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REMEMBER: Income affects social security benefits.
The more money you earn, the more you collect from social security.

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There are four theories on how to save Social Security:

1. The Privatizers.

Creation of private investment accounts that would let workers replace some of their guaranteed benefits with a less-than-guaranteed opportunity to accumulate personal wealth.

Supported by mostly Republicans with a scattering of prominent Democrats who believe that only the power of the stock market can keep the system afloat through the baby-boom generation's retirement, which begins in a decade.

For Bush and others who favor major changes, Social Security's problems present an opportunity. The system's financing problems can be solved through deep cuts in benefits, but those cuts could be mitigated -- and possibly erased -- by allowing individuals to invest some of their Social Security taxes in stocks, bonds or other private assets, they say.

Advocates of private accounts say their plan would produce higher benefits than today's system and let individuals control their retirement finances.

When he established his reform commission in May, the president ruled out cutting benefits of current retirees or those nearing retirement, raising Social Security payroll taxes or letting the government invest directly in the stock market.

Instead, he told the panel to draft a plan to establish individually controlled, voluntary savings accounts to augment regular Social Security benefits.

It's a difficult challenge: Don't cut benefits -- at least in the near term -- and don't raise taxes, but find trillions of dollars to set up personal accounts.

Virtually all Social Security taxes are used immediately to pay benefits. So if 2% of wages -- roughly a sixth of the payroll tax -- were diverted to individual accounts, as most such plans envision, the money would come straight from funds earmarked for today's seniors. That amounts to more than $1 trillion this decade. To guarantee that benefits aren't cut, the government would have to find $1 trillion somewhere else. The likely source: surplus Social Security taxes that are now being used to pay down the national debt.

The financing challenge has been exacerbated by the 10-year, $1.35 trillion tax cut Bush signed in June. Much of that money could have paid for the transition to a personal savings accounts.

Bush might want to set up a new system without cutting current benefits or raising Social Security taxes, but "you can't quite do it," says Texas A&M University economist Thomas Saving, a Republican member of the commission. "There's no free lunch. If you want to keep the same tax rate, you're going to have to give up something."

That "something" is likely to be the size of the guaranteed monthly benefit. An analysis by the non-partisan Congressional Research Service (CRS) released last month concludes that if 2% of wages were diverted to private accounts, guaranteed Social Security benefits would need to be cut at least 16% from projected levels in 2020, when Social Security otherwise should be able to pay full benefits. That benefit cut would increase gradually to 50% of the expected payment by 2070 to keep the system solvent.

Advocates of personal accounts say such deep cuts would be offset by the accounts' greater investment returns. The CRS study supports that view: If those accounts returned 6.4% a year, which matches the stock market's average annual rate of return over any 35-year stretch, a retiree in 2070 would wind up with 25% less in total benefits than under the projected guaranteed benefit. That sounds bad, but consider this: If nothing is done to shore up the system, the Social Security trustees say they will have to cut benefits 30% by 2070 anyway.

If the accounts earned 10%, average-income workers retiring in 2070 would actually get 11.4% more than their promised benefits under the existing Social Security program, according to CRS.

''Private accounts would give people a sense of ownership, give people a focus on their future,'' says Mitchell. ''Heaven knows people . . . haven't thought enough about savings and retirement.''

The public appears to like the idea of private accounts, at least in the abstract. Polls show that roughly two out of every three people surveyed favor putting some payroll taxes in personal accounts. But when given the choice between the existing system's guaranteed benefit and a restructured system that includes the risk of losing some money, support falls to about one-third of respondents.

Opponents of private accounts are emphasizing that risk at every turn. They argue that the arrangement would widen the gap between rich and poor, leave too much riding on the fickle stock market and cost too much to administer.

The Congressional Research Service report concluded that private accounts would favor more affluent workers and thus undermine Social Security's tilt toward lower-income retirees, who now get a larger benefit relative to their earnings than richer retirees. Moreover, the CRS found, even under the best stock-market situations, workers retiring in the next 3 decades wouldn't accumulate much in their accounts because the annual contributions would be so small.

Worse, a stock market collapse could lead to economic ruin, predicts Elaine Kamarck, a domestic policy adviser to Al Gore's 2000 presidential campaign. That is because Congress would rush in to shore up retirement benefits for their constituents, just as the government spent $231 billion to rescue depositors who lost money when hundreds of savings and loan associations went bankrupt in the 1980s.

''Take the savings-and-loan crisis, multiply it by a million times, and that's the potential for scandal,'' Kamarck says.

Such ominous warnings are proving to be potent political weapons against personal accounts. Even the Republican chairman of the House Social Security subcommittee, Clay Shaw, whose South Florida district is dominated by politically active seniors, has issued Bush a warning. ''There are those who will say you're raiding the Social Security trust fund, you're playing the risky stock market,'' he says. ''It's pure baloney, but when it comes to the Congress, we have to weigh the politics involved.''

If the debate remains so poisonous, Shaw says he simply won't try to pass a reform measure until 2003 at the earliest. Rep. Charlie Stenholm, D-Texas, an advocate of personal accounts, is even more pessimistic. He says the sides are so polarized that fundamental reform can't be passed during Bush's presidency.

2. The Tinkerers.

Dominated by left-of-center economists and the Democratic establishment, they contend that a series of small tweaks would solve long-term financial problems and that fundamental changes aren't necessary.

Many economists say fundamental reform is neither necessary nor desirable. They say the system could stay solvent through small changes that would trim benefits, raise taxes, supplement Social Security with general tax revenue and let the government invest some of the Social Security trust fund in stocks.

MIT economist Diamond says such ''tinkering'' has repeatedly kept Social Security afloat throughout its history, most recently in 1983.

There are currently at least a dozen suggestions that in combination could save the system. The government could:
* Use Social Security's surplus to pay down the national debt; the money saved on interest could then be devoted to the system.
* Invest some of the surplus in diverse mutual funds insulated from political meddling.
* Increase tax revenue by bringing into Social Security 4 million state and local government employees who are now in separate retirement systems.
* Raise the maximum amount of wages subject to the Social Security tax.
* Slow annual cost-of-living increases in benefits.
* Tax Social Security benefits that exceed the amount a worker paid into the system.
* Allow more immigrants into the USA to expand the workforce as the baby boomers retire.

''It is not reasonable to justify major change on the case that the system is in dire straits when much smaller changes would do the job,'' says Henry Aaron, a Brookings Institution scholar on Social Security.

3. The Compromisers.

They include former Clinton administration officials and the Republican chairman of the House Social Security subcommittee. They say private investment accounts need to be grafted on top of the existing system in a grand -- but expensive -- political settlement.

There is a simple formula for a politically feasible Social Security reform bargain, says Gene Sperling, director of President Clinton's National Economic Council: Democrats need to claim that they have saved Franklin Roosevelt's legacy from being dismantled. Republicans need to boast that they gave taxpayers the ability to build wealth and gain control over more of their own money.

The answer, some say, is an individual savings account grafted on top of the existing system, whose solvency would be maintained through tinkering. Such a compromise has a key ally in Shaw, who could decide what changes to the system are drafted by his House subcommittee.

Under a plan crafted by Shaw and former Ways and Means chairman Bill Archer, R-Texas, Social Security would not be touched, but the government would deposit an amount equal to 2% of a worker's wages -- up to a specified ceiling -- into a personal account.

When the worker retired, the Social Security Administration would determine the account's monthly payout. The worker would receive either that income or the basic Social Security benefit, whichever was higher. Whatever was left in the personal account when the retiree died would revert to the Treasury.

Shaw and Archer worked closely with Clinton, and Shaw says he is convinced that Clinton would have embraced such a plan, but Clinton's impeachment in 1998 dashed hopes for a grand compromise.

The problem now: The money that might have financed such a plan has been used to finance the 10-year tax cut Congress recently passed.

''That approach has been taken off the table,'' Stenholm says. ''The tax cut has eliminated the Archer-Shaw plan as an option.'' Shaw insists he can still find the money. And when asked which Democrat would step forward to pick up the mantle, Shaw sounded an optimistic note: "He is out there. We just don't know who he is yet."

4. The Do-Nothings.

They are liberal economists and lawmakers who contend that talk of Social Security's pending demise is being exaggerated by conservative ideologues in Washington and greedy investment houses on Wall Street. For them, nothing needs to be done to Social Security; all that's needed are good economic policies that keep the economy healthy -- and Social Security sound.

The problem for all Social Security reformers is simple: It would be easier -- and some would say wiser -- to do nothing, at least for the next few years. A small number of liberal economists and lawmakers argue that the gloomy forecasts for Social Security's future are simply wrong. Those forecasts are based on economic growth projections and immigration levels that are unrealistically low, they say. ''I don't think there is a real crisis in Social Security,'' says Rep. Jerrold Nadler, D-N.Y. ''The problem is relatively small.''

Besides, says Dean Baker, co-director of the liberal Center for Economic and Policy Research, even if benefits slipped 27% from projected levels in 2038, as Social Security's trustees now predict, monthly payments would still be higher than today's benefits, even after being adjusted for inflation. That's because benefits aren't just increased to keep up with rising prices; they also rise as wages grow, and historically, wage growth has outstripped inflation.

''When I think of all the problems in the world, the prospect of slightly higher Social Security taxes just doesn't scare me that much,'' Baker quips.

To be sure, Baker's view is in the minority, even among liberal economists. But if Bush insists on his vision of Social Security reform, more mainstream economists, such as Diamond and Aaron, say doing nothing for now is preferable.

That could be a powerful political argument, admit some privatizers, who say their drive to overhaul the system may stall. ''The worse thing we can do is to try and fail,'' Shaw says. ''That would set Social Security reform back for decades.''

Reference: Bush pushes for overhaul; others say go slow, if at all; by Jonathan Weisman; USA TODAY; Wednesday, September 5, 2001, page 1A and 4A.

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Enron workers tell Senate of losses
Many blocked from selling as stock price plummeted
By Greg Farrell - USA TODAY - 19 December, 2001 - Page 1B

WASHINGTON -- Charles Prestwood, an Enron RETIREE whose $1.3 million in savings vanished with the energy firm's collapse, described his experience this way: "It was rags to riches and back to rags."

Prestwood was one of five who gave emotional testimony before a Senate committee Tuesday about how they suffered in Enron's collapse. Four weren't able to sell any stock during the crucial four-week period after the Securities and Exchange Commission announced a probe into Enron, sending its stock from $25 to less than $5. Enron filed for bankruptcy protection Dec. 2. Tuesday, its shares closed at 50 cents.

Janice Farmer RETIRED last year from Enron with nearly $700,000 worth of stock. When she tried to sell on Oct. 22, she was told she could not because Enron had just changed RETIREMENT PLAN ADMINISTRATORS.

"I can't begin to tell you how devastating that was," Farmer said. "Enron made all its employees RESPONSIBLE for their own RETIREMENT. At the most critical time, they denied us access to our own money."

Sen. Bill Nelson, D-Fla., said the lockdown coming just after the SEC news probably was no coincidence.

"We had no choice but to ride the stock into the ground," said Robert Vigil, 47, from Enron's Portland (Ore.) General Electric unit. "Our plan prohibited anyone under the age of 50 from selling stock."

The Senate hearing on the Enron collapse, like last week's House hearing, focused on the discrepancy between Enron's OFFICERS, who sold more than $1 billion in stock over the last three years, and rank-and-file workers, who were constantly encouraged to plow their savings into Enron stock.

Outrage about the plight of those employees and disbelief about how Enron could DUPE its auditors is already fueling calls for action on Capitol Hill.

Sen. Barbara Boxer, D-Calif., said Enron might have broken the law by effectively forcing employees to hold stock during a period when many wanted to sell. Sen. Ron Wyden, D-Ore., said Enron and its auditor, Andersen Worldwide, might have violated the Financial Fraud Detection and Disclosure Act.

Enron CEO Kenneth Lay declined to appear for the second time in a week, promising to show up at the next Senate committee hearing, scheduled Feb. 4.

In his absence, Senators fired questions at C.E. Andrews, a managing partner at Andersen who oversaw the Enron audit. Wyden demanded to know whether any of Enron's unusual off-the-books arrangements raised suspicions at the accounting firm.

Andrews said that the firm passed judgment on the off-the-books arrangements in strict accordance with generally accepted accounting principles, but admitted the firm made an error in judgment in one case.

Enron restated its numbers to show it earned $586 million less than it reported the last three years. Andersen says it's responsible for 20% of that amount.

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The Social Security Administration

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