[Congressional Record Volume 151, Number 25 (Monday, March 7, 2005)]
[Senate]
[Pages S2164-S2170]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HAGEL:
  S. 540. A bill to strengthen and permanently preserve social 
security; to the Committee on Finance.
  Mr. HAGEL. Mr. President, when I began my first campaign for the U.S. 
Senate in 1995, I published a booklet entitled ``Where I Stand.'' I 
wrote it because the first obligation of a candidate is to tell voters 
what you believe. In that booklet, I wrote:

       The Social Security system must be preserved, protected, 
     and improved. We have made this covenant with our senior 
     citizens. However, the long-term future of the Social 
     Security system is in peril. If we do not get this issue 
     resolved soon, this Nation faces an entitlement disaster, 
     eroding the trust between grandchildren and grandparents. We 
     must explore every option in order to fix and strengthen our 
     Social Security system. This will require bold leadership.

  A decade later, those words still define my position on Social 
Security. Social Security has been one of the most important and 
successful Government programs in the history of America. Almost every 
American family over the last 70 years has been touched by Social 
Security. In signing the Social Security Act of 1935, Franklin 
Roosevelt said:

       None of the sums of money paid out to individuals in 
     assistance or insurance will spell anything approaching 
     abundance. But they will furnish that minimum necessity to 
     keep a foothold, and that is the kind of protection Americans 
     want.

  A fundamental point that President Roosevelt made was that Social 
Security was not intended to replace the personal responsibility of 
individuals saving for and preparing for their own retirements. Social 
Security was never intended to be a substitute for a retirement or 
savings plan. It is a safety net for people. Social Security is an 
insurance contract that protects the most vulnerable in our society 
from falling into poverty. But Social Security is actuarially 
unsustainable with its present commitments to future generations.
  Today, I am introducing comprehensive Social Security reform 
legislation. I began my day in Nebraska this morning with some of the 
people who would be most affected by my bill--America's next 
generation. It is their generation that will be asked to sustain the 
future of Social Security.
  My generation, the baby boom generation, has been the largest and 
most productive workforce in the history of man. The impending 
retirement of the 77 million-strong baby boom generation will impact 
every aspect of our economy, Government, and society--Medicare and 
Medicaid, health care, our workforce, and our competitive position in a 
world filled with countries much younger than ours. The next generation 
of Americans will respond to these challenges as every generation of 
Americans has responded to challenges--with innovation and hard work.
  However, my generation has a moral obligation to ensure that future 
generations do not have to bear an increasingly heavy burden of 
providing retirement resources for future generations. That is why we 
must reform Social Security. It is a 1935 model trying to operate in a 
21st century world. It will soon be incapable of delivering the 
promises and resources that it was built to provide 70 years ago.
  Last week, in testimony before the House Budget Committee, Federal 
Reserve Chairman Alan Greenspan urged Congress to act on modernizing 
entitlement programs sooner rather than later. He warned that, unless 
we act now to meet the huge unfunded liabilities facing our entitlement 
programs, there will be severe economic consequences for our Nation. 
Chairman Greenspan is right.
  America's largest entitlement programs--Social Security, Medicare, 
and Medicaid--are on a trajectory that cannot be sustained. For fiscal 
year 2006, the Congressional Budget Office tells us that 64 percent of 
the $2.5 trillion Federal budget will be obligated to mandatory 
spending, of which 42 percent is for Medicare, Medicaid, and Social 
Security. Those are tax dollars that are committed--money that cannot 
be used for anything else.
  Each year, the percentage of the Federal budget obligated to funding 
entitlement programs grows larger and larger. The current unfunded 
liability for Social Security over the next 75 years--this is the 
horizon that the Social Security Administration uses to calculate 
benefits and expenditures--is $3.7 trillion. That means over the next 
75 years, we are obligated to make the commitments of the retiree 
benefits a reality. Yet we have $3.7 trillion of debt. We don't know 
where and how we are going to get that $3.7 trillion. We are now $3.7 
trillion in debt in the current obligations over the next 75 years for 
Social Security. Medicare's unfunded liability is nearly $28 trillion. 
These liabilities are in addition to America's current national debt of 
$7.5 trillion.
  Medicare costs are growing faster than any other Government or 
entitlement program. As we see health care costs continue to rise, 
coupled with the growing number of retirees, it will only continue to 
put more and more pressure on our Federal budget and squeeze out money 
for important discretionary Government programs such as education, 
roads, parks, and housing.
  Last Congress, we passed an enormous expansion of Medicare. I voted 
against it. I thought it was bad policy and would add hundreds of 
billions of dollars to an already unsustainable program. I am 
supportive of efforts to reopen the Medicare reform bill and fix 
it. But for political reasons, I doubt that will happen soon, although 
we will be forced to deal with it in the future.

  The Social Security system is not in crisis today, but there is 
clearly a crisis on the horizon. In 2018, more money will be paid out 
of Social Security than comes in. In 2042, the Social Security trust 
fund will be insolvent. Beyond the next 75 years, there is only a black 
hole of unfunded liability for future generations. The longer we do 
nothing, the more difficult it will be to protect Social Security and 
the promise our Government made to future generations of Americans.
  This reality is daunting, but there is good news in all of this. The 
system can be fixed. It is within our power to preserve the Social 
Security net for this Nation. It has been done before. In 1983, 
President Reagan worked with congressional Democrats and Republicans to 
make tough choices and extend the life of Social Security. Dealing with 
this problem now means less dramatic and difficult choices later. The 
earlier we confront the reality of the coming crisis, the more options 
we will have to come up with a wise and sustainable course of action.
  Allow me to now lay out the main points of the Social Security reform 
bill that I will introduce today.
  My bill would ensure the vitality of Social Security for future 
generations. There are no easy choices to fix the demographic 
challenges and realities facing Social Security. Understanding this, we 
must make choices that address the problem responsibly and fairly.
  My bill would make changes to Social Security only--only--for those 
Americans under the age of 45. No American age 45 or older will see a 
change in Social Security or their benefits. For Americans under 45, my 
bill would provide the option of voluntary personal accounts. Providing 
personal accounts is good policy for both the long-term viability of 
Social Security and for individuals. Government should be about 
empowering individuals and enhancing personal freedoms and their 
futures. Personal accounts help do this for those under 45.
  My bill would continue to provide a guaranteed Social Security 
benefit from the Social Security trust fund. Under my plan--under any 
plan--Americans still need the security of knowing that the portion of 
their Social Security benefits that comes from the traditional Social 
Security system will be guaranteed. My bill will continue to guarantee 
survivor and disability benefits as they currently are.
  Social Security provides benefits for more than 6 million spouses and 
children of breadwinners who have died

[[Page S2165]]

prematurely or have become disabled. For these families, their benefits 
should not be touched.
  I know something about this. When I was 16 years old, my father died. 
The Social Security benefits my mother received were critical in 
helping her raise four young boys in Nebraska. I well remember my 
mother's relief when that Social Security check arrived each month.
  We must remember that the first obligation of Social Security is to 
the most needy Americans. My bill does not raise taxes. I believe we 
can fix Social Security without raising taxes. We need to begin 
reforming Government programs so they do not become so large and so 
expensive that future taxpayers will be unable to pay for them. Young 
wage earners and small businesses are the most vulnerable to tax 
increases, and they would be the ones most adversely affected by higher 
taxes to save Social Security.
  Additionally, whenever we increase the cost of labor, we hurt our 
competitive position in the world and make job creation more difficult. 
This is not abstract economic theory; it is reality that has an impact 
on every future American.
  Those are the principles that form the foundation of the bill I will 
introduce today. Here is how it would work.
  Upon passage of the bill, Americans 44 and younger would be given two 
voluntary options. One, they can invest 4 percent of their payroll tax 
into a personal investment account modeled on the same accounts now 
offered to all Federal Government employees. I participate and my staff 
participates in this program. The remainder of their payroll tax 
contribution would continue to go into the traditional Social Security 
system. Option 2, individuals can continue to invest their entire 
payroll tax in the traditional Social Security system.
  If they choose the personal account option, then individuals will be 
able to invest in the same five funds that collectively make up the 
current Federal Thrift Savings Plan--again, the program that I am in, 
Members of Congress are in, and Federal Government employees are in.
  The first is the common stock index fund. Over the last 10 years, 
this fund has earned an average annual rate of return of 11.99 percent.
  The second fund is the fixed income index investment fund. Over the 
last 10 years, this fund has earned an average annual rate of return of 
7.72 percent.
  The third is the Government securities investment fund, and over the 
last 10 years, it has earned an average annual rate of return of 5.75 
percent.
  The fourth is the small capitalization index. Over the last 10 years, 
it has earned an average annual rate of return of 11.84 percent.
  Fifth is the international stock index fund. Over the last 10 years, 
it has earned an average annual rate of return of 5.45 percent.
  These five funds provide a range of excellent investment options.
  My bill would also provide a default account for those Americans who, 
for whatever reason, do not want to deal with choosing a fund or funds 
for their accounts. This fund would invest differently in an 
individual's early working years than in their later working years.
  The Thrift Savings Plan has been a success for Government employees. 
Last year, returns on the different accounts ranged from just over 4 
percent to 20 percent, and in the last 10 years, the returns have been 
between 5.5 and 12 percent. Compare this with the 3-percent return 
provided by Treasury bonds that Social Security now invests in today.
  These private accounts are in addition to the guaranteed Social 
Security benefits and personal savings pensions and retirement account 
programs individuals build up during their working years.
  Under my bill, personal accounts would be administered by a board 
within the Social Security Administration called the Social Security 
investment board. The board would be composed of the Secretary of the 
Treasury, the Chairman of the Federal Reserve Board, the Chairman of 
the Securities and Exchange Commission, and two Senate-confirmed 
appointments nominated by the President. One of the President's 
appointments would serve as chairman of the board.

  Upon retirement, those who choose to enroll in a personal account 
will have two accounts: their personal account and their traditional 
Social Security benefits account. They will be required to convert a 
portion of their personal account to an annuity which, when added to 
their guaranteed Social Security, would be at least 135 percent of 
poverty. There is no such guarantee in our Social Security system 
today. The remainder of the personal account will be theirs to spend as 
they wish. It could be used to help with health care costs and 
retirement living costs, or it could even help an account holder's 
children or grandchildren put a downpayment on a home or pay college 
tuition.
  There are those who say that allowing individuals to invest through 
personal accounts is too risky. Their concerns are serious, and they 
deserve a serious response. Under my plan, no person is required to 
have a personal account. An individual who does not want to invest can 
keep all of their money in the traditional Social Security system.
  I believe the policies which enhance personal freedom and 
responsibility encourage the ethic of saving and limit the role of 
Government in their lives. These are the policies which will be more 
flexible and successful for America's future.
  It is true that there is no guarantee with market-based investments; 
however, the historic success of markets is not a theory, it is a fact. 
Columnist George Will pointed out in a recent Washington Post column 
that in no 15-year period over the past eight decades has the growth of 
stocks ever been negative. In no 20-year period has the average growth 
been less than 3 percent, which exceeds the rate of return on Social 
Security assets today. This includes down times, significant down 
periods in the stock market.
  We are blessed in America. We are blessed in America because the vast 
majority of Americans live healthier, longer lives than they did a few 
decades ago. Continued advances in medicine, education, and personal 
health will continue to increase not only the length of our lives, but 
also the quality of our lives, providing opportunities for older 
Americans to remain healthy, vital, and productive members of the 
workforce.
  When Social Security was created in 1935, there were too many workers 
and not enough jobs. According to the Social Security Administration, 
in 1950, there were 16.5 workers per retiree. Incentives were created 
to move people out of the workforce. This dynamic is changing. Today 
there are 3.3 workers for every retiree. In 25 years, there will be 
about 2 workers for each retiree.
  Why is this important? This is important because Social Security is a 
transfer program. The money comes in and the payroll taxes from the 
workers go out at the end of the month to the retirees.
  So when there are less workers, there is less money coming into the 
system. My bill makes three adjustments to Social Security that will 
make it solvent for future generations. First, my bill would raise the 
current full benefit retirement age by 1 year from 67 to 68. Second, my 
bill would maintain the current earlier retirement age at 62 but would 
adjust benefits for those who choose to retire early.
  Currently, workers who retire early today receive 70 percent of their 
full retirement benefits. My bill will provide these early retirees 
with 63 percent of the traditional benefits.
  Third, currently an individual's base Social Security benefit is 
determined by two factors: their average income over 35 years and the 
wage index. My bill adds a third component, life expectancy. We are 
living longer. That means as we live longer, we will draw more from the 
Social Security fund.
  Over the life of the program Social Security benefit calculations 
have never been adjusted to reflect increased life expectancy. By 
factoring increased life expectancy into the base benefit calculation, 
the rate of increase in benefit payments will be slow. No other changes 
will be made to the annual consumer price indexing of benefit 
increases.
  In addition to making Social Security solvent, these adjustments can 
help confront the challenges of increasing Medicare costs and shortages 
in the workforce. It is important to protect

[[Page S2166]]

the option of early retirement, but our laws need to encourage 
individuals to stay in the workforce, not leave it.
  Medicare costs, Medicaid costs, and labor shortages can be 
significantly reduced by keeping people healthy, vital, happy, and 
productive in the workforce. My bill pays for these changes in Social 
Security by using the existing $3.7 trillion unfunded liability to 
ensure the long-term health of the Social Security system. Doing 
nothing will mean at the end of 75 years, Social Security will have 
chewed up $3.7 trillion in taxpayer money to help keep Social Security 
solvent, but it will not, and we will still have an insolvent program 
with trillions of dollars more of unfunded liabilities staring us in 
the face.
  In recent testimony before the Senate, Alan Greenspan said Social 
Security's total unfunded liability could be as high as $10 trillion 
over the life of the program. I have introduced this bill because I 
believe that leaders have a responsibility to deal with the great 
challenges of their time, not defer them, not make excuses for them, 
but to try to fix them and come up with solutions.
  I do not hold my bill up as the only way to address the solvency of 
Social Security. It is one way. There may be better ways. No 
comprehensive bill will be immune from critical evaluation, nor should 
it be. However, I think my bill is a commonsense, responsible, and 
fiscally accountable place to start.
  All Americans need to ask tough questions about the future of Social 
Security. We need to begin the process of refining ideas to forge the 
best, most responsible policy for the future of Social Security.
  President Bush deserves great credit for making the modernization of 
Social Security a central part of his second-term agenda. There is no 
possibility for success in modernizing Social Security without strong 
Presidential leadership.
  As I said at the beginning of my speech, Social Security is one of 
the most important and successful Government programs in American 
history. Since 1935, it has provided a safety net for our society's 
most vulnerable. We have a high moral obligation to ensure that future 
generations continue to benefit from this safety net and social 
contract we have with our citizens. But in order to do this, we must 
fix the system.
  This is a personal issue for me. Forty years from now a young mother 
in Columbus, NE, may be left to raise four children on her own. I want 
her family to have the same access to the same safety net that my 
family had, and the promise that no matter where one starts in life, 
with a little help they can finish where they want.
  I am 58 years old. I am at the front of the baby boom generation. My 
daughter is 14 years old. My son is 12 years old. I do not want to fail 
their generation. That means addressing these entitlement program 
issues now, while we have time to do it in a wise, careful, and 
responsible way. This is a defining debate for today's leaders. Doing 
nothing is irresponsible and cowardly. It is in America's interest to 
deal with our challenge today. We have it in us to do what needs to be 
done. We can preserve, protect, and improve Social Security for all 
future generations of Americans.
  I send my bill to the desk and ask that it be assigned to the 
appropriate committee.
  I yield the floor.
  The PRESIDING OFFICER. The bill will be received and appropriately 
dealt with.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 540

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Saving 
     Social Security Act of 2005''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; table of contents.

               TITLE I--INVESTMENT-BASED SOCIAL SECURITY

Sec. 101. Establishment of an investment-based option for social 
              security benefits.

               ``Part B--Investment-Based Social Security

``Sec. 250. Definitions.
``Sec. 251. Election to waive eligibility.
``Sec. 252. Social security savings accounts for employees (SAFE 
              accounts).
``Sec. 253. SAFE Investment Fund.
``Sec. 254. Distributions.
``Sec. 255. Social Security Investment Board.
Sec. 102. Adjustments to primary insurance amounts under part A of 
              title II of the Social Security Act for investing workers 
              with SAFE accounts.
Sec. 103. Tax treatment of investment-based social security.
Sec. 104. Study on use of private annuities for SAFE account 
              distributions.
Sec. 105. Study regarding financial literacy.

                  TITLE II--DEBT-BASED SOCIAL SECURITY

                        Subtitle A--Adjustments

Sec. 201. Modification to retirement age.
Sec. 202. Modification of PIA factors to reflect changes in life 
              expectancy.
Sec. 203. Actuarial adjustment for retirements.

         Subtitle B--Maintenance of Social Security Trust Funds

Sec. 211. Maintenance of adequate balances in the social security trust 
              funds.

               TITLE I--INVESTMENT-BASED SOCIAL SECURITY

     SEC. 101. ESTABLISHMENT OF AN INVESTMENT-BASED OPTION FOR 
                   SOCIAL SECURITY BENEFITS.

       (a) In General.--Title II of the Social Security Act (42 
     U.S.C. 401 et seq.) is amended--
       (1) by inserting before section 201 the following:

                ``PART A--DEBT-BASED SOCIAL SECURITY'';

        and
       (2) by adding at the end the following:

               ``PART B--INVESTMENT-BASED SOCIAL SECURITY

     ``SEC. 250. DEFINITIONS.

       ``For purposes of this part--
       ``(1) Investing worker.--The term `investing worker' means 
     any individual--
       ``(A) who after the date of enactment of this part--
       ``(i) receives wages on which there is imposed a tax under 
     section 3101(a) of the Internal Revenue Code of 1986; or
       ``(ii) derives self-employment income on which there is 
     imposed a tax under section 1401(a) of the Internal Revenue 
     Code of 1986; and
       ``(B) who was born on or after January 1, 1961, and does 
     not make an election to waive investment-based social 
     security under this part as provided under section 251(a).
       ``(2) Social security savings accounts for employees (safe 
     account).--The term `social security savings accounts for 
     employees' or `SAFE Account' means an account established for 
     an investing worker within the SAFE Investment Fund under 
     section 252.
       ``(3) SAFE investment fund.--The term `SAFE Investment 
     Fund' or `Fund' means the fund established under section 253.
       ``(4) Social security investment board.--The term `Social 
     Security Investment Board' or `Board' means the board 
     established under section 254.
       ``(5) Commissioner.--The term `Commissioner' means the 
     Commissioner of Social Security.

     ``SEC. 251. ELECTION TO WAIVE ELIGIBILITY.

       ``(a) Election to Waive Eligibility for SAFE Accounts.--
       ``(1) In general.--Any individual may elect to waive 
     eligibility under this part in such form and manner as 
     prescribed by the Board at any time after such individual 
     attains the age of 18 and before such individual attains the 
     age of 25. Such election shall be irrevocable.
       ``(2) Individual born before january 1, 1981.--
     Notwithstanding paragraph (1), in the case of any individual 
     born after December 31, 1960, and before January 1, 1981, 
     such individual may elect to waive eligibility under this 
     part in such form and manner as prescribed by the Board at 
     any time before January 1, 2007. Such election shall be 
     irrevocable.
       ``(b) Disposition of SAFE Account.--In the case of any 
     individual who makes an election under paragraph (1), any 
     assets in such individual's SAFE Account shall be paid to the 
     Federal Old-Age and Survivors Insurance Trust Fund, and such 
     individual's eligibility for benefits under part A shall be 
     determined as if such Account had never been established.

     ``SEC. 252. SOCIAL SECURITY SAVINGS ACCOUNTS FOR EMPLOYEES 
                   (SAFE ACCOUNTS).

       ``(a) Establishment of SAFE Accounts.--Not later than 30 
     days after the date on which an individual first becomes an 
     investing worker, the Social Security Investment Board shall 
     establish a SAFE Account for such individual in the SAFE 
     Investment Fund.
       ``(b) Contributions.--
       ``(1) In general.--The Secretary of the Treasury shall 
     transfer from the Federal Old-Age and Survivors Insurance 
     Trust Fund to the SAFE Investment Fund, for crediting by the 
     Social Security Investment Board to the SAFE Account of an 
     investing worker, an amount equal to the SAFE Account 
     contribution amount with respect to each investing worker.

[[Page S2167]]

       ``(2) SAFE account contribution amount.--For purposes of 
     paragraph (1), the term `SAFE Account contribution amount' 
     means, with respect to an investing worker for a calendar 
     year, the product derived by multiplying--
       ``(A) the sum of the total wages paid to, and self-
     employment income derived by, such individual during such 
     calendar year; by
       ``(B) 4 percent.
       ``(c) Designation of Investments.--
       ``(1) Initial designation.--
       ``(A) In general.--Not later than 10 days after an account 
     is established for an investing worker under subsection (a), 
     the investing worker shall designate to which investment 
     funds within the SAFE Investment Fund contributions to such 
     account under subsection (b) shall be allocated.
       ``(B) Default allocation.--
       ``(i) In general.--If no designation is made pursuant to 
     paragraph (1), the Board shall allocate such contributions in 
     accordance with the life-span investment option.
       ``(ii) Life-span investment option.--For purposes of this 
     section, the life-span investment option shall provide for 
     the management and investment of funds within an investing 
     worker's SAFE account on the basis of the age of the 
     investing worker in accordance with regulations established 
     by the Board. In establishing regulations with respect to the 
     life-span investment option under this subparagraph, the 
     Board shall consider--

       ``(I) with respect to the youngest investing workers, 
     investing 80 percent of such funds in stocks and 20 percent 
     of such funds in bonds; and
       ``(II) with respect to the oldest investing workers, 
     investing 35 percent of such funds in stocks and 65 percent 
     of such funds in bonds.

       ``(2) Subsequent designations.--At least twice each year, 
     an investing worker may redesignate the allocation of 
     investments funds within the SAFE Investment Fund to which 
     contributions with respect to such investing worker are 
     allocated.
       ``(d) Time Designation Takes Effect.--A designation under 
     subsection (c) shall take effect with respect to 
     contributions made beginning more than 14 days after the date 
     of the designation.
       ``(e) Investing Worker's Property Right in the SAFE 
     Account.--Each SAFE Account designated by an investing worker 
     is the sole property of the worker.
       ``(f) Form of Designations.--Designations under this 
     section shall be made--
       ``(1) on W-4 forms (or any successor forms); or
       ``(2) in such other manner as the Social Security 
     Investment Board may prescribe in order to ensure ease of 
     administration.

     ``SEC. 253. SAFE INVESTMENT FUND.

       ``(a) In General.--There shall be established and 
     maintained in the Treasury of the United States a SAFE 
     Investment Fund in the same manner as the Thrift Savings Fund 
     under sections 8437 (excluding paragraphs (4) and (5) of 
     subsection (c) thereof), 8438, and 8439 of title 5, United 
     States Code, insofar as such sections are not inconsistent 
     with the provisions of this part.
       ``(b) Investment Earnings Report.--
       ``(1) In general.--At least annually, the SAFE Investment 
     Fund shall provide to each investing worker a SAFE Investment 
     Status Report. Such report may be transmitted electronically 
     upon the agreement of the investing worker under the terms 
     and conditions established by the Social Security Investment 
     Board.
       ``(2) Contents of report.--The SAFE Investment Status 
     Report, with respect to a SAFE Account, shall provide the 
     following information:
       ``(A) The total SAFE Account contributions made in the last 
     quarter, the last year, and since the Account was 
     established.
       ``(B) The amount and rate of return earned for each period 
     described in subparagraph (A).
       ``(C) A projection of how much the investing worker will 
     have available on the date the worker attains normal 
     retirement age if such contributions and earnings continue at 
     the same rate during the remaining period ending with such 
     date.
       ``(c) Maximum Administrative Fee.--The SAFE Investment Fund 
     shall charge each investing worker in the Fund a single, 
     uniform annual administrative fee not to exceed 0.57 percent 
     of the value of the assets invested in the worker's SAFE 
     Account.

     ``SEC. 254. DISTRIBUTIONS.

       ``(a) Date of Initial Distribution.--Except as provided in 
     subsection (b)(4), distributions may only be made from a SAFE 
     Account of an investing worker on and after the earliest of--
       ``(1) the date the investing worker attains normal 
     retirement age, as determined under section 216; or
       ``(2) the date on which funds in the investing worker's 
     SAFE Account are sufficient to transfer to the Federal Old-
     Age and Survivors Insurance Trust Fund--
       ``(A) an amount equal to the old-age insurance amount (as 
     calculated under subsection (b)(1)(B)); and
       ``(B) an amount equal to the survivor's insurance amount 
     (as calculated under subsection (b)(2)(B)).
       ``(b) Form of Distribution.--
       ``(1) Federal annuity payment.--
       ``(A) In general.--On the date determined under subsection 
     (a), so much of the balance in an investing worker's SAFE 
     Account as does not exceed the old-age insurance amount shall 
     be transferred to the Federal Old-Age and Survivors Insurance 
     Trust Fund and the investing worker shall be entitled to a 
     Federal annuity payment.
       ``(B) Old-age insurance amount.--For purposes of this 
     section, the old-age insurance amount is an amount which is 
     sufficient to provide a Federal annuity payment which, when 
     added to the investing worker's monthly benefit under part A, 
     is equal to one-twelfth of 135 percent of the poverty line 
     (as defined in section 673(2) of the Community Services Block 
     Grant Act (42 U.S.C. 9902(2))).
       ``(C) Federal annuity payment.--For purposes of this 
     section, the term `Federal annuity payment' means a monthly 
     payment from the Federal Old-Age and Survivors Insurance 
     Trust Fund in an amount determined by the Social Security 
     Investment Board based on the amount transferred to the 
     Federal Old-Age and Survivors Insurance Trust Fund under 
     subparagraph (A) and the life expectancy of the investing 
     worker (determined under reasonable actuarial assumptions).
       ``(2) Family or survivor benefits for related 
     individuals.--
       ``(A) In general.--On the date determined under subsection 
     (a), in the case of an investing worker whose SAFE Account 
     has funds in excess of the amount required to be transferred 
     under paragraph (1)(A), so much of such excess funds as does 
     not exceed the survivor's insurance amount shall be 
     transferred to the Federal Old-Age and Survivors Insurance 
     Trust Fund and any related individual shall be entitled to a 
     survivor's payment at the time such related individual meets 
     the applicable requirements for a monthly payment under 
     section 202.
       ``(B) Survivor's insurance amount.--For purposes of this 
     section, the survivor's insurance amount is an amount, 
     determined by the Social Security Investment Board under 
     rules established by such Board, which is sufficient to 
     provide survivor's payments to all related individuals.
       ``(C) Survivor's payment.--For purposes of this section, 
     the term `survivor's payment' means a monthly payment from 
     the Federal Old-Age and Survivors Insurance Trust Fund in an 
     amount which, when added to such related individual's monthly 
     benefit (or projected monthly benefit) under this title, is 
     equal to the benefit such related individual would be 
     entitled to under section 202 if the investing worker had 
     waived the application of this part.
       ``(D) Related individual.--For purposes of this section, 
     the term `related individual' means, with respect to an 
     investing worker, any individual entitled to benefits under 
     section 202 based on the wages or self-employment income of 
     such worker.
       ``(3) Payment of excess safe account funds.--To the extent 
     funds remain in an investing worker's SAFE Account after the 
     transfer required under paragraphs (1) and (2), such excess 
     assets shall be payable to the worker in such manner and in 
     such amounts as determined by the worker.
       ``(4) Distribution in the event of death.--If the investing 
     worker dies before the date determined under subsection (a), 
     the balance in the worker's SAFE Account shall be distributed 
     in the following manner:
       ``(A) Not more than an amount equal to the survivor's 
     insurance amount shall be transferred to the Federal Old-Age 
     and Survivors Insurance Trust Fund.
       ``(B) The remainder (if any) shall be distributed in a lump 
     sum, under rules established by the Social Security 
     Investment Board, to the investing worker's estate, subject 
     to applicable State laws.

     ``SEC. 255. SOCIAL SECURITY INVESTMENT BOARD.

       ``(a) Establishment.--There is established within the 
     Social Security Administration a Social Security Investment 
     Board (in this Act referred to as the `Board').
       ``(b) Composition.--The Board shall be composed of--
       ``(1) 2 members from the private sector appointed by the 
     President, of whom 1 shall be designated by the President as 
     Chairman;
       ``(2) the Secretary of the Treasury;
       ``(3) the Chairman of the Federal Reserve Board; and
       ``(4) the Chairman of the Securities and Exchange 
     Commission.
       ``(c) Advice and Consent.--Appointments under subsection 
     (b)(1) shall be made by and with the advice and consent of 
     the Senate.
       ``(d) Membership Requirements.--Members of the Board 
     appointed under subsection (b)(1) shall have substantial 
     experience, training, and expertise in finance, investments, 
     or insurance.
       ``(e) Length of Appointments.--
       ``(1) Terms.--A member of the Board appointed under 
     subsection (b)(1) shall be appointed for a term of 6 years, 
     except that of the members first appointed under subsection 
     (b)(1)--
       ``(A) the Chairman shall be appointed for a term of 6 
     years; and
       ``(B) the remaining member shall be appointed for a term of 
     3 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.

[[Page S2168]]

       ``(3) Expiration.--The term of any member shall not expire 
     before the earlier of--
       ``(A) the date on which the member's successor takes 
     office; or
       ``(B) 1 year after the member's term is scheduled to 
     expire.
       ``(f) Duties.--The Board shall--
       ``(1) maintain SAFE Accounts and the SAFE Investment Fund 
     in the same manner as the Thrift Savings Accounts and the 
     Thrift Savings Fund are maintained by the Thrift Savings 
     Board;
       ``(2) review and approve the budget of the Board;
       ``(3) establish policies for the administration of this 
     part; and
       ``(4) carry out any other duties specified under this part.
       ``(g) Administrative Provisions.--
       ``(1) In general.--The Board may--
       ``(A) adopt, alter, and use a seal;
       ``(B) 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; and
       ``(D) 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 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), 
     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.
       ``(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.
       ``(i) 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 finance, 
     investments, and insurance.
       ``(3) Duties.--The Executive Director shall--
       ``(A) carry out the policies established by the Board;
       ``(B) invest and manage the SAFE Investment Fund in 
     accordance with the investment policies established by the 
     Board;
       ``(C) administer the provisions this part; and
       ``(D) prescribe such regulations (other than regulations 
     relating to fiduciary responsibilities) as may be necessary 
     for the administration of this part.
       ``(4) Administrative authority.--The Executive Director 
     may--
       ``(A) appoint such personnel as may be necessary to carry 
     out the provisions of this part;
       ``(B) subject to approval by the Board, procure the 
     services of experts and consultants under section 3109 of 
     title 5, United States Code;
       ``(C) 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 such 
     part and the policies of the Board;
       ``(D) make such payments out of sums described in 
     subsection (l) as the Executive Director determines are 
     necessary to carry out the provisions of such part and the 
     policies of the Board;
       ``(E) accept and use the services of individuals employed 
     intermittently in the Government service and reimburse such 
     individuals for travel expenses, as authorized by section 
     5703 of title 5, United States Code, including per diem as 
     authorized by section 5702 of such title;
       ``(F) 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
       ``(G) take such other actions as are appropriate to carry 
     out the functions of the Executive Director.
       ``(j) Discharge of Responsibilities.--The members of the 
     Board shall discharge their responsibilities solely in the 
     interest of SAFE Account holders and beneficiaries under this 
     part.
       ``(k) Annual Independent Audit.--The Board shall annually 
     engage an independent qualified public accountant to audit 
     the activities of the Board.
       ``(l) Source of Funds.--Payments authorized under this 
     section shall be paid from administrative fees charged in 
     accordance with section 253(c).
       ``(m) 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.
       ``(n) 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.''.
       (b) Effective Date and Notice Requirements.--
       (1) Effective date.--The amendments made by this section 
     shall apply to designations of accounts made with respect to 
     payroll periods beginning on or after January 1, 2007.
       (2) Notice requirements.--
       (A) In general.--Not later than January 1, 2007, the 
     Commissioner of Social Security shall--
       (i) send to the last known address of each eligible 
     individual a description of the program established by the 
     amendments made by this section, that shall be written in the 
     form of a pamphlet in language that may be readily understood 
     by the average worker;
       (ii) provide for toll-free access by telephone from all 
     localities in the United States and access by the Internet to 
     the Social Security Administration through which individuals 
     may obtain information and answers to questions regarding 
     such program; and
       (iii) provide information to the media in all localities of 
     the United States about such program and such toll-free 
     access by telephone and access by Internet.
       (B) Eligible individual.--For purposes of this paragraph, 
     the term ``eligible individual'' means an individual who, as 
     of the date of the pamphlet sent pursuant to subparagraph 
     (A), is indicated within the records of the Social Security 
     Administration as being credited with 1 or more quarters of 
     coverage under section 213 of the Social Security Act (42 
     U.S.C. 413).
       (C) Matters to be included.--The Commissioner of Social 
     Security shall include with the pamphlet sent to each 
     eligible individual pursuant to subparagraph (A)--
       (i) a statement of the number of quarters of coverage 
     indicated in the records of the Social Security 
     Administration as of the date of the description as credited 
     to such individual under section 213 of such Act and the date 
     as of which such records may be considered accurate; and
       (ii) the number for toll-free access by telephone 
     established by the Commissioner pursuant to subparagraph 
     (A)(ii).

     SEC. 102. ADJUSTMENTS TO PRIMARY INSURANCE AMOUNTS UNDER PART 
                   A OF TITLE II OF THE SOCIAL SECURITY ACT FOR 
                   INVESTING WORKERS WITH SAFE ACCOUNTS.

       (a) In General.--Section 215 of the Social Security Act (42 
     U.S.C. 415) is amended by adding at the end the following:

 ``Adjustment of Primary Insurance Amount in Relation to Deposits Made 
                            to SAFE Accounts

       ``(j)(1) Except as provided in paragraph (2), an 
     individual's primary insurance amount as determined in 
     accordance with this section (before adjustments made under 
     subsection (i)) shall be equal to--
       ``(A) the amount which would be so determined without the 
     application of this subsection, multiplied by
       ``(B) 1 minus the ratio of--
       ``(i) the sum of--
       ``(I) the total of all amounts which have been credited 
     pursuant to section 252(b) to the SAFE Account held by such 
     individual; plus
       ``(II) accrued interest on such amounts compounded annually 
     up to the date of initial benefit entitlement based on the 
     earning of the individual's SAFE Account, assuming an 
     interest rate equal to the projected interest rate of the 
     Federal Old-Age and Survivors Trust Fund; to
       ``(ii) the expected present value of all future benefits 
     paid based on the individual's earnings, as of the date of 
     initial benefit entitlement based on such earnings, assuming 
     future mortality and interest rates for the Federal Old-Age 
     and Survivors Trust Fund used in the intermediate projections 
     of the most recent Board of Trustees report under section 
     201.
       ``(2) In the case of an individual who becomes entitled to 
     disability insurance benefits under section 223, such 
     individual's primary insurance amount shall be determined 
     without regard to paragraph (1).''.
       (b) Conforming Amendment to Railroad Retirement Act of 
     1974.--Section 1 of the Railroad Retirement Act of 1974 (45 
     U.S.C. 231) is amended by adding at the end the following:
       ``(s) In applying applicable provisions of the Social 
     Security Act for purposes of determining the amount of the 
     annuity to which an individual is entitled under this Act, 
     section 215(j) of the Social Security Act and part B of title 
     II of such Act shall be disregarded.''.

[[Page S2169]]

       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to computations and recomputations 
     of primary insurance amounts occurring after December 31, 
     2006.

     SEC. 103. TAX TREATMENT OF INVESTMENT-BASED SOCIAL SECURITY.

       (a) In General.--
       (1) 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--INVESTMENT-BASED SOCIAL SECURITY

``Sec. 530A. Investment-based social security.

     ``SEC. 530A. INVESTMENT-BASED SOCIAL SECURITY.

       ``(a) General Rule.--The SAFE Investment Fund and each SAFE 
     Account are exempt from taxation under this subtitle. 
     Notwithstanding the preceding sentence, a personal social 
     security savings account is subject to the taxes imposed by 
     section 511 (relating to imposition of tax on unrelated 
     business income of charitable, etc. organizations).
       ``(b) Distributions.--
       ``(1) Federal annuity payment.--Any Federal annuity payment 
     (as defined under section 254(b)(1) of the Social Security 
     Act) shall be treated as a social security benefit for 
     purposes of section 86.
       ``(2) Distribution of excess assets.--Any distribution from 
     a SAFE Account under section 254(b)(3) of the Social Security 
     Act shall be includible in gross income under rules under 
     section 72.
       ``(c) Definitions.--For purposes of this section--
       ``(1) SAFE account.--The term `SAFE Account' means an 
     account established under section 252(a) of the Social 
     Security Act.
       ``(2) SAFE investment fund.--The term `SAFE Investment 
     Fund' means the fund established under section 253 of the 
     Social Security Act.''.
       (2) Clerical amendment.--The table of parts for subchapter 
     F of chapter 1 of such Code is amended by adding after the 
     item relating to part VIII the following new item:

            ``Part IX. Investment-Based Social Security.''.

       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2006

     SEC. 104. STUDY ON USE OF PRIVATE ANNUITIES FOR SAFE ACCOUNT 
                   DISTRIBUTIONS.

       (a) In General.--The Social Security Investment Board shall 
     conduct a study on the use of annuities provided by private-
     sector financial institutions for the distribution of SAFE 
     account funds under section 254 of the Social Security Act.
       (b) Report.--Not later than 3 years after the date of the 
     enactment of this Act, the Social Security Investment Board 
     shall submit to the Committee on Finance of the Senate and 
     the Committee on Ways and Means of the House of 
     Representatives a report describing the results of the study 
     under subsection (a).

     SEC. 105. STUDY REGARDING FINANCIAL LITERACY.

       (a) Study.--
       (1) In general.--The Social Security Investment Board shall 
     conduct a thorough study of all matters relating to programs 
     to increase the financial literacy of Americans.
       (2) Matters studied.--The matters studied by the Social 
     Security Investment Board shall include--
       (A) existing Federal and non-Federal financial literacy 
     programs, including a review and performance evaluation of 
     such programs;
       (B) the coordination of existing Federal and non-Federal 
     financial education efforts; and
       (C) ideas for new public initiatives to increase the 
     financial literacy of all Americans.
       (b) Recommendations.--The Social Security Investment Board 
     shall develop recommendations on--
       (1) streamlining existing financial literacy programs;
       (2) increasing financial literacy for all Americans; and
       (3) new avenues for public-private partnerships in 
     financial literacy.
       (c) Report.--Not later than 6 months after the date of the 
     enactment of this Act, the Social Security Investment Board 
     shall submit a report to the President and to Congress which 
     shall contain a detailed statement of the findings and 
     conclusions of the Social Security Investment Board, together 
     with its recommendations for such legislation and 
     administrative actions as it considers appropriate.

                  TITLE II--DEBT-BASED SOCIAL SECURITY

                        Subtitle A--Adjustments

     SEC. 201. MODIFICATION TO RETIREMENT AGE.

       Section 215(l)(1) of the Social Security Act (42 U.S.C. 
     416(l)(1)) is amended--
       (1) by striking ``and'' at the end of subparagraph (D);
       (2) by inserting ``and before January 1, 2023,'' after 
     ``December 31, 2021,'' in subparagraph (E);
       (3) by striking the period at the end of subparagraph (E) 
     and by inserting ``; and''; and
       (4) by adding at the end the following:
       ``(F) with respect to an individual who attains early 
     retirement age after December 31, 2022, 68 years of age.''.

     SEC. 202. MODIFICATION OF PIA FACTORS TO REFLECT CHANGES IN 
                   LIFE EXPECTANCY.

       Section 215(a)(1) of the Social Security Act (42 U.S.C. 
     415(a)(1)(B)) is amended by redesignating subparagraph (D) as 
     subparagraph (F) and by inserting after subparagraph (C) the 
     following:
       ``(D)(i) For individuals who initially become eligible for 
     old-age insurance benefits in any calendar year after 2023, 
     each of the percentages under clauses (i), (ii), and (iii) of 
     subparagraph (A) shall be multiplied by the applicable factor 
     for such year with respect to each year after 2023 and before 
     the year following the year of initial eligibility.
       ``(ii) For purposes of clause (i), the term `applicable 
     factor' means the actuarial number, expressed as a percentage 
     and determined by the Commissioner of Social Security after 
     taking into account the actuarial reduction under section 
     202(q) (without regard to the amendments made by section 203 
     of the Saving Social Security Act of 2005), representing the 
     historical increase in longevity of life for the most recent 
     year .
       ``(E) For any individual who initially becomes eligible for 
     disability insurance benefits in any calendar year after 
     2023, the primary insurance amount for such individual shall 
     be equal to the greater of--
       ``(i) such amount as determined under this paragraph, or
       ``(ii) such amount as determined under this paragraph 
     without regard to subparagraph (D) thereof.''.

     SEC. 203. ACTUARIAL ADJUSTMENT FOR RETIREMENTS.

       (a) In General.--Section 202(q) of the Social Security Act 
     (42 U.S.C. 402(q)) is amended--
       (1) in paragraph (1)(A), by striking ``\5/9\'' and 
     inserting ``the applicable old-age benefit fraction 
     (determined under paragraph (12)(A))'', and by striking 
     ``\25/36\'' and inserting ``the applicable spousal benefit 
     fraction (determined under paragraph (12)(B))''; and
       (2) by adding at the end the following:
       ``(12) For purposes of paragraph (1)(A)--
       ``(A) the `applicable old-age benefit fraction' for an 
     individual who attains the age of 62 in--
       ``(i) any year before 2024, is \5/9\;
       ``(ii) 2024, is \7/12\;
       ``(iii) 2025, is \11/18\;
       ``(iv) 2026, is \23/36\;
       ``(v) 2027, is \2/3\; and
       ``(vi) 2028 or any succeeding year, is \25/36\; and
       ``(B) the `applicable spousal benefit fraction' for an 
     individual who becomes eligible for wife's or husband's 
     insurance benefits in--
       ``(i) any year before 2024, is \25/36\;
       ``(ii) 2024, is \13/18\;
       ``(iii) 2025, is \27/36\;
       ``(iv) 2026, is \7/9\;
       ``(v) 2027, is \29/36\; and
       ``(vi) 2028 or any succeeding year, is \5/6\.''.
       (b) Months Beyond First 36 Months.--Section 202(q) of such 
     Act (42 U.S.C. 402(q)) (as amended by subsection (a)) is 
     amended--
       (1) in paragraph (9)(A), by striking ``five-twelfths'' and 
     inserting ``the applicable fraction (determined under 
     paragraph (13))''; and
       (2) by adding at the end the following:
       ``(13) For purposes of paragraph (9)(A), the `applicable 
     fraction' for an individual who becomes eligible for old-age, 
     wife's, or husband's insurance benefits in--
       ``(A) any year before 2024, is \5/12\;
       ``(B) 2024, is \16/36\;
       ``(C) 2025, is \16/36\;
       ``(D) 2026, is \17/36\;
       ``(E) 2027, is \17/36\; and
       ``(F) 2028 or any succeeding year, is \1/2\.''.
       (c) Eligibility.--Section 202(q) of such Act (as amended by 
     the preceding provisions of this section) is amended further 
     by adding at the end the following new paragraph:
       ``(14) For purposes of this subsection, an individual shall 
     be deemed eligible for a benefit for a month if, upon filing 
     application therefor in such month, such individual would be 
     entitled to such benefit for such month.''.
       (d) Effective Date.--The amendments made by this subsection 
     shall apply to individuals who, in connection with old-age, 
     wife's, and husband's insurance benefits under title II of 
     the Social Security Act, become eligible for such benefits 
     (within the meaning of section 202(q)(14) of such Act (as 
     amended by this subsection)) in years after 2023.

         Subtitle B--Maintenance of Social Security Trust Funds

     SEC. 211. 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:
       ``(o) 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

[[Page S2170]]

     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.
                                 ______