Analysts at the Congressional Budget Office say protecting holders of individual Social Security accounts could be complicated.

The analysts have published a report analyzing the possibility of providing various types of living benefits guarantees, such as minimum income guarantees, for account holders in the kind of semiprivatized Social Security system that President Bush has envisioned.

The analysts use 2 mathematical techniques, the binomial lattice method and the Monte Carlo simulation method, to estimate how much a simple, hypothetical guarantee program might cost.

“The value of guarantees is highly nonlinear,” the CBO analysts note. “Moreover, that value critically depends on the extent to which traditional Social Security benefits would be reduced under a given proposal with individual accounts.”

Because determining the value of guarantees is so tricky, the CBO would have to analyze each privatization proposal individually to give members of Congress a rough idea of how much specific guarantees would cost, the analysts write.

The CBO paper is on the Web at Document Link