If the devil is in the details, the nation can expect a hellish time once Congress starts writing proposals for private Social Security investment accounts.
President Bush is pitching this as a simple idea: Let the people control a chunk of their Social Security savings.
The concept may be simple, but the execution threatens to be mind-numbingly complicated, if the proposal flies.
Consider this, for example: You're 23 years old, and you think Bush's plan is spectacular. You relish the idea of investing some of your payroll taxes in the stock market, even though it means you would surrender part of your future Social Security benefit in retirement.
But what if, at age 33 or 43, your views change? Could you opt out of the private account?
The answer: Sort of, according to Bush administration officials. (More on this later.)
Here's another question: Would the money that accumulates in a private account be yours to bequeath to your spouse or family?
The president says you could count on that. But there's a hitch: The government assumes that part of the sum you build up would be turned into an annuity, generating monthly payments throughout retirement. That part wouldn't be inheritable.
None of this necessarily means private accounts are too much trouble to try. We know they're doable because other countries have introduced them -- Chile, Britain and Sweden, among others.
But the United States would by far be the biggest experiment in the partial privatization of a government retirement system. So in terms of the long-run health of the global economy, it will matter a lot more whether a U.S. privatization plan leads to better retirement years for its scores of millions of future seniors than whether, say, Sweden's plan does for its relatively small population.
With so much at stake, it make sense for both supporters and opponents of private accounts to understand how they would work, and what people's practical (i.e., real-world) concerns might be relative to the ideological appeal of giving Americans more control over their Social Security savings.
Here are some of the selling points the Bush administration is using in its pitch for private accounts, and some of the details that are obscured by the sound-bite summaries of the proposal:
* It would be your money. You'd invest it, and it would be yours to keep when you retire. Sounds simple enough. The administration wants a voluntary program that would allow workers to divert up to 4 percentage points of their Social Security payroll taxes into private investment accounts each year, limited to $1,000 in the first year but rising modestly thereafter.
The administration envisions that, at least early on, workers would have a limited choice of broadly diversified stock and bond funds.
"Best of all, the money in the account is yours, and the government can never take it away," President Bush said in his State of the Union address last week.
But things would get more complicated when the time comes to draw money out of the accounts. It still would be your money at that point, but you wouldn't be able to simply walk away with the sum total.
Instead, the government would require you to annuitize some portion of the total so that it comes to you in pieces each month for the rest of your life. The amount to be set aside as an annuity would depend on what you would be receiving in traditional benefit payments from the Social Security system, which would be reduced to account for what you've contributed to your private account.
Essentially, the government's goal is to make sure there is some minimum amount coming to you each month -- and that you can't run off to Vegas with your life's savings in hand.
That also means you couldn't bequeath whatever portion of your private account is annuitized. "If you buy an annuity and die early, obviously, that limits the amount that [you're] able to pass on" to heirs, a senior administration official said in a background briefing for the media last week.
Michael Graetz, a law professor at Yale University, coauthored a recent report for the National Academy of Social Insurance on the issues that would be involved in setting policies for retirement draw-downs from private Social Security accounts. The study runs for 240 pages -- a measure of the complexity of the topic, Graetz said.
"People have thought a lot about the accumulation phase of these accounts but not about the payout stage," he said.
* The program is voluntary. No one would be forced to choose private accounts. But what if the idea begins to look less appealing years after you've bought into it?
Asked about an opt-out clause, the administration official at the background briefing put it this way: A worker using a private account could effectively move to a neutral position by shifting all of the assets in the account to Treasury bonds.
