Bush Social Security Plan Would Include Annuitization
The so-called privatization of Social Security proposed by President Bush would include an annuitization component, according to a background briefing the White House conducted prior to the Presidents State of the Union address on Feb. 2.
Informed about the details of the Presidents plans, which have been kept close to the vest by the administration, an American Council of Life Insurers spokesman was supportive. “Our message is getting through: The administration appears to recognize the importance of annuitization,” said Jack Dolan.
Industry officials say one likely beneficiary would be Metropolitan Life Insurance Company, which provides the annuity option in the thrift savings plan for government employees that will be the model for the privatization planas proposed by the President. A MetLife spokesman confirmed that the company is the underwriter of the annuity component of the federal savings plan but declined further comment pending discussions with top officials.
Under the Presidents plan, the investment options that individuals would have would be somewhat similar to the thrift savings plan, reporters were told before the President delivered his speech. Under the thrift savings plan, federal government employees can invest through an option of 5 funds.
The administration said the accounts would be phased in according to the age of the work force. The administration said that the first year it believed people would have complete investment control of their personal accounts would be in 2009. That would involve people born in 1965 and earlier participating in the accounts in that year, “if they chose,” the administration official said.
Those people, obviously, are roughly 40 years old or turning 40 this year, the official said.
The investment options would include a stock funda large cap stock fund, a small cap stock fund and an international stock fund. There is also a corporate bond fund and a fund of Treasury bonds.
Under the program the President is proposing, upon retirement, the funds in the private investment account would be put in an annuity, and the recipient would have to withdraw from the annuity over time. Upon death, the funds would go to an heir designed by the retiree, the White House officials said.
Given the amount of funds potentially available after a lifetime of working, creation of such an annuity program could be a potentially large new product for insurers, although the fees that could be charged, based on fees allowed for government thrift savings accounts, would be small. During the White House briefing, officials said the annual fees are in the neighborhood of 30 cents per $100 of invested assets.
Reproduced from National Underwriter Edition, April 29, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.