Social Security reform downsized

Clinton's plan for new retirement accounts slows the drive to

Prospects for radical changes in the Social Security system are fading.

After several years of intense debate over how to shore up the nation's troubled retirement system, calls for a dramatic overhaul based on privatization appear to be yielding to more modest plans.

This week, President Clinton underscored that shift in thinking when he unveiled his plan for stimulating savings and helping workers save for retirement. The White House plan would keep the existing Social Security system. But it would offer a new, voluntary investment-oriented scheme similar to the 401(k) plans offered by corporations.

The Universal Savings Accounts - a separate, supplemental pension plan - would give tax credits to Americans with incomes under $100,000, to be put into these accounts. It would benefit couples earning more than $100,000 only if they have no employer-sponsored pension scheme.

As many as 124 million individuals would benefit, the White House says, about 60 percent of the adult population.

The Clinton plan, however, is not the sweeping reform advocates of Social Security privatization have had in mind. For years, the libertarian CATO Institute, the conservative Heritage Foundation, Republican leaders in Congress, and some on Wall Street have pushed for at least partial privatization of the system.

But several factors have weakened the pro-privatization drive.

First, the existing system appears to be in less danger of insolvency than earlier thought - thanks in large part to unexpected federal budget surpluses and political pledges to devote much of that money to "saving" Social Security.

"Public attitudes on Social Security have changed considerably in the last few months," says Dean Baker, an economist at the Preamble Center, a Washington group. Indeed, analysts now say the Social Security system is solvent through 2034, five years longer than forecast as recently as 1997.

As fears lessen that the system will fail, most Americans are less interested in changing the system to a more high-risk plan, according to Mr. Baker, who opposes privatization.

Second, critics have been trumpeting many difficulties with privatization not only in the US, but abroad.

The Center on Budget and Policy Priorities released a study last month showing that British workers, when they retire, will have 43 percent less money than they would have had in their privately managed individual retirement accounts, because of administrative fees and other costs.

Still, the Cato Institute and the Heritage Foundation often point to privatized systems in Chile, Argentina, Mexico, Poland, and Australia as countries that have made the shift. But they have shrunk their aspirations for privatization in the US in the face of financial realities and protests by the AFL-CIO, women's groups, and others.

Third, Clinton's plan for USA accounts steals some of the privatization thunder by setting up a separate system in which taxpayers' retirement funds and tax credits will be invested partly in stocks. These USA funds, theoretically, would yield a higher rate of return than Social Security funds, which are invested in lower-yield Treasury bonds.

Moreover, Clinton has also already suggested investing $1 trillion in Social Security money in stocks. Supporters of this plan say the Social Security Administration can invest in the stock market far more efficiently than 150 million individual Americans could do on their own.

Of course, Clinton's vision for reforming America's pension system is likely to be challenged by a Republican-led Congress. Already, some GOP lawmakers have criticized the USA plan as setting up yet another entitlement program.

Under the USA program, taxpayers who qualify would get a tax credit, or grant. That money would be applied to an individual retirement account. Individuals then could add a limited amount of their own money to the account - which the government would match dollar for dollar.