieve universal participation and simplicity, employers would automatically enroll their employees in these accounts, allowing employees to opt out if they decided that they did not want to participate. Amounts contributed could be automatically increased and account balances invested in "lifecycle funds," ensuring that individuals are making appropriate investment decisions based on their age. Since low-income workers have the hardest time saving for retirement, we should provide an additional incentive to participate by strengthening the Saver's Credit, a federal tax credit that matches savings put into retirement accounts.
I believe that this type of approach -- one that combines the goals of personal accounts, universal savings and the consumer's desire for simplicity -- is a necessary pre-condition to reforming Social Security. Both President Clinton and President Bush have waded into the Social Security reform debate and have nothing to show for their efforts, in part because they put the cart before the horse.
The lesson that should be drawn from their experience is twofold: Americans are anxious about their financial future, and the American people like the security that comes with Social Security. In order for us to tackle the problems of Social Security, Washington must provide solutions that make the American people feel more financially secure. If this anxiety is not addressed first, neither party will be given the opportunity to constructively address the challenges facing Social Security. My approach protects the sanctity of the Social Security system as a secure foundation for retirement. It also expands individual savings opportunities outside of Social Security in order to provide all working Americans with an easy way to make their retirement more secure.
Strengthening Social Security for the long term will take a sustained commitment to fiscal discipline and bipartisanship, commodities that can become scarce as we head into the presidential election season. But while Americans wait for long-term answers on Social Security, we should act now to give them more ways to start building retirement savings of their own.
Mr. Emanuel (D., Ill.) is chairman of the House Democratic Caucus.
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