Wednesday, March 03, 1999

Bunning to propose investing S.S. taxes

Optional plan like a 401K, senator says

The Cincinnati Enquirer

        U.S. Sen. Jim Bunning plans to file legislation this week that would allow working Americans to invest a portion of their Social Security taxes in the stock market.

        The bill, which has been floating around Washington and advocated by Mr. Bunning and others for more than a year, would give people the option of putting some of their money into private investment accounts similar to the 401K retirement plans many employers offer.

        Supporters say the stock market would give people a better return on their Social Security money, now invested in government bonds that are safe but offer little return and don't have the long-term growth potential of individual stocks.

        “We can do better than 2 percent,” the average return on Social Security, Mr. Bunning said Tuesday during a conference call from Washington with Kentucky reporters.

        During eight of his 12 years in the U.S. House, where he served before being elected last year to the Senate, Mr. Bunning was chairman of a subcommittee on Social Security.

        “I'm trying to do the one thing I heard more about than anything else when I had (House) hearings on Social Security,” said Mr. Bunning, a Southgate Republican.

        While Mr. Bunning said “nothing is cast in stone,” here is how the plan would work under the bill he will introduce by Friday:

        • People paying into Social Security would have the option of putting money in the stock market or keeping it in the present system of fixed benefits.

        • Up to 2.5 percent of Social Security taxes could be invested a year up to 20 years, meaning that at the end of that cycle 50 percent of a person's Social Security money could be invested in the stock market.

        • Similar to 401K plans, investors could have options of where to put their money, such as in an index like the

        Standard & Poor 500, which invests in 500 of the largest publicly traded companies; the Russell 2000, which broadens the investments to smaller yet sometimes riskier companies that have higher growth potential; or the types of government bonds in which Social Security money is now invested

        • Unlike 401K plans, the money could not be taken out for emergencies or borrowed and would have to stay in the account until the person retired.

        • Other basics of Social Security, such as the retirement age and current set of benefits, would not be changed.

        Mr. Bunning thinks the plan will appeal to Americans under 40, who may be more familiar with the gyrations and risk of the stock market because of the present-day flood of information about personal finance.

        It could also convince younger generations that Social Security “will be there when they retire,” Mr. Bunning said.

        Younger people also have a longer time horizon to invest, said Dean Kiefer, an assistant professor of finance at Northern Kentucky Univer sity.

        “If you're going to retire in five years you wouldn't want to start putting your Social Security in the market,” Mr. Kiefer said. “Those people could lose their nest egg and the safety net program Social Security provides.

        “But for younger people it's a good idea,” he said. “Obviously, the program needs to be closely monitored and defined very carefully, but it sounds like a very good idea.”

        Darren Kuntz, 22, of Southgate, a senior majoring in finance and the president of the Finance Student Association, also likes Mr. Bunning's plan.

        “I think the personal (investment) plan is a lot better than the government investing,” Mr. Kuntz said. “Even in a bad year the market is still going to return 5 or 6 percent, which is better than government bonds.”

        “The option for younger people to invest some of the Social Security taxes in personal investment accounts is a good idea,” said Kentucky U.S. Sen. Mitch McConnell, a Republican from Louisville. “They should at least have the option.”

        President Clinton backed the concept behind Mr. Bunning's plan dur ing his State of the Union address in January.

        But consumer advocate Ralph Nader recently wrote for the Knight-Ridder newspaper group that private investment accounts “would destroy one of Social Security's great assets, systemic tranquility.”

        “No matter what, people know that in old age or disability, they can count on the Social Security guarantee,” Mr. Nader wrote. “As soon as the system is privatized in individual accounts, in whole or significant measure, systemic tranquility would be replaced by an enforced anxiety, as they worry about the up-and-down roller coaster ride of Wall Street, and whether they will be the winners or the losers.”

        U.S. Rep. Ken Lucas, a Boone County Democrat and former investment adviser, said he wants to move slowly on the idea because it is new and would take Americans a long time to get accustomed to.

        “But I think ultimately it's a good idea, as long as people are well aware of what they are doing and they have the option of participating in the new way or staying with the current system,” he said.


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