I
107TH CONGRESS
1ST SESSION
H. R. 3535
To amend the Social Security Act and the Internal Revenue Code of 1986
to preserve and strengthen the Social Security Program through the
creation of individual Social Security accounts ensuring full benefits
for all workers and their families, giving Americans ownership of their
retirement, restoring long-term Social Security solvency, and for other
purposes.
IN THE HOUSE OF REPRESENTATIVES
DECEMBER 19, 2001
Mr. DEMINT (for himself and Mr. ARMEY) introduced the following bill; which
was referred to the Committee on Ways and Means
A BILL
To amend the Social Security Act and the Internal Revenue
Code of 1986 to preserve and strengthen the Social
Security Program through the creation of individual So-
cial Security accounts ensuring full benefits for all work-
ers and their families, giving Americans ownership of
their retirement, restoring long-term Social Security sol-
vency, 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 Ownership and Guarantee Act of 2001’’.
(b) TABLE OF CONTENTS.—The table of contents is
as follows:
Sec. 1. Short title and table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Individual social security account program and individual social security
accounts.
‘‘PART B—INDIVIDUAL SOCIAL SECURITY ACCOUNT PROGRAM
‘‘Subpart 1—General Provisions
‘‘Sec. 251. Definitions.
‘‘Sec. 252. Personal Savings Board.
‘‘Sec. 253. Executive Director.
‘‘Sec. 254. Social Security Personal Savings Fund.
‘‘Sec. 255. Eligible individuals.
‘‘Sec. 256. Individual social security accounts.
‘‘Sec. 257. Prescribed social security deposits and supplemental contribu-
tions.
‘‘Sec. 258. Investments in common stock and Social Security Transition
Bonds.
‘‘Sec. 259. Accounting and information.
‘‘Sec. 260. Account distributions.
‘‘Sec. 261. Payments upon death of account owner.
‘‘Sec. 262. Treatment of account balances and annuities.
‘‘Sec. 263. Fiduciary responsibilities.
Sec. 4. Conforming adjustments to monthly insurance benefits.
Sec. 5. Maintenance of adequate balances in the Social Security Trust Funds.
Sec. 6. Taxation of Individual Social Security Account Program.
Sec. 7. Report on private sector investment and management.
Sec. 8. Guarantee of full social security benefits with accurate annual cost-of-
living adjustment.
SEC. 2. FINDINGS AND PURPOSES.
(a) FINDINGS.—The Congress finds the following:
(1) Social Security is a defining American
promise that must be kept. It was one of the most
successful government programs of the 20th Cen-
tury, and it must always honor its founding purpose
of protecting the elderly from poverty and bringing
dignity to retirement.
(2) Social Security provides essential income se-
curity through retirement, disability, and survivor
benefits for over 45,000,000 Americans of all ages,
without which nearly 50 percent of seniors would
live in poverty.
(3) Social Security is of particular importance
for low earners, especially widows and women caring
for children, without which nearly 53 percent of el-
derly women would live in poverty.
(4) Social Security is unsustainable in its
present form. The Board of Trustees for Social Se-
curity projects that the program’s obligations will
exceed its annual tax revenue starting in 2016.
While the government will continue to pay full bene-
fits through 2038 using general tax revenues owed
to the Social Security trust funds, the long-term fi-
nancing problem for the government will begin in
2016.
(5) The primary reason for this financial short-
fall is demographic: the post-World War II baby
boomers will begin retiring in less than a decade,
and people are generally living longer lives. These
changes will drastically reduce the number of work-
ers supporting each retiree. In 1960 there were more
than five workers paying into Social Security for
every individual collecting benefits. Today, demo-
graphic changes have reduced the worker-to-bene-
ficiary ratio to 3.4 to 1. By 2050, it will be just 2
to 1.
(6) If reforms are not made, Social Security
payroll taxes will have to be raised by 50 percent to
balance the system over the next 75 years. When So-
cial Security was first started, its tax was never sup-
posed to go higher than 6 percent of workers’ in-
come. Today, it is over 12 percent and if something
is not done, it will go to over 18 percent.
(7) If reforms are not made and taxes are not
increased, Social Security benefits will have to cut
by 33 percent to balance the system over the next
75 years.
(8) If reforms are not made, younger workers
will receive lower benefits for every dollar they pay.
The inflation-adjusted rate of return averaged more
than 25 percent annually for Social Security’s first
retirees in the 1940s but are estimated to average
roughly 4 percent for today’s retirees, roughly 2 per-
cent for ‘‘baby boomers,’’ and 1 percent for those
who will be born 40 years from now. Since these fig-
ures do not include the extra cost of meeting Social
Security’s needs from 2016 to 2038, real rates of re-
turn for younger workers will likely be even lower.
(9) The Social Security trust funds will not
solve the problem. The Social Security trust fund
balances are available to finance future benefit pay-
ments only in a bookkeeping sense. They do not con-
sist of real economic assets that can be drawn down
in the future to fund benefits. Instead, they are
claims on the general budget that, when redeemed,
will have to be financed by raising taxes, borrowing
from the public, or reducing benefits or other ex-
penditures. The existence of large Social Security
trust fund balances does not, by itself, have any im-
pact on the Government’s ability to pay benefits.
(10) Faster economic growth will not solve the
problem. Under the faster-growth estimates of the
Social Security Board of Trustees, permanent cash-
flow deficits would be delayed by only one year, to
2017. Even if every economic and demographic vari-
able were changed to reduce costs, permanent defi-
cits would begin in 2020.
(11) Inasmuch as payroll taxes already con-
stitute the single largest tax burden for most Amer-
ican families, further tax increases would not result
in a sustainable program and would further burden
employers. This would especially affect small busi-
nesses and harm job creation. Americans already
pay far too much into Social Security for what they
receive.
(12) Changes to Social Security’s benefit struc-
ture to maintain solvency such as reductions in cost-
of-living adjustments (COLAs) would reduce benefits
for current retirees who depend most heavily upon
Social Security for their retirement income.
(13) Changes to Social Security’s benefit struc-
ture to maintain solvency such as increases in the
Social Security ‘‘normal retirement age’’ which is
currently increasing from age 65 to age 67 would
make Social Security a poorer deal for hard-working
Americans. Workers who are in more need of earlier
retirement, such as police officers, firefighters, and
manual laborers, would be especially harmed by in-
creases in the age of eligibility for Social Security
benefits.
(14) Changes to Social Security’s benefit struc-
ture to maintain solvency that negatively impact dis-
ability and survivors benefits would harm the most
vulnerable and disadvantaged Americans. Mod-
ernization must not reduce Social Security’s dis-
ability and survivors benefits.
(15) Social Security is currently a government-
controlled, government-owned program that does not
save a penny for workers’ retirement. Instead, it re-
quires each generation to support the generation
that came before it. With demographic changes, this
structure passes on higher taxes, fewer benefits, and
lower rates of return to younger Americans. In order
to save Social Security for tomorrow’s retirees,
Americans must be able to save and invest more.
(16) Allowing the Federal Government to invest
workers’ payroll taxes in private financial assets in-
vites political interference and conflicts of interest in
investment decisions, and will reduce economic effi-
ciency. Social Security was not designed to facilitate
saving, and the political process cannot be relied
upon to invest on behalf of American families.
(17) According to the United States Supreme
Court, Social Security does not currently offer
Americans any guarantee that they will receive their
benefits. Instead, Americans have only a promise
that Congress can change at any time, by any
amount, and for any reason.
(18) Social Security is creating a culture of de-
pendency. As the population ages, more and more
Americans are becoming dependent on the govern-
ment for their retirement income. This trend robs
Americans of their freedom, independence, and dig-
nity.
(19) Personal retirement accounts would enable
workers to start saving real economic assets for the
first time, locking them away so they cannot be
spent on non-Social Security programs.
(20) Personal retirement accounts would gen-
erate higher returns on the taxes currently paid into
Social Security, drastically reducing the financial
shortfall in the system and paving the way for a
fully funded system that is permanently self-sus-
taining.
(21) Personal retirement accounts would trans-
form Social Security from an ‘‘IOU’’ into real assets
that individuals could own and pass along to their
children.
(22) Personal retirement accounts would cor-
rect Social Security’s inequities for the poor, minori-
ties, and women by offering them ownership, inde-
pendence, and access to wealth.
(b) STATEMENT OF PURPOSE.—The purpose of this
Act is to preserve and strengthen the Social Security pro-
gram through the creation of individual social security ac-
counts that will—
(1) ensure the payment of Social Security bene-
fits promised under current law or greater benefits
to all eligible workers and their families;
(2) empower Americans with ownership, inde-
pendence, and access to wealth in retirement with
personal account assets, which future Congresses
cannot redirect for any other purpose; and
(3) provide for the long-run solvency and sus-
tainability of the Social Security program.
SEC. 3. INDIVIDUAL SOCIAL SECURITY ACCOUNT PROGRAM
AND 
INDIVIDUAL 
SOCIAL 
SECURITY 
AC-
COUNTS.
(a) IN GENERAL.—Title II of the Social Security Act
is amended—
(1) by inserting before section 201 the fol-
lowing:
‘‘PART A—INSURANCE BENEFITS’’;
and
(2) by adding at the end the following new part:
‘‘PART B—INDIVIDUAL SOCIAL SECURITY ACCOUNT
PROGRAM
‘‘Subpart 1—General Provisions
‘‘DEFINITIONS
‘‘SEC. 251. For purposes of this part—
‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ means an individual who has filed an
election under section 255.
‘‘(2) ACCOUNT
OWNER.—The term ‘account
owner’ means an eligible individual holding an indi-
vidual social security account.
‘‘(3) 
INDIVIDUAL
SOCIAL
SECURITY
AC-
COUNT.—The term ‘‘individual social security ac-
count’’ means an account established under section
256.
‘‘(4) ACCOUNT.—The term ‘account’ means an
individual social security account.
‘‘(5) ACCOUNT BALANCE.—The term ‘account
balance’ means, in connection with an individual so-
cial security account, the amount in the Savings
Fund credited to such account.
‘‘(6) SAVINGS FUND.—The term ‘Savings Fund’
means the Social Security Personal Savings Fund
established under section 252.
‘‘(7) EXECUTIVE DIRECTOR.—The term ‘Execu-
tive Director’ means the Executive Director ap-
pointed under section 253.
‘‘(8) BOARD.—The term ‘Board’ means the
Personal Savings Board established under section
252.
‘‘(9) DISTRIBUTION BASE.—The term ‘distribu-
tion base’ has the meaning provided such term
under section 260(c).
‘‘(10) ELIGIBILITY FOR MONTHLY INSURANCE
BENEFITS.—An individual shall be deemed ‘eligible’
for a benefit under section 202 for a month if, upon
filing application therefor in such month, such indi-
vidual would be entitled to such benefit for such
month.
‘‘PERSONAL SAVINGS BOARD
‘‘SEC. 252. (a) ESTABLISHMENT.—There is estab-
lished in the executive branch of the Government a Per-
sonal Savings Board.
‘‘(b) COMPOSITION.—The Board shall be composed
of—
‘‘(1) 3 members appointed by the President, of
whom 1 shall be designated by the President as
Chairman; and
‘‘(2) 2 members appointed by the President, of
whom—
‘‘(A) 1 shall be appointed by the President
after taking into consideration the recommenda-
tion made by the Speaker of the House of Rep-
resentatives in consultation with the Minority
Leader of the House of Representatives; and
‘‘(B) 1 shall be appointed by the President
after taking into consideration the recommenda-
tion made by the Majority Leader of the Senate
in consultation with the Minority Leader of the
Senate.
‘‘(c) ADVICE AND CONSENT.—Appointments under
subsection (b) shall be made by and with the advice and
consent of the Senate.
‘‘(d) MEMBERSHIP REQUIREMENTS.—Members of
the Board shall have substantial experience, training, and
expertise in the management of financial investments and
pension benefit plans.
‘‘(e) LENGTH OF APPOINTMENTS.—
‘‘(1) TERMS.—A member of the Board shall be
appointed for a term of 4 years, except that of the
members first appointed under subsection (b)—
‘‘(A) the Chairman shall be appointed for
a term of 4 years;
‘‘(B) the members appointed under sub-
section (b)(2) shall be appointed for terms of 3
years; and
‘‘(C) the remaining members shall be ap-
pointed for terms of 2 years.
‘‘(2) VACANCIES.—
‘‘(A) IN
GENERAL.—A vacancy on the
Board shall be filled in the manner in which the
original appointment was made and shall be
subject to any conditions that applied with re-
spect to the original appointment.
‘‘(B) COMPLETION
OF
TERM.—An indi-
vidual chosen to fill a vacancy shall be ap-
pointed for the unexpired term of the member
replaced.
‘‘(3) EXPIRATION.—The term of any member
shall not expire before the date on which the mem-
ber’s successor takes office.
‘‘(f) DUTIES.—The Board shall—
‘‘(1) administer the program established under
this part;
‘‘(2) establish policies for the investment and
management of the Savings Fund, including policies
applicable to the outside entities and qualified pro-
fessional asset managers with responsibility for man-
aging the investment of account balances under sec-
tion 258, that shall provide for—
‘‘(A) prudent investments suitable for ac-
cumulating funds for payment of retirement in-
come; and
‘‘(B) low administrative costs.
‘‘(3) review the performance of investments
made for the Savings Fund;
‘‘(4) review and approve the budget of the
Board; and
‘‘(5) comply with the provisions of section 263.
‘‘(g) ADMINISTRATIVE PROVISIONS.—
‘‘(1) IN GENERAL.—The Board may—
‘‘(A) adopt, alter, and use a seal;
‘‘(B) except as provided in paragraph (2),
direct the Executive Director to take such ac-
tion as the Board considers appropriate to
carry out the provisions of this part and the
policies of the Board;
‘‘(C) upon the concurring votes of 4 mem-
bers, remove the Executive Director from office
for good cause shown;
‘‘(D) provide to the Executive Director
such resources as are necessary to carry out the
requirements of section 253; and
‘‘(E) take such other actions as may be
necessary to carry out the functions of the
Board.
‘‘(2) MEETINGS.—The Board shall meet—
‘‘(A) not less than once during each
month; and
‘‘(B) at additional times at the call of the
Chairman.
‘‘(3) EXERCISE OF POWERS.—
‘‘(A) IN GENERAL.—Except as provided in
paragraph (1)(C) and section 253(a)(1), the
Board shall perform the functions and exercise
the powers of the Board on a majority vote of
a quorum of the Board. Three members of the
Board shall constitute a quorum for the trans-
action of business.
‘‘(B) VACANCIES.—A vacancy on the
Board shall not impair the authority of a
quorum of the Board to perform the functions
and exercise the powers of the Board.
‘‘(4) LIMITATION ON INVESTMENTS.—Except in
the case of investments required by section 258 to
be invested in special Trust Fund obligations, the
Board may not direct the Executive Director or any
account trustee to invest or to cause to be invested
any sums in the Savings Fund in a specific asset
or to dispose of or cause to be disposed of any spe-
cific asset of the Savings Fund.
‘‘(h) COMPENSATION.—
‘‘(1) IN GENERAL.—Each member of the Board
who is not an officer or employee of the Federal
Government shall be compensated at the daily rate
of basic pay for level IV of the Executive Schedule
for each day during which such member is engaged
in performing a function of the Board.
‘‘(2) EXPENSES.—A member of the Board shall
be paid travel, per diem, and other necessary ex-
penses under subchapter I of chapter 57 of title 5,
United States Code, while traveling away from such
member’s home or regular place of business in the
performance of the duties of the Board.
‘‘(3) SOURCE OF FUNDS.—Payments authorized
under this subsection shall be paid from the Savings
Fund.
‘‘(i) DISCHARGE OF RESPONSIBILITIES.—The mem-
bers of the Board shall discharge their responsibilities
solely in the interest of account owners and beneficiaries
under this part.
‘‘(j) ANNUAL INDEPENDENT AUDIT.—The Board
shall annually engage an independent qualified public ac-
countant to audit the activities of the Board.
‘‘(k) SUBMISSION OF BUDGET TO CONGRESS.—The
Board shall prepare and submit to the President, and, at
the same time, to the appropriate committees of Congress,
an annual budget of the expenses and other items relating
to the Board which shall be included as a separate item
in the budget required to be transmitted to Congress
under section 1105 of title 31, United States Code.
‘‘(l) SUBMISSION
OF LEGISLATIVE RECOMMENDA-
TIONS.—The Board may submit to the President, and, at
the same time, shall submit to each House of Congress,
any legislative recommendations of the Board relating to
any of its functions under this part or any other provision
of law.
‘‘EXECUTIVE DIRECTOR
‘‘SEC 253. (a) APPOINTMENT OF EXECUTIVE DIREC-
TOR.—
‘‘(1) IN GENERAL.—The Board shall appoint,
without regard to the provisions of law governing
appointments in the competitive service, an Execu-
tive Director by action agreed to by a majority of
the members of the Board.
‘‘(2) REQUIREMENTS.—The Executive Director
shall have substantial experience, training, and ex-
pertise in the management of financial investments
and pension benefit plans.
‘‘(b) DUTIES.—The Executive Director shall—
‘‘(1) carry out the policies established by the
Board;
‘‘(2) invest and manage the Savings Fund in
accordance with the investment policies and other
policies established by the Board;
‘‘(3) provide for the distribution of individual
social security account balances in accordance with
this part (including the purchase of annuity con-
tracts with assets of the Savings Fund to the extent
provided under section 260(b)(5));
‘‘(4) administer the provisions of this part re-
lating to the Savings Fund; and
‘‘(5) prescribe such regulations (other than reg-
ulations relating to fiduciary responsibilities) as may
be necessary for the administration of this part re-
lating to the Savings Fund.
‘‘(c) ADMINISTRATIVE AUTHORITY.—The Executive
Director may—
‘‘(1) appoint such personnel as may be nec-
essary to carry out the provisions of this part relat-
ing to the Savings Fund;
‘‘(2) subject to approval by the Board, procure
the services of experts and consultants under section
3109 of title 5, United States Code;
‘‘(3) secure directly from an Executive agency,
the United States Postal Service, or the Postal Rate
Commission any information necessary to carry out
the provisions of this part and the policies of the
Board relating to the Savings Fund;
‘‘(4) make such payments out of sums in the
Savings Fund as the Executive Director determines
are necessary to carry out the provisions of this part
and the policies of the Board;
‘‘(5) pay the compensation, per diem, and travel
expenses of individuals appointed under paragraphs
(1), (2), and (6) from the Savings Fund;
‘‘(6) accept and use the services of individuals
employed intermittently in the Government service
and reimburse such individuals for travel expenses,
authorized by section 5703 of title 5, United States
Code, including per diem as authorized by section
5702 of such title;
‘‘(7) except as otherwise expressly prohibited by
law or the policies of the Board, delegate any of the
Executive Director’s functions to such employees
under the Board as the Executive Director may des-
‘‘(4) to purchase insurance as provided in sec-
tion 263(c).
‘‘(c) LIMITATIONS ON USE OF FUNDS.—
‘‘(1) IN GENERAL.—Sums in the Savings Fund
credited to an individual social security account in
the Savings Fund may not be used for, or diverted
to, purposes other than for the exclusive benefit of
the account owner or the account owner’s bene-
ficiaries under this part.
‘‘(2) ASSIGNMENTS.—Except as provided in
paragraph (3), sums in the Savings Fund may not
be assigned or alienated and are not subject to exe-
cution, levy, attachment, garnishment, or other legal
process.
‘‘(3) SUPPORT OBLIGATIONS.—Moneys due or
payable from the Savings Fund to any account
owner shall be subject to legal process for the en-
forcement of the account owner’s legal obligations to
provide child support or make alimony payments as
provided in section 459 or for the enforcement of a
court order or other similar process in the nature of
a garnishment for the enforcement of a judgment
rendered against the account owner for physically,
sexually, or emotionally abusing a child.
‘‘(d) PAYMENT OF ADMINISTRATIVE EXPENSES.—
Administrative expenses incurred to carry out this part
shall be paid out of net earnings in the Savings Fund in
conjunction with the allocation of investment earnings and
losses under section 256(c).
‘‘(e) LIMITATION.—The sums in the Savings Fund
shall not be appropriated for any purpose other than the
purposes specified in this section and may not be used for
any other purpose.
‘‘ELIGIBLE INDIVIDUALS
‘‘Sec. 255. (a) ELECTION OF STATUS AS ELIGIBLE
INDIVIDUAL.—Any individual who—
‘‘(1) was born on or after January 1, 1948,
‘‘(2) has attained age 18, and
‘‘(3) has been assigned a social security account
number under section 205(c),
may elect to be an eligible individual under this part upon
filing an election under this section.
‘‘(b) REQUIREMENTS.—An election by an individual
under this subsection is an election, filed with the Com-
missioner, in such form and manner as shall be prescribed
in regulations of the Commissioner, consisting of a written
and signed declaration of such individual’s intention to be-
come an eligible individual under this part. Such regula-
tions shall provide for regular, periodic opportunities for
the filing of such an election. The Commissioner shall pro-
vide for immediate notification to the Board and the Exec-
utive Director of such election.
‘‘(c) IRREVOCABILITY.—An election under this sec-
tion shall be irrevocable and shall be effective with respect
to wages earned, and self-employment income derived, on
or after January 1 following the date of such filing of the
election.
‘‘INDIVIDUAL SOCIAL SECURITY ACCOUNTS
‘‘SEC. 256. (a) ESTABLISHMENT OF INDIVIDUAL SO-
CIAL SECURITY ACCOUNTS.—As soon as practicable after
the date on which an individual becomes an eligible indi-
vidual under this part, the Executive Director shall estab-
lish in the Savings Fund an individual social security ac-
count for such individual. Each account shall be identified
to its account owner by means of the account owner’s so-
cial security account number. The Savings Fund shall ac-
cept any prescribed social security deposit or supplemental
contribution made with respect to any eligible individual
as provided in section 257. The Executive Director shall
credit such deposit or contribution to such individual’s in-
dividual social security account.
‘‘(b) ACCOUNT BALANCE.—The balance in an ac-
count owner’s account at any time is the excess of—
‘‘(1) the sum of—
‘‘(A) all deposits and contributions de-
scribed in subsection (a) credited to such ac-
count, and
‘‘(B) the total amount of allocations made
to and reductions made in the account pursuant
to subsection (d),
over
‘‘(2) the amounts which have been credited to
such account and which are paid out of the Savings
Fund with respect to such account owner under this
part.
‘‘(c) ALLOCATION OF EARNINGS AND LOSSES.—Pur-
suant to regulations which shall be prescribed by the
Board, the Executive Director shall allocate to each indi-
vidual social security account an amount equal to the net
earnings and net losses from each investment of sums in
the Social Security Personal Savings Fund which are at-
tributable, on a pro rata basis, to sums credited to such
account, reduced by an appropriate share of the adminis-
trative expenses paid out of the net earnings, as deter-
mined by the Executive Director.
‘‘PRESCRIBED SOCIAL SECURITY DEPOSITS AND
SUPPLEMENTAL CONTRIBUTIONS
‘‘SEC. 257. (a) IN GENERAL.—As soon as prac-
ticable, the Secretary of the Treasury shall transfer
amounts equivalent to 100 percent of the prescribed social
security deposit for each eligible individual for each year
from the Federal Old-Age and Survivors Insurance Trust
Fund to the Social Security Personal Savings Fund, for
subsequent crediting with respect to such individual under
section 256. Such transfers shall be made in periodic in-
stallments, such installments to be determined, to the ex-
tent necessary, on the basis of estimates by the Commis-
sioner of Social Security of wages and self-employment in-
come, which shall be certified to the Secretary of the
Treasury. Proper adjustments shall be made in amounts
transferred for subsequent periods to the extent that
amounts transferred for prior periods were greater or less
than the proper amounts. Upon determining the actual
amount of the prescribed social security deposit for an eli-
gible individual for each year, the Executive Director shall
promptly credit such amount to such individual’s indi-
vidual social security account under section 256. Prior to
such crediting of amounts held in the Savings Fund to
individual social security accounts, such amounts shall be
invested by the Executive Director in money market secu-
rities in accordance with regulations of the Board.
‘‘(b) PRESCRIBED SOCIAL SECURITY DEPOSITS.—
For purposes of this part, the prescribed social security
deposit for an eligible individual for any calendar year is
an amount equal to the sum of—
‘‘(1) the product derived by multiplying—
‘‘(A) such individual’s wages paid, and
self-employment income derived, in such cal-
endar year (as certified to the Secretary of the
Treasury by the Commissioner of Social Secu-
rity) not in excess of the contribution and ben-
efit base for such calendar year, by
‘‘(B) such individual’s transfer percentage
for such calendar year, and
‘‘(2) the net return on the investment in money
market securities, pursuant to subsection (a), of
amounts equivalent to the product determined under
paragraph (1) during the period such amounts were
held in the Savings Fund prior to deposit in such in-
dividual’s individual social security account.
‘‘(c) TRANSFER PERCENTAGE.—For purposes of sub-
section (b)(2), the term ‘transfer percentage’ of an indi-
vidual for a calendar year means the excess of—
‘‘(1) 8.00 percent, over
‘‘(2) the product derived by multiplying—
‘‘(A) 5.00 percent, by
‘‘(B) a fraction—
‘‘(i) the numerator of which is the
amount of such individual’s wages paid,
and self-employment income derived, in
such calendar year (as certified to the Sec-
retary of the Treasury by the Commis-
sioner of Social Security) not in excess of
the contribution and benefit base (deter-
mined under section 230) for such cal-
endar year, and
‘‘(ii) the denominator of which is the
contribution and benefit base (so deter-
mined) for such calendar year,
rounded, if not a multiple of 0.01 percent, to the
nearest multiple of 0.01 percent.
‘‘(d) SUPPLEMENTAL CONTRIBUTIONS.—Any person
may make supplemental contributions with respect to any
eligible individual in any amount at any time to the Sav-
ings Fund (for crediting by the Executive Director to the
eligible individual’s individual social security account).
Such contributions shall be made, and shall be separately
accounted for, in such form and manner as shall be pre-
scribed in regulations of the Board.
‘‘INVESTMENTS IN COMMON STOCK AND SOCIAL
SECURITY TRANSITION BONDS
‘‘SEC. 258. (a) IN GENERAL.—Any balance held in
an individual social security account under this part and
the balance of any other amounts held by the Savings
Fund which are not necessary for immediate withdrawal
shall be invested as provided in this section.
‘‘(b) INVESTMENT UNDER 60/40 SPLIT.—The Exec-
utive Director shall invest each balance referred to in sub-
section (a) under regulations which shall be prescribed by
the Board so as to ensure, to the maximum extent prac-
ticable, that, of the total balance available for investment
(after allowing for administrative expenses)—
‘‘(1) 60 percent is invested in common stock in
accordance with subsection (c), and
‘‘(2) the remainder is invested in Social Secu-
rity Transition Bonds in accordance with subsection
(d).
‘‘(c) INVESTMENT IN COMMON STOCK.—
‘‘(1) IN GENERAL.—The Board shall establish
by regulation standards which must be met by com-
mon stock selected for investment of the portion of
any balance required to be invested in common stock
under subsection (b). In conformity with such stand-
ards, the Board shall select, for purposes of such in-
vestment, alternative indices which are comprised of
common stock the aggregate market value of which
is, in each case, a reasonably broad representation of
publicly held companies whose shares are traded on
the equity markets.
‘‘(2) SELECTION OF APPLICABLE INDEX BY AC-
COUNT OWNER.—
‘‘(A) PUBLICATION OF ALTERNATIVE INDI-
CES.—The Board shall publish, prior to the
third quarter of each calendar year, the Board’s
determination of the relative breadth of diver-
sification represented by each index selected by
the Board pursuant to paragraph (1).
‘‘(B) OPPORTUNITY
FOR
ANNUAL
ELEC-
TION
BY
ACCOUNT
OWNER
OF
APPLICABLE
INDEX.—The Board shall provide by regulation
for an annual opportunity, during such calendar
quarter, for each account owner to elect, in con-
nection with the account owner’s individual so-
cial security account, one of such indices as the
applicable index for the following calendar year.
Amounts in the account invested in common
stock shall be held in a portfolio designed to
replicate the performance of such index.
‘‘(C) DEFAULT INDEX.—The Board shall
clearly identify, in each publication of available
indices issued pursuant to subparagraph (A),
one of such indices as the index expected to
represent the best opportunity for broad diver-
sification of investment for the following year.
In any case in which an account holder fails to
make an election for a calendar year, the index
so identified by the Board shall serve as the
index for such calendar year in connection with
the account owner’s individual social security
account.
‘‘(d) INVESTMENT IN SOCIAL SECURITY TRANSITION
BONDS.—
‘‘(1) PURCHASE BY THE BOARD OF SOCIAL SE-
CURITY
TRANSITION
BONDS.—To the extent nec-
essary to provide for investment of the portion of
any balance required to be invested in United States
Government obligations under subsection (b), the
Executive Director shall purchase Social Security
Transition Bonds made available by the Managing
Trustee of the Federal Old-Age and Survivors Insur-
ance Trust Fund for purchase pursuant to para-
graph (2) .
‘‘(2) ISSUANCE OF BONDS.—To the extent nec-
essary to allow for investment in accordance with
paragraph (1), the Managing Trustee shall issue
special obligations of such Trust Fund (to be known
as ‘Social Security Transition Bonds’) for purchase
by the Executive Director under paragraph (1), in
such forms and denominations, bearing such matu-
rities, and subject to such terms and conditions as
may be prescribed by the Managing Trustee.
‘‘(e) LIMITATION ON VOTING RIGHTS.—The Board,
the Executive Director, and any account owner may not
exercise voting rights associated with the ownership of se-
curities held in the Savings Fund.
‘‘ACCOUNTING AND INFORMATION
‘‘SEC. 259. (a) ANNUAL, INDEPENDENT AUDITS.—
‘‘(1) INDEPENDENT ACCOUNTANT.—The Exec-
utive Director shall annually engage, on behalf of all
account owners under this part, an independent
qualified public accountant, who shall conduct an ex-
amination of all accounts and other books and
records maintained by the Executive Director under
this part as the public accountant considers nec-
essary to enable the public accountant to make the
determination required by paragraph (2). The exam-
ination shall be conducted in accordance with gen-
erally accepted auditing standards and shall involve
such tests of the accounts, books, and records as the
public accountant considers necessary.
‘‘(2) DETERMINATION REQUIRED.—The public
accountant conducting an examination under para-
graph (1) shall determine whether the accounts,
books, and records referred to in such paragraph
have been maintained in conformity with generally
accepted accounting principles applied on a basis
consistent with the manner in which such principles
were applied during the examination conducted
under such paragraph during the preceding year.
The public accountant shall transmit to the Board
a report on his examination, including his deter-
mination under this paragraph.
‘‘(3) RELIANCE
ON
ACTUARIAL
MATTER.—In
making a determination under paragraph (2), a pub-
lic accountant may rely on the correctness of any ac-
tuarial matter certified by an enrolled actuary if the
public accountant states his reliance in the report
transmitted to the Board under such paragraph.
‘‘(4) DEFINITION.—In this subsection, the term
‘qualified public accountant’ shall have the same
meaning as provided in section 103(a)(3)(D) of the
Employee Retirement Income Security Act of 1974
(29 U.S.C. 1023(a)(3)(D)).
‘‘(b) STATEMENTS.—
‘‘(1) IN GENERAL.—The Board shall prescribe
regulations under which each account owner under
this part shall be furnished by the Executive Direc-
tor with a periodic statement relating to the account
owner’s account, setting forth—
‘‘(A) the current account balance,
‘‘(B) a summary description of the invest-
ments made pursuant to section 258, and
‘‘(C) an evaluation of the performance of
such investments over the 5-year period pre-
ceding the date as of which such evaluation is
made.
‘‘(2) TIMING.—Information under this sub-
section shall be provided at least annually.
‘‘ACCOUNT DISTRIBUTIONS
‘‘SEC. 260. (a) IN GENERAL.—Subject to this part—
‘‘(1) AVAILABILITY
OF
WITHDRAWALS.—On
and after the date on which an account owner be-
comes entitled to old-age insurance benefits under
section 202(a), the entire balance in the account
owner’s individual social security account shall be
available for withdrawal in a distribution meeting
the requirements of this section.
‘‘(2) DISTRIBUTION OF BALANCES IN EXCESS
OF THE DISTRIBUTION BASE.—Any amount with-
drawn by the account owner pursuant to paragraph
(1) which is in excess of the distribution base shall
be payable to the account owner in such manner and
in such amounts as may be determined by the ac-
count owner (in such form and manner as shall be
prescribed in regulations of the Board to provide for
efficient and effective payment).
‘‘(3) 
DISTRIBUTION
OF
BALANCES
REP-
RESENTING
THE
DISTRIBUTION
BASE.—On and
‘‘(B) if the account owner is married on
such date, an immediate annuity for the joint
lives of the covered individual and the covered
individual’s spouse, payable in monthly install-
ments, together with a survivor annuity to the
one of them who survives the other of them for
the life of the survivor payable in monthly in-
stallments equal to 662⁄3 percent of the monthly
payment of the annuity that would be payable
if both spouses remained alive.
The annuity shall be payable in amounts so as to
have an actuarial present value equal to such dis-
tribution base, as determined on the basis of gen-
erally accepted actuarial assumptions.
‘‘(2) COST OF LIVING ADJUSTMENTS.—Any an-
nuity provided for under this subsection shall pro-
vide for annual indexing of the monthly payments
according to the Consumer Price Index for All
Urban Consumers (United States city average), pub-
lished by the Bureau of Labor Statistics.
‘‘(3) OPTIONAL CASH DISTRIBUTION.—
‘‘(A) IN GENERAL.—Effective on the date
referred to in subsection (a)(3), in lieu of a dis-
tribution of the account balance as described in
the preceding provisions of this subsection, the
account owner may elect, in such form and
manner as shall be prescribed by the Executive
Director—
‘‘(i) an annuity determined under this
subsection by substituting in paragraph (1)
for references to the distribution base ref-
erences to the reduced distribution base
described in subparagraph (B), and
‘‘(ii) a distribution from the account
in cash equal to the excess of the balance
in the account over such reduced distribu-
tion base.
‘‘(B) REDUCTION IN AMOUNT AVAILABLE
FOR
ANNUITY
FORM
OF
DISTRIBUTION.—For
purposes of subparagraph (A), the amount of
the reduced distribution base is an amount
equal to the greater of—
‘‘(i) 40 percent of the balance in the
account, or
‘‘(ii) an amount necessary (as deter-
mined by the Executive Director) to fund
an annuity providing annual payments in
the amount of—
‘‘(I) $8,590, in any case in which
no individual other than the account
owner is eligible for benefits under
section 202 based on the wages and
self-employment income of the ac-
count owner, or
‘‘(II) $11,610, in any other case.
‘‘(C) COST-OF-LIVING ADJUSTMENT.—The
Secretary shall adjust, for 2003 and for each
calendar year thereafter, each dollar amount
specified in subparagraph (B)(ii) for increases
in the cost-of-living in accordance with regula-
tions prescribed by the Secretary. Such regula-
tions shall provide for an adjustment with re-
spect to each calendar year based on the in-
crease in the Consumer Price Index for All
Urban Consumers (United States city average),
published by the Bureau of Labor Statistics, for
the calendar quarter ending September 30 of
the preceding calendar year over such index for
the calendar quarter ending September 30,
2000. Any increase under this clause which is
not a multiple of $10 shall be rounded to the
next higher multiple of $10 where such product
is a multiple of $5 but not of $10 and to the
nearest multiple of $10 in any other case.
‘‘(D) 
INVESTMENT
OF
PERCENT
AMOUNT IN BONDS.—In the case of a cash dis-
tribution under this paragraph, the investment
of a portion of the account balance equivalent
to the 40 percent amount determined under
subparagraph (B)(i) shall remain invested solely
in the form described in section 258(d).
‘‘(4) PURCHASE OF ANNUITIES.—The Executive
Director shall, on an ongoing basis, survey the avail-
ability for purchase in the private sector of annuity
contracts which would effectively assist in the dis-
tribution of individual social security accounts under
this subsection. If the Executive Director determines
that the return on investment of funds held in the
private sector for the purpose of funding such annu-
ity contracts would be (taking into account applica-
ble administrative expenses) at least equivalent to
the rate of return on funds held in the Savings
Fund pending distribution as described in paragraph
(1), the Executive Director shall provide by regula-
tion for the purchase of such annuity contracts as
a means of providing for payment of the monthly
payment amounts otherwise prescribed under para-
graph (2). Any such annuity contract shall provide
for investment of amounts held to fund the annuity
in the manner prescribed in section 258(b)(1).
‘‘(c) DISTRIBUTION BASE.—For purposes of this sec-
tion, the distribution base of an account owner is the actu-
arial present value of the expected future benefits payable
under section 202 on the basis of the wages and self-em-
ployment income of the account owner (determined with-
out regard to section 215(a)(8)). The actuarial present
value determined under this subsection shall be deter-
mined as of the date described in subsection (a)(3). In
making assumptions under this subsection, the Executive
Director shall take into account the reasonably anticipated
period for which each beneficiary will remain eligible for
benefits under section 202 based on the account owner’s
wages and self-employment income and the current ex-
pected life expectancy of such beneficiary.
‘‘(d) TREATMENT OF DIVORCE, ANNULMENT, AND
LEGAL SEPARATION.—
‘‘(1) REALLOCATION
OF
ACCOUNT
BALANCES
ATTRIBUTABLE
TO
PRESCRIBED
SOCIAL
SECURITY
DEPOSITS.—
‘‘(A) IN GENERAL.—Upon the issuance of
a court decree of divorce or annulment in the
case of an account owner and the account own-
er’s spouse before the date of the commence-
ment of any distribution from the account own-
er’s individual social security account under
subsections (a) and (b), 50 percent of the
amount in such account which is attributable to
prescribed social security deposits under section
257(b) for calendar years ending during the pe-
riod of marriage (and earnings thereon) shall be
transferred from such account to the individual
social security account of such spouse. In any
case in which the spouse is not an eligible indi-
vidual, such spouse shall be deemed an eligible
individual upon the date of the decree, and the
transfer provided for under this paragraph shall
be made upon the establishment of the spouse’s
individual social security account. This para-
graph shall apply in connection with such a de-
cree only if notice of such decree was received
by the Executive Director before the date of the
commencement of the distribution.
‘‘(B) 
REVOCATION
OF
STATUS
BY
SPOUSE.—A spouse who is deemed an eligible
individual under subparagraph (A) may, during
the 540-day period beginning on the date of the
decree of divorce or annulment, revoke his or
her status as an eligible individual in a form
and manner which shall be prescribed in regula-
tions of the Board. Upon such a revocation, the
spouse’s individual social security account shall
be closed and any amounts theretofore depos-
ited in the account shall be transferred to the
Federal Old-Age and Survivors Insurance Trust
Fund.
‘‘(2) TREATMENT OF ACCOUNT BALANCES AT-
TRIBUTABLE
TO
SUPPLEMENTAL
CONTRIBUTIONS
AND OF ANNUITY PAYMENTS.—
‘‘(A) IN GENERAL.—Subsections (a) and
(b) shall be subject to the terms of any court
decree, order, or agreement described in sub-
paragraph (B).
‘‘(B) COURT DECREE, ORDER, OR AGREE-
MENT DESCRIBED.—A court decree, order, or
agreement described in this clause is, with re-
spect to an account owner, a court decree of di-
vorce, annulment, or legal separation issued in
the case of such account owner and such ac-
count owner’s spouse or any court order or
court-approved property settlement agreement
incident to such decree if—
‘‘(i) the decree, order, or agreement
expressly relates to any portion of the bal-
ance in the account owner’s account which
is not described in paragraph (1) or any
annuity under subsection (b)(2), and
‘‘(ii) notice of the decree, order, or
agreement has been received by the Execu-
tive Director and, with respect to any an-
nuity payment, such notice was received
before the date on which payment is made.
‘‘(3) 2 OR MORE CASES.—The Board shall
prescribe regulations under which this sub-
section shall be applied in any case in which the
Executive Director receives notice of 2 or more
decrees, orders, or agreements referred to in
paragraph (1) or (2).
‘‘(e) LUMP-SUM PAYMENT REQUIRED FOR MINIMAL
AMOUNTS.—Notwithstanding the preceding provisions of
this section, if, upon entitlement of an account owner to
old-age insurance benefits under section 202(a), the ac-
count balance is below $5,000, the entire account balance
shall be distributed to the account owner in a single lump-
sum amount.
‘‘PAYMENTS UPON DEATH OF ACCOUNT OWNER
‘‘SEC. 261. (a) DISTRIBUTION IN THE ABSENCE OF
ELIGIBLE WIDOW OR WIDOWER.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, upon the account owner’s death
prior to the date described in section 260(a)(3), the
account shall be payable in equal monthly install-
ments (subject to paragraph (3)) to each individual
(if any) who is a potential beneficiary under section
202 based on the wages and self-employment income
of the account owner.
‘‘(2) DETERMINATION OF MONTHLY PAYMENT
AMOUNTS.—
‘‘(A) IN GENERAL.—The amounts payable
to each individual under paragraph (1) in con-
nection with an individual social security ac-
count shall be determined so that the actuarial
present value (as of the date referred to in sub-
section (a)(3)) of the future payments to each
individual bears the same ratio to the actuarial
present value (as of such date) of the total
amount to be so payable to all individuals in
connection with such account as the actuarial
present value (as of such date) of the benefits
for which such individual is (or will be) eligible
based on such wages and self-employment in-
come (determined without regard to section
215(a)(8)) bears to the account owner’s dis-
tribution base (determined as if the date of the
account owner’s death were a date described in
section 260(a)(3) and without any applicable
reduction under section 260(b)(4)).
‘‘(B) ASSUMPTIONS.—In determining the
monthly amount to be payable to each indi-
vidual, the Executive Director shall take into
account the reasonably anticipated period for
which such individual will remain eligible for
benefits under section 202 based on the account
owner’s wages and self-employment income and
the current expected life expectancy of such in-
dividual.
‘‘(b) TREATMENT OF SURVIVING SPOUSES ELIGIBLE
FOR WIDOW’S OR WIDOWER’S INSURANCE BENEFITS.—
‘‘(1) IN GENERAL.—In any case in which the
account owner is survived by a spouse who is an eli-
gible individual and who is also eligible for widow’s
or widower’s insurance benefits under subsection (e)
or (f) of section 202 based on the account owner’s
wages and self-employment income, subsection (a)
shall not apply, and the account balance remaining
at the time of the account owner’s death shall be
transferred to the individual social security account
of such surviving spouse.
‘‘(2) SPOUSES WHO ARE NOT ELIGIBLE INDI-
VIDUALS.—
‘‘(A) IN GENERAL.—In any case in which
the surviving spouse is eligible for widow’s or
widower’s insurance benefits under subsection
(e) or (f) of section 202 based on the account
owner’s wages and self-employment income but
is not an eligible individual, such spouse shall
be deemed an eligible individual upon the date
of the account owner’s death, and the transfer
provided for under this subsection shall be
made upon the establishment of the spouse’s in-
dividual social security account.
‘‘(B) 
REVOCATION
OF
STATUS
BY
SPOUSE.—A spouse who is deemed an eligible
individual under subparagraph (A) may, during
the 540-day period beginning on the date of the
account owner’s death, revoke his or her status
as an eligible individual in a form and manner
which shall be prescribed in regulations of the
Board. Upon such a revocation, the spouse’s in-
dividual social security account shall be closed
and any amounts theretofore deposited in the
account shall be transferred to the Federal Old-
Age and Survivors Insurance Trust Fund.
‘‘(c) TREATMENT OF ACCOUNT BALANCE IN THE AB-
SENCE OF SURVIVING POTENTIAL BENEFICIARIES.—In
any case in which, upon the account holder’s death, no
distribution from the account holder’s individual social se-
curity account is provided for under subsection (a) or (b),
the balance in the account shall be distributed to the es-
tate of the account owner.
‘‘(d) BAR
ON OTHER RECOVERIES.—A payment
made in accordance with subsection (a) shall bar any other
recovery by the individual receiving the payment and any
other individual.
‘‘TREATMENT OF ACCOUNT BALANCES AND ANNUITIES
‘‘SEC. 262. For purposes of this part, amounts held
in individual social security accounts and annuities pay-
able under section 261 shall be treated as the personal
property of the account owners and annuitants, respec-
tively, and shall be held in trust by the Board for the ac-
count owners and annuitants, respectively.
‘‘FIDUCIARY RESPONSIBILITIES
‘‘SEC. 263. (a) IN GENERAL.—Under regulations of
the Secretary of Labor, the provisions of sections 8477
and 8478 of title 5, United States Code, shall apply in
connection with the Savings Fund and the individual so-
cial security accounts maintained in such Fund in the
same manner and to the same extent as such provisions
apply in connection with the Thrift Savings Fund and ac-
counts maintained in the Thrift Savings Fund.
‘‘(b) INVESTIGATIVE AUTHORITY.—Any authority
available to the Secretary of Labor under section 504 of
the Employee Retirement Income Security Act of 1974 is
hereby made available to the Secretary of Labor, and any
officer designated by the Secretary of Labor, to determine
whether any person has violated, or is about to violate,
any provision applicable under subsection (a).
‘‘(c) EXCULPATORY PROVISIONS; INSURANCE.—
‘‘(1) IN GENERAL.—Any provision in an agree-
ment or instrument which purports to relieve a fidu-
ciary from responsibility or liability for any responsi-
bility, obligation, or duty under this part shall be
void.
‘‘(2) INSURANCE.—Amounts in the Savings
Fund available for administrative expenses shall be
available and may be used at the discretion of the
Board to purchase insurance to cover potential li-
ability of persons who serve in a fiduciary capacity
with respect to the Fund and individual social secu-
rity accounts maintained therein, without regard to
whether a policy of insurance permits recourse by
the insurer against the fiduciary in the case of a
breach of a fiduciary obligation.’’.
(b) CONFORMING AMENDMENTS AND RULE OF CON-
STRUCTION.—
(1) CONFORMING AMENDMENTS.—
(A) The Social Security Act is amended—
(i) in part A of title II (as redesig-
nated by subsection (a)), by striking ‘‘this
title’’ each place it appears and inserting
‘‘this part’’;
(ii) by striking ‘‘title II’’ each place it
appears (except in sections 1110(a)(3),
1129A(d)(2), 
1136(g), 
1147(a)(1),
1148(h)(4)(A), 
1148(j)(1)(A), 
1148(k),
1612(b)(8), and 1613(a)(10)) and insert-
ing ‘‘part A of title II’’;
(iii) by striking ‘‘title II or XVI’’ each
place it appears in sections 1110(a)(3),
1129A(d)(2), and 1136(g) and inserting
‘‘part A of title II or title XVI’’; and
(iv) by striking ‘‘title II or VIII’’ in
section 1147(a)(1) and inserting ‘‘part A
of title II or title VIII’’.
(B) The Internal Revenue Code of 1986 is
amended by striking ‘‘title II’’ each place it ap-
pears 
(except 
in 
sections 
142(h)(1),
410(b)(3)(B), 451(d), 912(1)(C), and 912(2))
and inserting ‘‘part A of title II’’.
(C) The Railroad Retirement Act of 1974
is amended by striking ‘‘title II’’ each place it
appears (except in sections 15(a) and 19(c)(3))
and inserting ‘‘part A of title II’’.
(2) RULE OF CONSTRUCTION.—In each provi-
sion of Federal Law (other than provisions added by
the amendments made by this Act), any reference to
title II of the Social Security shall be deemed a ref-
erence to part A of title II of such Act (as redesig-
nated by subsection (a)).
SEC. 4. CONFORMING ADJUSTMENTS TO MONTHLY INSUR-
ANCE BENEFITS.
(a) IN GENERAL.—Part A of title II of the Social
Security Act (as amended by section 3 of this Act) is
amended by adding after section 234 the following new
section:
‘‘PART B OFFSETS TO MONTHLY INSURANCE BENEFITS
‘‘Benefit Reductions
‘‘SEC. 235. (a) Notwithstanding the preceding provi-
sions of this part, for purposes of determining any benefit
under this part for any month based on the wages and
self-employment income of an individual who is an eligible
individual under part B—
‘‘(1) the Executive Director appointed under
section 253 shall certify to the Commissioner of So-
cial Security the total amount of monthly payments
payable for such month under part B in the dis-
tribution of amounts not in excess of such individ-
ual’s distribution base, and
‘‘(2) the Commissioner shall reduce such benefit
by the amount of the applicable part B offset in con-
nection with such individual applicable to such ben-
efit.
‘‘Applicable Part B Offset
‘‘(b)(1) For purposes of subsection (a), the applicable
part B offset is—
‘‘(A) in the case of a benefit based on the wages
and self-employment income of an individual born on
or after January 1, 1979, the full part B offset in
connection with such individual allocable to such
benefit, determined under paragraph (2), or
‘‘(B) in the case of a benefit based on the
wages and self employment income of an individual
born before January 1, 1979, the reduced part B
offset in connection with such individual allocable to
such benefit, determined under paragraph (3).
‘‘(2) For purposes of paragraph (1)(A), the full part
B offset in connection with an individual allocable to a
monthly insurance benefit under this part is the portion
of the total amount of monthly payments payable for such
month under part B in the distribution of amounts not
in excess of such individual’s distribution base which bears
the same ratio to such total amount as the amount of such
benefit bears to the total of benefits payable for such
month under this part on the basis of such individual’s
wages and self-employment income.
‘‘(3)(A) For purposes of paragraph (1)(B) the re-
duced part B offset in connection with an individual allo-
cable to a monthly insurance benefit under this part is
the product derived by multiplying—
‘‘(i) the portion of the total amount of monthly
payments payable for such month under part B in
the distribution of amounts not in excess of such in-
dividual’s distribution base which bears the same
ratio to such total amount as the amount of such
benefit bears to the total of benefits payable for such
month under this part on the basis of such individ-
ual’s wages and self-employment income, by
‘‘(ii) the reduction factor determined under sub-
paragraph (B) in connection with such individual.
‘‘(B) The reduction factor determined under this sub-
paragraph, in connection with any individual, is the excess
of—
‘‘(i) 1, over
‘‘(ii) the product derived by multiplying—
‘‘(I) 0.00331⁄3, by
‘‘(II) the number of calendar years during
the period beginning with the calendar year in
which such individual was born and ending with
calendar year 1978.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply with respect to benefits for months
after December 2001.
SEC. 5. MAINTENANCE OF ADEQUATE BALANCES IN THE
SOCIAL SECURITY TRUST FUNDS.
(a) IN GENERAL.—Section 201 of the Social Security
Act (42 U.S.C. 401) is amended by adding at the end the
following new subsection:
‘‘(n) In addition to amounts otherwise appropriated
under the preceding provisions of this section to the Trust
Funds established under this section, there is hereby ap-
propriated for each fiscal year to each of such Trust
Funds, from amounts in the general fund of the Treasury
not otherwise appropriated, such sums as may be nec-
essary from time to time to maintain the balance ratio
(as defined in section 709(b)) of such Trust Fund, for the
calendar year commencing during such fiscal year, at not
less than 100 percent. The sums to be appropriated under
the preceding sentence shall be determined by the Com-
missioner of Social Security and certified by the Commis-
sioner to each House of the Congress not later than Octo-
ber 1 of such fiscal year. In making such determination
and certification, the Commissioner shall use the inter-
mediate actuarial assumptions used by the Board of
Trustees of the Trust Funds in its most recent annual
report to the Congress prepared pursuant to subsection
(c)(2). The Commissioner shall also transmit a copy of
any such certification to the Secretary of the Treasury,
and upon receipt thereof, such Secretary shall promptly
take appropriate actions in accordance with the certifi-
cation.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply with respect to fiscal years be-
ginning after the date of the enactment of this Act.
SEC. 6. TAXATION OF INDIVIDUAL SOCIAL SECURITY AC-
COUNT PROGRAM.
(a) IN GENERAL.—Subchapter F of chapter 1 of the
Internal Revenue Code of 1986 (relating to exempt organi-
zations) is amended by adding at the end the following
new part:
‘‘PART IX—INDIVIDUAL SOCIAL SECURITY
ACCOUNT PROGRAM
‘‘Sec. 531. Social Security Personal Savings Fund and individual
social security accounts.
‘‘SEC. 531. SOCIAL SECURITY PERSONAL SAVINGS FUND
AND 
INDIVIDUAL 
SOCIAL 
SECURITY 
AC-
COUNTS.
‘‘(a) EXEMPTION FROM TAX.—The Social Security
Personal Savings Fund, and each individual social security
account, is exempt from taxation under this subtitle. Not-
withstanding the preceding sentence, such Fund and ac-
counts are subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business income
of charitable, etc. organizations).
‘‘(b) CONTRIBUTION LIMIT ON SUPPLEMENTAL CON-
TRIBUTIONS.—The aggregate amount of supplemental
contributions under section 257(e) of the Social Security
Act for any taxable year to the individual social security
account of an individual shall not exceed the excess (if
any) of—
‘‘(1) the maximum amount allowable as a de-
duction under section 219 with respect to such indi-
vidual for such taxable year (computed without re-
gard to subsection (d)(1) or (g) of such section),
over
‘‘(2) the aggregate amount of contributions for
such taxable year to all individual retirement plans
maintained for the benefit of the individual.
‘‘(c) DISTRIBUTIONS FROM INDIVIDUAL SOCIAL SE-
CURITY ACCOUNTS.—
‘‘(1) EXCLUSION
FOR
SUPPLEMENTAL
CON-
TRIBUTIONS (AND EARNINGS THEREON).—
‘‘(A) IN GENERAL.—Any distribution from
an individual social security account attrib-
utable to supplemental contributions under sec-
tion 257(e) of the Social Security Act (and
earnings thereon) shall not be includible in
gross income.
‘‘(B) ORDERING RULE.—For purposes of
subparagraph (A)—
‘‘(i) amounts in the account attrib-
utable to supplemental contributions (and
earnings thereon) shall be determined in
the manner provided under section 72, de-
termined by treating such contributions
and earnings as investment in the contract,
and
‘‘(ii) distributions shall be treated as
made from such contributions (and earn-
ings thereon) to the extent that the
amount of such distribution, when added
to all previous distributions from the ac-
count does not exceed the aggregate sup-
plemental 
contributions 
(and 
earnings
thereon) to the account.
‘‘(2) INCOME INCLUSION AS SOCIAL SECURITY
BENEFITS.—
‘‘For treatment of certain distributions as social
security benefits, see section 86.
‘‘(3) 
DISTRIBUTIONS
ON
ACCOUNT
OF
DEATH.—Any distribution from an individual social
security account on account of the death of the ac-
count owner shall not be includible in gross income.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) SAVINGS FUND.—The term ‘Social Secu-
rity Personal Savings Fund’ means the Fund estab-
lished by section 252 of the Social Security Act.
‘‘(2) INDIVIDUAL ACCOUNTS.—For purposes of
this section, the term ‘individual social security ac-
count’ means an account established under section
256 of the Social Security Act.’’.
(b) DISTRIBUTIONS TAXED
AS SOCIAL SECURITY
BENEFIT.—Paragraph (1) of section 86(d) of such Code
(defining social security benefit) is amended by striking
‘‘or’’ at the end of subparagraph (A), by redesignating
subparagraph (B) as subparagraph (C), and by inserting
after subparagraph (A) the following new subparagraph:
‘‘(B) a distribution under section 260 of
the Social Security Act (other than a distribu-
tion 
excluded 
from 
tax 
under 
section
531(c)(1)), or’’.
(c) EXCISE TAX ON EXCESS SUPPLEMENTAL CON-
TRIBUTIONS.—
(1) IN
GENERAL.—Subsection (a) of section
4973 of such Code (relating to tax imposed) is
amended by striking ‘‘or’’ at the end of paragraph
(3), by redesignating paragraph (4) as paragraph
(5), and by inserting after paragraph (3) the fol-
lowing new paragraph:
‘‘(4) an individual social security account (with-
in the meaning of section 531(d)), or’’.
(2) EXCESS
SUPPLEMENTAL
CONTRIBUTIONS
DEFINED.—Section 4973 of such Code (relating to
tax on excess contributions to certain tax-favored ac-
counts and annuities) is amended by adding at the
end the following new subsection:
‘‘(g) EXCESS SUPPLEMENTAL CONTRIBUTIONS TO
INDIVIDUAL SOCIAL SECURITY ACCOUNTS.—For pur-
poses of this section, in the case of supplemental contribu-
tions to an individual social security account (within the
meaning of section 531(b) of this title), the term ‘excess
contributions’ means the sum of—
‘‘(1) the excess (if any) of—
‘‘(A) the amount contributed for the tax-
able year under section 257(e) of the Social Se-
curity Act to the individual social security re-
tirement account, over
‘‘(B) the amount allowable as a contribu-
tion under section 531(b) of this title, and
‘‘(2) the amount determined under this sub-
section for the preceding taxable year, reduced by
the sum of—
‘‘(A) the distributions out of the account
for the taxable year, and
‘‘(B) the excess (if any) of the maximum
amount allowable as a contribution under sec-
tion 531(b) of this title for the taxable year
over the amount contributed under section
257(e) of the Social Security Act by the indi-
vidual to the account for the taxable year.
For purposes of this subsection, any contribution
which is distributed from an individual social secu-
rity account in a manner similar to a distribution
described in section 408(d)(4) of this title shall be
treated as an amount not contributed.’’.
(d) CONFORMING AMENDMENT.—The table of parts
for Subchapter F of chapter 1 of such Code is amended
by adding at the end the following new item:
‘‘Part IX. Individual social security account program.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 7. REPORT ON PRIVATE SECTOR INVESTMENT AND
MANAGEMENT.
(a) STUDY.—As soon as practicable after the date of
the enactment of this Act, the Social Security Advisory
Board shall undertake a study of the manner and extent
to which, upon attainment of balances in individual social
security accounts sufficient to minimize the administrative
costs involved, investment of amounts held in such ac-
counts may be managed in the private sector by approved
account managers. In carrying out the study, the Advisory
Board shall consult with such public and private entities
as it deems necessary and appropriate.
(b) REPORT.—Not later than 5 years after the date
of the enactment of this Act, the Social Security Advisory
Board shall report to each House of the Congress and to
the President the results of the study required under sub-
section (a). Such report shall include such recommenda-
tions for administrative and legislative changes as the
Board may consider appropriate.
SEC. 8. GUARANTEE OF FULL SOCIAL SECURITY BENEFITS
WITH ACCURATE ANNUAL COST-OF-LIVING
ADJUSTMENT.
(a) IN GENERAL.—Not later than 90 days after the
date of the enactment of this Act, the Secretary of the
Treasury shall issue a benefit guarantee certificate to each
individual who is determined by the Commissioner of So-
cial Security as of the date of the issuance of the certifi-
cate to be entitled to benefits under title II of the Social
Security Act (42 U.S.C. 401 et seq.). The Secretary shall
also issue such a certificate to any individual on the date
such individual is determined thereafter to be entitled to
benefits under such title.
(b) BENEFIT GUARANTEE CERTIFICATE.—The ben-
efit guarantee certificate issued pursuant to subsection (a)
shall represent a legally enforceable guarantee—
(1) of the timely payment of the full amount of
future benefit payments to which the individual is
entitled under title II of the Social Security Act (as
determined under such title as in effect on the date
of the issuance of the certificate); and
(2) that the benefits will be adjusted thereafter
not less frequently than annually to the extent pre-
scribed in provisions of such title (as in effect on the
date of the issuance of the certificate) providing for
accurate adjustments based on indices reflecting
changes in consumer prices as determined by the
Bureau of Labor Statistics or changes in wages as
determined by the Commissioner of Social Security.
(c) OBLIGATION TO PROVIDE PAYMENTS AS GUAR-
ANTEED.—Any certificate issued under the authority of
this section constitutes budget authority in advance of ap-
propriations Acts and represents the obligation of the Fed-
eral Government to provide for the payment to the indi-
vidual to whom the certificate is issued benefits under title
II of the Social Security Act (42 U.S.C. 401 et seq.) in
amounts in accordance with the guarantee set forth in the
certificate.
Æ