A Short Course in Private Accounts

The three private-account models the commission created assume that workers will still receive Social Security benefits, though the amount differs with each model.

"The real concern I have is that we strengthen the 'first pillar,' not trash it," says commission member Olivia S. Mitchell, a professor with the Wharton School at the University of Pennsylvania and an expert on pension plans.

The notion of being able to have at least some control over private accounts is meant to be a selling point to today's younger workers, says Mitchell, who notes that many believe that Social Security won't be there for them when they retire.

How the Plans Work

The plan that has attracted the most attention is known as Model 2, which would permit the largest investment from workers.

Currently, workers contribute 6.2% to Social Security through payroll taxes each year on wages up to $87,900 in 2004, with employers kicking in another 6.2%. (The self-employed pay the full 12.4%.)

Model 2 would allow workers to redirect 4% of their payroll taxes, up to $1,000, annually to a personal account. The limit would be indexed to wage growth every year.

Accounts would be managed under a two-tier system at a low cost to workers. At first, when the accounts are so small that having them administered by a private company would be too costly and cumbersome, they would be closely overseen by a federal administrator or governing board.

The money would be invested in either a combination of five index funds or in a balanced fund, a mix of corporate stocks, corporate bond and government bonds. There would be three balanced funds: conservative, medium and growth.

The funds themselves would be operated by private-sector companies. Although they are not named in the report, they would likely be companies such as Vanguard, Barclays (BCS Quote) and State Street (STT Quote).