Analysis of Current Social Security Reform Proposals

This paper provides an analysis of the long-run actuarial effects of four significant Social Security reform plans and their effects on representative workers. The reform plans include three plans establishing private accounts: the Social Security Guarantee Plan (proposed by Representatives Bill Archer and Clay Shaw), the Social Security Solvency Act of 1999 (Senator Moynihan), and the Bipartisan Social Security Reform Act of 1999 (Senators Gregg, Breaux, Kerrey, and others). A fourth plan is a hypothetical plan named the Trust Fund Investment Plan. This plan is a modified version of the Administration’s FY 2001 budget proposal calling for significant General Fund revenue transfers to the Social Security Trust Fund and providing for limited Trust Fund investments in equity. Each of the plans is shown to result in long-range actuarial balance of the Trust Funds under the assumptions most typically used by the actuaries of the Social Security Administration, but in the absence of an "equity premium" the Trust Fund would fail to achieve actuarial balance under the Social Security Guarantee Plan. Beneficiaries are shown to be affected differently under each of the reform options. In the absence of an equity premium, all reform plans that achieve actuarial balance result in a lower net benefit for a worker with lifetime average earnings. This occurs even though all but one plan makes significant use of General Fund revenues.