2

President’s Commission 

To Strengthen Social Security 

Tuesday, 

December 11, 2001 

Held at the 

Park Hyatt Washington 

Washington, DC

Audio Associates 

9537 Elvis Lane 

Seabrook, Maryland 20706 

301/577-5882 
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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

Mike Anzick 
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 I N D E X 

 Page

Opening Remarks 

Chairman, Senator Daniel Patrick Moynihan 4 

Discussion of the Final Draft Report 

Presentation, Mr. Blahous 5 

Comments by Commissioners 

Co-Chairman Parsons 17, 29, 71 

Dr. Mitchell 18, 68 

Mr. Johnson 20, 48 

Ms. King 25 

Mr. Frenzel 26, 46 

Dr. Cogan 27, 62 

Mr. Rodriguez 32 

Mr. Beard 33 

Chairman Moynihan 34 

Ms. King 35 

Dr. James 39 

Mr. Parsky 42 

Dr. Saving 49 

Mr. Vargas 50 

Ms. Abnor 53 

Mr. Pozen 57 

Mr. Penny 64 

Closing Remarks

Co-Chairman, Mr. Richard Parsons 71 

Chairman, Senator Daniel Patrick Moynihan 76 

MOTION 76 

Keynote: "---" indicates inaudible in the transcript. 
5

 M O R N I N G S E S S I O N 

 (10:16 a.m.) 

CO-CHAIRMAN PARSONS: We are going to get started now. 

 As has been the custom between the Co-Chairs, we have alternated 

the chairing of these meetings, and today, happily, it is my 

privilege to turn the gavel over to my Co-Chair, the Honorable 

Daniel Patrick Moynihan. There you are, sir. 

CHAIRMAN MOYNIHAN: And I do thank you, Mr. Chairman. 

I am going to take the Chair's privilege to suggest that we 

alternate today. I think our plan is to have Chuck Blahous with 

Jeff Brown and Kent Smetters at his side, and I do see our 

actuary sort of hiding in the corner in case we need anything 

from Mr. Goss. We are going to ask Chuck Blahous to walk us 

through the port entitled, "Strengthening Social Security and 

Creating Personal Wealth for All Americans." 

Those who have read the text of President -- then 

Governor Bush, his address to a senior center in California, 

Kukamongo as I recall, laid out a general statement on Social 

Security. He spoke to both these matters. The first is 

necessary in the light of the normal maturing of a 75-year-old 

program. We have our situation no difficult, if better, than 

that of Western Europe, nations which began their programs a 

little earlier and have had some more -- their birth rates and 

immigration rates are much less than ours. 

Similarly, the idea of personal retirement accounts 

that are property as well as insurance is already in place in 
6

some 20 nations, and President, now President Bush, at that time 

used some pretty powerful language. He said, "Ownership in our 

society should not be an exclusive club. Independence should not 

be a gated community. Everyone should be a part owner in the 

American dream." 

We have tried to combine those two purposes, not at 

odds, one simply extending the other, in this report and to 

persuade you all thereof, and the Commissioners all have been 

hard at work at this in the last few hours, days. By hours I 

mean into the early hours. Chuck Blahous. 

MR. BLAHOUS: Thank you, Mr. Chairman. It's -- can you 

hear me? Is this mike on? 

MR. : Yes, it is. 

MR. BLAHOUS: It is my distinct honor and a personal 

privilege to lay before you a draft final report of the 

President's Commission to Strengthen Social Security. As before, 

I have noted that our staff work is undoubtedly imperfect, but I 

hope it is faithful to the direction and instructions of the 

Commission. 

We received a lot of guidance over the last several 

days and weeks from individual Commission members as to the 

contents and drafting of this report. I think it is fair to say 

that one common theme that has been present throughout that 

consultative process is that Commissioners one by one have called 

or written to say tell it like it is, don't pull any punches, be 

transparent, explain the tradeoffs, explain how much things cost 
7

and what the benefits are, and be as clear as you could possibly 

be. 

We have tried at the staff level to fulfill that 

charge, and I am sure that we fell short in several respects. 

These of course reflect these limitations of time and staff 

ability, that we stand ready to amend to be more consistent with 

the intentions of the Commission as a whole. 

I would like to go through very briefly the 

organization of the document. Following the Co-Chairs' 

introduction in which are stated many of the themes that you, 

Mr. Chairman, just gave voice to, we begin with a first chapter 

on the general desirability of strengthening Social Security 

through personal accounts. This chapter contains a number of 

findings which we believe have received the full agreement of the 

Commission. I will touch on just a few of these here before 

proceeding to the next chapter. 

One finding of the Commission is that Social Security 

will be strengthened if it is modernized to include a system of 

voluntary personal accounts. The Commission has indicated that 

Social Security should be extended to include inheritable assets, 

as personal accounts would do. The Commission has indicated that 

it would be desirable to move to partial advanced funding of the 

Social Security system, and the Commission has also made a point 

of indicating that individuals in the Social Security system 

should be permitted to maximize their return from it by taking 

advantage of the additional investment income that would come 
8

from personal accounts. 

The second chapter has to do with the administration of 

personal accounts. I will not dwell on this chapter at length, 

because many of the individual issues that are indicated in this 

chapter have been discussed at length at each of the prior two 

Commission meetings. A couple of things that I would point out 

here -- 

CHAIRMAN MOYNIHAN: Mr. Blahous. 

MR. BLAHOUS: Yes. 

CHAIRMAN MOYNIHAN: Would it not be the case that we 

had from the Treasury Department a very careful analysis of the 

planning for just such individual accounts that was going forward 

in the previous Administration? 

MR. BLAHOUS: That's absolutely correct. 

CHAIRMAN MOYNIHAN: This is something whose time has 

come. How quickly, we will see, but this is not "de nouveau." 

This is a logical emergence in our country, as in many others. 

MR. BLAHOUS: Yes, Mr. Chairman. The language in this 

chapter follows up upon that general work -- 

CHAIRMAN MOYNIHAN: Yes. 

MR. BLAHOUS: -- done by the Treasury Department to 

show that personal accounts can indeed be administered in an 

efficient and cost effective manner. The Commission has made a 

number of decisions regarding the regulation and the construction 

of such personal accounts. In particular, I know the Commission 

members were concerned that certain protections be provided 
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through the administrative process, joint and survivor annuities 

to protect widows, surviving spouses, protections for divorced 

persons by allowing for division of assets accumulated during the 

marriage, and so forth. Again, I will not go into extensive 

detail here, as we have already done so at the previous two 

meetings. 

The third chapter discusses the general importance of 

fiscal sustainability, and it defines and appraises various 

measures of fiscal sustainability. I would want to be very sure 

to point out that Commission members have, I think, some very 

well-developed opinions and findings about how fiscal 

sustainability should be measured. There are a number of 

measures of fiscal sustainability that are referenced in this 

chapter, and the advantages as well as the shortcomings of many 

of these measures are highlighted. Just to discuss them in 

series, the first of these is the importance of eliminating the 

perpetual cash deficits that the Social Security system would 

experience under current law, and while there are -- 

CHAIRMAN MOYNIHAN: Just to be very clear, under 

current demography. 

MR. BLAHOUS: Yes, under -- 

CHAIRMAN MOYNIHAN: We began with 50 workers per 

retiree. We are now down to 3.2, Steve? 

MR. GOSS: Point four. 

CHAIRMAN MOYNIHAN: And we will soon be at 2.2, and 

that's nothing unusual about that. 
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MR. BLAHOUS: The Commission as a whole I think has 

stressed the importance of returning Social Security to a 

permanently sustainable path and that this is a higher standard 

and a really higher objective than mere solvency alone. Changes 

to the way the government can -- keeps its books can affect the 

finding of solvency or actuarial balance of the Social Security 

system, and I think the Commissioners have been very diligent and 

rigorous in noting that there are other equally important 

measures of whether the system is sustainable. Those include one 

concept which is occasionally referred to by Commissioners as "do 

the lines cross again," and when they say that, they mean is the 

program's income stream sufficient to fund the benefits that are 

promised from the system in a particular year. 

While there will be a period of time under almost any 

conceivable scenario that there will be cash deficits that have 

to be made up, I think it is the feeling of the Commission as a 

whole that the system will not be sustainable for the long haul 

if that situation is not turned around and corrected on a 

permanent basis. 

Of course, this section also does review the 

definitions and measures of solvency and actuarial balance, and 

each of the proposals is evaluated according to those criteria as 

well. However, this section does note there are limitations on 

the applicability and utility of each of these terms, and any 

Social Security reform proposal should be held up against the 

multiple standards put forward by the Commission in chapter 
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three. 

I would also draw attention to another standard 

established in chapter three, which is the long-term cost growth 

of the Social Security system. It is a very simple and 

straightforward question to ask and a very important one, which 

is: how much is this system going to cost, how much will it cost 

future generations to pay for the benefits provided by the Social 

Security system? So a look at long-term cost growth is a very 

important part of assuring sustainability, just as solvency and 

actuarial balance are. 

The longest and most detailed of the chapters is 

chapter four in which we review alternative paths to fiscal 

sustainability. Let me step back for a second and note that the 

Commission in its work over the last several months has certainly 

found that there are multiple pathways to fiscal sustainability 

within the principles outlined by the President. The 

instructions we have received as staff is to -- are to outline 

the tradeoffs associated with various thematic approaches that 

can be taken to funding the benefits of the Social Security 

system. 

At the beginning of this chapter, we give some 

attention to the methodology by which each of these proposals is 

to be evaluated. We of course go through the impact of each 

reform model on the financial operations of the Social Security 

system as a whole. We provide benefit projections for each 

model, both in comparison with the benefits that are provided 
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today as well as the benefits that the current Social Security 

system would be able to fund. 

We go through a number of measures that may seem more 

technical but I think are extremely important to Commission 

members and should be important to policy makers and the public 

as they look at these reform models. We evaluate what is the 

total present value of the cash deficits that the Social Security 

system will face over the next 75 years and beyond, under current 

law and under these various reform models. 

We look at the transition financing requirements of 

each of the proposals. It is important to note for the 

Commission members' reference as they review this report that 

many people mean many different things when they talk about 

transition financing, and what we have tried to do is outline for 

the Commission what these various definitions are and to explain 

how each of the proposals stack up according to these different 

measures of their transition effects. 

We have measured the impact of each proposal on the 

unified Federal budget as a whole. This is a very important 

measure, because obviously you could make the Social Security 

system in theory sound insolvent at the expense of the rest of 

the Federal government by simply transferring money over in 

perpetuity from other government accounts. In order to show how 

these proposals fair with respect to the current projections for 

the overall behavior of the Federal budget, each proposal is 

evaluated for its impact on the unified Federal budget as a 
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whole. 

One thing that the Commission members asked us to do 

and which we have tried to do is to pay tribute to those others 

who have come forward with substantive proposals for the 

Commission's consideration. I think a number of Commissioners 

have contacted staff and expressed their appreciation for the 

ideas that have been put forward by individuals who have tried to 

help us in our work and given us proposals for our consideration. 

 In particular, this section makes reference to some of the plans 

that have been developed in Congress and thanks the members of 

Congress who have put forward these plans, who have taken the 

trouble to get them scored by the Social Security actuary, and I 

think Commission members had expressed the desire that the work 

of this report be mindful of the effort that went into these 

proposals and demand that a similar level of diligence be shown 

by individuals who have concerns about the proposals in this 

report or the proposals developed by members of Congress. 

Let me wrap up my comments, Mr. Chairman, by simply 

talking very briefly about the basic elements of the three 

approaches that you have before you. The first reform model is 

the simplest and most direct. It simply says what would be the 

impact of simply setting up an opportunity for an individual to 

invest some money in a personal account. 

As we have done it here, we showed a two-percent 

personal account, but we stress in this framework that this is a 

flexible framework. You could finance the account in different 
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ways. You could make the account a different size. You could 

make the account progressive. There's a number of different 

things you can do, but for purposes of illustration we have shown 

a two-percent account here, and this model confines an 

examination of the effects to simply the results that would come 

from establishing a personal account on its own associated with a 

voluntary offset to benefits in exchange for the benefits of the 

personal account. 

What we have found in this reform model is that you can 

simultaneously make a modest contribution, an incomplete 

contribution, to the long-term fiscal sustainability of Social 

Security, while at the same time give individuals the opportunity 

to increase their expected benefits from the Social Security 

system. 

I think Commissioners have been very diligent in noting 

that this reform model is not in and of itself a complete 

solution to all of Social Security's financing difficulties, and 

if this reform model were pursued by the Congress, future steps 

would have to be taken at another date in order to bring the 

program to long-term fiscal sustainability. But the essence of 

this reform model is to show that you can simultaneously make a 

modest step in the direction of fiscal sustainability and improve 

treatment for beneficiaries at the same time. 

The second reform model takes a fundamentally different 

approach. It basically asks how can we maximize the return on 

Social Security contributions within the revenues that are 
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already committed to the Social Security system. Let me step 

back for a moment, Mr. Chairman, and note that under the current 

system over the next 75 years, it is possible for benefit growth 

to not only keep pace with inflation, but slightly exceed it. 

What this reform model notes is that if you don't establish 

personal accounts, you could set benefits to grow at that rate of 

growth. In particular, the Commissioners had in mind various 

distributional goals and protections against poverty that they 

thought were important to include in a comprehensively scored 

Social Security plan. So this proposal targets the benefit 

growth beyond inflation on individuals who are most in need of 

it: low-income individuals, widows. These individuals under this 

proposal would see benefits that would grow substantially faster 

than inflation and would grow in real terms. 

Now in addition to that, this proposal would give 

individuals the opportunity to invest four percent of their wages 

in a personal account up to a maximum of $1,000 annually, a 

figure that would start at $1,000 and then be indexed for wages 

after that. By doing this -- and this is also a progressive 

mechanism for funding the accounts, you could allow benefits to 

be paid that are significantly beyond what the current system can 

pay within the current revenue stream, and in fact for many 

individuals, especially on the low income side, benefits would 

well exceed even what the current system promises to pay and 

could not pay unless there were substantial tax increases. 

The third approach, Mr. Chairman, takes something of a 
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middle ground between the first and second. The third approach 

says, whereas option one says we are going to leave the current 

benefit schedules in place and leave it to Congress to find a 

means of resolving those cash gaps in the future, and the second 

model says let us allow benefits to grow at the pace that this 

nation can sustain within the current revenue streams, the third 

proposal says how do we set as a target the current level of -- 

the unsustainable level of scheduled benefit growth and make it 

possible for individuals to achieve that level of benefit growth 

through their personal accounts. 

Now, what should be no secret to this Commission is 

that that can only be done if new revenues are found, and through 

 this proposal new revenues would be tapped by having the 

personal account include a one-percent additional contribution 

from the individual participant, and also additional revenues 

would be required to restore the program to solvency and 

actuarial balance. This program identifies the amount of those 

additional revenues that would be necessary, but this program, 

assuming those revenues would be devoted to Social Security, 

would result in a solvent Social Security system and a level of 

benefits that exceeds that even promised by the current system. 

Those are the basic three frameworks. I can certainly answer 

questions about details, but that is the basic organization of 

the report. 

CHAIRMAN MOYNIHAN: Well, exactly, Mr. Blahous, to whom 

we owe a great debt this Commission, and thank God for you. 
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Well, look at all three of them. They are still awake. 

May I just before turning the gavel over to my 

distinguished colleague, a note. The comment has appeared in the 

press that we, this Commission, has somehow departed from its 

initial instruction by President Bush that we come up with "a" 

plan. Now, nothing could be further than the case. On Tuesday, 

October 30, the President met with Mr. Parsons and with me in the 

Oval Office and said to us that in the light of intervening 

events, and we knew what he meant, from the time the Commission 

was established in the spring, he thought the best procedure 

would be for us to come up with a number of plans that could be 

debated in the second session of this Congress and have 

legislation in the Congress that followed. We had never been 

told otherwise, you might say, but now we were specifically asked 

to come up with more than one. Two seems to little, three seems 

just right, and I think you have done it just right. 

What we would like to do now is to go down and hear 

from each of the Commissioners who have, heaven knows, heard 

enough from us. Mr. Brown and Mr. Smetters, if you could join in 

any response that was appropriate, I will go down that side, you 

go down that side, and there you are, sir. 

CO-CHAIRMAN PARSONS: Maybe before we have the 

Commissioners sort of give their valedictories, I know that this 

document that has now been made public, let me put it in context. 

 It is a draft. It is the staff's attempt to put words around 

the various decisions that this Commission has made over the last 
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several meetings that we have had before the public, and because 

it is complex and because what we are dealing with is complex, 

there are a number of Commissioners who just have seen the report 

in the last several hours recently, because Senator Moynihan was 

right, staff was up 'til all hours over the weekend pulling this 

thing together. As we move to make a document which I think 

reflects the will of the Commission in terms of decisions made, 

become a document that also reflects the words of the Commission. 

 I think several of the Commission members wanted to just comment 

on the substance of the report and give staff final guidance in 

terms of preparing a final report. So maybe we will start with 

you, Olivia. I know that you and several others had a few 

thoughts. 

DR. MITCHELL: Thank you very much, Mr. Co-Chairman. I 

guess I would just like to emphasize a couple of points that 

Chuck alluded to but go a bit further. That has to do with the 

unifying elements across all the plans that we produced in our 

Commission report. I would add, as you just said, that there may 

be opportunities to do some further wordsmithing, and I expect we 

will take that opportunity between now and the time we deliver 

our final report later this month. 

But the first thing I think that we should all be very 

clear about and that I think we want the American people to 

understand is that the Commission firmly agrees that we must make 

Social Security more secure. Currently the system faces about a 

$22 trillion hole as of 2075. That is not security. We need a 
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system which can be more reliable, which can pay benefits that we 

can count on. 

We believe as a Commission that personal accounts can 

be part of this solution, subject to the President's principles. 

 As all of you know and as have been listed on our Web site, the 

principles mandated that our plan include a voluntary personal 

account, that it reduce the $22 trillion gap, that we move toward 

fiscal sustainability. 

In the process of developing our plans, there's some 

other common themes. We agreed that personal accounts must 

increase ownership of wealth. Let's give people an opportunity 

to diversify their retirement portfolio. Not everybody's going 

to necessarily want the exact same investment mix. That we need 

to give workers a claim to wealth, both in the individual 

case --. For example, if there is a divorce, then both parties 

in the divorced relationship get a claim to that personal 

account. In the event of premature death, those people will be 

able to pass on their personal accounts to the next generation. 

And, we believe that personal accounts should offer the 

opportunity to increase national saving. 

The Commission also felt very strongly that Social 

Security now needs some improvement, that benefits are inadequate 

for lifetime low-wage workers, and we can do something about that 

and we have the obligation to do that. That we can do more to 

help widows and widowers who currently under the system suffer a 

rather dramatic benefit drop after the death of the spouse. And 
20

that ultimately, building wealth through personal accounts can be 

and must be a vital element of strengthening Social Security. 

So those I think we would like to get people to 

understand, are the unifying elements. Yes, we have three 

different approaches, but they all emphasize those points. Thank 

you. 

CO-CHAIRMAN PARSONS: Thank you. Were there other 

comments on the body of the report in terms of tone or language 

that various Commissioners --? I have got one myself, but let me 

defer first to my fellow Commission members. 

DR. MITCHELL: Bob. 

CO-CHAIRMAN PARSONS: Bob Johnson. 

MR. JOHNSON: Thank you, Mr. Chairman. I just wanted 

to echo some of the things that Olivia said. It relates to the 

personal accounts and sort of -- I'm sort of in the entertainment 

business, so I'll try to use some sort of entertainment example 

to describe what we are facing and therefore maybe make the 

point. 

All of you saw the film Titanic. And if you imagine, 

for those of you who didn't see the film Titanic, some of you may 

have lived on the Titanic. But anyway, here is the situation. 

We are all on the Titanic as it relates to Social Security, and 

clearly this is -- and we will have people tell us this is the 

safest ship afloat, tremendous leadership at the helm, no danger 

to us, but out there lurking is an iceberg, and let me tell you 

what that iceburg is. That iceburg is the fact that based on the 
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fact that between now and the next 50 years, the number of 

workers available to support Social Security benefits will drop 

from 3.4:1 to 2:1. The resulting cost of maintaining the current 

benefits in Social Security will increase 69 percent. In other 

words, we are heading for a disaster. 

Now, whether it is 20 years out, 30 years out, 

whatever, that iceburg is out there, and the ship, if it strikes 

the iceburg, will invariably sink, and everyone will lose the 

benefits, the retirement security that we all expect. 

Now, the interesting thing about this, the ship does 

not belong to the government. It doesn't belong to the cruise 

liner company. This ship belongs to you. It is your money, and 

it is your retirement future. You have every right to demand 

that the captain of this ship do everything possible to safeguard 

your retirement benefits from that lurking iceburg beneath the 

surface that nobody wants to admit is there. But we all know 

it's out there. So we have, and the Commission has come up with, 

following the President's directive, a solution that basically 

takes your money and modernizes the system, modernizes, if you 

will, this ship called the Titanic, and allows it to avoid this 

impending disaster. That modernization is simply called 

"personal retirement accounts," where we take your money, a 

portion of your Social Security contributions, and put it into 

private investment accounts in the public market to allow you to 

generate a greater return on your dollars than you currently do 

now. 
22

It is simply that simple. We take what you are making 

now and increase the value of it, and through the magic of 

compounding interest, you do this over your lifetime. When you 

retire, you are far better off than you would be under the 

current system. I find it extremely difficult how anyone sitting 

in this room or sitting in this country could argue with that. 

The retirement accounts will increase retirement 

security, and that's what Social Security was all about from its 

inception, was ways to increase your retirement security and to 

provide you benefits if you get ill and to provide your family 

benefits if you get ill. 

Now, part of Social Security, the current system, has 

done that. So keep in mind, we are not going to reduce that part 

of Social Security that has worked so well these number of years. 

 What we are going to do is add on, and I don't know if you have 

it in any of your publications, but again sort of drawing on this 

so-called media advertising world, some of you remember the 

Traveler's umbrella. If you had Traveler's insurance, you walked 

under this red umbrella that kept you out of the rain. Well, 

this one over here, this little small umbrella is the current 

Social Security system. It will keep you out of the rain just 

for so long and back to this period of time when you are going to 

hit this wall. All we have done here with private retirement 

accounts is made the umbrella bigger. We have simply provided 

you with more protection with your own dollars, and we have done 

it in such a way that you control the investment. 
23

We clearly understand that no one wants the Federal 

government investing your money in the market. We don't want the 

government to intrude in the market in any way that would be 

political, intrude in the market in any way that would dislocate 

the market, but more importantly, the fundamental fact is it is 

your money and you should have the right within certain prudent 

guidelines that we think we have come up with and that if the 

governing board that is created out of this wants to expand they 

can do so, to allow you to invest your market where you will 

increase your return from the current, I think small, measly, two 

percent to something significantly greater. 

Now, equally important to everyone participating in 

this, some of us in this society are not as well off in terms of 

our ability to accumulate wealth and accumulate assets. Private 

accounts go directly to the problems that many Americans face, 

particularly minority Americans, women, who need a greater 

retirement security umbrella or a blanket that they don't have 

now. There are various reasons and we all know why, but the 

personal retirement account will provide this group with a 

tremendous improvement in their retirement. This retirement can 

be passed on to your family members. Everyone here would love to 

have an estate that they could leave to their children or their 

grandchildren, so that they can continue to live a life that you 

would hope they would enjoy. This is another important component 

of private retirement accounts that's not currently embedded in 

our Social Security system. Again, taking your money and giving 
24

you exactly what you would get when you invest your money outside 

of this Social Security system. 

It also has the effect of leading to an increase in 

national savings. This country lags far behind many other 

countries in national savings. We save more money, more money to 

invest, more investments create more economic growth for the 

nation, which benefits everybody. Again, these are all 

principles that no one can argue against. 

So when we look at the private retirement accounts, 

what -- can anybody point to what would be the down side? Well, 

the down side I guess somebody could argue, you could look at the 

stock market and it could go down as it is now or it may not 

perform as we expect. That's possible. I would never tell you 

what the stock market is going to do, but what I will tell you, 

that over the past 200 years of the stock market, the market has 

never lost money over any 20-year period. Never lost money over 

any 20-year period. Many of you already have money in the 

market. What we are talking about are those individuals who 

don't have money in the market, putting their money in the 

market, increasing the financial sustainability of Social 

Security so we are all protected, everyone is protected, and 

increasing the individual wealth, retirement security and 

inheritance of each and every American. 

I would find it, as I said, extremely difficult to 

understand why anyone would argue against you enhancing what you 

already have that is in danger of being riddled by the changes in 
25

the demography and the rising cost of benefits, to improve that 

by adding a personal retirement account controlled by you for 

your own financial security. 

So I would urge you when you talk to members of 

Congress who would say we are against private accounts, you have 

to ask them, why would you prevent me from taking my own money 

and maximizing my own financial security while at the same time 

enhancing the retirement security of each and every American in 

this country currently and those in the future? Thank you. 

CO-CHAIRMAN PARSONS: All right. We seem to have -- 

before we go into final thoughts on the direction and scope of 

the report, are there any thoughts regarding the language? And 

then we can sum up. Gwen. 

MS. KING: Just one small point, and that has to do 

with the section on Supplemental Security Income. While -- 

CHAIRMAN MOYNIHAN: Gwen, you want to give us a page? 

MS. KING: Yes, I will give you a page. It is page 138 

and 139. It is a very brief section, but it is a very important 

one. Supplemental Security Income is a program that really 

provides benefits to low-income people, people who may not have 

participated in the work force long enough to gain benefits under 

Social Security. What we are saying here in this page and a half 

is that this program also needs to be looked at, especially in 

light of some of the changes that we are making. 

I would only ask that since we did not as a Commission 

have an opportunity to go into this plan, I would ask that we 
26

delete most of the very last paragraph which appears to make a 

recommendation for how to approach strengthening Supplemental 

Security Income. That program is so important it really does 

need an independent look and should not be treated in an offhand 

manner here in this report. So I would simply suggest that we 

truncate that final paragraph and simply point to the fact that 

something does need to be -- this program really does need to 

have a very close look to see if it should be updated. 

CHAIRMAN MOYNIHAN: Can you read us the offending 

material? 

MS. KING: I can, except I have to read it from 

Estelle's book since I ripped it out of my page and turned it in. 

 Yes. On page 139, I would suggest that we simply delete from 

"for example, the income and resource test," et cetera. We 

haven't really talked about that. We haven't discussed it. I 

just -- strike the rest of that. I don't want to give an 

example. I think examples should not be frivolous, especially 

where people who really need this program are concerned. 

CHAIRMAN MOYNIHAN: Mr. Chairman, I think that is 

entirely reasonable. 

MS. KING: Thank you. 

CO-CHAIRMAN PARSONS: Are there other comments on 

the -- 

MR. FRENZEL: Yes. Mr. Chairman, it seems to me the 

last sentence might be usable. 

MS. KING: Yes. I must say, Jeff Brown suggested that 
27

you might want to leave the last sentence in, but I was being 

arbitrary. It is okay if you would like to keep it in. 

MR. FRENZEL: That ---. 

CO-CHAIRMAN PARSONS: We will take that as a friendly 

amendment from --. See how friendly this Commission is? Are 

there other specifics? And then I have got a question for you, 

Olivia, because you spoke to the things, the unified approaches 

taken in these plans, and I wondered if you had a thought about 

how we could construct something that could put -- could bring it 

all together in our -- maybe to add to our executive summary, 

because I think the points you were making were well, but you 

have to kind of read through the whole thing to get it, and if 

there was one place where it could just pop out, that would be 

useful. But we have some other Commissioners who have some 

thoughts. John Cogan. 

DR. COGAN: Yes, I did. I wanted to -- 

MS. : Use the mike. 

DR. COGAN: Excuse me -- first congratulate the staff. 

 I think they did a great job. I think there's a few sections of 

the report that certainly could be a lot clearer, and we have, my 

understanding is, perhaps a week and a half to make any 

significant changes and the like in the report. Chuck, you made 

a very good point about benefit levels. In the report, in order 

to find what is happening to benefit levels for individuals, you 

have got to dig and hunt, and I think most Americans are going to 

be interested in the bottom line: what do personal accounts mean 
28

for me in terms of retirement benefits? And so you need I think 

in the executive summary to have a very clear presentation of how 

benefits are going to be altered by each of the reform options. 

We are going to face a lot of criticism I am sure for 

cutting benefits, and in that regard, let me offer a couple of 

observations. First, none of the changes that we have proposed 

in any of the plans looked at anyone who is currently retired or 

anyone who is in fact over age 55 today. The proposals that we 

are making are proposals for future retirees, not for today's 

retirees. Yes, it is true that two of the three plans propose a 

slowing in the growth of benefits for future retirees. But this 

doesn't mean that benefits are really being cut, because the 

comparison that is often made is to a level called "promised 

benefits." In order for the system to pay those promised 

benefits, taxes would have to be raised by about 50 percent. The 

bottom line of the proposals that slow the growth in benefits is, 

as you said, Chuck, that each of these proposals would provide 

benefits that in purchasing power terms are higher than the 

benefits that are provided to today's retirees. So each future 

generation of retirees under model two and model three will 

receive benefits that in real terms are higher than those 

received by current retirees. 

The power of personal accounts is also such that for 

people that chose personal accounts for both options, number two 

and number three, they will be able to get retirement benefits 

from the combined modernized system that are about the same or 
29

exceed the benefits that the current system promises but requires 

a 50-percent hike in taxes to deliver. 

Those kinds of comparisons and those kinds of 

statements are the kind that are needed in the executive summary 

of this report. People need to know how their benefits are being 

affected, and so we should make it very, very clear and not 

require people to go and dig through the numbers. 

CO-CHAIRMAN PARSONS: Mr. Chairman, as you can see, I 

have been wholly unsuccessfully in getting people to restrain 

themselves -- 

CHAIRMAN MOYNIHAN: Well, we -- 

CO-CHAIRMAN PARSONS: -- from delivering the ultimate 

parish, and the horses want to run. 

CHAIRMAN MOYNIHAN: -- they can't help it. 

CO-CHAIRMAN PARSONS: I know, so maybe we better -- 

CHAIRMAN MOYNIHAN: We withdraw the requirement that 

you be commenting on the text as such, but if you began that way 

and continue, then we cannot complain. 

CO-CHAIRMAN PARSONS: Let me just make -- 

MR. PARSKY: I interpreted the other comments as 

textual. 

CO-CHAIRMAN PARSONS: Okay, let me make one comment as 

to text, because, again, this was a work product that came 

together and you can see the staff deserves everybody's 

commendation, because they pulled together an awful lot on a very 

complex subject. 
30

CHAIRMAN MOYNIHAN: And so you won't mind my saying 

that it was the likes of Olivia and Pozen there who really 

worked, worked, worked -- and Cogan. 

CO-CHAIRMAN PARSONS: I am trying to say something nice 

about the staff, though I know the Commissioners had to carry 

them. 

(Laughter) 

CO-CHAIRMAN PARSONS: But they deserve a little credit. 

 Let me take you to the introduction of the Co-Chairs, however, 

which obviously the Senator and I had a fair amount to do with, 

but it has been brought to our attention that it is potentially 

structured subject to some small misinterpretation. In fact, 

someone suggested that it even could be interpreted to offer up 

yet a fourth plan, and that was certainly not our intention. 

CHAIRMAN MOYNIHAN: No. 

CO-CHAIRMAN PARSONS: Rather, what we attempted to do 

in our report was give a little historical context to the need -- 

not only the need for reform, but the fact that this whole system 

was structured in a way, and the original creators of the system 

understood it, as time passed and circumstances changed, the 

system would need to change with those times and circumstances. 

We toward the end of our introduction point to a specific example 

of use of personal accounts, the real purpose of which is simply 

to illustrate the power that personal accounts can have, not only 

in terms of helping undergird, supplement, augment the Social 

Security system, but creating wealth for Americans. And yet, I 
31

suppose some of the language, if looked at in the wrong light, 

could suggest that we were offering that as a, quote, "plan," 

which we were not. So I am going to suggest to Chuck, and I have 

talked to the Senator about this, but if you would turn to page 

five of your -- of the document, the beginning of the last 

sentence on that page where it says "We, the Co-Chairs," if you 

would strike that sentence and substitute the following sentence: 

"To illustrate the power of such accounts, however, let us offer 

the following example, which is further described in the body of 

the report." I think that then puts that example in its proper 

context and proper light. With that, Mr. Chairman, I now turn 

the gavel back over to you in the hopes that you do a better job 

than I have of letting the horses run. 

CHAIRMAN MOYNIHAN: Well, I think we are getting on, 

and I see -- is that Sam? 

MR. BEARD: Mario. 

CO-CHAIRMAN PARSONS: Down there, yes. 

CHAIRMAN MOYNIHAN: Sir. 

MR. BEARD: Did you already say ---? I'll do anything. 

 Mr. Chairman, I will do anything you want me to do. I thought 

you were going to start --- 

(Laughter, simultaneous conversation) 

CHAIRMAN MOYNIHAN: Mario, did you first -- did we see 

your hand up? 

MR. RODRIGUEZ: No, I didn't have my hand up, but I'll 

be --- start. 
32

CHAIRMAN MOYNIHAN: Mario. Mario, you are first. 

MR. RODRIGUEZ: First of all, I would like to say it 

has been an enjoyable, enjoyable ride working with these great 

distinguished fellow Commissioners that I have had the pleasure 

to work with, and staff, you have done a tremendous job. Because 

what we have tried to do is really, really take a look at this 

very, very complex issue of Social Security, and we are out there 

to help, and I want to emphasize help the individuals that really 

need to be helped. Those are those 67 percent of individuals 

that if did not have Social Security would be living in poverty. 

 That is something that we are very keen of. 

Also, what I want to make clear is that this is a 

voluntary program, and it is a small portion of what the 

individual puts into Social Security. We are not trying to 

destroy it. We are not trying to say everything that you have is 

going to be put into a personal retirement account and if you 

lose it, you have lost it. That is not what we are trying to do. 

 What we are trying to do is save this and strengthen it for the 

future of this country and for individuals that really, really 

need this. 

There is one individual I would like to really say 

thank you to, and that is Linda Blount, our secretary who has 

just been tremendous in keeping us all in line. I don't think 

she is in here, but I just want to thank her. 

CHAIRMAN MOYNIHAN: Oh, she's in here, you may be sure. 

 She's watching us from somewhere. 
33

MR. RODRIGUEZ: But I just want to in close say that I 

have enjoyed this. I commend the President for putting this 

Commission together. It was a bold step in the right direction, 

and we are here to do -- Linda. 

CHAIRMAN MOYNIHAN: She just came in. 

(Applause) 

MR. RODRIGUEZ: Thank you. 

MR. BEARD: I just want to make three quick points. 

For those of us who are speed readers and don't want to read 150 

pages, I just happen to love the title, "Strengthen Social 

Security" and then "Create Personal Wealth for All Americans." 

It is a wonderful title. It gets so to the heart of the report. 

 When you get to one page in there, one of the major 

ideas of what we're saying is to put wealth on the table for all 

Americans. Four percent of wage until you reach $1,000 a year 

will be set aside into an account which people will own. Right 

now about a third of Americans have financial assets, and about 

two-thirds don't. What this says is, roughly speaking, for most 

Americans, let's let most Americans set aside $1,000 a year into 

an account which they own. You start at age 20 and you do that 

through age 65 when figuratively you would retire, you can 

accumulate $150,000 in today's money and $80 or $100,000 in 

future dollars. It is a very significant breakthrough. 

Second, on the administrative section when we look at 

this, the Federal Thrift Savings Plan was an important model for 

us. It is doable. You can open up 140 million accounts, and the 
34

administration costs can be low. Our whole design is low 

administrative cost, and at the same time when you are investing 

it is not risk-free but is designed for minimum risk. 

Fundamentally, what we are saying is let's allow all Americans in 

large diversified portfolios, many of which might be index funds, 

to really own a share of the future growth of America. So the 

idea of risk, low cost, minimum risk, opening up wealth for all 

Americans is very powerful. 

The last thing is, unanimously as a Commission we have 

come out against privatization; privatization meaning, I am going 

to take my money and do what I want with it and walk away from 

the government and the government has no future responsibility. 

What the Commission has unanimously said is this is a national 

and communal umbrella. Disability insurance is important and 

remains. Survivors' benefits is important and remains. And in a 

very important way, we have raised the floor of benefits for lowincome. 

CHAIRMAN MOYNIHAN: I wonder if I might just take the 

opportunity to expand on what Sam has said. He has given so much 

of his life to this subject. Particularly in the climate of -- 

in the context of Bob's remarks earlier, there are some 

demographics that we live with right now about minorities in our 

country. We think of them as African Americans, as Latinos, as 

you like. With respect to African Americans, for Black men age 

20, only some 65 percent can be expected to survive to age 65, at 

which point they will begin to be eligible for some Social 
35

Security, which suggests that a third of such people will die 

having paid Social Security to some extent or another and have 

nothing whatever to show for it, unless there is a personal 

retirement account which gives them a measure of wealth. 

The minorities, and I mean anybody in that low-income 

level, but the people who die in the present system, it's old age 

insurance. There is no provision of wealth for it, and it has 

consequences. The consequences are I don't want to say hugely 

skewed, but a significant fact of our society is that the 

American economy, half the people have wealth and the other half 

none. We have the numbers here. On page 24 you will see a table 

on African Americans that is hugely persuasive. Financial assets 

at age 50, half of African Americans have no financial assets of 

any kind. That is what we are attending to, and it's about time 

we did. I think I will turn the gavel over to you, sir. 

CHAIRMAN MOYNIHAN: Thank you, Senator. We should just 

continue to move down the line. Ms. Gwendolyn King. 

MS. KING: Thank you. 

CO-CHAIRMAN PARSONS: Commissioner. 

MS. KING: Thank you very much, Mr. Co-Chairman. I 

have certainly enjoyed getting to know and work with all of you, 

not only with the staff but with my fellow Commissioners. This 

has indeed been an enjoyable experience. I thought I was done 

with Social Security back in 1992, but good pennies just keep 

coming back. 

About a month ago I mentioned that I had the 
36

opportunity to meet a woman named Jeannie down in Wilmington, 

Delaware who was retired and asked me if we would make sure we 

strengthen Social Security for her daughter, because she didn't 

want her daughter to have to work after she retired. I feel very 

good today about being able to say to Jeannie, we've done it. We 

have set in motion what I hope will be a very good and honest 

debate about an approach that will indeed give just that 

additional amount of retirement income to Jeannie's daughter and 

to all of you who are not either currently retired or nearing 

retirement, by use of the personal retirement accounts. 

We have tried very hard to speak clearly in this 

report, because it is so important that we demystify Social 

Security, that everyone who has an interest in this program 

understands it. I think that is what most of us will continue to 

do as we go through the report over the next 10 days, to try to 

simplify the language, to be very clear about what it is we 

intend and what it is we are saying, to get rid of all of the 

confusing jargon, and to make sure that people who read this 

report will know and understand what it is all about. 

Similarly, personal retirement accounts may be a new 

animal for a lot of people, people who do not currently have 401K 

accounts, and it will be very, very important for us I think to 

make sure that the people who are tasked with providing financial 

information continue along the path of being clear and simple and 

getting the word out, so that accounts aren't frittered away. 

People who have the opportunity to make decisions about funds 
37

into which their monies will go will really know what it is they 

are doing. 

We have one section in the report that speaks to who 

will provide financial information. I hope we can strengthen 

that to make sure that we are very clear about the kind of 

information that is available, how widely it is available, that 

we are using clear English and even other languages for minority 

populations in this country who will understand these benefits 

better. 

I do want to say that I think it is important for 

people to note that the three models we put forward are not the 

only three possibilities. There may well be, and I am sure there 

are, other approaches that could use personal retirement 

accounts, in fact use the same set of standards against which 

this Commission put forward these three models. I think it is 

fair to say that for those who do have other plans who put them 

forward -- many of the members of Congress have come up with 

approaches, that we applaud, because they actually laid out their 

approach and made it open to public scrutiny, so that Steve Goss 

and all those who could score our models could also score theirs. 

 We are actually looking at apples to apples as we go forward. 

I would hope that those who have other approaches would 

similarly make their plans open so that we could line them up 

against the criteria which we have used and score them as well, 

so that we will know just what kind of cost impact those plans 

will have. Someone called it "if you don't want to pay, then you 
38

can't play." You sort of own up to these approaches. It is the 

best way, because what we are trying to do is strengthen Social 

Security, not put it on a path where we are going to have to 

worry about this again. 

So I must say, it is going to be important for all of 

you who do have good ideas -- and I know we had some 30 people 

come before this Commission to give us their views on personal 

retirement accounts and what we were here tasked to do. We even 

have a good friend who didn't believe there was a problem who 

looked at the optimistic projections, and I think that is 

commendable, but I think it is important for us to be clear. If 

you really have a proposal, then for goodness' sake, make sure 

that we are scoring it, that we know what the cost is going to 

be, because the object here is to strengthen the program. It is 

not enough just to criticize what we have done. There is plenty 

of that to go around. But someone once told me that if your 

friends aren't happy and your enemies aren't happy with the 

product, maybe you have done something right. So I think we have 

probably just done it right. 

I think putting forward the three different models is a 

very good approach. Let the debate begin. Let's take the time 

to debate this issue and make sure that before we move forward 

everyone understands exactly what it is we are doing. Thank you 

so much, both my Co-Chairs. It has been a pleasure working with 

you and with all the members of this Commission. 

CO-CHAIRMAN PARSONS: Estelle. 
39

DR. JAMES: Well, first of all I would like to commend 

the President for taking on this very complex and controversial 

and contentious issue of Social Security reform. I think this 

took a certain amount of political courage. I would also like to 

thank the Co-Chairs for providing very good spirited leadership, 

and especially the staff for their 12-hour days and their 7-day 

work weeks and for what I regard as a really superhuman effort in 

producing this report in a time frame that was really too short. 

 

Since some observers will be unhappy that the 

Commission presented three recommendations instead of one, I 

would like to emphasize the points of agreement among them, the 

commonalities among the plans, and then make a comment about some 

of the differences. 

So let me just briefly list the commonalities. We all 

agree that fiscal sustainability is an essential element of 

Social Security reform. As Olivia said, without sustainability 

you have no security. Two of the three plans present 

comprehensive frameworks for achieving sustainability. 

We all agree that personal retirement accounts can make 

it easier rather than harder to achieve sustainability and that 

workers will receive higher benefits as a result. We show that 

these accounts can be set up in a way that incurs low 

administrative costs, as Sam mentioned, and that was a very 

important goal that we had in mind. 

We all believe that it is important to retain and in 
40

fact to increase the progressivity of the current system, and two 

of the three plans accomplish this. So I think those are very 

important commonalities that we should bear in mind. 

Now, the two plans that attempt to make the plans 

sustainable and more progressive also illustrate the tradeoffs 

that we as a nation will have to come to grips with. The Social 

Security system we all know is financially unbalanced, and to 

make sure that it is there for our children and our 

grandchildren, we have to achieve balance. 

Now, to achieve balance we can accomplish this either 

by slowing down the growth of benefits or by increasing revenues 

or by some combination of the two. I think we have been making 

that point over and over again, and our models try to illustrate 

those two approaches. Model two relies exclusively on slowing 

down benefit growth, while model three moderates this with a 

partial reliance on revenue increases. Therefore, model two 

doesn't quite achieve scheduled benefits, but it comes close when 

personal accounts are included. In contrast, model three reaches 

or exceeds currently scheduled benefits and replacement rates, 

but of course this costs more. 

Now, each method involves some pain, but different 

kinds of pain, and that is what we are going to have to choose 

between. We would love to avoid this issue. We would love to 

avoid either type of pain, but eventually we are going to have to 

face it. Our computer simulations of these models show that 

regardless of which approach we take, establishing personal 
41

accounts can reduce the pain and improve the terms of trade. 

That is, you can either achieve higher benefits or achieve the 

same benefits but with lower account -- with lower costs, if you 

include personal accounts. I think that is one of our most 

important messages. 

Now, some people think it is a weakness of the report 

that we didn't come in with one single recommendation, but I 

actually think it is a strength. Ultimately, the decision about 

how much to slow down benefit growth and how much to increase 

revenues has to be made, not by us as a technical Commission, but 

by the President working with Congress and responding to the 

preferences of the American people. As individuals, we each have 

to decide what our own wage -- our own target wage replacement 

rate in retirement should be, but as a society, we have to decide 

how much of this should come from Social Security and how much 

from people's additions in the form of their own private savings 

and pensions. Social Security requires mandatory payments which 

we generally don't like, but it also sets a floor which we can be 

sure that everyone will have regardless of whether or not they 

save on their own. So we have to decide how that floor should 

be, how high that floor should be, and how much we are willing to 

pay for it. 

Now, each of the three options in the report provides a 

different answer to that question, and I think it is appropriate 

that we present different answers, because as I said, ultimately 

the answer depends on value judgement. It doesn't depend on 
42

technical expertise. The choice shouldn't be made by us as a 

Commission, but by the public at large through our representative 

government. Our most useful function as a Commission should be 

to illuminate the tradeoffs and how to improve the tradeoffs. 

What I think our report will show is that individual accounts 

improve the tradeoffs. So regardless of what your choice is, we 

will do better by including personal savings accounts. I hope 

that our report kicks off a debate on these issues during the 

coming year, so eventually we can reach a consensus and implement 

reform. 

CO-CHAIRMAN PARSONS: Reverend Doctor Parsky. 

MR. PARSKY: Thank you. I also want to pay special 

thanks to the staff, to the leadership offered by our CoChairmen, and to the cordiality that this Commission has operated 

under. I have just a few general comments, and might slightly 

take issue with my fellow Commission to the left in terms of the 

fact that pain is really needed here. I wouldn't quite 

characterize that way, but if I could just proceed a little. 

First, I think it is very important to remind everyone 

of the situation with respect to the current system. We took a 

lot of criticism for trying to do that with our interim report, 

but I think it is extremely important that people understand a 

few basic things. 

One, the program is financially unsustainable in its 

current form. I think everyone at least on this Commission 

agrees with that, and I would hope that the media and the public 
43

would gain some understanding of that. Two, to support 

tomorrow's retirees we must save and invest more. Three, the 

existing Social Security program does not save or invest in the 

future. Therefore, one basic conclusion out of that is that 

doing nothing is not a real option. Something must happen to 

preserve this important system. 

Now, if you step back and you look at the report, in 

relatively simplistic terms there are a few things or a few 

desires that the report I think reflects. I think the report 

reflects a desire to improve Social Security for younger 

Americans. Under our existing system, Social Security provides 

basically a bad deal for today's young workers. 

Second, the report reflects a desire to improve Social 

Security for vulnerable Americans, and each of the three options 

attempt in one form or another to recognize that, with option one 

not being quite as clear, but the power of personal accounts for 

the most vulnerable I think come out even under option one. 

Third, the report reflects a desire to improve Social 

Security for women. 

Fourth, the report reflects I think a desire to allow 

Americans, all Americans, to become a nation of owners and 

savers. It just isn't appropriate for a government employee or a 

member of Congress to have the ability to own a stake in his or 

her own retirement and other Americans none. So I think all of 

these options reflect a desire to change that. Common to all of 

them is a belief that the concept of personal accounts moves us 
44

toward achieving all of those basic desires, --- nuances of 

policy one way or the other. 

I think as we look at the product, it is very -- it is 

also very important not to engage in scare tactics. We saw in 

connection with the release of our interim report that the 

Commission was roundly criticized for basically laying out the 

facts. Now I can imagine that we will be even more severely 

criticized for offering some alternatives on how to deal with the 

facts, but a few things we shouldn't allow to stand. 

We shouldn't allow the report and the efforts of this 

Commission to be characterized as privatizing Social Security. 

We are not doing that in any of these alternatives. Second, we 

should not allow those that might criticize this report as 

scaring people about the risks involved in the market place. I 

think each of the approaches taken in crafting these personal 

accounts are carefully thought through, reflect a desire to offer 

people a voluntary way to participate in the market place, and it 

is both inappropriate and unfair to look at the vagaries of one 

day or one month or even one year in the public equity markets in 

an effort to scare people away from participating in a personal 

account program. I think Bob Johnson mentioned the historical 

impact looking back over the public equity markets. If you look 

at the appropriate mix of fixed income and public equities, it is 

even safer. It is even safer in terms. And all of the 

approaches provide a worker the opportunity to earn more than the 

approximately two percent that is being earned now. All of the 
45

alternatives. 

So as we kind of step back, I think it is important to 

understand the situation we are in, the importance of doing 

something about the situation, and that -- I come back to my 

final point, I don't think any of these approaches involve pain. 

 I think all of them involve a belief that we need to invest in 

improving the system. The transfer of revenues that may be 

necessary for one that may be greater than the other are an 

investment in the future. There should be no higher priority. 

This is not pain; this is insuring people that they have a stake 

in their own retirement. Thank you. 

CO-CHAIRMAN PARSONS: (gavel pounding) --- 

DR. MITCHELL: Mr. Chairman, if I may, I would like to 

skip my turn and come back when Mr. Penny does his presentation, 

because I think our comments dovetail well together. 

CO-CHAIRMAN PARSONS: Fine. 

CHAIRMAN MOYNIHAN: The artist in residence. 

MR. FRENZEL: Thank you, Mr. Chairman and other 

Mr. Chairman. It has been an enormous pleasure for me to serve 

on this fine Commission. Like everyone else, I revere the staff. 

 I love my fellow Commissioners, and I respect and follow in all 

respects the wonderful Co-Chairmen. As a matter of fact, it is 

very difficult for me to learn how to work with these highly 

intelligent people. Remember, I was a Congressman. 

(Laughter) 

MR. FRENZEL: I do want to say in addition to 
46

complimenting the "grammatus personae," that my judgement, like 

that of the other members, is that the product that has been 

produced here is quite remarkable; remarkable for the way that it 

was done and remarkable for the way that it is going to be voted 

out. Barring some sort of unforeseen emergency, you are likely 

to see a unanimous vote on a Social Security report which is 

pretty unusual, and I will let the historian comment on that 

later. 

Without saying too much about it, I wouldn't want 

anyone to have the idea that we have labored here in perfect 

harmony. There has been a very vigorous exchange of views, 

sometimes two to two or one on one or three on two, by telephone, 

in the cloak room, wherever. If each of us were given the task 

of writing this report, each of us would write it slightly 

differently. We understand the need for consensus and unanimity, 

and we worked hard to achieve it, lead by the great efforts of 

our staff. 

We believe this will stimulate debate. We have 

presented three options. I was one of those who thought even 

more options would be wonderful. We have given three basic 

choices, the first of which has been called the free lunch 

option, the second of which you might call the full price blue 

plate, and the third is, I guess you would call that the 

subsidized lunch. Each represents a different cut at the same 

problem and will lead I think careful readers of our report to 

understand that there is an infinite range of possibilities out 
47

there. 

What it takes is a group like ours to start the ball 

rolling, a brave President to make a recommendation, perhaps not 

this year, perhaps not next year, and following his 

recommendation, even braver members of Congress to step up to 

solve the Social Security problem. So we understand we are not 

writing the law and we are not putting iron in anybody's find; we 

are just getting the program started bit by bit. 

We realize that we have created a small -- more than a 

cottage industry of critics, who will lunch off of us and our 

reports and have a lot of fun criticizing. But whatever, I think 

all 16 members of the Commission believe that they have 

faithfully met the challenge given to us by the President, and 

that in so doing, they have been able to do so largely because of 

the extraordinary capabilities of our staff. Thank you, 

Mr. Chairman. 

CHAIRMAN MOYNIHAN: Thank you, Bill. 

CO-CHAIRMAN PARSONS: We start at the other end. We 

are going to work -- Bob, do you have a second sermon for us? 

(Background conversation) 

MR. JOHNSON: No. But I do have something I want to 

say to sort of act this up. I guess when the founding fathers 

and those who sort of created this great country of opportunity 

call the United States came about, they had as true goals, among 

goals, was to provide for the common defense and to promote the 

general welfare. We have had a saying in this country that when 
48

it comes to providing for the common defense that politics stops 

at the water's edge, and we are seeing that today in the fight 

against international terrorism. I believe that promoting the 

general welfare of all Americans in trying to reform the nation's 

retirement system rises to a level of where politics should stop 

at the water's edge. 

Now, I have been around Washington, D.C. long enough to 

know it's not going to happen, but it is certainly a consummation 

to be wished. So I would urge all of us as we go forward with 

this to try to approach this as something where we can disagree 

on how to achieve the goal, but we should never disagree that the 

goal must be achieved. That's all I got to say. 

MR. : Here, here. 

CO-CHAIRMAN PARSONS: Tom. Follow that. 

DR. SAVING: Nice statement. it's hard to follow that. 

 It is hard to follow Bob anytime. Is entertainment, but I got a 

chance to say a few things. Mario at the very beginning of this 

thing suggested this has been a great ride, and I would like to 

say and I am sure the fellow Commissioners would agree that I'm 

not sure that a ride is the way to describe it. It seems to me 

that we and the staff especially have been pulling the wagon 

rather than riding in it, but it's been a great time to be 

pulling the wagon. 

I think fundamentally I would like to say a few words 

just about private accounts and perhaps something about pain has 

been brought up before. One, Congress cannot write a contract, 
49

and I think that is the real issue here. The current Social 

Security system, as Bob Johnson pointed out in his original 

statement, this is not an enforceable contract between Congress 

and the people, since Congress can't write a contract. The only 

way Congress can make a commitment to the future is to provide 

individual ownership of retirement accounts. There is no other 

way. There is nothing they can do that commits any future 

Congress to anything. Can't be done. Won't be done. And 

individual accounts essentially take the only key to the safe 

containing your money away from your Congressmen and gives it to 

you. I think the key to your accounts is much better in your 

hands than in anyone else's, especially someone in Washington. 

Lastly, going from -- in the way we have done this is 

we have costed these things out, every one of these plans, and 

the plans all show uniformly that private accounts are not 

painful, going back to Gerry Parsky's comments. The current 

system has a huge amount of pain in it, and private accounts are 

a way to reduce that pain. Taking away from Bob Johnson's 

entertainment monopoly here and I think a requirement for all our 

critics should be, taking something from Jerry McGuire, show me 

the money. And if they can't show us the money, they shouldn't 

be able to criticize us in any way. Thank you. 

CO-CHAIRMAN PARSONS: Fidel. 

MR. VARGAS: Co-Chairmen and Commissioners, it has been 

an honor and a pleasure to serve with you. This has been a much 

different experience than the experience I had on the last 
50

advisory council, although they were -- it was an interesting 

one. I think one of the things that distinguishes that I think 

is where we are today, which is at a place where we recognize 

that to complete the work that we have been charged with, that 

the product that we are producing is in fact addressing that 

issue. 

I want to say also that this has been for me a great 

experience to experience bipartisanship firsthand. I think it 

has been forgotten by many people who say this Committee has been 

rigged and this Committee -- 

CO-CHAIRMAN PARSONS: Ow. 

MR. VARGAS: -- has been set up, none of that could be 

further from the truth. We have eight Democrats and eight 

Republicans who care deeply about this issue who have been 

dedicated, who have persevered, who have showed tremendous 

integrity and intellect in dealing with this very important 

issue. And more importantly, more than Democrat and Republican, 

16 Americans who took their charge from a courageous President. 

As a Democrat, I really do want to commend the 

President for taking this on, because frankly, when he took this 

issue on in the campaign, I agreed with him on this issue. There 

are not too many that I agreed with, but this one I did. For him 

to continue to push forward on this issue, even under the current 

circumstances and not knowing where this is going to end up, to 

me is something that I admire very much, and I am very proud to 

have him as our President. 
51

As Gerry and Bob were talking about earlier in terms of 

the scare tactics that are going to be used and have been used, I 

was reminded of a recent television advertising campaign. I 

don't know if you have seen it. On one of them it said Jimmy 

Johnson, the former coach of the Cowboys, and Troy Aikman. 

Another one it's a doctor and a female patient, and the doctor 

ends up giving the woman advice about her health and also what 

kind of stocks to buy. Another one, a mother gives the son -- 

she is telling him all this great food she is going to give him 

and advises him on how to balance his portfolio. It really 

struck me, because we have been hearing how dangerous the market 

is, and it just struck me. The question I want to ask anyone who 

says the market is dangerous, going forward, Congressmen, should 

Americans continue investing in public markets? It's a pretty 

simple question. 

I think the answer most economists would come up with 

would be, of course we should. That's what has built this 

country. The idea that for some -- for whatever reason that it 

is a dangerous idea or a dangerous policy to have those Americans 

who would benefit the most from it and have not yet had the 

opportunity to do that, keeping them from doing that to me 

just -- it doesn't make any sense. So again, the question that I 

would ask the media to ask, is to ask them should we continue to 

invest in public markets. I would want to hear from any 

Congressman that says we shouldn't, because then I could go back 

to the economists that I know and my business school teachers and 
52

ask them if somebody knows something that they didn't know, 

because frankly, to me that just doesn't make any sense. 

In terms of what we have offered as it pertains to how 

it benefits or how it impacts what one might call the least among 

us, low-wage workers and minorities, the plans that have been 

offered up today, sustainability and administrative issues, all 

that aside, because I think that those are important but more 

fundamental to me is the progressivity that has been built into 

these proposals. Because frankly, the people who will -- 

everybody in my opinion gets a great -- gets a good deal in what 

we proposed, but the folks that get the greatest deal, if you 

really study these proposals and really look at them carefully, 

the people that get the greatest deal out of this are those that 

are the least among us, are the low-wage workers whose benefits 

will be increased over and above current promised benefits in 

some of the proposals. I think that that is critical, and that 

is another point that I would put to my fellow Democrats as they 

look to address this issue. Echoing what Bob has said, I hope it 

does stop at the water's edge, because for this issue the people 

that will benefit the most are frankly the people that my fellow 

Democrats represent. Thank you. 

CO-CHAIRMAN PARSONS: Thank you, Fidel. Lee. 

MS. ABNOR: Thank you, Mr. Chairman. I too would like 

to thank the President to have the political courage to put the 

Commission together, the staff who have shown an incredible 

amount of expertise and support and ability to coordinate 16 very 
53

independent Commissioners, and my fellow Commissioners who have 

shown a level of honesty and integrity that I think is quite 

unusual, at least in my 27 years of being here. 

I want to talk about two things. First I want to talk 

about women and what we do for women. As Fidel was just talking 

about, we talk about low-wage workers and how we make the system 

more progressive. We heard some testimony from women's groups 

about the vulnerability of women in retirement, and we agree 

about that and are extremely sympathetic to the fact that women, 

unfortunately, make up the majority of the low-wage workers, live 

longer, and fewer of them than men have pensions and private 

savings. It is critical that the first thing that we do is to 

boost up the lower wage benefits so that even more of our 

precious elderly, the majority of whom are women, will be raised 

out of poverty. I think that is the first thing that we have to 

look at as far as women is concerned, is what we do to strengthen 

the insurance function of this program, regardless of what else 

we look at. I agree with Fidel. 

Secondly then, in addition to that, as far as women are 

concerned, we as a Commission believe, unlike some others that 

testified, we believe that women ought to have the choice to 

decide for themselves if they would like to have personal 

retirement accounts. We believe that women are smart enough and 

responsible enough to make these decisions for themselves. So 

first, if you boost up the minimum benefit, and then secondly, 

offer that, the personal retirement accounts as an option for 
54

women to decide for themselves. We think that this is a strong 

plus as far as what's the best approach for giving women the 

opportunity to create more financial security in retirement. 

Third, for those who choose personal retirement 

accounts and are married, if they were to divorce, the accounts 

would be split 50/50. In Social Security right now, as some of 

you know, you have to be married for a full 10 years before you 

are entitled to a spousal benefit. If you are married less than 

that, you get zero. We don't do that with personal retirement 

accounts. We allow from the first day of marriage that the 

accounts would be equally split. I think that's very important. 

 

(Background conversation) 

MS. ABNOR: Then lastly, what we do for widows, in 

particular boosting the widows' benefit. So this is a plan -- a 

report that offers proposals that will -- that should be very 

much supported by women's groups and individual women across the 

country, because we are extremely sympathetic to the needs of 

women. 

The second issue I would like to raise -- and I would 

like to offer this for submission in the report. Let me read 

this briefly. It is a couple sentences. Has to do with 

participation from outside parties and helping us review the 

different options and creating our own proposals. What I would 

like to offer for the report says, "A Federal Register notice 

invited testimony from the public at the Commission's public 
55

hearings. We requested that the witnesses present their views 

for modernizing and restoring fiscal sustainability to the Social 

Security program. Overall, the Commission held 7 public meetings 

and heard testimony from more than 30 witnesses." I think it was 

34. 

"We, the Commissioners, thank all of those who 

presented constructive suggestions for the Commission's 

consideration." And there were quite a few that did that. We 

heard that, and we took those into consideration. 

"The Commission also notes that several witnesses who 

are critical of personal retirement accounts," and frankly were 

some of the most vocal, the strongest, more fiercely in 

opposition to personal retirement accounts, "that we specifically 

asked some of these critics to give us their plans for Social 

Security reform, and in fact, one of them said that they would. 

We offered to have Steve Goss score those. We wanted to put 

those on the table as a part of being a responsible participant 

in the debate. We Commissioners regret that we didn't receive 

any of those plans." 

So I would just like to say and kind of echo what Gwen 

was saying, is that kind of a little phrase that we have adopted 

here should be I think the mantra as we go forward, "no plan, no 

play." In this next year ahead of us, we have a year that will 

be a time of debate. It is only those who are willing to stop 

using Social Security as a political football and put responsible 

plans on the table really are those that should be considered, 
56

and let the American public then make their own decisions, but 

the kind of attacks, which are fine -- critics are fine, we 

appreciate that. We want to know where we have problems in our 

approaches, but without offering their own solutions and spending 

more years attacking is irresponsible, and we would call on 

Congress and the media to ask them how they -- specifically how 

they intend to maintain the existing program as a part of their 

criticism of what we are suggesting. So those are the only two 

comments I would like to make. I appreciate again all of the 

Commissioners and the staff and look forward to participating in 

the debate ahead this next year. 

CHAIRMAN MOYNIHAN: Lee, can I suggest that Dick and I 

are going to be a style committee in effect, as in Constitutional 

convention we will not change meanings but will try to be a 

little more coherent. We will take that amendment as it were and 

work it in. 

MS. ABNOR: Thank you. 

CO-CHAIRMAN PARSONS: Bob Pozen. 

MR. POZEN: Well, I like others would like to thank 

Dick Parsons and Senator Moynihan for excellent leadership. I 

would like to thank the staff for a huge amount of effort, 

including a few all-nighters, and specifically Steve Goss who I 

think doesn't appear to sleep very much, since we keep getting 

emails from him at 2:00 and 3:00 in the morning. 

(Applause) 

MR. POZEN: Apparently seems to be a major work hour 
57

for him, 2:15 in the morning I think. Let me try to answer four 

questions that I hear by critics of what we have done, and try to 

address them directly. 

First question people say is, did you reduce or did you 

increase progressivity in the system? I think, to summarize a 

lot of points that have been made here, that we did increase 

progressivity in the system in several ways. First, for the 

first time there is a poverty benefit in Social Security, meaning 

you worked 30 years at minimum wage, you will be assured of 

getting a poverty level Social Security benefit. That does not 

exist now, and it would exist under both plans two and three. 

Another thing that Lee mentioned is survivors. For 

people in the below average income level, we will increase the 

survivors' benefits to 75 percent. A third thing is on divorce. 

 Again, as Lee mentioned, if you are not married for 10 years, we 

will split the personal account 50/50. 

A fourth point is the size of the account. You will 

see that in plans two and three there is a weighting of these 

accounts to make them larger for lower-income people by having a 

percentage but capped at a dollar amount, $1,000. 

Fifth of all, in plan three we do have, I guess Bill 

would say, a subsidized add-on by which we encourage people to 

save and we encourage them to put money in personal accounts, and 

that is specifically designed as a refundable tax credit for lowincome people. Lastly, in plan three we do fool around with the 

last bend point and flatten out the curve a little. 
58

So I would say overall these proposals really do go a 

long way toward increasing the progressivity of the system. If I 

was in favor of increasing the progressivity of the system, I 

should be in favor of these proposals. 

Second question we get asked is are you cutting 

benefits, increasing benefits, et cetera. John has I think 

correctly said that the question isn't really being phrased in 

the right way. We are not cutting benefits. We are in fact 

growing benefits. Now, we are growing benefits if you put 

together the traditional Social Security program and the PRA, and 

I suggest that you look at some of the tables that are in there. 

 If you look at 2052, which is a reasonable date to look 

at since it has -- for people now just starting work, and if we 

look at that and we say if you have the traditional -- the total 

of the traditional Social Security benefit, plus the PRA, will 

that exceed 100 percent of scheduled benefits, those that are 

scheduled? The answer is, in plan two and three they do exceed 

100 percent of scheduled benefits for low and medium workers, and 

in plan three they exceed them by a significant percentage 

because of the add-on. 

Now, a third question we are asked is, well, how do we 

really know that we are going to get this higher return from PRA? 

 I think it is important to emphasize a few points. One is that 

we have been constrained by the Chief Actuary of the Advisory 

Social Security System to use a conservative rate of return of 

4.6 percent real. That is the balanced portfolio of half stocks 
59

and half bonds. We know that there are a lot of economists who 

would argue that the return should be higher, but we have tried 

to use a conservative and a standard return, and we suggest that 

other people who would do their plan should do that too. 

Now, the other thing is people keep saying they 

invested in this particular IPO and it went down, et cetera. We 

do not allow investments in individuals stocks. We do not take 

the IRA route. We do not allow investments in sort of 

specialized technology.com funds. These are broadly diversified 

portfolios. We also provide an inflation protected bond 

portfolio for those people who really want a very conservative 

choice. 

Now, people also say, well, what if I am not 

sophisticated and I don't know which portfolio to accept and to 

choose? There we provided a standardized portfolio which is 50 

percent stocks and 50 percent bonds, and it is geared to be 

appropriate for people's age level. So it starts off with a 

little more equity and it moves to a little more bonds. So that 

we are responsive to the question what if you don't know what to 

choose. We provide you with the standardized portfolio. 

Again, I would emphasize we have various pieces of 

literature going around saying that the NASDAQ or the S&P went 

down by so much in one year. Bob is right, that in 20 years -- 

over any 20-year period that market has gone up. Actually, if 

you look over 20, 30 and 40 years, the market has gone up, and 

that is the time frame we are talking about. We are talking 
60

about people's working careers. Anything that happens in one 

year is really irrelevant, and some people say, well, what 

happens if there is a big problem toward the end. Well, we would 

suggest, as we do in the standard portfolio, as you get toward 

retirement that you move your portfolio more toward bonds and 

less toward equities. 

Now, the last question that I get is people say, well, 

we used to have a budget surplus but now for the next few years 

it seems like we might have a budget deficit. Doesn't that 

undermine this proposal? I think the answer is clearly no. If 

you look at our mandate, we are not allowed to touch retirement 

benefits of anyone who is in pay status now or who is about to 

be, near retirement, and we have defined that as people over 55. 

 So as a practical matter, very little happens, very little 

budget impact occurs until 2009, and it's really from 2009 on 

that significant budget effects occur. 

Now, I don't know whether there will be a budget 

deficit or a surplus in 2009, but I think that whatever happens 

over the next few years in terms of the projections for 2003, 

2004 and 2005 really don't impact that. This just emphasizes 

again, this is a long-term problem and therefore people who look 

at things like this year or next year there is a budget deficit, 

are really looking at it in the wrong way. The sorts of things 

that are going to happen here are going to affect the budget from 

2009 on for many, many years after that, and what's happening 

today just isn't that important for a long-term problem. This is 
61

a long-term problem, and we need to start now and have a longterm solution. Thank you. 

CO-CHAIRMAN PARSONS: Thank you, Bob. John. 

DR. COGAN: Let me say to all my fellow Commissioners, 

it has been a real pleasure and quite an honor to be able to 

serve with you in this effort. To the staff, I say thank you 

very much for your long hours. Chuck, Jeff, and Kent, and of 

course to the rest of the staff members as well, thank you very, 

very much. 

What this report shows is what is possible if we reform 

Social Security. Seems to me that the report, especially models 

two and three, demonstrate what is possible, namely the creation 

of individually owned personal accounts, giving Social Security 

for the first time an investment component. Second, we can 

improve Social Security's antipoverty protections, and third, we 

can put Social Security on a financially sustainable basis. Let 

me make a few comments on each of these achievements. 

First, with respect to personal accounts, several 

members have already talked about the financial benefits of 

individuals of personal accounts, but the benefits of personal 

accounts go far beyond the purely financial. Workers who own 

financial assets built up through personal accounts will have 

greater security and greater freedom, greater security in the 

following sense: that one's retirement income is based upon real 

financial assets instead of unfunded political promises. Greater 

freedom, flexibility in the following senses: individuals would 
62

have greater freedom as to when to retire, they would have 

greater freedom over choosing an economic lifestyle in 

retirement, and they would have greater freedom to pass on their 

wealth to their heirs should they wish to do so. 

With respect to improving Social Security's antipoverty 

protections, as Bob said, the current program doesn't really 

offer poverty protections. One of the main rationales for Social 

Security in 1935 was to alleviate poverty in old age. Social 

Security has done an outstanding job in achieving that objective, 

and yet it is still the case, as we reported before, that 1 out 

of every 4 widows, never married women or divorced women over the 

age of 65 still lives in poverty. Surely we can do better than 

this, and all 3 of the options that the Commission has put 

forward would improve upon the current system's antipoverty 

protections. 

Finally, the options, all three of them, do improve 

Social Security's financial status. Options two and, to some 

extent, option three would put Social Security on a financially 

sustainable basis. 

A few statistics. The unfunded liability in Social 

Security now is over $20 trillion over the next 75 years. Option 

number one reduces that liability by a very small amount, 8 

percent. Option number two reduces that unfunded liability by 

about 70 percent. Option three reduces that unfunded liability 

by about 50, 55 percent. So all of the options to varying 

degrees improve Social Security's fiscal sustainability. 
63

My belief and my hope is by offering this report to the 

President, we will move the ball forward on Social Security 

reform, and so I say, Mr. Chairman, let the debate begin. 

CO-CHAIRMAN PARSONS: (Gavel pounding) Thank you, 

John. Tim. 

MR. PENNY: Thank you, Mr. Chairman. First, I would 

like to identify myself with the remarks of those who have spoken 

before me, not only in terms of the substance of their comments, 

but also in terms of the praise that they have offered to the 

staff and to you, the Co-Chairs of this august group. In 

addition, I do have one minor -- I hope it will be considered a 

minor addition to the report. I will pass it down the line. 

We speak at the end of the report about the need to 

look at SSI and to look at the disability insurance programs. I 

think a third admonition might be well to include in this report, 

and it is simply to state the obvious. That is, that over and 

above reform in the Social Security system, we clearly believe 

that retirement security is best built upon Social Security, 

work-based pensions and personal savings, and that we encourage 

policy makers to address additional incentives for retirement 

savings specifically targeted to younger workers and low-income 

workers. 

CHAIRMAN MOYNIHAN: Um-hm. Um-hm. 

MR. PENNY: If there is no discussion or objection, I 

would offer the style committee -- 

CHAIRMAN MOYNIHAN: Withhold just a moment, because we 
64

are going to wrap up and that will be part of the wrap up. 

MR. PENNY: That will be great. With that, I then have 

a few comments to make about the cost of these plans or these 

models as compared to the current system. First and foremost, it 

is important to recall, as we highlighted in our interim report, 

that today we are spending about 10.5 percent of payroll to 

support the system. We would have to raise that payroll tax rate 

to about 18 percent by the year 2035 to continue a pay-as-you-go 

structure with this system, and much higher payroll taxes as time 

goes by. In addition, even if you count the Trust Fund, we are 

looking at a period of time in the mid 2030s, right now projected 

to be 2038, at which these Trust Fund resources will be exhausted 

and then significant unfunded obligations begin to appear in the 

program over the longer term. 

I am reminded of a quote by Charles Farrar Browne who 

once said, "Let us all resolve to live within our means, even if 

we have to borrow the money to do it." I don't think that is the 

future we want for Social Security. That would not be a secure 

future for American workers, and so in that regard we tried to 

measure fiscal sustainability in this program using a variety of 

measures. You can find those in chapter four of the report, and 

then these measures repeated in chapter five of the report where 

we analyze model one, model two and model three and speak to how 

they address each of these measures. 

None of these are perfect measures. None of them alone 

is the best way to understand the fiscal sustainability of the 
65

Social Security system for the long-term, but all of them are 

instructive in helping us to understand how each of these models 

does a better job on these fiscal questions than the current 

system. But I want to speak more specifically about models two 

and three. Even model one is preferable to the current system in 

terms of these fiscal tests, but specifically models two and 

three go a long way toward satisfactorily addressing these fiscal 

concerns. 

The first measurement is cash flow. We know that by 

2016 the current system will no longer be able to cash flow the 

benefits of the system, and that never changes through the 75-

year test of this system. You never return to a cash flow 

situation. 

Solvency is the second question that we pose. The plan 

today goes into insolvency by this measurement in the year 2038, 

and never again in the 75-year time frame does the current system 

return to solvency. 

The third measurement is to reduce the rate of growth 

as measured by GDP. The current system, 4.2 percent today, 6.7 

percent in 2075. 

A fourth measurement is actuarial balance. The current 

system does not meet actuarial balance. 

The fifth is whether we are improving the actuarial 

balance by the end of the 75-year actuary's period, and under the 

current system we are not. 

The final test is whether we reduce the unfunded 
66

obligations, and as Mr. Cogan just referenced, the unfunded 

obligations run into many trillions of dollars under the current 

system. 

Under our plans or our models, all are improvements 

over the status quo, but particularly models two and three meet 

each of these tests in the following way. The cash flow in each 

of these plans does return by the end of the valuation period. 

Both of them are solvent during this valuation period. Both of 

them stay within or control the GDP growth. We actually hold 

steady throughout the entire period because of the adjustments 

that we have made. There is actuarial balance in the plan, and 

we have improvement in the actuarial picture toward the end of 

the valuation period. And, we reduce significantly the unfunded 

obligations of the system by 70 percent in plan two or model two, 

and by about 55 percent in model three. 

The one final test of fiscal sustainability that I 

think is important to mention in this context and that is that 

the big difference here, one of the really big differences here, 

is that we have real savings in these alternate models. By the 

end of this period we will have a couple trillion dollars of real 

savings in dollars measured in today's -- against today's -- 

CHAIRMAN MOYNIHAN: Yes. 

MR. PENNY: Thank you. And those are real savings that 

are owned by the individual. These are not savings that are 

subject to political risk. They are not subject to being spent 

for other government purposes, as has often been true with the 
67

current system. These are real savings that will be there for 

individual workers in the future and that has a contract that 

cannot be broken. 

So with that, there is a way of illuminating this, and 

it is in a chart that we have worked on over the last couple of 

days. I would at this point ask if I might defer to my colleague 

Olivia Mitchell to explain the changes that have been made in 

this chart over the last couple of hours. 

CO-CHAIRMAN PARSONS: The gentleman yields to 

Ms. Mitchell. 

DR. MITCHELL: Thank you very much. As an educator, of 

course my goal is to try to raise consciousness and awareness of 

the opportunities and challenges that are before us. So one of 

the things that I think we will like to have added to the final 

report is a series of appendices which elaborate in more detail 

some of the nitty-gritty details for the folks that want to get 

into that. Now I realize many people will not, but I think it is 

very important again that the Commission be very up-front and 

very clear about how the numbers look and where they come from. 

Earlier today I put together a side-by-side chart 

enumerating some of these fiscal sustainability numbers. Perhaps 

because I have a cold -- I take responsibility. There were a 

couple of changes that we have to make, and so the chart that my 

dear colleague Mr. Parsky -- 

CO-CHAIRMAN PARSONS: Your assistant? 

DR. MITCHELL: -- is handing out is an update of that. 
68

 CO-CHAIRMAN PARSONS: Your assistant? 

DR. MITCHELL: We will have copies outside for people 

as well. 

MR. PARSKY: I am happy to be your staff at anytime. 

DR. MITCHELL: Thank you, sir. I am very grateful. If 

you cast your eyes down these -- and what I would like to 

propose, by the way, is that the staff help me, if need be, once 

again to just make very, very clear what the right ways are of 

presenting these numbers. But for example, I noticed already 

there was one error under item four at the last line; it should 

be present value dollars instead of 2001. So things like that we 

will be able to change, but the bottom line really reiterates 

what John Cogan said, that personal account assets at the end of 

the period are on the order of $2 trillion between models two and 

three, not that much less actually under the first model, that 

there are substantial reductions in general revenue required visa-vis the $22 trillion that we currently face. These plans all 

make some progress toward that goal. That Social Security cash 

flow is positive at the end of the period under two of the three 

plans. In terms of the actuarial balance over the period, we 

also see that there are various ways of presenting the numbers 

and that we certainly find improvement in the 75-year balances. 

The other point I would make is that there is a line 

that indicates improvement in system net asset position due to 

personal account. That reflects the value associated with the 

personal accounts. The system is actually better off than that, 
69

and so with your permission I would like to make sure that table 

reflects the additional beneficial status going forward. 

The other point I would make in terms of the transition 

investment required across the three plans, these are investments 

over the 75-year period because that is the nature of the time 

horizon that the Actuary's Office has been using in the past, by 

convention, by custom, and so we too have used that 75-year 

accounting period. But I would only note that that transition 

investment does not reflect a payback outside the 75-year period, 

and so with your permission again I would like to reflect that 

additional payback in the best possible way and the most honest 

clean way we can. So let me just stop there. 

I would like to commend to the public and all those who 

care deeply about Social Security that deep study is required to 

understand some of these, that clean debate will be necessary to 

decide which we way we go as a nation, but that I think all of us 

agree that personal retirement accounts can and do offer a 

positive contribution toward strengthening Social Security. 

Thank you. 

CO-CHAIRMAN PARSONS: Thank you. Olivia, I think this 

is a very helpful document and brings together everything we have 

been talking about earlier in the day. This will be one, as the 

Senator has indicated, we are going to have a style committee 

that will work with staff to finalize the report. We would 

encourage all Commissioners who have specific word changes over 

the next week to get those word changes in to staff, and then the 
70

Senator and I will sit down with staff and we will have final 

document -- 

CHAIRMAN MOYNIHAN: Commissioner Penny gave us a text. 

 Commissioner Abnor read us one, but will she give us one? 

MS. ABNOR: I will give you this. 

CHAIRMAN MOYNIHAN: Okay. 

CO-CHAIRMAN PARSONS: And this report. 

CHAIRMAN MOYNIHAN: And we have this from --. 

CO-CHAIRMAN PARSONS: And we will finalize the report 

within 10 days so that we will have a final report for submission 

to the President and consumption by the public, let's say on or 

about the 21st of December. Having said that, a few personal 

observations and remarks if I might. 

First, I would like to say a word about my Co-Chair. 

As I thought about it, I was actually reminded of another 

partnership that I share with somebody, where I am, 

notwithstanding size, clearly the junior partner. A number of 

years ago when my wife received her doctorate in psychology, one 

of her classmates gave her as a gift, a graduation gift, a 

nameplate which she promptly affixed to our bedroom door, and it 

said "Dr. and Mr. Parsons." I say that, because anytime anybody 

refers to the Co-Chairs they always say, well, Senator Moynihan 

and Dick, but it has been nothing short of a privilege for me, 

Mr. Co-Chair, to be in your company and guided by your wisdom, 

experience, grace, good humor, charm, and knowledge. So thank 

you very much for carrying me, as your junior partner, and the 
71

rest of us along on this -- I don't know whether we call it a 

ride or a journey or whatever you had in mind, Tom, but on this 

important undertaking. 

Secondly, to my fellow Commissioners, you know we have 

all had a new term come into the lexicon over the last two and a 

half months of American heroes. We have new models and images of 

what a hero is and what a hero does, and in my judgment, each of 

you women and men who served on this Commission is a true 

American hero. This is an enormously important undertaking which 

you have agreed to take on your shoulders as volunteers. None of 

you get paid for this, none of you campaigned for this office, 

but you agreed to serve when designated, and I think that in the 

fullness of time, a grateful public will understand the debt of 

gratitude that they owe this group for toiling as long and as 

hard and as thoughtfully as you have on this product. 

Lastly, of course to Chuck and staff and Steve, I don't 

know whether -- Steve is everybody's staff. Steve is the staff 

of the Social Security Commission, he is the staff of this 

Commission to Strengthen, he is sort of staff to the world, and 

he has done an enormously outstanding job, and Chuck has been the 

leader of the staff effort. This would not have been pulled 

together, simply put, if not for your leadership and the good 

work that the staff that you assembled put in and the help of 

Steve Goss keeping us on the straight and narrow. So thanks to 

you all. 

One comment by way of substance. Earlier Senator 
72

Moynihan started us out by noting that he and I met with the 

President in late October, and the President essentially asked us 

to style the report by way of presenting options. So he has told 

you the what of the President's request. Let me give you a 

little sense of the why. 

When we met, the President said, in sum and 

substance -- I am not quoting now, but the substance of it was, 

gentlemen, lots have changed since this summer when I put this 

Commission together -- or late last spring. We are now a country 

at war, and my first and highest and most urgent priority is to 

see this thing through and keep us together as a people as we 

battle internationalism terrorism. He said, but in thinking 

about it, I have concluded what I asked you to do, and your 

fellow Commissioners and the Social Security Commission, is even 

more important now than it was before. I have always known that 

it is an important issue facing American people, but I now have a 

fuller sense of the dimension and depth of that importance. So I 

am not backing off and I am not going to ask you to back off. In 

fact, I want you to continue and continue with all deliberate 

speed. 

But what I would like to see, is I would like to see a 

range of options that essentially illuminate for the American 

people and for American policy makers what the -- not only what 

the issue is, but ways to get there and what the tradeoffs 

associated with those ways are, so that we can have in this 

country a full and vigorous debate about how to solve this 
73

problem. I don't know that as wise as the 16 of you are, or 15 

less you, Dick, about things, that any of us can find the silver 

bullet, the right answer, but what we can do is, we can tee this 

up so that I can continue to carry the message that Social 

Security needs to be reformed. It needs to be put on a 

sustainable course. We need to introduce the notion of private 

accounts to enable people to build wealth, but I can engage the 

people and the Congress in a debate around how best to do that. 

Let's take the next year or so to have that debate and 

discussion, so that people understand how important this issue 

is, and then I think we will be ready to take action. 

So the report that you have, and just echo something my 

fellow Commissioners have said, these approaches that we have 

identified, you shouldn't think of those as, quote, 

"recommendations" per se. This report should not be viewed as, 

well, the Commission has come up with three courses, each of 

which or any of which will solve all the problems and therefore 

have the Commission's recommendation. What we have done is, we 

have come up with three courses that illustrate ways in which to 

attack the problem, each of which has some pluses and some 

minuses. We have tried to be clear and clear-minded about what 

those pluses and minuses are, but they all move the ball down the 

field, and it is now, we think, time for the policy makers, the 

people who at the end of the day have to make decisions around 

how to deal with those problems, to grapple with those 

suggestions, those options, or others that they may come up with 
74

to deal with this important problem. 

So hopefully that gives you some sense, some context of 

how we got to where we got to. As you know from things we have 

said in the past, both the Senator and I believe that no matter 

how policy makers ultimately determine to tackle the 

sustainability issue, we think it is important that the notion of 

private accounts that give people an opportunity to create wealth 

for themselves and to save, thereby strengthening the underlying 

economy of the country, is important. So we have blended those 

in the report that I think is balanced and clear and hopefully 

helpful. With that, I turn the gavel back over to my 

distinguished senior Co-Chair. Go take us home. 

CHAIRMAN MOYNIHAN: I cannot image any way we could 

express our sense of the extraordinary qualities of Dick Parsons 

than by listening to what he has just said. He spoke for all of 

us, he spoke for the nation, he spoke for the future. It is a 

source of great satisfaction to this aging --- than he will be 

there for the future. With that, may I ask that subject to the

amendments we have accepted, received and accepted, and to the

changes that will be made by the style committee, the adjustments

by the style committee, I would move that the report be approved

and adopted by the President's Commission. All in favor will 

please say aye. 

(A chorus of ayes) 

CHAIRMAN MOYNIHAN: Are there any opposed? 

(No audible response) 
75

CHAIRMAN MOYNIHAN: The ayes have it. It is a 

unanimous event. As Bill Frenzel will agree -- I think he is an 

historian, I do not doubt that this is the first time ever there 

has been a unanimous agreement on a matter of this kind. It has 

been an honor to have you, and it has been an extraordinary 

achievement, which will resonate through the years, thanks not 

least to you, sir. May I say that we will have a press 

conference at 1:00 o'clock, somewhere. 

CO-CHAIRMAN PARSONS: Involving all 16 of us. 

CHAIRMAN MOYNIHAN: And we will all be here at your 

disposal. With that, we conclude. 

(Whereupon, the meeting was adjourned at 12:22 p.m.)