Sen. Graham's Bill Introduced to the Senate

November 24, 2003

On Tuesday, November 18, Sen. Lindsey Graham (R-SC) introduced legislation to reform Social Security by allowing workers to privately invest up to $1,300 of their payroll taxes. The Social Security Solvency and Modernization Act gives Americans age 54 and below a choice of Social Security options including a personal retirement account option, a basic benefit option, and an additional contribution option.

The personal retirement account option includes the following provisions:

• "Young workers entering the workforce would be enrolled automatically in the Personal Retirement Account option. At age 26, workers would make an irrevocable decision to stay in the personal retirement account option or to return to the current system.



• "Workers would invest 4 percentage points of their payroll taxes (up to $1300 annually) in a personal retirement account. They would then be enrolled automatically in a two-tiered investment program similar in structure to the Thrift Savings Plan available for federal employees.



• "At retirement, workers would be required to purchase an annuity that, in combination with their traditional Social Security benefit, guarantees them an income equal to 100 percent or more of the federal poverty line. Any remaining account balance could be withdrawn at the discretion of the account holder or passed on to heirs.



• "The minimum benefit would guarantee an annual retirement income equal to 120 percent of the poverty level for workers with at least a 35-year career. The minimum benefit would gradually decline to $0 for workers with less than 10 years of work (the minimum required to qualify for Social Security benefits).



• "The federal government match $100 for first dollar of additional voluntary contributions and 50 percent of each additional dollar up to a cap of $500 per year for workers who earn less than $30,000 per year.

Under the basic benefit option, workers would receive benefits from the traditional system based on a price-indexed formula. Beginning in 200, average benefits paid to new retirees would increase relative to prices rather than wages. This ensures that the real purchasing power of traditional Social Security benefits for future retirees would be at least as large as benefits received by retirees today yet substantially reduces the cost on the system.

The additional contribution option recognizes that full scheduled benefits cannot be paid from the current system without additional resources. Workers who opt to remain in the current system and receive full scheduled benefits will thus have to pay an additional 2 percentage points of payroll taxes, increasing the rate to 14.4 percent from 12.4 percent of payroll.

Americans nearing retirement, age 55 and over, would remain with the current Social Security system with no changes. They will be ineligible to participate in the new system even if they wish to do so. All disabled workers would be protected from any changes in disability insurance benefits.

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