[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3535 Introduced in House (IH)]







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 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.

    Be it enacted by the Senate and House of Representatives 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 contributions.
        ``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 Century, 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 security 
        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 elderly women would live in 
        poverty.
            (4) Social Security is unsustainable in its present form. 
        The Board of Trustees for Social Security projects that the 
        program's obligations will exceed its annual tax revenue 
        starting in 2016. While the government will continue to pay 
        full benefits through 2038 using general tax revenues owed to 
        the Social Security trust funds, the long-term financing 
        problem for the government will begin in 2016.
            (5) The primary reason for this financial shortfall 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 workers supporting each retiree. In 1960 there were more 
        than five workers paying into Social Security for every 
        individual collecting benefits. Today, demographic changes have 
        reduced the worker-to-beneficiary 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 Social Security was first started, its 
        tax was never supposed to go higher than 6 percent of workers' 
        income. 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 percent for ``baby boomers,'' and 1 percent for those 
        who will be born 40 years from now. Since these figures do not 
        include the extra cost of meeting Social Security's needs from 
        2016 to 2038, real rates of return 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 payments only in a bookkeeping sense. 
        They do not consist 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 expenditures. The existence of large 
        Social Security trust fund balances does not, by itself, have 
        any impact 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 
        variable were changed to reduce costs, permanent deficits would 
        begin in 2020.
            (11) Inasmuch as payroll taxes already constitute the 
        single largest tax burden for most American families, further 
        tax increases would not result in a sustainable program and 
would further burden employers. This would especially affect small 
businesses and harm job creation. Americans already pay far too much 
into Social Security for what they receive.
            (12) Changes to Social Security's benefit structure 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 structure 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 increases in the age of 
        eligibility for Social Security benefits.
            (14) Changes to Social Security's benefit structure to 
        maintain solvency that negatively impact disability and 
        survivors benefits would harm the most vulnerable and 
        disadvantaged Americans. Modernization must not reduce Social 
        Security's disability 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 requires 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 invites political 
        interference and conflicts of interest in investment decisions, 
        and will reduce economic efficiency. 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 dependency. 
        As the population ages, more and more Americans are becoming 
        dependent on the government for their retirement income. This 
        trend robs Americans of their freedom, independence, and 
        dignity.
            (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 generate 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-sustaining.
            (21) Personal retirement accounts would transform Social 
        Security from an ``IOU'' into real assets that individuals 
        could own and pass along to their children.
            (22) Personal retirement accounts would correct Social 
        Security's inequities for the poor, minorities, and women by 
        offering them ownership, independence, and access to wealth.
    (b) Statement of Purpose.--The purpose of this Act is to preserve 
and strengthen the Social Security program through the creation of 
individual social security accounts that will--
            (1) ensure the payment of Social Security benefits promised 
        under current law or greater benefits to all eligible workers 
        and their families;
            (2) empower Americans with ownership, independence, 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 sustainability of 
        the Social Security program.

SEC. 3. INDIVIDUAL SOCIAL SECURITY ACCOUNT PROGRAM AND INDIVIDUAL 
              SOCIAL SECURITY ACCOUNTS.

    (a) In General.--Title II of the Social Security Act is amended--
            (1) by inserting before section 201 the following:

                    ``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 individual social security 
        account.
            ``(3) Individual social security account.--The term 
        ``individual social security account'' 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 social 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 `Executive Director' 
        means the Executive Director appointed under section 253.
            ``(8) Board.--The term `Board' means the Personal Savings 
        Board established under section 252.
            ``(9) Distribution base.--The term `distribution 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 individual would be entitled to such benefit 
        for such month.

                        ``personal savings board

    ``Sec. 252. (a) Establishment.--There is established in the 
executive branch of the Government a Personal 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 recommendation made by 
                the Speaker of the House of Representatives 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 recommendation 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 subsection (b)(2) 
                shall be appointed for terms of 3 years; and
                    ``(C) the remaining members shall be appointed 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 respect to the original appointment.
                    ``(B) Completion of term.--An individual chosen to 
                fill a vacancy shall be appointed for the unexpired 
                term of the member replaced.
            ``(3) Expiration.--The term of any member shall not expire 
        before the date on which the member'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 professional asset managers with 
        responsibility for managing the investment of account balances 
        under section 258, that shall provide for--
                    ``(A) prudent investments suitable for accumulating 
                funds for payment of retirement income; 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 action 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 members, 
                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 
                transaction 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 specific 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 expenses 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 members 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 accountant 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 Recommendations.--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 Director.--
            ``(1) In general.--The Board shall appoint, without regard 
        to the provisions of law governing appointments in the 
        competitive service, an Executive 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 expertise 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 contracts with assets of the 
        Savings Fund to the extent provided under section 260(b)(5));
            ``(4) administer the provisions of this part relating to 
        the Savings Fund; and
            ``(5) prescribe such regulations (other than regulations 
        relating to fiduciary responsibilities) as may be necessary for 
        the administration of this part relating to the Savings Fund.
    ``(c) Administrative Authority.--The Executive Director may--
            ``(1) appoint such personnel as may be necessary to carry 
        out the provisions of this part relating 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 designate and authorize such successive 
        redelegations of such functions to such employees under the 
        Board as the Executive Director may consider to be necessary or 
        appropriate; and
            ``(8) take such other actions as are appropriate to carry 
        out the functions of the Executive Director.

                ``social security personal savings fund

    ``Sec. 254. (a) Establishment of Savings Fund.--There is 
established in the Treasury of the United States a Social Security 
Personal Savings Fund, consisting of all amounts transferred to or 
deposited in the Savings Fund in accordance with section 257, increased 
by the total net earnings from investments of sums in the Savings Fund 
or reduced by the total net losses from investments of the Savings 
Fund, and reduced by the total amount of payments made from the Savings 
Fund (including payments for administrative expenses).
    ``(b) Availability.--The sums in the Savings Fund are appropriated 
and shall remain available without fiscal year limitation--
            ``(1) to invest under section 258;
            ``(2) to make distributions in accordance with sections 260 
        and 261;
            ``(3) to pay the administrative expenses of the Board; and
            ``(4) to purchase insurance as provided in section 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 
        beneficiaries 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 execution, 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 enforcement 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 Commissioner, 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 become an eligible individual under this part. Such 
regulations shall provide for regular, periodic opportunities for the 
filing of such an election. The Commissioner shall provide for 
immediate notification to the Board and the Executive Director of such 
election.
    ``(c) Irrevocability.--An election under this section 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 Social Security 
Accounts.--As soon as practicable after the date on which an individual 
becomes an eligible individual under this part, the Executive Director 
shall establish in the Savings Fund an individual social security 
account for such individual. Each account shall be identified to its 
account owner by means of the account owner's social security account 
number. The Savings Fund shall accept 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 individual 
social security account.
    ``(b) Account Balance.--The balance in an account owner's account 
at any time is the excess of--
            ``(1) the sum of--
                    ``(A) all deposits and contributions described in 
                subsection (a) credited to such account, 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.--Pursuant to regulations 
which shall be prescribed by the Board, the Executive Director shall 
allocate to each individual 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 attributable, on a pro 
rata basis, to sums credited to such account, reduced by an appropriate 
share of the administrative expenses paid out of the net earnings, as 
determined by the Executive Director.

  ``prescribed social security deposits and supplemental contributions

    ``Sec. 257. (a) In General.--As soon as practicable, 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 installments, such installments to be determined, 
to the extent necessary, on the basis of estimates by the Commissioner 
of Social Security of wages and self-employment income, 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 eligible individual for each year, the 
Executive Director shall promptly credit such amount to such 
individual's individual 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 securities 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 calendar year (as 
                certified to the Secretary of the Treasury by the 
                Commissioner of Social Security) not in excess of the 
                contribution and benefit 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 individual's individual social security account.
    ``(c) Transfer Percentage.--For purposes of subsection (b)(2), the 
term `transfer percentage' of an individual 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 Secretary of the 
                        Treasury by the Commissioner of Social 
                        Security) not in excess of the contribution and 
                        benefit base (determined under section 230) for 
                        such calendar year, and
                            ``(ii) the denominator of which is the 
                        contribution and benefit base (so determined) 
                        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 Savings 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 prescribed 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 Executive Director shall 
invest each balance referred to in subsection (a) under regulations 
which shall be prescribed by the Board so as to ensure, to the maximum 
extent practicable, 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 Security 
        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 common stock selected for 
        investment of the portion of any balance required to be 
        invested in common stock under subsection (b). In conformity 
        with such standards, the Board shall select, for purposes of 
        such investment, 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 account owner.--
                    ``(A) Publication of alternative indices.--The 
                Board shall publish, prior to the third quarter of each 
                calendar year, the Board's determination of the 
                relative breadth of diversification represented by each 
                index selected by the Board pursuant to paragraph (1).
                    ``(B) Opportunity for annual election 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 
                connection with the account owner's individual social 
                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 diversification 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 security transition 
        bonds.--To the extent necessary 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 Insurance Trust Fund for purchase 
        pursuant to paragraph (2) .
            ``(2) Issuance of bonds.--To the extent necessary 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 maturities, 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 securities held in the Savings Fund.

                      ``accounting and information

    ``Sec. 259. (a) Annual, Independent Audits.--
            ``(1) Independent accountant.--The Executive Director shall 
        annually engage, on behalf of all account owners under this 
        part, an independent qualified public accountant, who shall 
        conduct an examination of all accounts and other books and 
        records maintained by the Executive Director under this part as 
        the public accountant considers necessary to enable the public 
        accountant to make the determination required by paragraph (2). 
        The examination shall be conducted in accordance with generally 
        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 paragraph (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 determination 
        under this paragraph.
            ``(3) Reliance on actuarial matter.--In making a 
        determination under paragraph (2), a public accountant may rely 
        on the correctness of any actuarial 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 Director with a periodic statement 
        relating to the account owner's account, setting forth--
                    ``(A) the current account balance,
                    ``(B) a summary description of the investments made 
                pursuant to section 258, and
                    ``(C) an evaluation of the performance of such 
                investments over the 5-year period preceding the date 
                as of which such evaluation is made.
            ``(2) Timing.--Information under this subsection 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 becomes 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 withdrawn 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 account 
        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 representing the 
        distribution base.--On and after the first date as of which an 
        account owner becomes entitled to old-age insurance benefits 
        under section 202(a) and has requested commencement of 
        distribution of the account owner's distribution base, the 
        Executive Director shall provide for withdrawal of the portion 
        of the account balance which is not in excess of the 
        distribution base of the account owner in accordance with 
        subsections (b) through (e).
    ``(b) Distribution of Amounts in Distribution Base in Monthly 
Annuity Payments.--
            ``(1) In general.--Except as otherwise provided in this 
        section, effective upon the date referred to in subsection 
        (a)(3), the Executive Director shall transfer so much of the 
        account balance as is not in excess of the distribution base of 
        the account owner from the account owner's account to amounts 
        otherwise held in the Savings Fund. In exchange for the amounts 
        transferred, the Executive Director shall provide, payable from 
        the Saving Fund--
                    ``(A) if the covered individual is not married on 
                such date, an immediate single life annuity for the 
                account owner, payable in monthly installments, or
                    ``(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 installments, 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 
                installments equal to 66\2/3\ 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 distribution base, as 
        determined on the basis of generally accepted actuarial 
        assumptions.
            ``(2) Cost of living adjustments.--Any annuity provided for 
        under this subsection shall provide for annual indexing of the 
        monthly payments according to the Consumer Price Index for All 
        Urban Consumers (United States city average), published 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 distribution 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 references 
                        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 distribution 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 determined 
                        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 account 
                                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 regulations prescribed by the 
                Secretary. Such regulations shall provide for an 
                adjustment with respect to each calendar year based on 
                the increase 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 40 percent amount in bonds.--In 
                the case of a cash distribution 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 availability for purchase in 
        the private sector of annuity contracts which would effectively 
        assist in the distribution 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 annuity 
        contracts would be (taking into account applicable 
        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 regulation for the purchase of such annuity 
        contracts as a means of providing for payment of the monthly 
        payment amounts otherwise prescribed under paragraph (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 section, the 
distribution base of an account owner is the actuarial present value of 
the expected future benefits payable under section 202 on the basis of 
the wages and self-employment income of the account owner (determined 
without regard to section 215(a)(8)). The actuarial present value 
determined under this subsection shall be determined 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 expected 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 owner's spouse before the 
                date of the commencement of any distribution from the 
                account owner'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 period 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 individual, 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 paragraph shall apply in 
                connection with such a decree 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 regulations of the Board. Upon such a 
revocation, the spouse's individual 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.
            ``(2) Treatment of account balances attributable 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 subparagraph (B).
                    ``(B) Court decree, order, or agreement 
                described.--A court decree, order, or agreement 
                described in this clause is, with respect to an account 
                owner, a court decree of divorce, annulment, or legal 
                separation issued in the case of such account owner and 
                such account 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 balance 
                        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 Executive 
                        Director and, with respect to any annuity 
                        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 subsection 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 account 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 provided 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 installments (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 connection with an 
                individual social security account shall be determined 
                so that the actuarial present value (as of the date 
                referred to in subsection (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 income (determined without regard 
                to section 215(a)(8)) bears to the account owner's 
                distribution 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 individual, 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 
                individual.
    ``(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 eligible 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 individuals.--
                    ``(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 
                individual 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 individual 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 Absence of Surviving 
Potential Beneficiaries.--In any case in which, upon the account 
holder's death, no distribution from the account holder's individual 
social security account is provided for under subsection (a) or (b), 
the balance in the account shall be distributed to the estate 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 payable under section 261 shall 
be treated as the personal property of the account owners and 
annuitants, respectively, and shall be held in trust by the Board for 
the account 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 social 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 accounts 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 agreement or 
        instrument which purports to relieve a fiduciary from 
        responsibility or liability for any responsibility, 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 liability of persons who serve in a fiduciary 
        capacity with respect to the Fund and individual social 
        security 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 Construction.--
            (1) Conforming amendments.--
                    (A) The Social Security Act is amended--
                            (i) in part A of title II (as redesignated 
                        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 inserting 
                        ``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 appears (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 provision 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 reference to part A of title II of such Act (as 
        redesignated by subsection (a)).

SEC. 4. CONFORMING ADJUSTMENTS TO MONTHLY INSURANCE 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 provisions 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 Social Security 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, and
            ``(2) the Commissioner shall reduce such benefit by the 
        amount of the applicable part B offset in connection with such 
        individual applicable to such benefit.

                       ``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 reduced part B offset 
in connection with an individual allocable 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 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, by
            ``(ii) the reduction factor determined under subparagraph 
        (B) in connection with such individual.
    ``(B) The reduction factor determined under this subparagraph, in 
connection with any individual, is the excess of--
            ``(i) 1, over
            ``(ii) the product derived by multiplying--
                    ``(I) 0.0033\1/3\, 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 appropriated 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 necessary 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 
Commissioner of Social Security and certified by the Commissioner to 
each House of the Congress not later than October 1 of such fiscal 
year. In making such determination and certification, the Commissioner 
shall use the intermediate 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 certification.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply with respect to fiscal years beginning after the date of the 
enactment of this Act.

SEC. 6. TAXATION OF INDIVIDUAL SOCIAL SECURITY ACCOUNT PROGRAM.

    (a) In General.--Subchapter F of chapter 1 of the Internal Revenue 
Code of 1986 (relating to exempt organizations) 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 ACCOUNTS.

    ``(a) Exemption From Tax.--The Social Security Personal Savings 
Fund, and each individual social security account, is exempt from 
taxation under this subtitle. Notwithstanding the preceding sentence, 
such Fund and accounts 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 Contributions.--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 deduction under 
        section 219 with respect to such individual for such taxable 
        year (computed without regard 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 Security Accounts.--
            ``(1) Exclusion for supplemental contributions (and 
        earnings thereon).--
                    ``(A) In general.--Any distribution from an 
                individual social security account attributable to 
                supplemental contributions under section 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 attributable 
                        to supplemental contributions (and earnings 
                        thereon) shall be determined in the manner 
                        provided under section 72, determined by 
                        treating such contributions and earnings as 
                        investment in the contract, and
                            ``(ii) distributions shall be treated as 
                        made from such contributions (and earnings 
                        thereon) to the extent that the amount of such 
                        distribution, when added to all previous 
                        distributions from the account does not exceed 
                        the aggregate supplemental 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 account owner shall not be includible in gross 
        income.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Savings fund.--The term `Social Security Personal 
        Savings Fund' means the Fund established by section 252 of the 
        Social Security Act.
            ``(2) Individual accounts.--For purposes of this section, 
        the term `individual social security account' 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 distribution excluded 
                from tax under section 531(c)(1)), or''.
    (c) Excise Tax on Excess Supplemental Contributions.--
            (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 
        following new paragraph:
            ``(4) an individual social security account (within 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 accounts and annuities) is amended by 
        adding at the end the following new subsection:
    ``(g) Excess Supplemental Contributions to Individual Social 
Security Accounts.--For purposes of this section, in the case of 
supplemental contributions 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 taxable year 
                under section 257(e) of the Social Security Act to the 
                individual social security retirement account, over
                    ``(B) the amount allowable as a contribution under 
                section 531(b) of this title, and
            ``(2) the amount determined under this subsection 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 section 531(b) of 
                this title for the taxable year over the amount 
                contributed under section 257(e) of the Social Security 
                Act by the individual to the account for the taxable 
                year.
        For purposes of this subsection, any contribution which is 
        distributed from an individual social security 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 
accounts 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 subsection (a). Such report shall include such 
recommendations 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 Social Security as of the date of the issuance of 
the certificate 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 benefit 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 prescribed 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 Guaranteed.--Any certificate 
issued under the authority of this section constitutes budget authority 
in advance of appropriations Acts and represents the obligation of the 
Federal Government to provide for the payment to the individual 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.
                                 <all>