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Johnson, Flake, Feeney et al., Individual Social Security Investment Program Act (HR 530)Summary
Individuals born on or after January 1, 1950 would be allowed to divert their half (6.2%) of the payroll tax to individually owned, privately invested accounts. Those who choose to do so would agree to forgo all future accrual of retirement benefits under the traditional Social Security system. Individuals born after 1982 would be required to enter the private account system. The employer’s share of payroll tax (6.2%) would be used to pay transition costs and to fund disability and survivor benefits. The employer would assume responsibility for the entire DI contribution (1.8%) and would continue to pay 4.4% of capped payroll toward the OASDI portion of Social Security.
A federal government safety net provision will insure that no retiree's income falls below 100% of the poverty level. This provision will be funded through general revenues, much like a welfare (TANF) payment. Those who choose the private account option must purchase an inflation-adjusted annuity to ensure that their retirement income will not fall below 100% of the poverty line.
Details
| Voluntary |
Yes, for every worker under age 55 by 2005. It is compulsory for workers under 22
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| Account Size/Source |
Carve out: 6.2% of taxable earnings (employees' half of the payroll tax).
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| Additional Contribution |
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| Benefits from Current System |
Participants would receive a "recognition bond" based on their lifetime-to-date benefits. These bonds, redeemable at the worker's retirement, would be tradable in secondary markets. There would be no future accrual of retirement benefits under the traditional Social Security system.
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| Investment Structure |
Account balances would be invested in a three-tiered system:Tier I- money market fund until the contribution is reconciled to the individual's name using the W-2 form, Tier II- 3 portfolios: 60% stock and 40% bond (default), one with higher percentage in stock, and one with higher percentage in bonds, Tier III-Once a worker accumulated sufficient level of funds, a much larger range of investment options similar to 401(k) plans would be available.
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| Inheritability |
Account balance is fully inheritable.
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| Withdrawal Options |
Can choose an annuity, a programmed withdrawal, or a combination of an annuity and a lump-sum payment. For the last option, the amount above what is need to puchase an annuity providing income equal to 100% of poverty level can be taken out as lump sum. All withdrawals are exempt from income taxes, so accounts resemble Roth IRAs.
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| Minimum Benefit |
A federal government safety net provision will insure that no retiree's income falls below 100% of the poverty level. This provision will be funded through general revenues, much like a welfare (TANF) payment. Those who choose the private account option must purchase an inflation-adjusted annuity to ensure that their retirement income will not fall below 100% of the poverty line.
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| Changes to Benefit Formula |
Beginning in 2012, the formula for calculating the accrual of benefits would use earnings indexed to the increase in prices (measured by the CPI) rather than national wage growth.
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| Retirement Age |
Once an individual can purchase an annuity equal to 100% of poverty level, he or she can opt out of the system and stop paying the 6.2% individual account contribution.
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| Other Benefit Changes |
No additional changes.
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| Disability/Survivors |
No changes |
| Transition Funding Mechanism |
General revenue transfers |
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Bill Track
HR 530
Sponsor
Co-Sponsors
Relevant Testimony
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