Share |  Print

Social Security

Issue

Enhancing the ability of individuals to determine how their retirement security funds are invested.

Position Statement

ABA supports policies allowing individuals greater control in determining how their retirement security funds, including contributions to Social Security, are invested. ABA supports the proposal to allow younger workers to direct at least a portion of their Social Security taxes into personal accounts. Banks and the investment products that banks offer, including insured deposits, should be a part of any such proposal. Because bankers understand the creation and management of wealth and the financial needs of their customers, they are in an excellent position to help consumers choose appropriate investments for these personal accounts. Insured deposit accounts will be the most appropriate investment for nearly all savers and investors at some point in their financial life cycle. Therefore, insured deposit accounts should be an option for workers choosing personal accounts. 

Any reform proposal should advance the following principles, as outlined by the ABA Economic Advisory Committee's Social Security Reform report.  While the report was completed in 1999, the principles still hold:

  • Social Security should be fundamentally reformed as soon as practicable;
  • The system should be made permanently sustainable;
  • Benefits to current and near-term retirees should be maintained with little or no modification;
  • Social Security's guarantee of a minimum retirement income should be preserved and protected;
  • The government should not be involved directly in private-sector investment;
  • Social Security reform should foster the creation of personal savings and wealth; and
  • Reform should be considered in the broad context of Americans' retirement savings needs.

Explanation

Most Americans today hold a host of investment products to save money for their retirement years, including savings accounts, Individual Retirement Accounts, and 401(k) plans. These private retirement funds are supplemented by the public Social Security program, which is financed by mandatory payroll taxes imposed on employers and employees. While the Social Security program and its trust fund have been relatively healthy for almost two-thirds of a century, significant concerns have been raised about the future of the program. These concerns largely arise from ongoing demographic changes, specifically, the declining proportion of people in the workforce versus the number of future Social Security beneficiaries. Based on the 2008 Social Security Trust Fund report, these trends will cause Social Security to begin running a deficit by 2017, and projected tax income will be sufficient to finance only 78 percent of scheduled annual benefits in 2041, when the combined Old-Age and Survivors and Disability Insurance Trust Fund is projected to be exhausted. Further, the return on Social Security taxes for retirees today is barely one percent. In view of these statistics, many policymakers have suggested that the future of retirement security could be improved if Americans were allowed to choose how their payroll taxes are invested, rather than the currently mandated system with static minimum investment returns.

Most reform proposals emphasize the utilization of some form of personal retirement accounts as an alternative or adjunct to Social Security. This approach would give individuals greater control over how their retirement security funds are invested. It could also provide banks with the opportunity to provide a greater variety of deposit and investment products for people to use for their retirement plans, while increasing funding available for financing local credit needs.

Contact for further information: Eric Brescia (202) 663-5387.