Resolving Social Security Impasse May Hold Key to Retirement Legislation

August 2005

As Congress heads into its August recess, retirement issues remain at the top of the legislative agenda. Yet, much remains unclear about the ultimate shape of legislative change, if any, on issues as diverse as Social Security reform and incentives to improve the rate of retirement savings. In fact, the resolution of the former may be critical to any action on the latter.

Republicans had wanted to resolve the Social Security issue before the August recess, but had difficulty putting together a single program that could move through the House or Senate.

The President has only outlined certain basic principles for his campaign to strengthen Social Security. He wants personal accounts and a plan that will ensure solvency. He will not accept a solution that raises payroll taxes.

In general, Democrats have rejected personal accounts and have said they will not negotiate on any Social Security funding plan, unless the President withdraws that aspect of the program. A group of House Republicans has proposed a program, called “GROW accounts,”; that fund private accounts but do not address the larger solvency issue. Rep. Bill Thomas (R-CA), the chair of the House Ways and Means Committee, is developing a comprehensive bill that meets the President’s goals while addressing a wide range of retirement-related issues.

Thomas has said that he hopes to include enough items with broad appeal to win majority support for a Social Security plan that at least approximates President Bush’s proposal. The Chairman is expected to propose his solution when Congress returns in September.

There appear to be similarities between Thomas’ proposed bill and a retirement savings bill, called the AmeriSave program, proposed by House Democrats, including Benjamin Cardin (D-MD), one of the party’s leading retirement advocates.

Both proposals would make it easier to enroll new employees automatically in an employer’s retirement savings plan, unless the employee chooses to opt out, and offer incentives to convert all or part of a retirement savings distribution into an annuity.

The most innovative provision in the House Democrats’ AmeriSave plan would encourage saving by matching up to $1,000 of an employee’s contribution to an IRA or employer-based retirement savings account. The match would be direct-deposited in the account after taxes are filed.

Thomas’s bill may also include provisions on defined benefit reform and other retirement savings changes.