No Quick Fix for Social Security System

"There's no way on God's green earth we're going to shut down the Social Security system," she says.

As proposed by the president's commission, private accounts would allow younger workers to voluntarily divert as much as 4% of the 6.2% Social Security payroll tax they pay into accounts they would own for life.

Bush's recent plugs for private accounts emphasize that participants could manage and invest them in the stock market to get a high rate of return over the long run and "create personal wealth" for retirement and for heirs.

The president's commission makes these accounts sound less far less free-wheeling. It found that a system of private accounts would not be possible without a government agency to keep tight control over them.

It proposed that initially, when the accounts are small, they would be administered by a governing board and managed by private companies. Workers would be given a limited choice of index-style mutual funds, such as a broad-based stock fund, a corporate bond fund and a government bond fund.

Then when the funds increased in size to about $5,000, they would be transferred to a private financial services company. But the federal governing board would still monitor them. Workers might have more funds from which to choose, but the selection would still be a limited range of low-cost, index-style funds.

They could not touch the funds or borrow against them. Commission members urged that upon retirement, account holders should be required to take out most of the funds in annuity form, like Social Security, as a stream of monthly income for life -- so they wouldn't squander it and end up on government assistance. Participants would also be entitled to Social Security benefits, reduced according to their reduction in contributions.

The selling point for private accounts, according to the commission, is that by investing some of their money in the stock market, workers would receive more money for retirement in the long run with the private accounts and Social Security than by relying on Social Security alone.

Whether a Republican-dominated Congress will go for such a major change in the Social Security system is an open question.

As for workers themselves, the commission estimated that two-thirds of those eligible to privatize will do so. Mitchell says it will provide some buy-in for disaffected younger workers who believe that Social Security won't be there for them.

Since it was established in 1937, Social Security has been a "pay as you go" social contract, with current workers paying taxes to provide benefits for current retirees, with the understanding the system will work the same when they retire.

"You can never fund Social Security like you can a pension," says Thomas Margenau, director of public affairs for the agency in San Diego. "We have to take in as much money as we owe every year, plus a little more."

The last time the system underwent a big fix, to avert a short-term cash crisis, was in 1983 during the Reagan administration, and an economist named Alan Greenspan headed a bipartisan commission bearing his name. Among the Greenspan Commission proposals that went into effect: delayed cost-of-living increases for beneficiaries, increases in the self-employment tax and a gradual raising of the age from 65 to 67 at which full retirements benefits are paid, which is still ongoing today.