The phrase "Ownership Society" is undoubtedly going to be on the minds of Washington legislators in 2005. With social security in a bind and in need of reform, President Bush is looking for more proactive methods of helping senior citizens - and the next generation of social security recipients.
The Social Security system is expected to see massive setbacks by 2018, when it is projected start distributing more funds than it is taking in. In order to alleviate the problem, the President's plan seeks an inclusion of a private savings account option. The provision allows for one's Social Security contributions to be invested privately as the individual sees fit, including allowing people to deal in asset investments and marketing ventures.
A privatized and free market system is the general direction the President is looking towards, but many detractors say the administration's answer is not a long-term solution. The Associated Press quotes Peter Orzag, of the Brookings Institute, "Social Security is like a car with a flat tire," he continues, "we need to fix the flat tire, but we don't need to replace the car." While the White House says the full plan is still being crafted, a 100% shift toward Social Security privatization has still not been ruled out of the question by the Bush administration.
While the final details of the privatization plan have not been completely worked out, the AP reports that "the administration is leaning toward letting workers divert 4% of their 6.2% in payroll taxes - almost two-thirds - into investment accounts". This new plan is said to be a compromise between Bush's original plan and that of Senator Lindsey Graham (R-SC). Graham has been outspoken in his personal proposals for Social Security reform.
The "ownership" theme of Bush's Social Security plan really tries to encourage workers to take charge of their retirement assets.
A part of the plan includes stock market investments. Often employees are given stock options from their employee, and as expected, the stock options are all invested within the respective employers' stock interests. The new Social Security plan would give employees the right to take those stock options and diversify their investments. What is the intended result? More security. The White House says, "It is essential to provide workers with the opportunity to not have all their eggs in one basket".
The investment opportunity is said to "minimize risk", in the event one stock may tank, there are still other sound investments to keep the employee afloat. As opposed to having all stock options in one investment - at any time, that investment could deplete to virtually nothing, leaving the worker with worthless stock options.
Female employees would also be huge recipients of security from the reform. The legislation sets Social Security rights for women who take maternity leave from work. Private accounts are also said to guarantee rights to women who have suffered divorce and also expand benefits for widows. The Bush administration calls it a "catch up" contribution and that the expanded aid would help women who find themselves in situations of poverty.
Also, employers would be required to give employees the information regarding financial investments and choices of what to do with their assets. Such assistance to workers includes allowing financial advisors into the workplace to help guide workers towards their desired investment path. Employers would also be required to provide their workers with a quarterly update on their pensions. This stipulation is expected to allow workers to make more informed decisions with a more frequently updated series of information; currently, employers are only required to give annual updates. Since there will be a stronger emphasis on the stock market, the ever-changing climate of international finance would oblige more frequent updates of personal financial information.
Over the next ten years, the government tax relief will provide around $50 billion for taxpayers and raise contribution limits on IRAs and 401(K)s. With the new Social Security policy, the extra money in everybody's pockets is expected to spur the new Social Security investments - and build more value in already existing assets.
In the end, the Social Security reforms are not just meant to help alleviate an impending crisis, but also stimulate the economy with more money flowing from the private sector. The plan looks to circumvent the bureaucratic payment process of retirement assets, and instead allow the worker to hold these assets themselves. The freedom for employees to utilize their money however they wish is a boon to taxpayers. They have the option to diversify their investment, thus gaining more investment security or even to maximize their earnings with increased IRA payments or making the right investments. With more investments in banks and markets because of the Bush tax cuts, a stronger economy and expanded national savings may just be positive side effects of the new reforms.
The Social Security system is expected to see massive setbacks by 2018, when it is projected start distributing more funds than it is taking in. In order to alleviate the problem, the President's plan seeks an inclusion of a private savings account option. The provision allows for one's Social Security contributions to be invested privately as the individual sees fit, including allowing people to deal in asset investments and marketing ventures.
Also, employers would be required to give employees the information regarding financial investments and choices of what to do with their assets. Such assistance to workers includes allowing financial advisors into the workplace to help guide workers towards their desired investment path. Employers would also be required to provide their workers with a quarterly update on their pensions. This stipulation is expected to allow workers to make more informed decisions with a more frequently updated series of information; currently, employers are only required to give annual updates. Since there will be a stronger emphasis on the stock market, the ever-changing climate of international finance would oblige more frequent updates of personal financial information.
