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 alternative Congressional plans establishing private accounts, with each plan differing in the extent to which the private accounts are funded by general revenue contributions or redirecting payroll tax revenues. Additionally, we consider a modification of the Clinton Administration's FY2001 budget proposal, which provides for significant general fund revenue transfers to the Social Security Trust Fund and allows limited Trust Fund investment in equity. We analyze the long-range actuarial balance of the reform plans with and without an assumed equity premium; describe the effects of the plans on retiree benefits (with and without an assumed equity premium) for workers with different levels of lifetime earnings; and consider the aggregate general revenue transfers required under the plans. In spite of the large general fund revenue transfers required under three of the four plans considered, in the absence of an equity premium all reform plans that achieve actuarial balance result in a lower net benefit for a worker with average earnings