The Congressman who will be most influential in fixing Social Security and tax reform is now on a crusade to remedy all of the nation’s retirement-related challenges. At press time, industry observers in Washington and across the nation were awaiting a proposal from Rep. Bill Thomas (R-California), chairman of the House Ways and Means Committee, that’s expected to include Social Security reform and enhanced retirement savings incentives.
Thomas’s proposal “will be a starting point” as to the direction Congress should take in reforming Social Security and addressing the retirement savings issue, says Bill DeReuter, assistant director of government relations at the Financial Planning Association. Among Thomas’s retirement savings enhancements will likely be increased contribution limits in IRAs and 401(k)s, DeReuter says, which is Thomas’s way of “softening the impact” of benefit cuts that higher-income folks would likely face under Social Security reform using private accounts. Thomas’s bill will also likely include a provision calling for automatic enrollment in companies’ 401(k) plans, unless an employeechooses to opt out.
“Some form” of private accounts will likely be proposed in Thomas’s bill, DeReuter says, despite the fact that Democrats remain unwilling to negotiate any Social Security fix that includes private accounts. It’s unclear if Thomas’s bill will provide a method to fix Social Security’s solvency problem, like the suggestion put forth by Robert Pozen, chairman of MFS Investment Management, which calls for using private accounts along with “progressive indexing” of benefits. Under Pozen’s proposal–which President George Bush has cited in at least one recent speech–high wage earners’ benefits will be based on the consumer price index (CPI), middle-income workers will have a “blended rate” between wages and CPI, and lower-income workers will continue to have their benefits tied to changes in wage rates. “I think you’ll see a bill in the House on Social Security that may well pass on a party-line vote this year,” DeReuter says.
GROW Accounts and LTC
Such a bill may include the Growing Real Ownership for Workers (GROW) Accounts that were introduced in June by Rep. Jim McCrery (R-Louisiana), chairman of the House Ways and Means Subcommittee on Social Security. Under the proposal the Social Security surplus would be devoted to GROW Accounts, which would be invested in guaranteed, marketable Treasury securities. Upon retirement, the money in the GROW accounts will be used to help pay workers’ Social Security benefits.