Social Security Reform:

Information on the Archer-Shaw Proposal

AIMD/HEHS-00-56: Published: Jan 19, 2000. Publicly Released: Feb 4, 2000.

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Paul L. Posner
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Pursuant to a congressional request, GAO provided information on the Archer-Shaw Social Security reform proposal, focusing on: (1) the extent to which the proposal achieves sustainable solvency and how it would affect the U.S. economy and the federal budget; (2) the balance struck between the twin goals of income adequacy (level and certainty of benefits) and individual equity (rates of return on individual contributions); and (3) how readily such changes could be implemented, administered, and explained to the public.

GAO noted that: (1) the Archer-Shaw proposal would not reduce current-law benefits, and some workers could receive higher benefits under the proposal; (2) the proposal would establish an individual account for each eligible worker, use the balances in these accounts to finance benefits, and remove the limits on how much retirees can earn without having their benefits reduced; (3) the Archer-Shaw proposal would establish mandatory individual accounts for each eligible worker by providing workers covered by Social Security with refundable tax credits from general revenues equivalent to 2 percent of their Old Age Survivors and Disability Insurance (OASDI) taxable earnings for each calendar year; (4) accounts would be managed by mutual funds, qualified and supervised by a board of six individuals appointed by the Social Security Trustees; (5) all account balances would be required to be invested in qualified mutual funds maintained with a portfolio allocation of 60 percent stock index funds and 40 percent corporate bonds; (6) annual administration expenses would be limited to 25 basis points, and withdrawals prior to reaching retirement (or disability) would not be permitted; (7) upon an individual's entitlement for retirement or disability benefits, the Social Security Administration (SSA) would compute the monthly payment that could be provided from a life annuity purchased with the holdings in the account; (8) the annuity calculation would reflect the account's anticipated yield, the indexing of payment for price inflation, and the expected payment of spouse and survivor benefits; (9) if the computed monthly annuity amount exceeded the level of scheduled OASDI benefits under current law, then SSA would guarantee payment from the trust funds of the computed annuity amount for life; (10) each month after benefit entitlement, the computed annuity amount would be transferred from the account to the OASDI trust funds; (11) under the Archer-Shaw proposal, the disposition of a worker's account balance at death depends on several factors; (12) if there are no survivors eligible for benefits and the worker dies before receiving benefits, the account balance is transferred to the worker's estate tax free; (13) if there are no eligible survivors and the worker has begun receiving benefits, the account balance is transferred to the OASDI trust funds; (14) if there are eligible survivors, the account balance is transferred to the survivor's account; and (15) the proposal assumes a reduction in the OASDI payroll tax rate from 12.4 percent to 9.9 percent in 2050 and to 8.9 percent in 2060.

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