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Future workers will rely on investment accounts under Bush plan, report says

WASHINGTON _In the distant future, retirees eventually could rely entirely on profits from individual investment accounts and get no traditional Social Security checks if they participate in a Social Security plan like the one President Bush proposes, according to a non-partisan congressional report issued Wednesday.

Higher-wage workers would be the first to see their defined-benefit check replaced by the investment accounts, the Congressional Research Service reported. Ultimately, all workers who opt for a Bush-like plan would rely on those investments for their Social Security benefits and get no traditional ones, the CRS report said.

This would happen, the report explained, because the Bush plan would reduce traditional Social Security payments by an amount equal to what a worker put into a private account, plus interest. Eventually, the private accounts would grow so large they would cancel out the government pension.

Democrats pounced on the report as evidence that Bush intends to do away with Social Security as Americans now know it—a guaranteed benefit financed through payroll taxes.

"It reinforces what we have been saying," said Rep. Sander Levin of Michigan, the leading House Democratic expert on Social Security. "Essentially, you have a replacement of Social Security with investments that for many, many people would be very, very risky."

But Bush's plan is thin on details. The analysis by the non-partisan research service had to rely on financial assumptions that Bush has not entirely embraced or has backed away from.

For instance, the agency expects that under Bush's plan, Social Security benefits, which are now indexed to increases in wages, would be adjusted to increases in prices, which rise more slowly. But most plans circulating in Washington recommend a hybrid index that would allow lower-income workers to benefit from a wage-based index. That would alter the CRS conclusions.

What's more, Bush has acknowledged that his plan would have to add other measures, which he has not specified, to address Social Security's long-term solvency problems—measures that the researchers did not consider.

"This isn't the president's plan," said White House spokesman Trent Duffy. He said CRS assumed that higher-wage workers would invest the maximum allowable for much of their working lives—a circumstance that could be achieved by only a "minuscule number of workers."

While Democrats contend that would signal the end of a venerable retirement system constructed under Franklin Delano Roosevelt, the result CRS predicts is consistent with the vision behind Bush's plan.

"Conceptually, that's precisely what the president wants," Duffy said. "But the reality is that under the personal account proposal that the president has proposed, a large proportion of the retirement benefit would still come from the traditional side of the system."

Bush has proposed that younger workers born since 1950 be allowed to invest up to 4 percent of the 12.4 percent Social Security wage tax that workers share with their employers. That amount—capped at $1,000 for high-wage workers—would be placed in government-prescribed portfolios. The remainder of the tax would flow into Social Security.

Under Bush's plan, retirees would have their traditional, defined benefit reduced to offset the wage tax they invested.

CRS concluded that high-wage workers born in 2006 would have invested so much over a working lifetime that their entire Social Security income would come from assets in their investment accounts. And eventually, to everyone who opts for the accounts: "This trend would be likely to apply to ... average-wage and ... low-wage workers in the long run," the report said.

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(c) 2005, Knight Ridder/Tribune Information Services.

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