[Congressional Record Volume 148, Number 88 (Thursday, June 27, 2002)]
[Senate]
[Pages S6253-S6255]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DORGAN (for himself and Mr. Corzine):
  S. 2693: A bill to amend the Internal Revenue Code of 1986 to 
encourage retirement savings for individuals by providing a refundable 
credit for individuals to deposit in a Social Security Plus account, 
and for other purposes; to the Committee on Finance.
  Mr. DORGAN. Mr. President, the Board of Trustees for the Social 
Security Trust Fund issued its annual report in March describing the 
financial health of the Trust Fund and its outlook for the future. The 
report shows that the financial condition of the Trust Fund over the 
next few decades has improved somewhat since last year, that is, the 
Social Security program is now expected to remain solvent for three 
additional years through 2041. This is welcome news for the tens of 
millions of baby boomers who will depend on this program in the coming 
decades.
  However, this latest Trustees' report also makes clear that the 
Social Security program still faces significant long-term financial 
challenges. This finding was not unexpected. In fact, there is already 
bipartisan agreement in Congress that we will need to make some careful 
changes to the Social Security system in order to guarantee the 
solvency of the Social Security Trust Fund beyond 2041. Today, Senator 
Corzine of New Jersey and I are introducing legislation that we think 
should be part of those reform discussions.
  Our legislation, called the Social Security Plus Account Act, builds 
upon two fundamental principles: One, the underlying guaranteed defined 
benefit approach of the current Social Security program should not be 
scrapped or weakened. Social Security has become the foundation of the 
Nation's retirement system, something that people

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can always count on. At a time when private employers are shifting more 
retirement saving risks onto the shoulders of their employees through 
the use of defined contribution plans like 401(k) plans rather than 
traditional defined benefit pension plans, the need to retain Social 
Security's basic guaranteed payment is paramount.
  Second, this legislation recognizes that Congress must do more to 
encourage families and individuals, especially those of modest means, 
to increase their savings and to build a retirement nest egg. 
Specifically, our legislation provides for the creation of new tax-
favored retirement savings accounts that individuals and families could 
access to supplement, but not replace, their expected future Social 
Security benefits.
  Unlike many reform proposals, this legislation leaves the Social 
Security program intact. Many privatization plans force you to choose 
between individual accounts and the loss of Social Security's 
guaranteed benefit at current levels. Our proposal calls for personal 
accounts as an ``add-on'' to Social Security. This is an important 
distinction from the ``carve-out'' accounts featured in privatization 
plans. Privatization plans will inevitably reduce traditional 
guaranteed benefits. Our approach would not.
  Under this legislation, eligible individuals can set up and make tax-
favored contributions of up to $2,000 to a new Social Security Plus 
Account, SSPA. To provide an extra savings boost for low- and moderate-
income families, our legislation would require the Federal Government 
to provide matching contributions between 25 and 100 percent for 
married couples with adjusted gross income below $100,000, $50,000 for 
singles. The $2,000 limit applies to the total of the individual's own 
contribution and the Federal match. This will make it much more 
affordable for low and moderate earners to fully fund their accounts.
  Like traditional individual retirement accounts, SSPAs can grow tax-
free. For example, if an individual aged 30 who files a joint return 
and has annual earnings of about $25,000 contributes $500 to a SSPA, 
the Federal Government would match that contribution with a $500 
contribution to the account. If that individual contributes $500 in 
cash each year to the account for 32 years, earning 5-percent interest 
per year, until retirement at age 62, he or she would have some $80,000 
available for distribution from the account. This amount grows to 
$160,000 if the individual is able to contribute the maximum in each 
year.
  Let's take another example. Assume that an individual who is forty 
years old, files a joint return and has annual adjusted gross income of 
$80,000. If he or she could make the maximum permissible contribution 
each year until reaching age 62, along with an annual government match 
of $400, he or she might expect to have at least $160,128 available at 
retirement.
  Under our legislation, the accrued amounts that are paid out or 
distributed when the holder of a SSPA retires, dies or becomes disabled 
are treated like Social Security benefits and a portion of the 
distributions would be taxed only above certain threshold amounts.
  Now I fully understand that we may not be able to enact this 
legislation this year or next. Regrettably, last year's highly-touted 
projected budget surpluses have vanished for at least the next several 
years and resources are now scarce. The massive tax cuts put in place 
in the summer of 2001, and scheduled to take full effect over a period 
of years, will make finding adequate funds for many of the Nation's 
critical spending priorities even more difficult.
  However, many of the privatization proposals would require massive 
infusions from the Treasury general revenue fund to offset the 
transition and other costs for even partial privatization initiatives. 
If such resources are available, it seems to me that we would better 
serve our citizens by using these scarce resources to enact Social 
Security Plus Accounts that will help them save for retirement but not 
put the underlying Social Security program at risk.
  The current Social Security system has served us well for many years 
and will continue to do so if we make some adjustments. Still we all 
know that Social Security reform is needed. I remain committed to 
working on a bipartisan basis to address the long-term solvency issues 
facing Social Security and to improve retirement savings. And we do 
need to implement appropriate Social Security reforms as soon as our 
resources will allow us. Needlessly delaying efforts to shore up Social 
Security for the long term would likely require more severe action.

  We certainly can't afford to make matters worse in the interim. A 
number of us in the Senate are concerned by the proposals offered by 
President Bush and some in Congress to eliminate the guaranteed basis 
of Social Security and replace it, in part with private accounts. The 
suggestion to ``privatize'' Social Security, or to invest a portion or 
all of the trust funds in the stock market, has been supported by the 
large investment banking houses and many others who believe that doing 
so would produce higher returns and improve the solvency of the system.
  Several of the President's Commission on Social Security 
privatization plans would divert some of the payroll taxes that are 
currently being collected. Some of the proposals would use well over $1 
trillion from the Social Security Trust Fund. This would immediately 
and adversely impact the financial well-being of the Social Security 
Trust Fund, putting in jeopardy both current and future Social Security 
benefits
  I do not believe that investing the proceeds of the Social Security 
system in the stock market through individual accounts provides the 
kind of stability and certainty we need for the management of the 
Social Security program. Social Security is intended to provide what 
its name suggests, security. Stock market investments do not provide 
this secure foundation. They increase, on average, over certain time 
periods. But people don't retire at average times. They retire at 
particular times.
  This point is mostly glossed over by the President's Commission to 
Strengthen Social Security. The Commission issued its final report last 
December that included several reform options that would allow workers 
to invest in personal retirement accounts, but reduce their traditional 
guaranteed Social Security benefit. In my judgment, no one, including 
the President's Commission, has provided a satisfactory answer to the 
question of what happens to people who retire when the market is down 
if we change Social Security, even partly, from a social insurance 
program to a stock market investment program. This is not mere 
polemics. The Enron debacle, the boom and bust of the dot com companies 
of the late 1990s, and the declining stock prices of recent weeks all 
serve as stark reminders to all of us about the perils of investing in 
the stock market.
  Again, I will be working for appropriate reforms to extend the life 
of the Social Security Trust Fund so future generations can rely on 
Social Security. Social Security Plus Accounts can provide a much-
needed supplement to the basic program, but would do so without 
undermining it. They do not reform the program by themselves, but are 
designed to be part of a responsible reform package.
  For many of our nation's seniors, Social Security is the difference 
between poverty and a dignified retirement. When President Franklin D. 
Roosevelt signed the Social Security program into law in 1935 he said 
``We can never insure one-hundred percent of the population against 
one-hundred percent of the hazards and vicissitudes of life. But we 
have tried to frame a law which will give some measure of protection to 
the average citizen and his family against poverty ridden old age.'' 
The importance of his words and his new social insurance plan are 
reflected in Social Security's overwhelming success today. Let's make 
sure that the promise and security of Social Security is kept for many 
generations to come.
  I urge my colleagues to consider supporting this proposal in the 
context of comprehensive Social Security reforms considered by the 
Senate. Below I've provided a detailed summary of the Social Security 
Plus Account Act to more fully explain how the new savings accounts 
would work.
  I ask unanimous consent that a summary of the bill be printed in the 
Record.
  There being no objection, the summary was ordered to be printed in 
the Record, as follows:

[[Page S6255]]

                Social Security Plus Account Act of 2002

     In general
       This legislation creates new tax-favored Social Security 
     Plus Accounts (SSPA). Generally, an eligible individual with 
     at least $5,000 of annual earnings and who is not a dependent 
     of another taxpayer or a full-time college student may 
     contribute up to $2,000 to a SSPA for each year until he or 
     she reaches the age of 70 & \1/2\. An individual whose 
     modified adjusted gross income exceeds $150,000 ($300,000 for 
     a married individual) is ineligible to make a contribution to 
     a SSPA.
       A 20-percent refundable tax credit is allowed for eligible 
     contributions to a SSPA. In addition, the federal government 
     will match a percentage of a SSPA contribution for taxpayers 
     with modified adjusted gross income (AGI) below a certain 
     level (See below).
       Amounts in SSPAs that are distributed for permissible 
     purposes are subject to favorable income tax treatment and 
     are not subject to penalty.
       An eligible individual shall file a designation of the SSPA 
     to which the match is made, along with his or her tax return 
     for the year (or if no return is filed, on a form prescribed 
     by the Secretary of the Treasury) not later than the due date 
     for filing such return (including extensions) or the 15th day 
     of April, whichever is later.
     Matching contributions
       In the case of an eligible individual, the federal 
     government makes a matching contribution to the SSPA. This is 
     accomplished as refundable tax credit for the tax year in an 
     amount equal to the matching contribution. The allowable 
     credit is treated as an overpayment of tax which may only be 
     transferred to a SSPA.
       The Secretary of the Treasury will make matching 
     contributions to the SSPAs of taxpayers with modified AGI 
     below a certain level. The applicable percentage shall be 
     according to the following:
       In the case of an individual filing a joint return:
                                          The applicable percentage is:
If modified adjusted gross income is:
  $30,000 or less...................................................100
  Over $30,000 but not over $60,000..................................50
  Over $60,000 but not over $100,000.................................25
  Over $100,000....................................................zero
In the case of a head of household:
  $22,500 or less...................................................100
  Over $22,500 but not over $45,000..................................50
  Over $45,000 but not over $75,000..................................25
  Over $75,000.....................................................zero
In the case of any other individual:
  $15,000 or less...................................................100
  Over $15,000 but not over $30,000..................................50
  Over $30,000 but not over $50,000..................................25
  Over $50,000.....................................................zero
     Maximum contributions
       The maximum annual contribution to a SSPA each year in 
     $2,000--including both the individual and matching 
     contributions. As such, the maximum annual contribution would 
     be $1,000 for those in the lowest bracket (with a $1,000 
     maximum match), $1,333.33 for the middle bracket (with a $667 
     maximum match) and $1,600 for the next bracket (with a $400 
     maximum match). Those in the highest bracket with earnings 
     over $100,000 could contribute $2,000 (with no match).
     Minimum contributions
       The minimum annual contribution must be sufficient to 
     ensure that the total deposit is $200 (i.e. the lowest 
     bracket would have to contribute at least $100, the middle 
     bracket would have to contribute at least $133, the next 
     bracket at least $160, and the highest bracket at least 
     $200).
     Tax treatment of SSPAs
       Similar to traditional individual retirement accounts 
     (IRAs), amounts contributed to a SSPA would be tax-favored 
     and accounts would grow tax-free. However, amounts paid or 
     distributed out of a SSPA would be taxable like Social 
     Security benefits. That is, up to 50% of SSPA benefits are 
     taxable for taxpayers whose income plus 50% of their benefits 
     exceed $25,000 for individuals and $32,000 for couples. Up to 
     85% of SSPA benefits are taxable for taxpayers whose income 
     plus benefits exceeds $34,000 for individuals and $44,000 for 
     couples.
     10-percent penalty for disqualified distributions
       Distributions that are not made from a SSPA after 
     retirement, death, disability or not used for catastrophic 
     medical expenses exceeding 7.5% of AGI are includible in 
     gross income and are subject to regular tax rates and a 10-
     percent penalty. Matching contributions from the federal 
     government may be distributed from an SSPA only after 
     retirement, at death or in the event of disability.

  Mr. CORZINE. Mr. President, I am pleased to join today with Senator 
Dorgan in introducing legislation, the Social Security Plus Account Act 
of 2002, that would create new tax-favored Social Security Plus 
Accounts to supplement the existing Social Security program.
  Although the Social Security Trust Fund is now projected to remain 
solvent for almost 40 years, I share the interest of a broad range of 
leaders in exploring ways to extend solvency further into the future. 
At this point, it remains unclear when Social Security reform will be 
debated. However, Senator Dorgan and I are introducing this legislation 
in the hope that it will be considered when that debate moves forward.
  As most of my colleagues know, last year President Bush appointed a 
commission to recommend ways to move toward privatization of Social 
Security. Last December, that commission issued a report that included 
proposals to establish privatized accounts into which a portion of 
Social Security contributions would be diverted. The Bush Commission's 
proposals included deep cuts in guaranteed benefits, cut that for some 
current workers would exceed 25 percent, and for future retirees would 
exceed 45 percent.
  I strongly oppose these cuts. In my view, they would take the 
security out of Social Security. That would undermine the central goal 
of the program.
  At the same time, I recognize that, by itself, Social Security will 
not provide sufficient funds for many retirees in the future. That is 
why it is important that Americans save on their own to prepare for 
retirement. I therefore support other government initiatives to promote 
private savings, such as individual retirement accounts and 401(k) 
plans.
  The proposal for Social Security Plus Accounts in this legislation 
takes the concept of an IRA or 401(k) account, and builds on it. These 
new accounts would provide an additional and more powerful savings 
incentive for many Americans, especially middle class workers and those 
with more modest incomes. Under our legislation, the government would 
match contributions by taxpayers with incomes below certain levels. In 
addition, all contributions would provide immediate tax relief: a tax 
cut equal to 20 percent of the contribution. Moreover, when a person 
takes money out of an account at retirement, the proceeds would be 
treated in the same manner as Social Security benefits, meaning that 
some or all proceeds could be withdrawn tax free.
  A Social Security Plus Account would provide a useful supplement to 
our Social Security system, without weakening that system in any way. 
Unlike the proposals of the Bush Social Security Commission, these new 
accounts would not force a reduction in traditional Social Security 
benefits. This difference is critical.
  Senator Dorgan and I recognize that the establishment of Social 
Security Plus Accounts would require resources that are not presently 
available. We therefore appreciate that action on our legislation will 
have to wait until later, when we have more financing. However, we 
believe it important to put our proposal on the table today, to help 
ensure that when the appropriate time comes, our colleagues understand 
that there is more than one way to establish personal accounts. The 
right way, as proposed in this legislation, is to establish accounts 
that supplement Social Security, without draining the Social Security 
Trust Fund, without cutting benefits, and without undermining Social 
Security's promise to Americans who have paid into the system in good 
faith.

  I want to thank Senator Dorgan for his leadership in this effort. I 
look forward to working with him to ensure that we find new and better 
ways to promote savings, without undermining the basic guarantees 
provided through Social Security.
                                 ______