I
105TH CONGRESS
2D SESSION
H. R. 3560
To amend title II of the Social Security Act and the Internal Revenue
Code of 1986 to provide for a pilot program for personalized retirement
security through personal retirement savings accounts to allow for more
control by individuals over their Social Security retirement income, and
for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 26, 1998
Mr. SMITH of Michigan introduced the following bill; which was referred to
the Committee on Ways and Means
A BILL
To amend title II of the Social Security Act and the Internal
Revenue Code of 1986 to provide for a pilot program
for personalized retirement security through personal re-
tirement savings accounts to allow for more control by
individuals over their Social Security retirement income,
and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Social Security Solvency Pilot Program Act of 1998’’.
(b) TABLE OF CONTENTS.—
Sec. 1. Short title and table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Establishment of individual retirement security program.
Sec. 4. Reduction in appropriations to the Trust Funds.
Sec. 5. Adjustments to primary insurance amounts under part A of title II of
the Social Security Act.
Sec. 6. Personal retirement savings accounts.
Sec. 7. Interim and final reports.
Sec. 8. Investment of social security trust funds in marketable securities during
fiscal year 1999.
SEC. 2. FINDINGS AND PURPOSES.
(a) FINDINGS.—The Congress makes the following
findings:
(1) One of America’s most popular Government
programs, Social Security, is in jeopardy. The 1997
Board of Trustee’s report states that the current
system faces an actuarial deficit of 2.23 percent of
taxable payroll. According to the 1997 Board of
Trustee’s report, the Social Security trust fund will
begin to run a deficit by 2011 and will be exhausted
by 2029.
(2) Helping assure Americans retirement secu-
rity is a major national goal.
(3) The Congress should strengthen Social Se-
curity to ensure Americans retirement security. The
changes 
made 
to 
strengthen 
Social 
Security
should—
(A) create a solvent Social Security sys-
tem,
(B) maintain or increase total retirement
benefits for current and future retirees,
(C) avoid payroll tax increases, and
(D) avoid additional Federal debt as a
means of financing Social Security.
(4) The root causes of the weaknesses in the
present Social Security system are its inadequate
funding mechanism and changing demographics. So-
cial Security was designed in 1935 as a pay-as-you-
go system, in which current workers supported cur-
rent retirees. This design worked when America had
42 workers per beneficiary in 1945, but that ratio
has fallen over time. In 1995 there are only 3.3
workers per beneficiary, and by 2060 the ratio is
projected to fall to 1.8 workers per beneficiary. To
pay benefits to the rising number of retirees, the
Government has levied increasing payroll taxes on
workers. To maintain the program in its current
form, the Government will have to continue to raise
payroll taxes or substantially reduce benefits.
(5) The key to a more secure Social Security
system is increased savings and private investment.
We should move from a financing system based on
the Federal Government’s power to tax workers to
one based on savings and investment accounts
owned and controlled by workers.
(6) Allowing workers to take advantage of high-
er investment returns will increase their income in
retirement. Over the last 100 years, the stock mar-
ket has earned roughly 7 percent after inflation
compared to a yield of 1.5 to 2 percent after infla-
tion projected by the Social Security Administration
for workers’ payroll taxes. The difference is enor-
mous. For example, $1,000 invested for 50 years at
2 percent becomes nearly $2,700. The same amount
invested for 50 years at 7 percent becomes nearly
$30,000.
(b) PURPOSES.—The purpose of this Act is to estab-
lish a pilot program which may serve as the basis for
furture legislaton for the following purposes:
(1) To give workers and retirees more owner-
ship and control over their retirement savings.
(2) To improve the living standards of future
retirees by allowing them to take advantage of low-
risk investment opportunities that earn higher re-
turns than those they can expect to realize under the
current Social Security system.
(3) To stimulate the American economy by in-
creasing savings and investment leading to higher
productivity,more jobs, and better wages.
(4) To ensure the solvency of the Social Secu-
rity system while maintaining an adequate reserve in
the Social Security trust fund.
SEC. 3. ESTABLISHMENT OF INDIVIDUAL RETIREMENT
PROGRAM.
(a) IN GENERAL.—Title II of the Social Security Act
is amended—
(1) by inserting before section 201 the follow-
ing:
‘‘PART A—INSURANCE BENEFITS’’;
and
(2) by adding at the end the following new part:
‘‘PART B—INDIVIDUAL RETIREMENT SECURITY
PROGRAM
‘‘DEPOSITS TO PERSONAL RETIREMENT SAVINGS
ACCOUNTS
‘‘SEC. 251. (a) IN GENERAL.—Subject to this part,
within 10 business days after receipt during any fiscal
year of taxes paid under sections 3101(a) and 3111(a) of
the Internal Revenue Code of 1986 with respect to a cov-
ered employee, and within 10 business days after receipt
during any fiscal year of taxes paid under section 1401(a)
of such Code with respect to a covered self-employed indi-
vidual, the Secretary of the Treasury shall deposit, from
amounts otherwise available in the general fund of the
Treasury, into—
‘‘(1) such personal retirement savings accounts
as are designated under section 252(c) with respect
to such employee or individual, and
‘‘(2) such personal retirement savings accounts
as are designated under section 252(c) with respect
to any other covered employee or covered self-em-
ployed individual (if any) who is the spouse of the
employee or individual referred to in paragraph (1),
a total amount equal to 2.5 percent of the wages and self-
employment income with respect to which such taxes were
determined. In any case in which there are accounts des-
ignated with respect to a spouse as described in paragraph
(2), 50 percent of such total amount shall deposited into
accounts described in paragraph (1) and the remainder
shall be deposited into accounts described in paragraph
(2). Any amount deposited into 2 or more accounts under
paragraph (1) or (2) shall be distributed among accounts
in such manner as may be specified in connection with
their designation.
‘‘(b) CORRECTIONS.—The Secretary of the Treasury
shall provide by regulation for a procedure for corrections
there is imposed a tax under section 1401(a) of the
Internal Revenue Code of 1986,
‘‘(2) who files with the Board of Trustees, on
or after November 30, 1998, and before February 1,
1999, and in such form and manner as shall be pre-
scribed in regulations of the Board, an election de-
scribed in subsection (c), and
‘‘(3) who, as of the date of the filing of election
pursuant to subsection (c), has attained age 16 but
has not attained age 21.
‘‘(c) ELECTIONS.—An individual’s election referred
to in subsection (a)(2) or (b)(2) shall consist of a signed
declaration of such individual’s intention to be treated as
a covered employee with respect to wages paid to such in-
dividual and a covered self-employed individual with re-
spect to self-employment income derived by such individ-
ual, together with a signed designation by such individual
of one or more personal retirement savings accounts to
which deposits with respect to the individual are to be
made under section 251. Elections under this section by
individuals who have not attained age 18 shall be made
by such individual’s parent or legal guardian. Any election
under this section shall be irrevocable, subject to sub-
sections (d) and (e).
‘‘(d) NUMERICAL LIMIT BASED ON PROJECTIONS OF
BUDGET SURPLUS FOR FISCAL YEAR 1999.—
‘‘(1) PROJECTED LIMITATION.—Not later than
February 1, 1999, the Secretary of the Treasury,
employing reasonable assumptions, shall project and
publish in the Federal Register the number to which
the total number of covered employees and covered
self-employed individuals would be required to be
limited as of such date in order to preclude the total
amount deposited in personal retirement savings ac-
counts pursuant to section 251(a) for fiscal year
1999 from exceeding an amount equal to the surplus
in the total budget of the United States Government
for fiscal year 1998.
‘‘(2) RESTRICTION
ON
PARTICIPATION
TO
ACHIEVE
PROJECTED
LIMITATION.—If the total
number of individuals who have filed elections under
this section as of February 1, 1999, exceeds the
number projected under paragraph (1), then the
terms ‘covered employee’ and ‘covered self-employed
individual’ shall exclude any individual who, as of
such date, has attained an age greater than the age
attained as of such date by the oldest of such pro-
jected number of the youngest individuals who have
filed such elections as of such date.
‘‘(e) TERMINATION OF STATUS.—Any individual who
is a covered employee or a covered self-employed individual
as defined in the preceding provisions of this paragraph
shall cease to be such a covered employee or covered self-
employed individual on February 1, 2009.
‘‘PERIODIC REPORTS BY ACCOUNT TRUSTEE
‘‘SEC. 253. (a) IN GENERAL.—The trustee of a per-
sonal retirement savings account shall make periodic re-
ports concerning the status of the account which shall
meet the requirements of section 408B(g)(2) of the Inter-
nal Revenue Code of 1986 and of this section. Each peri-
odic report shall be furnished to the account holder on
at least a semiannual basis on or before the 30th day fol-
lowing the period for which the report is required.
‘‘(b) INFORMATION REQUIRED TO BE INCLUDED.—
The periodic report shall contain the following information
for transactions occurring during the period for which the
report is provided:
‘‘(1) The balance in the account.
‘‘(2) The amount of authorized personal retire-
ment savings account contributions.
‘‘(3) The earnings on the account balance, ex-
pressed in terms of dollar amounts and as a percent-
age return on investment.
‘‘(4) The amount of distributions.
‘‘(5) The name and address of the trustee.
‘‘(6) Commission fees and fees for administra-
tive expenses charged in connection with the ac-
count.
‘‘(7) Other information which may be required
from time to time by the Board of Trustees.
The language of the report shall be written in a form so
as to be understood by the average covered employee.
‘‘(c) REPORTS
TO
BOARD
OF
TRUSTEES.—The
Board of Trustees may require the periodic report to be
filed with the Board at such time as the Board may speci-
fy in regulations under this section.
‘‘(d) FAILURE BY TRUSTEE TO MAKE TIMELY PERI-
ODIC REPORTS.—
‘‘(1) IN GENERAL.—The trustee of a personal
retirement savings account shall be subject to a civil
penalty of not to exceed $100 a day from the date
of such trustee’s failure or refusal to furnish the
periodic report required to be furnished by the trust-
ee under this section until the date on which such
report is furnished.
‘‘(2) PENALTIES
ASSESSED
BY
BOARD
OF
TRUSTEES.—Any civil penalty assessed by this sub-
section shall be imposed by the Board of Trustees
and collected in a civil action. The Board of Trust-
ees may compromise the amount of any civil penalty
imposed by this subsection. The Board of Trustees
may waive the application of this subsection with re-
spect to any failure if the Board of Trustees deter-
mines that such failure is due to reasonable cause
and not to intentional disregard of rules and regula-
tions.
‘‘AVAILABILITY OF FUNDS FOR DEPOSITS
SEC. 254. (a) AMOUNTS AVAILABLE FROM GENERAL
FUND.—Subject to such additional appropriations as may
be enacted pursuant to subsection (b)—
‘‘(1) for fiscal year 1999, there shall be avail-
able, for deposits into personal retirement savings
accounts pursuant to section 251(a) for such fiscal
year, an amount equal to the surplus in the total
budget of the United States Government for fiscal
year 1998, and
‘‘(2) for each fiscal year after fiscal year 1999
and before fiscal year 2004, there shall be available,
for deposits into personal retirement savings ac-
counts pursuant to section 251(a) for such fiscal
year, an amount equal to the the excess (if any) of—
‘‘(A) the surplus (if any) in the total budg-
et of the United States Government for the pre-
ceding fiscal year, over
‘‘(B) the amount specified in connection
with such preceding fiscal year in the following
table:
‘‘Fiscal year:
Specified amount:
1999 ...............................................
$ 9,000,000,000
2000 ...............................................
$ 1,000,000,000
2001 ...............................................
$13,000,000,000
2002 ...............................................
$67,000,000,000
2003 ...............................................
$53,000,000,000.
‘‘(b) AUTHORIZATION OF ADDITIONAL APPROPRIA-
TIONS.—There are authorized to be appropriated for each
fiscal year after fiscal year 1998 and before fiscal year
2010, from amounts otherwise available in the general
fund of the Treasury, such amounts, in addition to any
amounts made available under subsection (a) for such fis-
cal year, as are necessary to carry out the provisions of
this part.
‘‘DEFINITIONS
‘‘SEC. 255. For purposes of this title—
‘‘(1) PERSONAL
RETIREMENT
SAVINGS
AC-
COUNT.—The term ‘personal retirement savings ac-
count’ has the meaning provided in section 408B of
the Internal Revenue Code of 1986.
‘‘(2) COVERED EMPLOYER.—The term ‘covered
employer’ means, for any calendar year, any person
on whom an excise tax is imposed under section
3111 of the Internal Revenue Code of 1986 with re-
spect to having an individual in his employ to whom
wages are paid by such person during such calendar
year.
‘‘(3) BUSINESS DAY.—The term ‘business day’
means any day other than a Saturday, Sunday, or
legal holiday in the area involved.
‘‘(4) BOARD OF TRUSTEES.—
‘‘(A) IN GENERAL.—The term ‘Board of
Trustees’ means the Board of Trustees of the
Federal Old-Age and Survivors Insurance Trust
Fund and the Federal Disability Insurance
Trust Fund.
‘‘(B) ROLE OF SECRETARY OF THE TREAS-
URY.—
‘‘(i) IN GENERAL.—In connection with
the duties of the Board of Trustees under
this part, the Secretary of the Treasury
shall serve as Executive Director of the
Board of Trustees.
‘‘(ii) STAFF.—Upon request of the
Board of Trustees, the Secretary may de-
tail, on a reimbursable basis, any of the
personnel of the Department of the Treas-
ury to the Board of Trustees to assist it in
carrying out its duties under this part.