President’s Commission

to Strengthen Social Security

Monday,

June 11, 2001

Held at the

Willard Inter-Continental Hotel

Washington, DC

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Seabrook, Maryland 20706

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PRESIDENT'S COMMISSION TO STRENGTHEN SOCIAL SECURITY 

Commission Members

Chairman, Richard D. Parsons

Co-Chairman, The Honorable Senator Daniel Patrick Moynihan

Samuel Beard

John Cogan, Ph.D.

William E. Frenzel

Estelle James, Ph.D.

Robert L. Johnson

Gwendolyn S. King

Olivia S. Mitchell, Ph.D.

Gerald L. Parsky

Timothy J. Penny

Robert C. Pozen

Mario Rodriguez

Thomas R. Saving, Ph.D.

Fidel A. Vargas

Commission Staff Members

Charles (Chuck) P. Blahous

Jeff Brown

Steve Goss

DFO, Social Security Administration

Michael Anzick
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I N D E X

Page

Closed Session (Summary of proceedings in meeting minutes): 

Michael Anzick, Federal Advisory Committee Act Briefing

Randolph Gaines, Ethics Compliance Briefing

Commission Members Sworn In

Opening Statements 32

Interim Report Development 66

Motion 106-107

Staff Availability Period for Commissioners

to Request Additional Information 107

Keynote: "---" indicates inaudible in transcript.
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M O R N I N G S E S S I O N

(10:55 a.m.)

Opening Statements

MR. PARSONS: If we could bring this to some semblance 

of order. Boy, I tell you, this group came to order so fast I 

figured it would take me five minutes at least. First of all, my 

name is Dick Parsons, and along with The Honorable Daniel Patrick 

Moynihan I am privileged to be one of the co-chairs of this 

commission. The Senator and I flipped a coin this morning and I 

lost, so I got to actually chair the first commission meeting. 

He gets the second, third and fourth. Kind of like draft picks.

(Laughter)

MR. PARSONS: Welcome. We are doing our best to 

operate in the sunshine. We couldn't actually have it outdoors, 

but this approximates. So we welcome the members of the public 

and obviously the press. 

In a minute we are going to officially kick off by 

having each of the commission members introduce themselves to the 

public and give a short opening statement. We are going to wait 

before we start that, because I'm told that the folks with C-SPAN 

have requested that we not get officially launched until 11:00 

o'clock, and I wouldn't want to deprive anyone of their hour in 

the sun. But just so that those of you who are here today know 

kind of what the order of march is, we will probably spend the 
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next hour or so hearing from all of the commission members in 

terms of their preliminary thoughts regarding the 

responsibilities of this commission and the way we should 

undertake them and the importance of what we are trying to do. We ar

Obviously, the rest of you are going to have to fend for 

yourselves. 

We will reconvene at 1:00 o'clock where we will begin 

to discuss the nature and substance and the tone and style of the 

interim report that we are required to publish under the 

Executive Order setting up the commission. So that should be 

interesting, and not only will we talk about the problem but the 

ways in which this commission is going to be evaluating 

suggestions, proposals, alternatives for dealing with those 

problems, including the alternatives that will be proffered up 

I'm sure over the course of time by the interested public. Then 

sure that everyone has a full sense of both the scope of the 

problem and the nature of -- their information requests are 

communicated so we get all that information back. The public is 

obviously invited to audit that as well. 

So having said all that, again, I would reiterate on 

behalf of Senator Moynihan and the other commission members our 

welcome to you. We are pleased to formally get started. I 

thought what I would do is I'm going to forego my opening 

statement, which was devastating good I must say. 

(Laughter)

MR. PARSONS: It will be on the record for any of you 
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who want to visit the commission's office on Jackson Place and 

read it. Instead, read to you a letter, and this is more for my 

fellow commission members, that we received this morning from 

President Bush:

"To the members of the President's Commission 

to Strengthen Social Security, today you begin the 

important work of strengthening and reforming America's 

social security system. For over 60 years social 

security has provided a secure retirement for our 

seniors and the promise of a secure future for young 

workers. Through the work of this commission, we will 

develop the reforms necessary to keep these commitments 

to the American people. 

"I am confident that we can restore social 

security to sound financial footing, protect all the 

benefits of today's seniors, build wealth for lowincome workers, and transform the United States to a 

nation of owners and savers. Yours is an important 

task, and I have faith that you will carry it out in a 

manner that will honor our commitment to today's 

retirees and strengthen it for future generations of 

retirees. Signed, George Bush." 

So with that as the opening ---, let me turn to my cochair Senator Moynihan who has a few thoughts, and then we'll go 

right around the table. I would ask each of the commissioners to 

speak into the microphone and introduce yourself before you give 
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your opening statement. Senator.

SENATOR MOYNIHAN: Mr. Chairman. I am Daniel Patrick 

Moynihan. I am the co-chair of this distinguished group and 

happy to speak for the first time to it, to speak to our first 

task, which is an interim report setting forth the situations we 

have to deal with, the problems we have to solve, because one of 

the first facts of our situation is that we do have a problem, 

and that is to say that by the year 2016, as our distinguished 

actuary will attest to us and the trustees have previously --

have recently confirmed, by 2016 our present system, for the 

first time ever in any consequential way, begins to run short of 

cash flow, and that has to be attended to. The question is, who 

is aware of and concerned about this matter? 

I have a short story. In 1994, and Bill and Tim will 

recognize the setting, I called up on the Senate floor 

legislation to reestablish the Social Security Administration as 

a free-standing agency. It had begun as such in the 1930s, then 

had been shuffled about from one general purpose organization to 

another and slowly disappeared down into the depths of the Health 

and Human Services, and had not the visibility that it had once 

had and which it needed. I had a Bill to do that and some other 

things. 

It was early mid-morning. There was no one else on the 

floor particularly. I was on my own, and I took the occasion to 

discuss at length the fact that, you know, social security is a 

sound system. We have had it in place since 1935. It had never 
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been a day late or a dollar short, that persons who were now 

working would have it when they retired, and that we should make 

what changes might be necessary to ensure that, but those were 

doable and that we are going to do them. 

Then I realized something very strange was going on in 

the Senate chamber. The clerks at the desk were listening. They 

never listen. They have other things to do and they have heard 

it all before, but they were sitting there listening to me, and 

so I put in a quorum call. I asked them all to come down to the 

well in the Senate. I said now look, don't deny it. I caught 

you. You were listening. Well, yes, they were. You were 

listening because you had never heard anybody say that you would 

get your social security. We call them clerks, but they are all 

graduates of Georgetown Law School. Yes, this was a new thought 

to them. Here these people at the center of American government 

are little aware of this reality. 

One of the things we did with the new independent 

agency is we began to send out once each year a statement, the 

social security statement, telling individuals that -- workers 

that we knew their name, we knew what they'd made, we knew what 

they contributed, if they continued for another -- until age 65 

this is about what they would get. They never heard from the 

system previously. It was just -- and there was a bureaucratic 

aspect that the people running knew you were going to get it so 

it didn't really that much matter to them that you didn't. Well, 

of course it does matter in a democracy. 
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I would pick any number of members of our commission --

well, I could ask our three distinguished staffers, you have 

received now a social security statement, have you not?

(No audible response)

SENATOR MOYNIHAN: Raise your hands. 

(Show of hands)

SENATOR MOYNIHAN: Yes. See, you young people. So you 

know that we know your name, and that I think has begun to change 

the degree to which the public recognizes that this is a real 

system, and that if it has real problems, they can and ought to 

be fixed, and that is the purpose for which our President has 

given us -- has assigned to us the marvelous idea that we could 

become a nation, as he put it, "of owners and savers." A large 

enterprise as noble as the one in the 1930s, and I hope, 

Mr. Chairman, that we can carry it out. 

DR. MITCHELL: Good morning. My name is Olivia 

Mitchell. I am delighted to be here. Chairmen Moynihan and 

Parsons, fellow commission members, and ladies and gentlemen, the 

U.S. social security system faces to my mind what are alarming 

financial problems that adept action can do much to alleviate. 

As Senator Moynihan has noted, by 2016, which is only 

15 years away, annual social security payroll tax revenues will 

not be adequate to cover currently promised benefits, requiring 

Congress to either alter benefits or come up with more revenue. 

I am a baby boomer, and under current benefit rules, by 

the time I reach 66, social security will need to take in 50 
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percent more financing than now. By my 100th birthday, which I 

plan on seeing, either those workers supporting me will have to 

pay about 80 percent more in current tax revenue, more in tax 

revenue as compared to now, or my benefits will have to fall by a 

third or perhaps more. Furthermore, the aging baby boom will 

have additional demands on tax revenue by Medicare, Medicaid, 

SSI, DI and perhaps other programs. 

I view these prospects with considerable professional 

and personal alarm. As an economist, I am concerned that last 

minute changes in the program will have undesirable economic, 

political and social consequences. As an aging American, I 

believe that reforming the system now to make benefit promises 

sustainable in the future is essential to increase economic 

security. 

I believe we have two tasks as members of this 

commission. First, and perhaps most importantly, we have an 

educational mission, to do the very best we can to alert the 

American public about this system's financial challenges and to 

explain how alternative reform scenarios might work. Second, we 

have a design mission. We have been charged with the task of 

formulating a specific plan that will restore financial and 

fiscal soundness to America's retirement security. Our 

commission has the duty of proposing a new design element in 

social security, namely an individually-controlled personal 

retirement account. 

As we begin to evaluate the options, I will urge us to 
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focus on two issues, at least initially: first of all, how risk 

and return are valued in social security reform plans, and 

second, how the individual account design is structured so as to 

affect administrative cost and retirement security. Important 

benefits can flow from establishing funded individual accounts 

invested in real assets. About half of the U.S. population today 

holds no stock in its retirement portfolio, and many of these 

people I believe would find appealing increased retirement saving 

in a diversified social security investment account. 

Additionally, the fact that these would be owned by system 

participants and not counted as part of the federal budget should 

help, in my mind, should help preserve the funded aspect of the 

program that emerges. 

I believe that the design of the reform plan matters 

critically. As we begin our work, our group's deliberations 

regarding social security redesign proposals should therefore 

keep in mind three points. First, reform plans that permit asset 

diversification into stocks and bonds will involve risk and 

return. These should be factored into the evaluation and 

compared with the risk and return from our current system.

Second, reform plans that build assets will require additional 

revenue and/or reduced benefits. Third, designing an individual 

account system demands detailed attention to administrative costs 

and service performance benchmarks. 

I am honored to serve as a member of this body, and I 

look forward to our work. Thank you. 
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SENATOR MOYNIHAN: Well said. 

MR. PARSONS: Bill. 

MR. FRENZEL: Thank you, Mr. Chairman. I am Bill 

Frenzel. I am a guest scholar at the Birkings Institution. I am 

a recovering congressman having gone straight to 1991. There's 

lots I don't know about social security. There are a few things 

that I think I know, one of which is: a way we can guarantee to 

do the system a great deal of harm is not to do anything. The 

second of them is that the sooner we begin to make whatever 

repairs we're going to make in the system, the easier it will be 

on all of the contributors and participants. With that, 

Mr. Chairman, I am anxious to learn from all of you. 

MR. PARSONS: Bob.

MR. JOHNSON: My name is Robert Johnson, and I am 

delighted to be a member of the commission. I look at this 

problem from the eyes of a business person. If it were a 

business problem, you would see it simply. You have less revenue 

and more costs than you could sustain, and you have to solve that 

problem. If we put our head in the sand and assume that the 

problem will go away, we will be faced with a crisis of 

tremendous proportions that will affect every American. 

I also look at it from the standpoint of an African 

American who understands that African Americans are totally 

underrepresented in the portion of wealth that's generated in 

this nation. I see the potential for investment in personal 

retirement accounts as a way of bringing African Americans into 
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the mainstream economic benefits of the society while at the same 

time maintaining the fundamental benefits that social security 

has promised since its existence. 

I also recognize that African Americans have lived --

have a higher mortality rate than the general population, 

therefore contributing more but receiving less from social 

security, which also creates an imbalance in their ability to 

have their heirs and their families benefit from their 

contribution. 

Obviously, these are problems that must be solved in 

the context of all Americans, but I have a particularly unique 

perspective on it, and I intend to voice those opinions in the 

commission. Thank you. 

MR. BEARD: My name is Sam Beard. I am honored to be 

on this commission. I approach it with three principles. One is 

that social security is the most effective and best government 

program ever created. It is essential to save it. Part of 

saving it is to save the guarantees of benefits flowing to 

retirees. The charge against individual accounts is: don't give 

up a guarantee for a gamble. It is essential that we save the 

guarantee. The next charge against the direction is social 

security is social insurance. It has disability insurance. It 

has survivors' benefits. Those elements of social security are 

essential, and no plan can go to undercut those. 

On the positive side, my whole background -- I had the 

privilege of working with Senator Robert Kennedy starting in the 
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mid-60's, and my whole lifetime has been "economic opportunity." 

 I sit afraid that we're becoming two separate societies. One of 

the big dividing points is those with financial assets and those 

without. Half of our American society has less than two percent 

of the financial assets. That's unacceptable. 

So here we have a chance to save the best federal 

program ever created. We all agree coming from the actuaries, 

the degree of seriousness of the financial imbalance, which 

totals in excess of $25 trillion. Something has to be done, but 

out of a problem we have an opportunity. 

MR. VARGAS: Good morning. My name is Fidel Vargas. 

Contrary to what many people want to believe, I'm actually glad 

to be back and serving on this commission, as I was a member on 

the previous advisory council on social security back in 1994. 

As a former mayor of the City of Baldwin Park, a 

resident of Baldwin Park community, that of working class people 

where social security is an integral component of their 

retirement, this issue is very personal and something that I see 

on a daily basis. 

My context that I will bring to this commission also 

includes other personal aspects. My parents, for example, both 

union members, both less than 10 years away from retirement, and 

both making sure that they told me yesterday at our barbecue 

where we were watching the Laker game to make sure that I took 

care of them. Seven brothers and sisters, five sisters and two 

brothers, youngest just completed her sophomore year at Berkeley, 
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the rest teachers, accountants, financial analysts, and also very 

concerned about their and their children's financial security and 

social security retirement. Then there's my wife and our 

friends, the young generation or the Generation X, as we've been 

known, who are very concerned, as the Senator pointed out, about 

the viability of the system and trying to make sure that we do 

something to fix it now. Finally, my children and their friends 

and all the children in this country. When I started in 1994, I 

had two children ages 5 and 2. Now I have three children ages 

11, 8 and 6, and nothing has been done since then. 

As has been said earlier, the sooner that we are able 

to find a solution or to come up with some ideas that can be 

implemented, the quicker that we'll be able to deal with this 

problem. So I am glad to be a member and looking forward to 

contributing as well as learning from each and every one of you. 

 Thank you. 

DR. SAVING: Good morning. My name is Thomas Saving. 

This is a problem that I've been addressing for the last decade 

or more. I think the problem is best summarized by looking at 

the debt that's implied by -- among all those who are currently 

eligible to receive social security or are now receiving it. 

If we look at the value of that debt, it's some $14 

trillion, and that's compared to a publicly held debt of only 

$3.5 trillion. If we add to that the other two elderly 

entitlement programs that we have, and that's part A of Medicare 

and part B of Medicare, the total of that debt is $39 trillion. 
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This is a number that we are going to have to pay. This is not 

like the regularly publically held debt that we never actually 

have to pay. This actually is going to come due. These elderly 

people are going to retire. They are going to use -- to drive 

real cars. They are going to live in real houses. They are 

going to eat real food. They are going to use -- and all that 

has to be produced by the United States by the gross domestic 

product. That's all we have to work with.

If the elderly consume more, the workers have to 

consume less. There isn't any other way to do it. The only 

solution to this problem is to find a way to change the capital 

stock of the country, to increase the gross domestic product, 

because otherwise the children, Fidel's children, are going to 

have to eat a lot less than we do, because the old people are 

going to be eating a lot more. 

We can solve this problem, and we have to try to solve 

it. If we leave the problem unsolved and the federal government 

stays the same size it is now, which is one-fifth the gross 

domestic product, by 2070 these three programs will be 100 

percent of the federal budget. That obviously cannot happen. It 

will not happen, and that means either these programs will be 

gone or the federal government is going to be an awful lot 

bigger. We can do something about it, and the time to do 

something about it is now. Thank you. 

MR. RODRIGUEZ: Good morning. My name is Mario 

Rodriguez --- round table, and I commend President Bush for 
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taking the task of putting this commission together, because it's 

so important to all Americans and in particular the Hispanic 

community. The Hispanic community has -- a small percentage of 

the Hispanic community puts money into savings, and I feel that 

this is a way to really open up their eyes and hopefully have 

something for the future. 

My daughter Ashley asked me when I was coming up to --

out here, "Dad, what are you coming out here for?" And I said, 

Ashley, I'm coming out here to -- hopefully we can come with some 

recommendations so there will be social security there for when 

you are ready to retire. So I commend President Bush for putting 

this commission together, and I'm honored to be here. Thank you. 

DR. JAMES: Yes. You're not speaking? I'd like to 

hear what you guys have to say. I'm Estelle James and I'm also 

very pleased to be on this commission. After working on social 

security reform in other countries, it's nice to be doing it in 

my own country. 

I think everyone in this room, both the commissioners 

and members of the press and public, all agree that social 

security is in a state of financial imbalance. By the time my 

children retire, social security will only be able to afford 70 

percent of the benefits that have been promised to them. So the 

system has to change. I mean everyone agrees that there has to 

be some kind of change in the system, and the question is what 

kind. 

As I think one of the other commissioners mentioned, 
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this problem really presents us with an opportunity to improve 

the system. After all, we've had this system now for 65 years. 

We've learned something about how social security systems 

function. We've learned from the experience of other countries. 

 So in the process of changing the system, we should be able to 

put in place mechanisms that actually work better. That's going 

to be one of my goals on this commission.

Let me just mention four criteria that I think are 

important in terms of evaluating whether a system is better or 

not. First of all, it must be sustainable, obviously, because 

it's not going to provide security for people if it is not 

sustainable. Usually sustainability has been measured in terms 

of the 75-year time horizon that the Social Security 

Administration uses, but I think we should also be thinking 

beyond there in terms of automatic stabilizing devises that 

maintain the sustainability even beyond the 75-year time horizon. 

One problem with the 75-year time horizon approach is 

that when you move one year into the future, things that seem to 

be sustainable a year ago turn out not to be sustainable. 

Conditions change in unexpected ways, and it would be nice to 

have some mechanisms that enabled the system to respond in 

automatic ways. So that's one of the things I think we should be 

thinking about.

Now, a second criterion that I think is important is 

what is the impact of the system on the broader economy. 

Ultimately, the best security for workers and for older people 
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comes from a growing economy. If you are going to have more and 

more older workers, many of whom are not working, this is going 

to have a negative impact on the standard of living of everyone 

in the economy, workers and older people, unless we have economic 

growth, unless we improve the productivity of labor. So I think 

we should be looking at systemic changes that will have a 

beneficial effect on the broader economy and on economic growth. 

 Here we have to look at things like the impact on national 

saving and capital accumulation, the allocation of that saving, 

the impact on the labor supply of older workers and the work 

effort of younger workers. So I think that's a key criterion 

that we should keep in mind. 

A third criterion has to do with equity, with the 

distribution of the benefits and costs, and we always have to 

keep in mind that different groups benefit differentially from 

our current system and from changes that we might make. So I 

think we should look carefully at who is going to be paying the 

price and who is going to be getting the benefits, and in 

particular, I think we should be concerned about the bottom half 

of the population and make sure that they are protected by a 

social safety net. That is the group that we should be 

redistributing to, and that is the group whose lifetime benefits 

from social security should exceed their contributions. So 

that's something I am going to keep my eye on, and I'm sure that 

the staff will be giving us data on the impact of high and low 

earners, of men and women, and distinguished by marital status as 
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well. I think it's very important to look at how each of these 

groups might be changing -- might be affected by any changes that 

we contemplate. 

Fourth, the final point that we should keep in mind, is 

we should try to avoid the excesses of political risk and 

financial market risk. Now, under the present system people are 

subject to very great political risk, so the very fact that we 

know the current system is not sustainable, so people are either 

going to be hit by cuts in benefits or increases in 

contributions. So that's a very risky position that workers 

today face. 

Now, if we invest money in the financial market through 

individual accounts, people will then be subject to financial 

market risk, and I think we have to design the system in such a 

way that the extremes of that financial market risk are avoided. 

 The key to avoiding risk, whether it's political risk or 

financial market risk, is diversification, diversifying 

retirement income sources, and if you have savings, diversifying 

your asset mix. So those are some of the criteria that I'll be 

keeping in mind and I hope the whole commission will be. 

MR. PARSKY: Thank you. My name is Gerry Parksy. I 

was former assistant secretary of the Treasury in 1974, and I'm 

in a private investment area now. 

First of all, I want to thank the President and the cochairmen for allowing me to participate in this important effort. 

 I think that, as someone has said, the social security system is 
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our most important government policy and program touching all 

American lives.

I step back and just look at a couple of points I think 

I would make, not to repeat what is already said. I think as we 

engage in this effort, I think it's important that we try to come 

forward with something that will constitute real reform. Too 

often a part of government policy making and to some extent the 

way the private sector participates, we wait for a crisis to be 

on us before we act. Those of us in California understand that 

in the context of energy right now. 

Now is the time when we can anticipate there are real 

problems with respect to our social security system. Therefore, 

now is the time when we should embark on putting in place real 

reform, not wait until whether it's 2015 or 2038. In this town 

that we're in, often people will say well, why do we have to deal 

with this issue now, it's going to be okay until 2038. I think 

one of the jobs hopefully of this commission is to alert people, 

the public and those that are involved in the political world, of 

the importance of putting real reform into place now. 

Second, I think that solvency of the system should not 

be our focus. Our focus should be on real reform, because just 

allocating a certain number of dollars that will in effect prop 

up the system for a period of time I think would be the wrong 

focus for us now. We have an opportunity to create real reform 

and reform that will not be just focused on whether the system is 

solvent or not. 
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The third point I'd make is that having spent a lot of 

time in the market place, both in the government and the private 

sector, debt markets and equity markets are not to be feared. 

There is a risk reward associated with any form of investing, but 

I think it's important to properly assess that risk and not 

automatically look at one moment in time when the stock market 

may have gone dramatically down or dramatically up. This is a 

system that needs to be reformed for the long-term, and as we 

look at personal savings accounts and we look at the prospects 

for defining what ground rule should be established, I think we 

should bear in mind historically what happens in both the debt 

and equity markets. 

Finally, I would just say I hope we don't shy away now 

both from recommending real reform and convincing the political 

establishment, one, that now is the time for reform. I think our 

President has been quite courageous in addressing an issue that 

most people would say don't address at this point in time or 

don't address at all. I think we have an opportunity to change 

that focus and bring about real reform. 

MR. PENNY: My name is Tim Penny. I'm a senior fellow 

at the University of Minnesota Humphrey Institute. Like my 

friend Bill Frenzel, I too am a recovering politician, and like 

him, I represented in Congress the State of Minnesota, I in the 

Democratic Party, he in the Republican Party. 

I am going to state the obvious, but there are three 

criteria that typically apply when public policy makers are asked 
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to address difficult issues like social security reform. The 

first is that there has to be a general sense of urgency about 

the need for reform. Our co-chairman Senator Moynihan played a 

key role in developing the 1983 social security reforms, but we 

were in a period of crisis at that point, and very often we wait 

until the crisis hits. This time we do have the advantage of a 

growing public consensus that reform is needed. When the Social 

Security Administration and other sources articulate time and 

again that by the year 2016 we will face a cash flow crisis in 

the social security system, that begins to sink in with the 

public, and there's a growing awareness that it's best to act 

sooner rather than later.

There's also a sense of urgency upon the part of 

younger Americans. Most opinion surveys demonstrate that younger 

Americans have little if any confidence in the current social 

security system, and I can say from own experience having been 

named to this commission that invariably when I encounter those 

under 50 years old, they say be bold, because they understand 

that the current system is not a system that will return for them 

the kind of benefit levels that it is providing for their parents 

and grandparents. 

The second key factor in accomplishing reform on an 

issue of this magnitude is presidential leadership. In this 

instance, we need to recognize and acknowledge the leadership 

that President Bush has afforded us on this matter. He made this 

a central element of discussion during the campaign and then 
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since tried to bring the American public along on this issue. He 

laid forth several valuable principles that should undergird the 

work of this commission as we develop recommendations for reform, 

and he put a six-month or less time limit on the work of this 

commission as a way of indicating that he believes that there is 

some urgency to act sooner rather than later.

The third factor is bipartisanship. You cannot tackle 

an issue of this nature, of this sensitivity, without some degree 

of bipartisanship. Ultimately we need that. We need a degree of 

bipartisan support within the Congress. The President has moved 

in the right direction by establishing a commission evenly 

numbered between those who identify themselves as Republicans and 

those who identify themselves as Democrats, and yet there's 

diversity of opinion within this group. We are all comfortable 

with the principles the President has laid forth, but there's a 

certain degree of diversity. 

For my own part, I come from a family in which my 

mother lives on social security and nothing else. I come from a 

family in which my youngest brother is totally disabled and 

relies on a disability check. So I understand the insurance 

nature and safety net nature of the current program, but I also 

understand as the father of four children, three of whom are in 

college and one who just finished ninth grade, that this younger 

generation is not well served by the current structure of the 

system, that they will get an increasingly unfair deal under the 

current system, and for that reason intergenerational equity is 
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best served if we can address this system now and enact changes 

that provide a better guarantee for future retirees. 

Our recommendations to President Bush must ultimately 

result in a report that assures the sustainability of and 

confidence in the social security system for the longer term. 

That is a tall order, but it is the order of the day and I am 

honored to have been asked by President Bush to play a role in 

this endeavor. 

DR. COGAN: My name is John Cogan. I'm a senior fellow 

at the Hoover Institution at Stanford University. Social 

security is the most important social invention of modern times. 

 For over 65 years it has alleviated poverty among millions of 

Americans. It is in good financial condition right now. It is 

able to pay all of the benefits to current retirees. But it is 

facing enormous financial problems a short time down the road. 

The problems don't start in 2038; they start early in the next 

decade. The commission's job, which is to develop a reform plan 

that's consistent with the President's principles, is an awesome 

responsibility. The time we have to do the work is short, but 

the time to address the problem is now. 

The key element of the President's reform plan is 

personal accounts. These accounts will enable individuals for 

the first time within social security the opportunity to build 

real wealth and financial security. But this key ingredient is 

not the only ingredient to reform. Other steps have to be taken.

I am flattered to be part of this group. I've worked 
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with some of you in the past on policy issues inside the 

government. I have learned much from the work that others of you 

have done in researching social security, and so I look forward 

to this chance to move the ball to the next stage and develop a 

plan that the Congress will regard as an acceptable plan, but 

more importantly, develop a plan that the American people will 

regard as sensible reform. Thank you, Mr. Chairman. 

MS. KING: Good morning. My name is Gwen King. I am 

the president of Podium Pros, the Speakers' Bureau here in 

Washington, D.C., and in a prior incarnation I was privileged to 

serve as the eleventh commissioner of the Social Security 

Administration. One of the things I learned at Social Security 

was that there are a lot of good, smart people working on this 

problem, not the least of whom of course is our current cochairman Senator Moynihan, who was wise enough way back in those 

days to insist that Social Security devise a way to notify people 

regularly, every year, about their status at Social Security. He 

was modest in telling you that you receive an accounting; he was 

responsible for that. And what we learned is that people can 

pick up that accounting and read about their own history with 

Social Security. Everyone who works has a history. They feel an 

ownership for that program, so you can imagine how devastating it 

is when people are actually sitting here fearful that their 

benefits will never come to them. 

So I, too, thank the President for putting this 

commission together, and I really am appreciative of his asking 
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me to serve on it. Co-chairman Parsons at one point commended 

the President on his courage in facing this issue, and I think we 

all learned a lesson from the President when he said, you know, 

it really takes more determination than courage. I think the 

determination that we bring to this task will ultimately decide 

how effective we are in preserving this critical program.

I would simply like to urge my colleagues to keep in 

mind several things that you may not think about when we start to 

look at all the actuarial tables and all of the issues 

surrounding the economics of social security. 

The first thing is that we have to speak plainly. We 

have to be very clear. The report we produce simply has to be 

readable and understandable, so that we do not run the risk of 

having everyone who does not support this approach begin to 

interpret the report for us. In government we have a tendency to 

speak in jargon. We assume that everybody knows what PIAs are. 

We assume that everybody knows what FICA means. I think it's 

time for us to be very clear that when we talk about Old Age 

Survivors and Disability Insurance, we make it clear that we're 

not talking about O-A-S-D-I, or when we want to talk about the 

various --- income, we shouldn't revert to jargon and talk about 

"AIM." We should be clear about what we're saying. I think if 

we do that, if we take the time to put definitions to the terms 

we use, nobody can misinterpret what we say. We can be very 

clear. 

The second thing I think is important is that for the 
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vast majority of people who might be receiving these personal 

savings accounts for the first time in their lives, it would be 

very, very important for us to take the time to counsel them, to 

let them know what this whole program is all about, to spend the 

money if necessary to make sure that they understand what their 

own risk tolerance is. After all, if we go to some organization 

to invest our money for us, that's the first thing they sit down 

and try to tell us about. So we need to make sure that people 

aren't feeling uncertain about what it is that might be offered. 

 In fact, if there are options, we ought to be clear that they 

are not required to take any step but that these are options for 

them. 

I think it's going to be very important for us to look 

at the most vulnerable people in our community, people who stand 

to lose a lot, as Estelle talked about, winners and losers. 

There are some clear winners and losers with regard to this 

program, and we need to make sure that we protect women as a 

group who rely so heavily on social security, minorities, who, as 

Bob Johnson pointed out, may not live to get the maximum benefit 

from the Old Age Program but who very often are blessed to have 

social security as survivors and cover their families and their 

children when they meet an early demise. 

I think we need to be very clear on what this 

commission's responsibilities are, that we, when we say that the 

commission will take an action, that we have decided to do that. 

 And for all of us, that's going to mean a real commitment of 
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time. We should make that commitment, we should dedicate 

ourselves to this task and not leave it in the hands of the very, 

very competent and able staff, but if we're going to step up to 

this task, we ought to understand everything that we put into a 

report so that we will feel comfortable standing behind it. 

So, readability, be clear on definitions, protect 

people who are vulnerable, protect people who rely on the system, 

spend the time making sure that we counsel the people who for 

them some of these things that we're talking about may be foreign 

terms, but we need to take the time to make sure they understand 

it, to make sure that we try to avoid any adverse impact on 

families and people who are vulnerable. Then finally, I think we 

need to screw up our courage and move forward. We cannot be 

deterred by all the people out there who are going to be 

critical, who are just waiting to lob in incoming missiles on 

whatever it is we produce. 

We have a task. We have a 15-year lead time before we 

begin drawing down trust funds, and we have about a 37-year lead 

time before social security falls off the precipitous cliff. I 

think, Mr. Chairman, we have our task before us. The time we 

take over the next 6 months will be important time, and I am 

absolutely delighted to be a part of this effort to make sure 

that we continue this critical program that has supported my 

family, all of our families, for the last 60-odd years. Thank 

you. 

MR. POZEN: My name is Bob Pozen. I'm currently vice 
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chairman of Fidelity Investments, so I've publicly announced I'll 

be retiring at the end of the year and teaching at Harvard next 

year. I, like the others here, am honored to be chosen to serve 

on this commission. I believe strongly, as Sam stated, that 

social security is one of the most successful, if not the most 

successful, government program in the history of the United 

States, and that's exactly why we need to strengthen this program 

and make sure that it's sustainable. 

I believe that the commission's initial task has to be 

to educate the public on the long-term issues involved with the 

financing of social security. Since I was appointed to the 

commission, many people have come up to me, and I'm amazed by the 

lack of understanding and the confusion that surrounds this 

subject. I think we have a great opportunity in the initial 

report and in other documents to educate people. 

Now, the fact that social security is a long-term 

problem, that's the good news. The good news is because we do 

not have to touch retirement benefits of anyone who's in 

retirement or near retirement. I should emphasize that in the 

President's Executive Order he states specifically that 

modernization must not change social security benefits for 

retirees or near retirees, so that those people who fear that 

this is somehow going to be a problem for them if they are in 

retirement or close to retirement, that's just not an issue. 

Instead, as a number of people have said here, since this is a 

long-term issue, we can make small changes soon that will have a 
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great effect over a long term. This is the beauty of having a 

30-year problem, that if you can make small changes, that over a 

period of 20 or 30 years it can help the next generation. 

On the other hand, there are no easy solutions. I 

think that when you look at private accounts, you have to look at 

them relative to the other solutions. I don't think that there's 

probably a lot of people who want to raise payroll taxes, and 

there aren't a lot of people who want to cut benefits 

dramatically, and there aren't a lot of people who want to create 

a huge budget deficit. So we have to realize that there is no 

free lunch here. There are no easy solutions, and when we look 

at private accounts, we have to look at them relative to other 

approaches that could be taken. And when we look at private 

accounts, I think that it's important, as Olivia mentioned, that 

we look at how they are designed, whether they are practical. I 

would add to Estelle's criteria, practicability or workability, 

since I think those are very important considerations. 

So in the end I think we come back to education. We 

come back to some of the things that Gwen is saying. We have to 

have a report here that will explain the problem so that most 

Americans can say yes, I understand this is a problem, and then 

can also explain whatever solutions we come up with in simple 

language that everybody can say well, I can see there aren't a 

lot of easy solutions but this is a quite reasonable one given 

the circumstances, and I can understand that these are the sorts 

of things that are going to be done and these seem reasonable to 
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me. If we can convey that in simple terms and have people 

understand that, then we can build the consensus that we will 

need to actually put this reform program into place. Thank you. 

MR. PARSONS: Thank you, Bob. Yes, I think everyone 

spoke both from the heart and from the head at the same time. I 

want to introduce also, because I was remiss at the outset in not 

doing so, our Executive Director Chuck Blahous. I do that for 

two reasons. Number one, he is really going to be the work horse 

supporting this commission in pulling together all of the 

analyses and data and options that we're going to be evaluating 

over the course of time, and number two, so that any of you who 

have real bones to pick can go to Chuck and leave the rest of us 

alone. So Chuck, on behalf of the commission, we're grateful to 

you and the staff that you're putting together and look forward 

to working with you over the course of the next several months. 

Everything has been said around this table about both 

the importance and the determination of attacking this problem. 

I would just like to before we take a break echo one thought 

which Bob expressed at the end and others of you along the way.

It's easy to think when you get into the hothouse of 

the Beltway that, well, everybody knows social security needs to 

be reformed and it's just a question of when and how. Those of 

us who live outside the Beltway don't necessarily share that 

view. I am not even sure it rises to the level of confusion 

about social security. Many people just draw a blank. It's 
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something that my grandmother gets or something, but they don't 

know what FICA is. It's just another thing on their payroll slip 

that means they don't get their money. 

One of our real challenges is going to be to shine some

light on the nature not only of the system, the benefits that it 

promises to present Americans who are retired and future 

generations that will retire, but why the system is structurally 

broken, why it cannot work anymore in the way in which it's set 

up, and to have people gain an understanding of what the problem 

is before we get bogged down in what the solution is going to be. 

 There are a number of people who have already begun to attack 

the work of this commission even though this is our first 

meeting, and they're out sort of rattling their sabres and 

threatening -- or charging us with committing all sorts of mayhem 

upon retired Americans or disabled Americans or future 

generations of Americans, when we haven't proposed any approach 

to the problem yet. 

I think the first thing we need to do is help develop 

around the country and not just inside the Beltway, an 

understanding of the system, it's structural infirmities, and get 

some discussion around that before we then tackle construction of 

solutions to those structural infirmities. And that, ladies and 

gentlemen, is what we're going to start talking about after the 

lunch break. 

As we've thought about our work, we're going to divide 

it in two parts. First part will be an interim report which 
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really does come out and talk about the problem, what is the 

problem and why is it important to Mr. and Mr. (sic) Joe Citizen, 

in language hopefully, Gwendolyn, that will be understandable to 

Mr. and Mrs. Joe Citizen and that the press can convey in fair 

and balanced terms, so that we don't cause fear, we don't cause 

concern on the part of people who are currently retired, but we 

do cause awareness on the part of people who will retire some 

day. That interim report will be the subject of our discussion 

when we return from lunch. 

After the interim report is out and later on in the 

fall, we hope to open the process to those members of the public 

who have been thinking about working on this problem to share 

some of their ideas and thoughts with us and to have some 

deliberations around this table about our own ideas and thoughts, 

but --

SENATOR MOYNIHAN: Mr. Chairman, could I ask, did you 

suggest that we would have a public hearing at one point?

MR. PARSONS: Again, as a commission we haven't 

formally addressed that issue, but I think the two co-chairs are 

of the view that this is a process that needs to be characterized 

by a number of things, but certainly one of them is openness and 

accessibility and availability to hear what people who have been 

working on this problem for years have to say, and to take their 

input as well as develop our own thoughts and ideas. So my 

disposition, Mr. Chairman, is yes, we should, but we need to as a 

commission sort of wrestle with that. 
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DR. JAMES: Yes. I think it would be a good idea for 

us to talk about it perhaps in the afternoon or the next meeting 

about the best way to get input from the public. A public 

hearing is one way, and then there are other ways, such as taking 

written submissions. I thought a little bit about what I think 

might be helpful to me; that is, I think it might be useful if we 

posed specific questions and requested people and organizations 

to submit their answers, so that we could actually get ideas that 

could be constructive that would help us grapple with specific 

issues that we're thinking about. And that might also be more 

expeditious than simply a series of public hearings. It's not an 

either-all situation, but it's another way --

MR. PARSONS: Yes.

DR. JAMES: -- to get constructive input. 

MR. PARSONS: I think it's a good idea because --

DR. JAMES: I hope we have time to talk about that. 

MR. PARSONS: -- as several of you pointed out, we're 

on a fast track.

DR. JAMES: Uh-hm.

MR. PARSONS: Which means we cannot have sort of 

endless hearings. We've got a very --

DR. JAMES: That's right. And we all have limited 

time, but on the other hand, I think we'd like -- it's important 

to be open to ideas from the outside.

MR. PARSONS: I agree with you, but I do think all of 

this proceeds from a common understanding at least of what the 
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problem is.

DR. JAMES: Uh-hm.

MR. PARSONS: And so hopefully we can make some 

progress on that when we reconvene. Unless any of my fellow 

commissioners have further contributions, we are going to take a 

luncheon recess. We'll be back at 1:00 o'clock. 

(Luncheon recess)
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A F T E R N O O N S E S S I O N

(1:04 p.m.)

Interim Report Development 

MR. PARSONS: May we come to order. I'm going to tell 

you, this is not like New York, where approximately 15 minutes 

after the first call to come to order people begin to quiet down. 

 Very --- quiet here. Okay. I hope everyone had a at least 

nourishing repast. We certainly did. 

What we are going to do for the next hour or so now is 

talk a little bit about this interim report that under the 

President's commission, by charter the commission is required to 

prepare and which we mentioned a little bit this morning. Chuck, 

I think what I would do by the way of just putting everybody on 

the same footing is ask you to kind of walk us through the 

requirements of the charter and tell us where the staff is at 

this point in time and what you need by way of commission input 

to take the next steps.

MR. BLAHOUS: Thank you, Mr. Chairman. The President's 

Executive Order specifies that the commission shall submit an 

interim report that will describe the challenges facing the 

current social security system, as well as the criteria by which 

the commission will evaluate reform proposals. 

What we have done for all of you in your briefing

materials is to assemble material that speaks to both of these 

objectives. Chapter one in your briefing book attempts to 

describe the state of the current social security system, and 
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chapter two presents possible criteria of analysis and evaluation 

for reform proposals. 

Let me just say a few words very briefly about the 

contents of chapter one of your briefing book. One of the 

difficulties that faces you or anyone else who is trying to 

describe the current social security system is that the current 

system is out of actuarial balance. In other words, there is a 

mismatch between the outlays that are promised from the system 

and the revenues that are committed to it. 

This provides not only an actuarial problem, but an 

analytical one as well. It's impossible to describe who is being 

affected in what way if you don't know from where the revenues 

are coming to pay the benefits that the system would provide. 

What we have attempted to do is to show you various ways that the 

current system could play out if no action were taken and no 

reform were adopted. 

The first baseline we've presented to you is reproduced 

on the chart in the corner over there. That is our best effort 

to describe the literal consequences of current law. This is 

what would take place if no legislative changes were made. As 

you can see on that chart and as has been alluded to by some of 

the commission members already, in 2016 the system's annual cash 

payment obligations will exceed its annual revenues coming in 

from payroll and benefit taxation. 

What that means is that beginning in 2016, the federal 

government would face a series of choices. Lacking dedicated 
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program revenues that are sufficient to pay full benefits, it 

would have to find another means of closing the gap. It would 

either have to raise additional tax revenue, reduce spending 

either on social security benefits or some other area of the 

federal government, or increase public debt, borrow the money. 

Now, at that time the social security trust fund would 

still have a positive balance. That means that the Social 

Security Administration would still have the full legal authority 

to continue to send out benefit checks, but that authority would 

expire in 2038, because in the period from 2016 to 2038, the 

entirety of Social Security's trust fund balance would be drawn 

down, and at the point where there is no more positive balance in 

the social security trust fund, the Social Security 

Administration would lack the authority to write checks. It does 

not have borrowing authority, and it would simply have to wait 

until sufficient revenues came in to pay benefits. 

SENATOR MOYNIHAN: Mr. Chairman, may I --

MR. BLAHOUS: The effect of such change --

SENATOR MOYNIHAN: Sir, can I just say, when you say 

the trust fund would be drawn down, there is no stored value as 

such in the trust fund. These are government undertakings 

defined revenue, so it would have to come from --

MR. PARSONS: Someplace.

SENATOR MOYNIHAN: -- taxes or borrowing of another 

kind. There is no "starting in 2016 we are out of money." 

MR. BLAHOUS: That is correct, sir. That is absolutely 
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correct. And while that problem begins in a very gradual way in 

2016, as you can see on that chart, the size of those financing 

gaps becomes extremely large well before the projected insolvency 

date of 2038. So the --

SENATOR MOYNIHAN: Well, if I just may say, it somewhat 

misleads the public to talk about an insolvency date that simply 

means a date on which there are no longer these bonds in the 

Treasury, which the Treasury has to go out and find revenue for 

in any event. The insolvency date, sir, is surely 2016. If 

I'm -- please correct me. I know --- assisting. 

MR. BLAHOUS: You are absolutely correct, sir. Whether 

or not there is a positive balance in the social security trust 

fund, the government has exactly the same problem. And that 

problem begins in 2016, which is that annual program revenues are 

insufficient to pay full benefits. 

DR. JAMES: Could I just follow up on this question, 

because it sounds like there is a distinction between 2016 and 

2038. Now, 2016 there's a government undertaking to find the 

money, there's an obligation; 2038, I think the current law, from 

what you said, I think the current law says that there is no such 

government legal obligation. There may be a moral commitment or 

a political need, but legally at that point, benefits would 

simply be cut. So that's a kind of distinction between what 

happens in 2016 and what happens --

MR. BLAHOUS: That's correct.

DR. JAMES: -- in 2038.
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MR. BLAHOUS: That's correct. Now, what we have 

attempted to do in your briefing book is to provide you with 

various alternative views that could show how the system might 

evolve under other circumstances. 

MR. PARSONS: It might be well just to sort of tarry on 

this point for a minute, because it's all part of I think one of 

the big challenges this commission has, which is explaining 

first --- and then the American people what actually is going on 

here. As I understand it -- so let me take a cut at that and 

then invite other members of the commission to add if need be. 

Currently, we collect enough under FICA to actually --

enough money comes into Social Security to pay out the benefit 

obligations that Social Security pays to current retirees, and in 

fact, we take in a little bit more than we actually need to pay 

out. That little bit more, which is called a surplus, one of 

several things could happen to it. Actually, the money could be 

taken by the system or by the government and put somewhere, what 

Senator Moynihan calls a stored value. It could be invested 

somewhere or just put in a bank. But what's actually happening 

is the government takes the money, uses that money for other nonsocial security-related purposes and gives a piece of paper back 

to the social security system saying I owe you X dollars, and in 

2016 the amount of money that comes in under those taxes to pay 

for social security obligations is less than, starting in 2016, 

is less than the amount of money that has to go out and the 

system has to now redeem those government IOUs. But since the 
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government spent the money, in order to redeem the IOUs, the 

government has to go out and either raise taxes or increase 

public borrowings, because the money is gone. 

So I think Senator Moynihan is right when he says that 

the real crunch time comes in the middle of the next decade, 

because we're either going to have to reduce benefits because we 

don't have the cash flow to make that and nobody anticipates 

that, or all suffer either a higher tax burden or greater public 

debt in order to pay out those IOUs. Then we run out of IOUs 

sometime in the middle of 2035, 6, 7, sometime in that time 

frame, and at that point in time, the problem compounds itself 

because we don't even have the IOUs. Now the government has to 

go out and raise not only the money they borrowed to spend on 

earlier programs but --

DR. JAMES: Or cut back.

MR. PARSONS: --- new money. 

DR. SAVINGS: Mr. Chairman, I think that's exactly why 

we should try to avoid focusing on insolvency, because insolvency 

is equated I think too often with this period from 2038 forward, 

when our problems moves (sic) toward insolvency starting in 2016. 

 So that's why the insolvency issue is not really the real focus.

MR. PARSONS: But I think people need to understand 

that sooner rather than later --

DR. SAVINGS: Right.

MR. PARSONS: -- something has to give. Either 

benefits get cut or the government raises taxes --
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DR. SAVINGS: Right.

MR. PARSONS: -- in one form or another because the 

incoming cash won't meet the outgoing requirement. 

DR. JAMES: Could I add one point to that, that even 

before 2016 something else happens, which is the amount of money 

that's coming from social security to support government programs 

gets smaller and smaller. I mean, it becomes zero in 2016, but 

it becomes smaller every year before then. So even before then, 

if the government wants to maintain that same flow of money to 

its other programs, it has to find the money from somewhere else 

through increased borrowing --

MR. PARSONS: Uh-hm.

DR. JAMES: -- or taxation. So the problem really 

starts considerably before 2016. 

DR. COGAN: I would only add one thing to your 

discussion, Mr. Chairman, and that is besides raising taxes, 

besides borrowing, the option that the government has, as 

unpleasant as it is, is cutting non-social security spending. 

Some attention in the report, in the interim report, to the 

amount of reductions in non-social security spending might be 

very instructive for our readers. 

DR. SAVINGS: Mr. Chairman, I think an issue that's 

related to this issue is that if we, and we could do this, 

Congress could simply do this by running the printing press and 

printing up more of these bonds, if there was a googol trillion 

dollars in the trust fund, and that's 10 to the 100 trillion in 
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the trust fund, or if there's zero, the implications for the 

federal budget are identical after 2016. It makes absolutely no 

difference what's in the trust fund, and because of that, we 

would argue in economics there's nothing in the trust fund, it's 

simply a promise, and as it impinges, as I pointed out earlier, 

both with Medicare, Medicaid and this, by 2070 100 percent of the 

federal budget will be used for these programs. And that's 

assuming the federal budget grows with gross domestic product and 

stays a fifth of the gross domestic product. 

The point is that the trust fund is irrelevant except 

in this legal sense, that when the trustees come to the Secretary 

of Treasury and hand them these certificates, they are required 

to give us cash and that's only required if Congress requires 

them to do that, and if it's impinging on the other aspects of 

the federal budget that are more important at the time, then 

clearly hard decisions have to be made. But it doesn't change 

the actual federal revenues in any way. So it impinges on those 

revenues, and it's important for I think the public to understand 

what the trust fund really means and changing those numbers, 

because they can easily be changed and the system can be made 

solvent in that sense of the word. We can make that trust fund 

anything we want to. If we want to change the interest payments, 

which is a suggestion that's been made, change the rate of 

interest, make it 100 percent a year, we can make this last 

forever, but we can never actually find the real resources 

because retired people, as I say, drive real cars, eat real food, 
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and live in real apartments and use real medical care, and that's 

real output in the country and that's the only thing we have. We 

can't change it with writing numbers on a sheet of paper. 

MR. PARSONS: Okay. I just thought, and I appreciate 

your provoking conversation, Senator Moynihan, it would be 

helpful to talk about that a little, because there's a great 

source of confusion as to what all these concepts mean, and also 

from an urgency point of view, there's a big difference between 

the middle of the next decade and 2038 or whatever. Carry on.

MR. BLAHOUS: Well, as has been indicated here, that 

fiscal problem develops in 2016 and is not something that 

materializes only in 2038. Dr. Saving in his remarks said that 

the only real difference is that -- is really sort of a legal 

definition of what is happening in 2038, that legally in 2038 the 

Social Security Administration no longer even has a claim on 

sufficient revenues. And at that point, as you can see in the 

chart, the effect on beneficiaries in that year would be a sudden 

reduction in benefits of approximately 27 percent. From that 

point forward, if benefits were to be funded from projected 

revenues, those benefit reductions would gradually increase from 

27 percent in 2038 and would gradually become 33 percent in 2075. 

 So even if you assume that the federal government has done 

something to produce these extra revenues between 2016 and 2038, 

this would be the consequence for beneficiaries of inaction. 

Now --

MR. PENNY: Mr. Chairman, if I could follow on that 
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point. Just to clarify, you said that the legal standing of the 

system at that point would be such that they have no other 

recourse.

MR. BLAHOUS: There --

MR. PENNY: In law what is anticipated that the 

Administration, the Social Security Administration will do if we 

allow ourselves to hit that point?

MR. BLAHOUS: This is an area that is often speculated 

about.

MR. PENNY: And can we look back on the 1982-83 

experience for any enlightenment here?

MR. BLAHOUS: Well --

MR. PENNY: No. I see Steve --

MR. BLAHOUS: -- there were things that were done to 

carry the Social Security Administration over so it didn't reach 

the point where they couldn't send the checks out, on a very 

emergency basis. Now --

SENATOR MOYNIHAN: There were benefit cuts. 

MS. : That's right.

MR. PENNY: As part of law. 

SENATOR MOYNIHAN: I'm sorry, Tim.

MR. PENNY: As part of law. 

SENATOR MOYNIHAN: Yes, sir.

MR. PARSONS: That's right. 

SENATOR MOYNIHAN: The --

MR. PENNY: But what I'm asking is, did the 
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Administration, the Social Security Administration under its own 

authority --

MR. BLAHOUS: No.

MR. PENNY: -- do anything in the '82 to '83 time 

frame?

MR. BLAHOUS: No. And in fact, the Social Security 

Administration does not have borrowing authority. It does not 

have the authority to write checks without dedicated financing. 

MR. PENNY: I just wanted to get that on the record.

MR. GOSS: But Chuck, if I might just add, at that time 

there was a temporary borrowing authority that was made 

available.

MR. BLAHOUS: That's right.

MR. GOSS: Amongst the --

MR. PENNY: Under law.

MR. GOSS: Under law. Only under a law can this occur, 

and amongst the OASDI and HI trust fund, borrowing --

MR. PENNY: So the bottom line is that --

MR. GOSS: -- was temporarily ---.

MR. BLAHOUS: -- that there are no options available to 

the Social Security Administration unless under law we make those 

options available. 

MR. BLAHOUS: And as a technical sense, the 

Administration, neither do they have the authority to make the 

arbitrary benefit reductions that would result on that chart 

either. They cannot do that. Those projections arise from the 
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finding that lacking financing, SSA would simply have to delay 

when checks were issued and the effect of those delays would be 

to reduce levels by 27 percent. 

MR. PARSONS: Bob.

MR. JOHNSON: I have a question. In listening to all 

of this then, I think the public can conclude that social 

security is not a right, that there's no -- nothing in the 

Constitution that says you are entitled to life, liberty and 

social security. You are only entitled to it so long as the 

Congress decides that there should be a plan called social 

security benefits for people where no matter how much you put in, 

you are not guaranteed a certain amount that you would take out. 

MR. BLAHOUS: That is correct. 

MR. JOHNSON: Thank you.

DR. JAMES: And there's nothing that's contractually 

enforceable in court. 

MR. BLAHOUS: That is correct. Now, the problem that 

many might find with this particular projection is the quite 

reasonable prediction that the political process would react to 

avert that circumstance, that we would not tolerate a sudden 

reduction of benefits of 27 percent. So even though this is a 

literal projection of current law, some might find fault with it 

and say this is not our best guess of what would happen under the 

current system. 

Towards that end we have provided you with various 
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alternative projections in your briefing book that show different 

adjusted baselines, to give you a sense of the range of 

possibilities. There are really only two sets under the current 

system. One is to cut benefits, the other is to raise taxes. 

Now, this chart shows the consequence of benefit reductions 

delayed to their last possible moment in 2038, if we did nothing 

and then we would have the maximum amount of required benefit 

reductions all of a sudden in 2038. 

For purposes of illustration, we provided in your 

briefing books the opposite side of the spectrum which is shown 

in chart two and baseline two in your briefing books, which is to 

also assume what level of benefits can the current system 

actually fund but what if those benefit changes occurred at the 

earliest possible moment rather than the latest, and the 

projection is that if they occurred next year and were averaged 

over 75 years, the changes would be roughly 12 percent less than 

current law, although -- or excuse me, current promises, although 

after 2075, just as in this chart, benefit changes would be 33 

percent less. 

Now, no one can say for certain what exactly would 

happen within the current revenue stream that is projected, but 

what we can say is that the likely larger boundary on how large 

they would be would be 27 percent, the smallest they could 

possibly be would be 12 percent if they occurred next year, and 

somewhere in between that 12 and 27 percent benefit reduction, 

depending on the timing that they occurred, would be the benefit 
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reductions that are implicit in the current system.

Now, charts three and four show the other alternative, 

which is to raise taxes. Similarly, as with charts one and two, 

there are shown two possible scenarios. One is that the nation 

waits until the last possible moment and enacts its tax increases 

in 2038. Again, after all the measures are undertaken to fill in 

the cash gaps from 2016 to 2038, then there would have to be an 

additional explicit raising of the payroll tax or whatever other 

taxes the nation would need to raise in 2038, in order to meet 

full benefit promises. Then finally, in baseline four we show 

what would happen if revenues were increased in a short term, 

immediately, beginning next year and again averaged over 75 

years. 

Now, there are faults and problems with all four of 

these possible baselines. One is the most literal application of 

current law, but people would say the nation would never permit 

that to happen. Baselines two, three and four in various 

respects violate the instructions that have been given to this 

commission and also violate I think much of the political 

consensus regarding how social security should be treated. 

Baseline two, for example, assumes that there would be changes in 

benefits next year, which is clearly in violation of the 

commission's instructions and I think in violation of the 

political consensus. Moreover, baselines three and four assume 

increases in taxes, which, if they were payroll taxes, would also 

be off the table as far as this commission were concerned.
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MS. : Mr. Chairman -- 

DR. JAMES: I have a question about baselines three and 

four, the additional revenue commitment. 

MS. : Could you talk into the mike.

DR. JAMES: Yes. Baselines three and four, additional 

revenue commitments. You assume that all of that temporary 

surplus is used to buy government bonds, I mean, is given to the 

government. What rate of return are you assuming?

MR. BLAHOUS: Well, under both of these assumptions, 

these are simply attributions of revenue to the trust fund --

DR. JAMES: Uh-hm.

MR. BLAHOUS: -- and I treated them exactly the same 

way. 

DR. JAMES: There's no investment --

MR. BLAHOUS: That's correct.

DR. JAMES: -- of those funds.

MR. BLAHOUS: And that actually points out some 

additional problems with these baseline projections. For 

example, one might regard it as politically unlikely that any 

nation would raise taxes in the midst of enjoying a surplus, as 

baseline four assumes. But if that did happen, then the nation 

would be on a path of far more rapid redemption of the public 

debt than it even currently is. 

DR. JAMES: Uh-hm.

MR. BLAHOUS: One could look at baseline four and say 

that ultimately well before current projections, this scenario 
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would envision the government having to buy up private 

securities, because it will have brought in additional revenue 

when it's already buying down public debt at its maximum possible 

pace. 

DR. JAMES: But you haven't computed any such rate of 

return.

MR. BLAHOUS: No. They are assumed treated as under 

current law. 

DR. JAMES: Right. 

MR. PARSONS: Yes, Olivia.

DR. MITCHELL: If I could just interject. It seems to 

me that in proposing or in outlining some of these different 

baselines, what's very clear is that you cannot use current law 

regarding benefits and current law regarding taxes as a baseline, 

because that is not a system which works. So I think that it's 

very important for all of us to remember going forward that you 

could hypothetically imagine a system where current law taxes go 

forward and make the benefits fit, or conversely where current 

benefits go forward and make the taxes fit, but not both. So 

that's really the place we need to start from in moving forward. 

MR. PARSONS: Gwendolyn.

MS. KING: Yes. Another question, Chuck, I had, it 

seems to me that the four selected baselines could have been 

tripled or quadrupled with any number, and I think it would be 

important for you to mention to the group why you chose the 75-
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year period for the baseline number two and what that portends 

for the trust -- for the social security program itself. 

MR. BLAHOUS: Well, this actually was an issue that we 

struggled with at the staff level for a very long time. I think 

the conclusion was reached fairly early that we had to have at 

least one presentation of the consequences of pure inaction. In 

other words, the trust fund balance goes down to zero and benefit 

reductions occur as a consequence of that. 

We did consider various alternative ways of looking at 

this. We finally in the end came to the conclusion that it would 

be most symmetric and organized in our presentation to the 

commission if there was a consistency between the total of levels 

of benefits provided under both baselines one and two and the 

total level of revenues made available in baselines three and 

four. For example, what happens under baseline one is that the 

trust fund balance goes down to zero and remains there. Now, 

under baseline two we could have said that benefits would be 

changed by the level that would be required to bring the system 

into what the trustees define as actuarial balance.

DR. MITCHELL: And that's really what I want you to 

speak to. 

MR. BLAHOUS: That means that the trust fund ratio 

would be maintained at 100. For those of you who don't 

understand what that means, that means that there is always 

enough money in the trust fund at a particular time in order to 

pay one full year's of benefits. The reason we did not do it 
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that way is that that meant that baseline two would assume a 

different total level of benefits than under baseline one, where 

we allowed the trust fund to go all the way down to zero. 

Now, we could have chosen to do both the other way, but 

we were -- we felt that baseline one was important to include 

simply because that was a literal portrayal of inaction, and then 

baseline two we felt we needed to show a level of benefits that 

was consistent except that the timing was different with respect 

to when they were paid. 

DR. MITCHELL: So if memory serves me right, the trust 

funds have not been in actuarial balance for some time. Do you 

recall the last time the trust funds were in actuarial balance, 

Steve? 

MR. GOSS: Yes. Precise actuarial balance last time 

was 1983, right after the amendment. 

DR. MITCHELL: 1983. 

MR. GOSS: Yes.

MR. : For one year?

MR. GOSS: Yes. Yes. The year after, a very, very 

small imbalance. 

MS. KING: So for about three months. That's right. 

So we've been going along now for a period of some 18 years 

without the trust fund being in actuarial balance, which means 

that my grandchildren when they begin working at 21 -- they are 

now 1 and 4 and 6 years old, when they begin working, the 

assumption is that by the time they get ready to retire, there 
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will be funds sufficient to pay their benefits. My sense is that 

if we were do a whole series of baselines, we could really 

ratchet in 30 years, 40 years, 20 years, and it would give us a 

different picture but it still would say to us that we're not 

going to be in a situation where we take in the money sufficient 

to pay out benefits going forward, that there will be a 

shortfall, and that sooner or later we are going to have to 

reconcile ourselves to a sharp drop in benefits or some sort of 

revenue increase in order to keep the system going on the current 

path. Is that correct? 

MR. BLAHOUS: That's correct. And just to elaborate on 

this question of how many baselines to present and how we arrived 

at these, one of the things we wanted to steer clear of was 

presenting anything that looked like a prediction or a 

recommendation or an attempt to mold these things consistent with 

someone's preferences as to how this would go forward.

We presented these baselines because they basically 

show boundaries. Baseline one shows the size of benefit changes 

that would be required if you wait to the last possible moment. 

Baseline two assumed they would occur at the earliest possible 

moment. The truth is somewhere there in the middle, and we felt 

it would be presumptuous to try to predict or suggest what the 

reality would be. 

MR. PARSONS: Can I --

DR. JAMES: Just further on this question of baselines. 

 If you look at baseline two where you --
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MR. PARSONS: Estelle doesn't know the rule.

DR. JAMES: -- are averaging over the 75-year period, I 

have the impression, and maybe you could comment on this, that if 

we were to do that, to adopt a benefit reduction sooner rather 

than later, and if we were then to run a projection for another 

75-year period five years from now, we would find we still had a 

problem. Even though we thought we had solved it today, tomorrow 

it's no longer a solution, because we're substituting a bad year 

out there for a good year. 

MR. BLAHOUS: That's it. That's absolutely correct, 

and we know that with some certainty. One year beyond the 75-

year period, and I think Ms. King's comments may touch on this as 

well --

DR. JAMES: Uh-hm.

MR. BLAHOUS: -- this baseline assumes a change of 12 

percent averaged over 75 years. In the 76th year, the change 

that is needed is 33 percent. 

DR. JAMES: Right.

MR. BLAHOUS: So if this happened under current law --

DR. JAMES: Right.

MR. BLAHOUS: -- the next year's trustees's report 

would say you're out of balance again and you are not on a 

sustainable path. 

DR. JAMES: Right. Those are my grandchildren who are 

going to be retired at that time, so I am concerned about that.

DR. COGAN: Chuck, as I understand it, the baselines 
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that you are using, the purpose of that discussion is to help us 

arrive at some common understanding of the problem and draft an 

interim report that provides that common understanding of the 

problem. It does seem to me that, although these baselines are 

useful, I'm not sure that they are necessary. I mean, it does 

seem to me that what we want to do in this interim report is 

state very clearly and very simply what the magnitude, the 

timing, and the scope of the problem is, and what the 

consequences of failing to act are. 

What I worry about is that the presentation of specific 

ways of solving the problems are going to be misconstrued, 

incorrectly construed by individuals as our proposed solutions, 

and since I don't think that these baselines are necessary for an 

interim report and I do worry that they are going to be 

misconstrued, seems to me that we might be better off trying to 

structure an interim report that focuses on the timing, the 

scope, the magnitude of the problem, and hold off on the 

selection of a specific baseline until we get to the point where 

we have several proposals, several proposed solutions and we need 

a baseline against which those proposals can be compared. 

MR. POZEN: I'd like (coughing) to, excuse me, 

reinforce what Jack (sic) Cogan just said, because I think what's 

the purpose of these baselines, is just to help educate people as 

to what's the nature of the problem, and I think when you come 

down to it, ultimately you see, if we do nothing, in the year 

2038, we're going to either -- that we'll have a shortfall of 
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benefits or we'll have to raise more revenue, and you can raise 

revenue through specific payroll taxes or through general 

revenue. I think that's really all you need to say. You don't 

have to say we're proposing to, even the theoretical, 

hypothetical we're going to propose to reduce benefits et cetera. 

 It's just a way of explaining to people how big the shortfall 

will be, and I think that if we can get that through, to have 

people understand that there's a year-to-year deficit in 2016 and 

then in 2038 there is this shortfall, that can be described in a 

number of different ways, and I would stay with what -- just 

benefit and revenue, and not try to get in these gradual things 

which really make it extremely complex. Then people have a sense 

of what the magnitude of it will be.

MR. PARSONS: I wonder also, Chuck, I know the chair is 

supposed to not comment substantively, but just listening to the 

discussion, it does strike me that it's fairly easy to say we 

have an obligation to pay out $500 trillion and we're only taking 

in $400 trillion, so there's a shortfall. I think people need to 

understand why that is so, why you can't fix it in the current 

system for all time, namely the point that Estelle was making, 

that if you just move it out a year it falls out of balance 

again, and it has to do with the nature of, the structural nature 

of the social security system. 

In a pay-as-you-go system, if when you started out, 

let's say that there were 8 people working for every person who 

was retired and the average age of a retiree was -- lived in 
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retirement for 10 years, and if those ratios stayed in balance 

for all time, then probably the pay-as-you-go system would work. 

 But those are changing. We now have 3 people, moving down to 2 

and a half people, working for every person who's retired. 

Instead of living an average of whatever it was 30 years ago, 

it's now 2 times that length. So that we're always going to be 

falling behind, given the structural nature of the social 

security system, unless we change the structural nature of the 

system. You can't ever get -- all you can do is sort of catch up 

for the moment, and with the next click of the second hand you're 

out of balance again because the demographics and the structure 

of the system are working against you. So I think that people 

can begin to understand why there's a problem, not just that 

there is a problem --

MS. : Uh-hm. Right. 

MR. PARSONS: -- and what it's current magnitude is, 

but why there's a problem. That then leads you to a whole 

different way of thinking about what possible solutions might be. 

 Yes, Sam. 

MR. BEARD: I completely agree with that comment, 

because as I've gone around the country just talking about social 

security, what everybody understands is once the baby boomers 

retire there are going to be less than two workers asked to 

finance one senior. Everybody understands that. It's not 

trillions of math this and some curve that no one knows what it 

is. It's that there's 1.8 workers asked to finance 1 senior who 
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increasingly is going to live to late 80's, early 90's, and then 

go over 100. Your wording was perfect. 

MR. PARSONS: And if it's me the senior, I've got 

expensive tastes. 

(Laughter)

MR. BEARD: The next thing I'd like to --

MR. POZEN: You're going to live a long time, too. 

MR. BEARD: The next thing I'd like to talk about in 

defining the problem is not just the social security problem, 

it's the wealth problem. 

MR. PARSONS: Yes.

MR. BEARD: I'm not sure that that's in these 

materials, in terms of if you don't define a problem then you 

can't come up with a solution. If you start with the problem 

that, going forward for retirement security, unless you have 

adequate finances you're going to be in a real difficulty, then 

you go to the whole wealth issue that half the country has less 

than two percent of the wealth. I think that needs some real 

definition, which then sets the stage, and I like your wording, 

which is it's the reason for major structural change. We have 

new problems in the year 2001 which they weren't facing in 1935, 

and one of them is the wealth issue. If we don't define it as a 

problem, then we're never going to get a solution to it. 

MR. PARSONS: Gerry.

MR. PARSKY: I would really concur with the comments 

about the baselines. My added comment, though, is that the 
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baselines as presented try to anticipate what might be done, as 

opposed to, say, real structural change needs to happen, let's 

propose a solution. I do think, though, that it is important as 

we lay out the problem that we set the stage for comparisons. 

There will be comparisons made to the solutions that we come up 

with against other solutions, and I think we need to be able to 

anticipate that as we lay out the problem, but I would really 

concur that trying to pick one of these baselines -- to lay out 

the problem around the baseline as opposed to basically getting 

on with the structural problem is not the right way to go, 

because people will just say well, you're anticipating certain 

behavior, that's not going to happen that way, and it can go on 

endlessly. 

MR. PARSONS: Tom.

DR. SAVING: Mr. Chairman, there's another issue I 

think that the interim report or a way of describing the state of 

the system that would be instructive for people is the question 

as you look at the deficits that are forecast, you would wonder 

why is that a problem, why can't we just raise the money. And 

the question that's there is, what's the share, if we assume the 

federal government is going to continue to raise 20 percent of 

the gross domestic product, what share of that budget is going to 

be taken up with a program like this one and with other elderly 

entitlement programs? That is what's going to tell you the 

pressure that's going to be on the federal government, because 

all its other programs are going to have to get smaller. It's 
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very important for everyone to see that if this program were to 

go on, and if we were to fund it in any one of these scenarios, 

that it has implications for the entire rest of the budget. As 

I've said before, in 2070 it means the rest of the budget is 

zero. The federal government is no longer doing anything. 

The point really is to see --- those implications. 

We've raised that issue, and that comes back to this trust fund 

issue that says there's nothing in the trust fund because the 

trust fund has nothing to do with that share of the federal 

budget. It doesn't impact on it in any way. It's exactly the 

same no matter what the trust fund is. And it really gets right 

to that point and says what's the share of the federal budget 

that these programs have to take in order to continue, and you 

can see that that share of the federal budget is not going to be 

tolerated. The public is not going to give up those federal 

expenditures that they now have, and if they're not going to give 

them up, then they are going to have to give up this program or 

those programs or do something, and I think that's important. 

MR. PARSONS: Olivia.

DR. MITCHELL: Just to follow along that tack, I think 

one of the things that's really important in this area is to 

recognize that most folks don't really relate on a daily basis to 

GDPs and trillions of dollars and percentages even, and so what I 

would like to propose is to try to go back to the baseline but 

maybe cast it in terms of something concrete that people can 

really understand. For example, if you're talking about a 
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benefit cut of 33 percent, cast it in terms of, well, average 

benefits for the average family are on the order of $16,000 a 

year for a retired worker and spouse, so this is maybe a $5000-ayear cut, on that order. Make it very concrete so that people 

understand, it's not abstract, it's not something that will 

happen in the future that we can't get a handle on. This is 

going to be very important to retirement consumption. 

Similarly, I would say take the tax changes that would 

be required, if you take that approach, and convert it into 

actual dollars per payroll per worker that a worker is going to 

have to pay on his or her payroll. Or a different way to put it 

is if you're talking about the unfunded liability of the current 

system, that number is maybe $9-10 trillion. I don't relate to 

trillions. I know some of you people with bigger budgets than 

professors do, but you know, if you convert it to an annual --

I'm sorry, a per capita amount on a per worker basis, it's on the 

order of $68,000 per worker in today's America. 

So this is the way we have to I think convert these 

graphs and scenarios to a very concrete way of talking that 

people can really understand and get the notion that instead of 

retiring on $16,500 a year for an average retired working family, 

maybe it's more like 10 grand, and that's going to be a big 

change and we need to do something in order to make it look 

better. 

MR. PARSONS: If you don't deal well with trillions --

DR. JAMES: Can I --
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MR. PARSONS: -- imagine the rest of us with 

googols. ---

DR. JAMES: Can I add one other thought, and maybe 

you're planning to get to this when we let you move on, but until 

now we've only been talking about financial flows, and I think at 

some point we have to talk about the real goods and services that 

we're really concerned about. 

One thing that happens when you have fewer workers 

supporting each retiree is it becomes very important to raise the 

productivity of those workers, otherwise there's just going to be 

less to go around for everyone. I mean, it's really not the 

paper money that we care about, it's really the goods and 

services that go behind it and one problem that I think we have 

to raise. but it is difficult to discuss and it's going to be a 

challenge for you to write this, is that the current system 

doesn't really include any components designed to address this 

issue of enhanced productivity. 

Now, you could say that this problem could be taken 

care of somewhere else, but if you want a program that really 

provides security for old age, then as the retiree-to-worker 

ratio increases, I think you really have to worry about taking 

specific measures to increase worker productivity so you have a 

larger pie to go around so that both the workers and the retirees 

can be supported, and the current system doesn't do that. I see 

that as really the big problem that lies behind the financial 

flow problem. 
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MR. PARSONS: ---

SENATOR MOYNIHAN: Mr. Chairman, just to correct the 

record about our colleague Olivia Martin (sic), she may not deal 

with trillions, but people who have trillions deal with her. She 

is the recipient of the TIAA CREF Paul A. Samuelson Award for 

Outstanding Scholarly Writings on Lifelong Financial Security. 

We were mentioning this earlier because of something that Tim 

Penny said, that the -- I think most of us here will know, any 

professor will know, that in 1915 or thereabout Andrew Carnegie 

set up a system that provided teachers insurance and annuities 

that you could purchase directly, as it were. It had a huge --

hugely important, because it meant that academics could move 

around in the system, weren't stuck with the first job they 

had --- for them. Then in the 1960s or thereabout, they added 

for a fixed income system, they added portfolio choices, and 

that's what the CREF is. I mentioned to you, I have some --- of 

that that they recently commented that their benefits had gone 

down because the market had gone down, they had gone up so very 

much earlier but you know how all things considered, they're all 

better off. I asked was that automatic, and you said well, yes, 

if you have that open arrangement. A mutual fund system can 

reduce benefits if incomes or prices are reduced and raise them, 

and they have indeed raised them, but as Tim Penny said and it 

seems to me absolutely essential, nothing can be changed in 

social security save by statute, by law. Those immensely able 

people, I see Steve Goss agreeing, for all the willingness in the 
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world and all their knowledge, it has to take statute to reduce 

benefits or to increase taxes. 

MR. : --- missed that point. 

SENATOR MOYNIHAN: Doesn't hang around with trillions, 

you know, lots of guys have trillions. 

MR. PARSONS: Are there other thoughts about the 

report? 

(No audible response)

MR. PARSONS: I had one just in sort of reading the 

outline that you sent to us, Chuck. It does strike me that there 

is learning that can be captured. In other words, Estelle, 

you --- on to this, there are other models we can look at that 

have gone down the road we're going down and have reached the 

point of judgement or reckoning that we all agree is still some 

number of years off here, but those systems didn't act in 

appropriate and timely fashion, and then you end up with very 

different sort of options I think that face you, if you put off 

kind of correcting structural imbalances. I wonder if in trying 

to illuminate the problem, we shouldn't reach out to some of 

those examples. 

MR. BLAHOUS: Are you referring to international 

examples?

MR. PARSONS: Yes, well, there's certainly -- well, you 

can actually refer not only to international examples in terms of 

some of the European countries, but as I was listening to Senator 

Moynihan talk about TIAA CREF, on whose board I served many years 
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ago, and it's been one of the sort of exemplars of responsible 

retirement planning, because it's always been on a funded basis. 

 My father worked for Pan American Airways for 35 years, ---

company, great -- and once upon a time it was the great airline. 

 He retired, and some number of years after he retired, the 

pension fund ran out because it was never funded. 

MR. : Yes.

MR. PARSONS: It wasn't done on a fully funded basis. 

The assumption always was that Pan Am will be there, and I 

suppose the assumption here is that the United States government 

will always be here, but will we have the will and the means to 

do the kinds of things that Tom Saving was talking about or will 

we be effectively precluded from meeting our future obligations 

because we don't -- we simply can't go into that bag and pay up? 

 In other words, I think there's something very fundamental here 

about the way in which we have funded this system, the promises 

we've made. 

Bob Johnson pointed out that those promises are just 

that. They're not enforceable. There's no contractual 

obligation. People have been lead to believe something that at 

some future date is not -- they're not going to be able to cover 

that debt. They're not going to be able to cover that promise 

going the way we're going. I think that somehow we need to 

illuminate that for people, because there will certainly be 

numbers of folks, in fact they already are kind of rattling their 

sabres about the nefarious work that we're up to here and we're 
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trying to take people's benefits away. I think it's quite the

opposite actually, trying to create or revise the system so that 

it can fulfill the promises that are being made today, tomorrow. 

DR. MITCHELL: I'm not quite sure how you would like to 

proceed. I know one of the things that it was intended that 

would be included in the interim report would be some discussion 

of where the problem is, where it came from, how big it is. At 

an earlier point there was also the suggestion by some commission 

members that there would also be criteria for evaluation. Are we 

going to discuss that today, or should we come back to that a 

different time?

MR. PARSONS: No. I think we need to discuss that, 

because we need to give the staff some guidance so that they can 

be working on drafts which they can then get to us between now

and our next meeting and we can give feedback. So if you have 

some thoughts on that --.

DR. MITCHELL: Well, I did have a couple of thoughts I 

think mostly coming from my experience on the technical panel for 

"Trends and Issues in Retirement Saving." These were criteria 

that we developed around a lot of different discussions with 

people from a whole variety of different persuasions. 

I think that in terms of the briefing material, there 

were some excellent suggestions that were identified in terms of 

solvency, sustainability and so on. Economic impact, there was a 

good discussion of that also. Some of the things that I would 
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hope could be added, at least based on my experience with the 

technical panel, our first criterion was adequacy of retirement 

income relative to poverty thresholds and to the household's 

preretirement income. There's a little bit of that there, but I 

would like to see some more.

Also, down the road when we get to looking at various 

different suggestions and plan designs, I would hope very much 

that we could examine some of those plan designs in terms of the 

distributional consequences. So to the extent that anybody 

around can help devise models of that sort, that would be useful.

We also talked about avoidance of market 

inefficiencies, and there's a little bit of that there, but 

again, to try to emphasize avoiding inefficiencies. 

Encouragement of private and aggregate national saving, I think 

that ought to be a criterion, and perhaps we can come to some 

agreement around the table on that. 

Then also strengthening the financial integrity of the 

nation's retirement income system as a whole. In other words, 

not just focusing on social security alone, but also looking at 

the spillover effects on --

SENATOR MOYNIHAN: ---

DR. MITCHELL: -- other pieces of the system, like 

employer pensions, other private savings, IRAs and so on. So I 

will be happy to make available to you the statement of criteria 

from the technical panel, if that would be useful, but at least I 

hope to get some of those on the table. 
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MR. PARSONS: ---, Gwen.

MS. KING: I would just urge everybody to remember that 

in this discussion about social security benefits, it was never 

intended that social security benefits would be the only benefits 

retirees would enjoy. That, of course, has turned out to be the 

case in a number of instances, and many of us probably have 

situations like that in our own immediate families. I know I 

certainly did, but the thinking has always been that social 

security -- and I always hate this expression. I've looked for 

another one. I haven't found it yet -- would be one leg of a 

three-legged stool. You all know that expression. The other two 

legs of the stool being a pension and savings. Well, we all know 

what the savings rate is in the United States. It's pitifully 

low, and people have no extra money. 

SENATOR MOYNIHAN: It is now just negative.

MS. KING: It's negative, as far as -- and I may be 

wrong, Steve. I defer to you and Chuck again. But the savings 

rate, and you can break it out into different groups of people, 

but it's pitifully small compared to other countries. 

Pensions we like to think are working, but a lot of 

people are not working long enough to get pensions, and of 

course, the chairman has just given his own example about how 

some companies go away and with them, pensions. So social 

security does have that importance. And I raise that because, 

while the program was never intended to be the sole retirement 

income for people, in many, many instances it has turned out to 
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be that. So it again underscores the importance of the work that 

we are called on to do. 

MR. PARSONS: Bob.

MR. POZEN: I'd like to -- we're getting close to 2:00 

o'clock, just to sort of formally propose that the staff present 

us with a draft of an interim report as soon as reasonable, so 

that the next meeting that we have we can review that, but I'd 

also like to emphasize that this -- I think everything you've 

heard here is that we believe that the key to this report is the 

educational function, the sort of almost investor relations 

functions or that sort of thing. So that on the one hand, I 

think we would all like to get the interim report out as soon as 

possible. On the other hand, unless we can combine this with a 

strategy, an educational strategy, then I think we will have 

missed something. So I guess I'd like to encourage you to sort 

of put them both together. On the one hand, we'd like to have it 

out quickly; on the other hand, if we have a document out but we 

have no way to disseminate it, it's like one hand clapping in a 

forest, you know. 

MR. PARSONS: Let me say also for the benefit of the 

public, as we said, we're going to approach our task in two 

bites, an interim report and a final report. The interim report 

will focus more on the nature, cause and nature of the problem 

and the criteria we will use to evaluate solutions to the 

problem. Then the second and final report would be a 

recommendation for dealing with these structural problems. 
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Nevertheless, we'd like input from the public on both 

of these reports. Because we are on a fast track with respect to 

the interim report, we do have a web site that went live today. 

Chuck is going to shortly tell you what the web site is, and I 

would encourage those who want to share their wisdom with the 

commission on fund and nature, origins, antecedents, scope, 

dimension, size of the problem, and on what the appropriate 

criteria for evaluating solutions might be to do so by making 

access to that web site and sharing yourselves with us with

respect to the second half of the -- or second part of the 

report. We have tentatively decided to have some public 

hearings. I can't tell you at this point in time how many around 

the country, probably in early September. The commission will 

probably divide itself up into either two or four groups that 

will hold hearings around the country to take input from folks 

who want to respond to some specific questions we'll propound 

after we've done our preliminary work, so that there's plenty of 

opportunity for the public and interest groups to have an 

opportunity to interact with the commission. Chuck, what is that 

web site?

MR. BLAHOUS: The web site is W-W-W dot comm, C-O-M-M, 

to, T-O, strengthen, S-T-R-E-N-G-T-H-E-N, soc, S-O-C, S-E-C, dot 

gov. So it's an abbreviation of our rather illustrious name.

SENATOR MOYNIHAN: Maybe you could repeat that.

MS. : Why don't you just write it on the flip 

chart. 
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MR. : Yes.

MR. BLAHOUS: Mike is closer to it. Perhaps he can do 

it. 

MR. PARSONS: Put it up there. Bob. 

MR. JOHNSON: I want to charge the staff as they 

develop this interim report to make sure that they educate the 

public on how we got here, and it's not one where you can sit 

back and point fingers at individuals whether they're from the 

party from the left or the party from the right, whether they're 

young or they're old. I think it's just the sheer fact of life, 

once you design a system where you're trying to both level out 

everyone's opportunity to participate in benefits and engage in a 

progressive redistribution of wealth for the benefit of everyone, 

you end up with a system where if just the sheer fact of 

demography, people living longer and consuming longer than anyone 

perhaps anticipated, you find a system out of balance under the 

current structure. So I don't think it would help any of us here 

if we engage in -- when I was in graduate school a professor at 

Princeton had this saying about statistics, is that most people 

will use statistics like a drunk uses a street lamp, to hold them 

up rather than for illumination. 

(Laughter)

MR. JOHNSON: So if you focus on the facts as they are, 

and clearly we understand there are more people living longer 

than there are people working and contributing, we have a 

problem. It's not fair to the older people, who assumed in good 
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faith when the social security system was instituted that their 

funds would be there for them, to snatch them away, nor is it 

fair to young people who work very hard to build up their own 

nest egg for their own family to see that nest egg given away to 

someone else and they have no claim on it. So somewhere in all 

of this, the good intentions ought to be how do we solve a 

problem that would benefit everybody. I think if we draft our 

interim report to the point that that is the problem, trying to 

make sure that young and old are in accord on this, I think we're 

a long way towards coming up with a solution. 

MR. PARSONS: Okay. All right. 

DR. JAMES: Could I add something else that I'd like 

the staff --

MR. PARSONS: Only because you put your hand up this 

time, Estelle, yes. 

DR. JAMES: Okay. I'm just so small that you don't see 

it. 

MR. PARSONS: I have to reward that. Estelle.

DR. JAMES: I'd also like to see something about the 

distributional effect of the current system included in the 

interim report, and the reason I'd like to see that is, those 

effects are somewhat different from what many people think they 

are. I mean, many people think that one of the good things about 

our current system is that it's progressive. If you look at the 

annual benefit formula, it looks progressive, but, as you know, 

when you actually do studies on lifetime redistributions, it 
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turns out that our current system really is not progressive and 

does not redistribute to low-income groups. I think it's very 

important for people to know that, because I think we ought to be 

able to do better than that, so we ought to know what the 

starting point is.

MR. PARSONS: Okay. Mario and then Fidel.

MR. RODRIGUEZ: Chuck, also, I know we're dealing with 

a lot of complex issues here, but I think when we're giving the 

information out, I think commissioner King and Olivia both have 

alluded to is, I think if we can give the information out as 

simple -- and make it as simple as possible so a general public 

can really understand and you understand what we're dealing with 

and real numbers that they can understand, I think it will be 

very helpful. 

MR. PARSONS: Fidel.

MR. VARGAS: As a former mayor, I heard a motion and I 

was actually just trying to get a clarification. Are we going 

to -- any of the things that have been recommended, I'm assuming 

that for the record under Robert's Rules of Order we're going to 

vote as a commission. 

MR. PARSONS: The chair is embarrassed, because you're 

correct. We did have a -- it sounded like a proposal, but it was 

a motion to ask the staff to take these thoughts and pull

together between now and our next meeting, which is scheduled for

the 24th, a draft. So I am going to suggest --

MR. VARGAS: I would second that. 
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MR. PARSONS: -- if you could ---

MR. VARGAS: I would second that motion ---. 

MR. PARSONS: -- 24th of July. So I'm going to suggest 

that if you could get that draft -- we'll assume that that would 

say at least two weeks before our next meeting, so the 10th of 

July. 

MR. BLAHOUS: We'll do that. 

MR. PARSONS: It has been moved and seconded. Is there 

any objection?

MR. PENNY: I just want a clarification. We're not 

committing ourselves to finalizing the report on the 24th. 

MR. PARSONS: Not at this point.

MR. PENNY: But we will review --

MR. PARSONS: We're directing that the staff pull 

something together, that it hand it to us at least two weeks 

before that so we know where we are.

MR. : Yes. 

MR. POZEN: I think we're also asking the staff to have

an educational strategy as part of that.

MR. BLAHOUS: Right. Yes.

MS. : Uh-hm. Right.

MR. PARSONS: Okay. With that exception, staff is so

directed. We're going to take a break now until 2:30 I think. 

For the press, Senator Moynihan and I will be taking questions 

from the press in 10 minutes at 2:15 in the Garfield Room, which 

is just 2 doors down this way (indicating), and then we're going 
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to reconvene at 2:30 for the purpose of allowing the dialogue 

between the commission and staff to continue, and obviously the 

public is invited to participate in that if they so choose. 

We'll be back at 2:30. 

(Brief recess)

MR. PARSONS: If we could get commissioners back to the 

table. All right. Because the initial meeting of the commission 

when we first sent out notice was going to be from 10:00 to 2:00, 

several of our members have commitments early in the afternoon 

and are taking off, including Jack Cogan and indeed our 

illustrious co-chair Senator Moynihan, but we thought for those 

who could stay there would be an opportunity to have some further 

interaction with the staff and with Steve Goss, the actuary, in 

terms of questions and directions or further instruction. As 

Chuck and I just said, this can go as for short a period a time 

or as long a period of time up to 4:00 o'clock as is necessary. 

But are there any further requests of staff or directions to 

staff or input for staff?

MR. BLAHOUS: I know that at least two of our 

commission members who had interests are not at the table right 

now, so even if none of the sitting members have none, we 

shouldn't break up just yet, because I know there are a few more 

with interests. 

MR. POZEN: One thing that would be helpful I think is, 

there's been a lot of, you know, a lot of different people who 

have come up with a lot of different proposals for social 
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security reform, including private accounts, including government 

invest, including these things. Is there a readily available 

summary for the commission members so that -- I mean, many of us 

have been receiving -- people have been sending stuff and we have 

a lot of material. If there was a well-organized summary of 

what's out there in terms of literature and what people have, 

that would be I think very helpful, categorized as to non-private 

accounts, private accounts, various other solutions. 

MR. BLAHOUS: We can certainly get you summaries of 

that nature. We have already begun at the staff level to develop 

some such summaries. Working with Jeff and Steve, we've put 

together short, one/two page summaries on several of the plans 

that have been introduced within Congress. You should also know 

that we still have actuarial estimates that Steve and the 

Actuary's Office have put together when proposals were introduced 

in prior Congresses. 

One caveat that should be issued is that many of these 

analyses and estimations were done under the assumptions and 

previous versions of the trustees' report. Those assumptions 

have since been updated, and often plans are updated at the same 

time as people seek to fit the new numbers better. We've tried 

to be in touch with some of the sponsors of these proposals to 

ask them what versions of their proposals, how they should be 

summarized, if there are any changes that should be made to 

reflect the updated estimates, but we have varying levels of 

detail that we can provide to you or the entirety of the 
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commission. 

MR. PARSONS: Sam and then Fidel. 

MR. BEARD: --- Bob said, one of the really interesting 

things that occurred in the whole social security debate while 

I've been in it is, President Clinton's social security advisory 

panel, because they were addressing the issue of solvency, and 

the two old ways to do it was you either raise taxes or cut 

benefits, and they said there's a third way, which is the extra 

rate of return from the private sector. And that ended up being 

a breakthrough thing. Then within that, it broke down into those 

that said the federal government should invest many billions of 

dollars a year, the extra rate of return of which helps to bail 

out the system and then two-thirds of the members said go to 

individual accounts. But just the fact that consistently was 

what Bob was saying, the fact that that -- there was a 

Presidential advisory commission which took many hours of 

Mr. Johnson's time, the fact that it was the first time that it 

was agreed to at the level that you could address social security 

without putting the extra rate of return to the private sector to 

work, it was a breakthrough thing, and then you can discuss and 

here are the two ways to do it, the individual accounts or the 

federal government invest the money. 

MR. BLAHOUS: Well, we can certainly reproduce and 

circulate to you, and Fidel is as familiar with this as anybody 

here but, what those findings were. It's often remarked that 

that advisory council did split into three camps as to the 
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proposals that they backed, but there were sections of the report 

that did reflect the unanimous opinion of the council. They put 

out findings saying that the system should incorporate some 

partial advance funding, and that was agreed to across all 13 

members of the council. We could reproduce either the separate 

recommendations of the advisory council and circulate them, or 

just the unanimous ones, depending on what your needs were. 

MR. BEARD: It's just that the important building block 

was that you unanimously said you needed the extra rate of return 

from the private sector. 

MR. BLAHOUS: That's right. 

MR. BEARD: That was the important building block. 

MR. GOSS: Sam, just to point out, I think Chuck had it 

exactly right. The one thing that was true of all three of the 

major proposals that the council put forth was that they would 

move towards having increased advance funding over and above what 

the actual current system was working forward to at that point in 

time. Two of the three plans did in fact absolutely include 

investment in private assets to try to get a higher return. One 

of the three plans came a little bit short of that and simply 

suggested there should be a study about moving towards investing 

in the stock market but did not explicitly suggest that that 

should be done under its plan. That's the so-called, I think it 

was called the --

MR. BLAHOUS: Maintain benefits.

MR. GOSS: -- the Maintain Benefits Plan, that did not 
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quite go that far. 

MR. POZEN: I just wanted to say, it would not be that 

useful to get full copies of many, many studies. I think the 

better is sort of good synthesis and summary categorized in 

useful ways.

MR. BLAHOUS: That would --

MR. POZEN: And then anyone who wants to read the full 

200/300 page setting of each of these studies will be free to do 

it.

MR. BLAHOUS: The report does contain some short 

summary pages, and we can just reproduce those. 

MR. PARSONS: Let me suggest by the way -- Fidel in a 

second, but when you speak, it would be helpful, because there 

are some who are --- us and some who are listening through other 

means that you speak into the microphone. 

MR. VARGAS: I was just going to say that from an

educational perspective, one of the issues that eventually we're 

going to be discussing down the road is the transition, --- up 

with something that was to some degree addressed and it's 

obviously a huge issue, so it might be a good idea to start to 

get some background on that issue.

Second, I was just going to recommend to the chair that 

since a few people came in, you might want to reiterate your 

comments in terms of what this session would be for and how long 

we need to be here or not be here. 

MR. PARSONS: Fidel's ready to go.
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MR. VARGAS: No, I'm not ready to go. I just want to 

make sure that --

MR. PARSONS: ---

MR. VARGAS: -- everybody is clear what the deal is. 

MR. PARSONS: -- said, because several of our fellow 

commissioners had earlier -- or had made appointments when we 

earlier had planned to meet between 10:00 and 2:00, and so they 

had to move on. This session is intended to really be a little 

bit more informal and to allow commission members to share any 

insights they might have with staff or more particularly to task 

the staff to go and make certain kinds of inquiries or do certain 

kinds of analyses that will help us down the road, but just to 

give us an opportunity to make sure that this process is moving 

in a direction that is both appropriate and comprehensive, and 

that when we run out of direction to staff we can adjourn the 

meeting. Bob.

MR. JOHNSON: I just have a question to see if this 

thinking is consistent. When we approached this problem, none of 

us anticipated the longevity of the American population and 

therefore we're sort of in imbalance in the number of workers who 

are contributing to the workers who are living longer. Are we 

also facing the issue that we might not anticipate the fact that 

the majority of workers 2038 to 2075 would be minority workers 

who are historically paid less, therefore less productive in 

terms of generating revenue/taxes to support the older workers, 

and so that there will be even a greater claim on those workers 
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who are more productive? Because if you continue to have a 

society that tends to discriminate in terms of wage and 

opportunities for the majority of workers, the problem could be 

even worse than anticipated. Has anyone focused on that issue at 

all?

MR. BLAHOUS: Well, let me -- there are a couple 

different parts to your question I'd like to address in sequence. 

 We do have some information in your current briefing materials, 

and we can supplement it with such additional requests as you 

might have, talking about the changing composition of the elderly 

population, 20, 30, 40 years out, and those figures do bear out 

the portrait that you have put out there, which is that there 

will be an increase in the proportion of people from minority 

groups that historically, and I'll project it to continue to, 

have less access to non-social security, private pension income, 

individual savings, and also historically will have lower wages. 

 These trends also show up in differential longevity data. Now, 

what we have not produced, at least -- and Steve can take the 

opportunity to comment here if he wishes, we have not produced, 

at least not through the Social Security Administration's Actuary 

Office, breakdowns of the population by ethnic or demographic 

status to give a read on how such groups are going to fare under 

the social security system. There has been a number of studies 

of this in the academic literature, and what we could try to do 

for you is to try to reproduce some of those and get them to you. 
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I think Estelle made an allusion earlier that the 

redistribution that occurs in the current system is really very 

chaotic and does not really add up to a systematic redistribution 

of income from people who have more to people who need more. The 

reasons for this, there are a lot of offsetting trends. For

example, there is redistribution in the current system from 

single earners and two-earner couples to the traditional oneearner couple with a nonworking spouse, and if you break those 

groups down in turn, you will see a greater proportion of lower 

income groups among the people who are being redistributed away 

from according to marital status. 

Similarly, we are seeing troubling projections 20, 30 

years hence with regard to the beneficiary population and how 

it's distributed. For example, there's about 23, 24 percent of 

the current female beneficiary population over the age of 65 are 

widows. That is projected to decline over the next 20, 30 years 

down to 12, 13 percent. Well, at the same time, today female 

beneficiaries age 65 and older, only about 37 percent of them are 

earning benefits based on their own wage histories alone, and 

that proportion is going to increase dramatically and be over 50 

percent 20, 30 years out. So you have a very different picture 

in terms of who is at risk of poverty 20, 30 years from now than 

is the case today. 

We have certain things that are built into this system 

to take care of certain groups. There's a widows benefit, and 

you can alter the widows benefit and target those resources. But 
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for divorced women, never married women, the increasing share of 

the elderly who are from demographic groups with lower life 

expectancy and lower incomes, for all of the attempts at 

progressive redistribution within the current system, we could 

actually be facing enhanced poverty rather than reduced poverty 

as a consequence of the system 30 years out. 

DR. JAMES: I think, though, that your question 

actually raises another interesting point, which is we know that 

if we look at the wage gains over the past 20 years, they haven't 

cut evenly across the population and the polarization has 

increased. The lower half hasn't really gained very much, and 

the upper half -- the upper 20 percent or the upper 10 percent, 

have gained a disproportion -- have taken a disproportionate 

share of the wage gains. 

Now, we also know that there is a ceiling on taxable 

earnings in social security. So it seems to me this means that a 

decreasing proportion of the total wage bill has been subject to 

social security tax, at least it seems to me that's what the 

logic would be, and it also suggests that the rate of growth in 

social security covered earnings in the recent past and maybe 

projected for the future is less than the rate of growth of the 

total wage bill. So that's another aspect. Of course, it's many 

of the minorities who are clustered in that lower group that 

haven't been gaining from the recent wage growth. So in the 

assumptions that you make in social security projections, are you 

taking into account the overall rate of wage growth, or are you 
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projecting what might happen to the distribution of that wage 

growth that would cause social security wages to be increasing at 

a slower rate than total wages?

MR. GOSS: Well, Estelle, you are exactly right. I 

forget exactly how many years ago it was. At one point we were 

at the point where, of all the earnings covered under social 

security, we reached a peak of about 90 percent of those earnings 

being subject to tax under the taxable maximum.

DR. JAMES: Uh-hm.

MR. GOSS: And although the taxable maximum amount is 

indexed by the average wage growth over time, that has been 

resulting because of what was known as this dispersion of 

earnings --

DR. JAMES: Of organization, right.

MR. GOSS: -- more of it showing up moving toward the 

very highest earnings levels. We've resulted in having somewhat 

of a decline. We're actually now down at the point of being 

around 85 percent of covered earnings being subject to tax.

DR. JAMES: Uh-hm. 

MR. GOSS: The question is how exactly do we move 

forward, does this continue to a strong degree in the future. 

Our current projections assume that we will continue to have some 

of this dispersion going on for about another 10 years in the 

future, but only that far.

DR. JAMES: Uh-hm.

MR. GOSS: Might this dispersion continue on beyond the 
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10 years? It certainly might. The current assumptions are that 

we'll have dispersion, and Tom Saving isn't here, one of our 

public trustees who with his different hat needs to speak to this 

directly, but at this point in time, we're assuming that only 

about a 10-year period will we be having this occurring. 

DR. JAMES: But basically that's an assumption and if 

in fact this continued, then you would find that the covered wage 

bill would even be smaller, it would be getting smaller and 

smaller relative to the total wage bill, and therefore the total 

social security revenues may be smaller than you anticipate.

MR. GOSS: That's correct. Absolutely. Yes. If I 

might just add, on the point about the very, very difficult issue 

of trying to make the projections in a way that it pays attention 

to the changing nature of our population. As Chuck mentioned, we 

very carefully make projections in our population on our 

underlying beneficiary structure and our worker structure going 

into the future, paying attention to the age, sex and the marital 

status of individuals. All of these things very directly play 

into the nature of the benefits that you have. 

We've had some great difficulties in trying to make 

projections by race, partly because a lot of the data that is 

available that would allow us to look at the level of benefits, 

the level of earnings, on a race/ethnic basis is not of very good 

quality, and this appears as though the nature of data reporting 

in the future is going to make it of even lesser quality. It's 

not as though -- it's not that it isn't an important feature, 
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it's that if you can't get a good handle on what is out there, 

then it becomes very difficult to deal with it very directly. But I w

larger African American, larger Asian components, and it does 

change in very many ways towards the future, the assumptions that 

our trustees put together are really designed to try to take that 

into account as well as they can, without really trying to break 

up the population into these separate pieces and look at how 

they'll operate, but more to look at it from the point of view, 

what do we think the overall economy will be moving foward as, 

for instance, in our average wage assumption, which is to assume 

that wages will grow at about an average 4.3 percent per year in 

the future. You could argue, for example, that if the population 

were going to be constituted differently in the future, that 

perhaps that would be faster or it would be slower, but I think 

our trustees have consistently, even across Administrations, 

taken the attitude that the economy will be such that the work 

force that comes to bear in this country will be up to the 

challenge and will provide the kind of talent or the kind of 

labor that is needed. 

MR. JOHNSON: Well, I think the thing for me that sort 

of crystallizes for me at least the need for the individual 

private accounts is because it seems to me that a minority worker 

has a catch-22 problem, and during the most productive years is 

when they'll be contributing most to the social security system. 

 They don't have the same mortality rate as the others, so 

they'll die off faster and therefore not receive it. If you've 
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got more of them coming into the work force, they become the 

primary contributors to the wealth retention, at least while 

they're alive, of the other population. So in order to equal it 

out, you have to do something either about increasing the 

mortality rate of African Americans or allow them some other 

access to the money that they've earned while they can live off 

of it. Unless you can do that prior, you will create a situation 

where the people who are most in need of the wealth transfer are 

the least likely to get it, even though they are --- for the 

other ---.

MR. GOSS: But I might suggest one of the good things 

in some of the academic studies that have been performed so far 

have not really been in a position to take advantage of all of 

the aspects of the program that are there. If you look solely 

just at the retirement benefits, you are absolutely right. 

Groups that have higher than average mortality, like men, African 

Americans, either of those groups, would in a retirement sense 

under a contributory plan like this appeared not to do as well. 

Both of those groups, however, the evidence is, have higher 

disability rates, for example, and so both of those groups, both 

African Americans and men, tend to receive more benefits from 

that portion of the program which provides disability benefits. 

It becomes much more difficult in the analyses to try 

to incorporate all of these items. We do in some of the 

estimates that we'll probably be looking at in the coming months, 

try to incorporate all aspects of the program benefits, 
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retirement, disability, aged survivor and young survivor. The 

difficulty is really to do that on a comprehensive basis by race 

and ethnicity. To do that, you'd have to not only have good 

knowledge of what the difference in mortality is by group, and 

there is some knowledge on that, but you'd have to have that also 

by income level, and also you'd have to have good knowledge about 

all of those crossed with the disability rates by the different 

groups, which is very difficult to come by. 

MR. BLAHOUS: I just want to wrap this up so we can be 

responsive. We're talking a lot about some of the difficulties 

here, but I'd like to end this by talking about what we can do. 

There is a very extensive academic literature on this, and we can 

certainly reproduce a lot of that and get that to you that speaks 

to this. We also are able to break down the treatment of people 

under the OASI program versus the disability program, and we can 

do that as well. There are, even though SSA doesn't do them, 

projections, Census Bureau, others, on the composition of the 

elderly that would have to be reconciled with SSA's in some 

respects, but which should be able to give us a handle on the 

differential mortality expectations. So we should be able to 

give you a fair amount of that data. 

MR. PARSONS: And I do think that the overarching theme 

ought to be, understanding that there's lots of little moving 

pieces underneath of this, could we figure out a way to say 

structurally balance the system so that the benefits that are 

promised to people now in terms of security and availability can 
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be secured for the future, and then some of the wealth transfer 

issues, which as you say cut all kinds of ways, as a secondary 

level we can kind of look at that and see if all that makes 

sense. But I think that the big theme is how do you realign, 

restructure the system so that it can work in today's demographic 

environment. Okay. Are there other questions? Olivia.

DR. MITCHELL: Let's see, a couple things. One, I 

think a number of us have been talking amongst ourselves, and I 

would really appreciate it if we could try to get a meeting 

schedule through Thanksgiving, at least have some meetings 

scheduled and then cancel them if we can't hold the meetings, but 

schedules are good in my business. 

Couple other points. One, we talked a lot about 

educating the public, educating other groups, but I think we also 

need to do some more to educate ourselves in this next few 

months. We don't have a lot of time. I think between now and 

July the interim report is going to be very much on the front 

burner, but I wanted to get some things going that maybe we could 

talk about in August if we're able to have a meeting then or at 

least in the beginning of September. 

I'm not a D.C. insider, unlike other people, some other 

people on this group, and I think one of the areas that I would 

very much appreciate some education on has to do with the range 

of individual account options that have been produced and 

discussed around Washington and other places in the last few 

years. What I would really like to ask the staff to produce is 
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some sort of a summary of the range of, I don't know, six or 

eight recent proposals for individual accounts outlining the key 

financing, the key benefit issues, the key individual account 

structures, maybe something such as was prepared for the 

testimony back in the late 1990's around those proposals. Really 

the purpose would not be to limit the commission's range of 

options but to start giving up a better framework for looking at 

the types of -- the moving parts, the bells and whistles, the 

tradeoffs. So that's one issue that I would like to ask the 

staff to start getting going on, maybe for an August meeting if 

we can do that or early September. 

The other issue is that, quite frankly, we just don't 

have a lot of time. If we're going to produce a report by 

Thanksgiving, say, we better have most of the work done by 

October. So the second really big set of issues has to do in my 

mind with the administrative design and structure, and I would 

like to start beginning to get some sense of investment options, 

costs, annuitization problems, some of those things that I 

haven't thought about as clearly but we need to build those into 

the framework in order to be able to say something in October, 

September. So those two issues it seems to me would be very 

useful to have the staff charged with getting going, a briefing, 

background material on that. 

MR. PARSONS: We certainly will, and I think the staff 

is working on that, but also we'll be taking -- those are the 

kinds of things that we're going to be taking some counsel, shall 
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I say, from public commentators as well. Bill. 

MR. FRENZEL: She suggested perhaps sending them after 

our next meeting. In the case of proposals that are lying around 

either in Bill form, in press release form or whatever, I would 

think you could put those together quite promptly and send them 

to us right away. I don't see any reason to wait. 

MR. PARSONS: I think we actually have covered that, 

and the staff is going to go to work on that as soon as they get 

back. Sam.

MR. BEARD: I think we're all getting tired. It would 

be wonderful to quit. 

(Laughter)

MR. PARSONS: Bill will entertain a motion to adjourn. 

(A chorus of seconds)

MR. PARSONS: Second. Without objection we stand 

adjourned. Thank you, ladies and gentlemen, for your patience.

(Whereupon, the meeting was adjourned at 3:04 p.m.)