PRESIDENT BUSH'S announcement earlier this month of a new bipartisan commission to develop a plan for Social Security reform is welcome news. Meaningful reform is essential to make this program more effective and save it for future generations.
Longer life spans, declining birth rates and earlier retirements are causing a sharp drop in the ratio of workers to retirees. In 1950, there were 16 workers per retiree; today, the ratio is less than 4 to 1. By 2030, it will be 2 to 1. That, plus the longer life spans of Americans, is straining the program's resources, threatening to bankrupt it within 50 years.
Only meaningful reform can save Social Security without raising taxes or reducing benefits. Any solution should preserve the broad intent of the original system while incorporating the development of a new system to give individuals greater control over their retirement assets, including greater choice and flexibility in deploying them.
Social Security's reform should be guided by five principles:
Any solution to Social Security should include some type of personal savings account for individuals. Such accounts would increase net savings and introduce more Americans to the basics of saving and investing. This approach would continue the system's fundamental fairness by providing American wage earners with the same investment opportunities.
Basic guarantees must be preserved. Social Security made a promise to the American wage earner - there must be a minimum guarantee equal to that now provided by America's families. That includes the right now extended through Social Security to change jobs without losing the benefits, assets or basic rights the system delivers. Social Security reforms cannot change that promise; they must only improve the way in which Social Security delivers on it.
Individuals must have choices. If working families are to invest through the Social Security system, they should be allowed to make choices that reflect their differing individual circumstances. Families of different ages, incomes and preferences will have different approaches to investing for the future. We must recognize and allow for those differences.
No new burdens. Changing the system must not become a pretext for creating new burdens for employers. There should be no new payroll taxes and no new reporting requirements or paperwork for employers.
The costs must be minimal. Investing in securities to earn a higher return only makes sense if the system's costs don't balloon. The system must be structured with minimal costs. The wage earner's assets and benefits should not be eaten up in administrative fees. This means that the discipline of competition must be built into any system for private investment of Social Security resources.
As the commission works on its proposal, these principles should be part of their deliberations and recommendations.
Mr. Bush has displayed pragmatism and political courage in assembling an impressive group of experts. This initiative can build on the work that has already been done to examine the effectiveness and costs of these and other proposals.
Our next challenge is to build a consensus, embrace specific changes and work together to enact measures that will put Social Security on a sound financial foundation.
James W. Brinkley, president of the Baltimore investment firm of Legg Mason Walker, Inc., and was chairman of the Securities Industry Association.