And what if stocks later fall?

INVESTING

Social Security fix worries many experts

January 31, 1999|By BILL ATKINSON

PRESIDENT Clinton's plan to help rebuild Social Security by pumping $700 billion into the stock market is furrowing some brows on Wall Street.

While they know that Social Security needs help, and that the market can always use new dollars, many experts are leery of the proposed remedy.

Under Clinton's proposal, about $2.7 trillion from the projected $4.4 trillion budget surplus would be used to bolster Social Security. About $700 billion of that would go into the stock market over the next 15 years.

With the major indexes soaring the past four years at a double-digit pace, the stock market appears an alluring solution to Social Security's projected shortfall.

But the market experts worry that the proposal could give the government greater authority to meddle in the affairs of private companies. It could also open the door to special interest groups that could dictate where and how the money would be invested.

"The government will make it complicated," said James W. Brinkley, president of Legg Mason Wood Walker Inc. in Baltimore.

Others raise other questions.

What would happen if a portion of the Social Security funds was invested in Microsoft Corp., which the government is trying to break up, experts wonder.

"Does that create a conflict?" asked Marty Corry, director of federal affairs at AARP, the Washington-based association for people more than 50 years old. "Would it interfere with the enforcement of the law?"

What about tobacco companies, such as RJR Nabisco Holdings Corp., which the government plans to sue to recoup the billions it has spent to treat sick smokers? Would they be ruled off limits, even though they sell other products -- such as Ritz crackers and Oreo cookies?

A. Haeworth Robertson, who from 1975 to 1978 was chief actuary of the Social Security Administration, argues that the government should simply step aside and let individuals manage a portion of their own Social Security retirement money.

"I'm leery of the federal government making decisions," said Robertson, who is president of the Washington-based Retirement Policy Institute. "I am not leery of a lot of individuals making decisions on how they want to invest."

The major trade groups that represent the mutual fund and brokerage industries are content to wait for the details before taking positions on the administration's plan.

"We have not been cheerleading for stock investing" with Social Security funds, said John Collins, a spokesman at the Washington-based Investment Company Institute. "In general, ICI's attitude to the proposal is that we will, indeed, give it serious and thorough consideration when the details are available."

James Spellman, a spokesman at the Securities Industry Association, said officials at the Washington-based trade group for the brokerage industry, also are waiting for specifics.

In the meantime, the SIA has offered to "help educate" Congress and the administration on the finer points of investing, and what an infusion of $47 billion a year could mean to the stock market. The answer is not much, since the market is valued at more than $12 trillion.

When the details eventually come out, there will be much debate, Corry said.

"This moves the debate forward," said Corry of the AARP. "As a practical political matter, the issue is now joined."

And that, Brinkley said, is a worthwhile thing.

"I think it is a good idea to start pursuing different answers," Brinkley said. "It is something to debate, and I am glad he [Clinton] has put it out for debate. Most people think there is some trust fund out there that is sitting there waiting for them, and they don't know how it is funded. Now that is a problem."

Pub Date: 1/31/99

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