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Introduction of Retirement Security Act of 2005

Location: Washington, DC

INTRODUCTION OF RETIREMENT SECURITY ACT OF 2005 -- HON. THOMAS E. PETRI (Extensions of Remarks - April 22, 2005)

Thursday, April 21, 2005

* Mr. PETRI. Mr. Speaker, today I am introducing the Retirement Security Act of 2005. This bill addresses the financing problems facing the Social Security Trust Fund through the creation of Personal Social Security Investment Accounts for each newborn child. This plan would establish a mechanism for reducing the long term fiscal pressures facing Social Security without changing the current benefit structure or diverting payroll taxes from the Trust Fund.

* My bill seeks to use the benefits of the private market to place Social Security on a sound financial footing, as do a number of other reform plans. But more than that, I seek to maximize the magic of compound interest by opening savings accounts for future retirees as soon as they are born. Under the Retirement Security Act, the Federal government would create a personal investment account for each newborn American child with an initial government contribution of $1,000. The account would be invested in any of the funds available to Federal employees through the Thrift Savings Plan, and earnings would accrue tax free. Account holders, or the parents of minor account holders, would be free to make additional pre-tax contributions to these accounts and enjoy the opportunity to invest in these safe and well-managed investment accounts.

* At retirement, each retiree would qualify for the same Social Security benefit as earned under the current Social Security system. Benefits would be paid first from each worker's personal account, and payments from the Trust Fund would begin only after the balance of the personal account had been depleted. Those who take advantage of the opportunity to make additional contributions may well find their balance in excess of the amount needed to fund their Social Security benefits, and these funds would belong to the individual investor. My bill provides a variety of options, including lump sum distributions and the purchase of life annuities with level or inflation-adjusted monthly payments for disposition of the surplus balance.

* An initial contribution of $1,000 invested today that grows at the average combined rate of return of the five Thrift Savings Plan investment options would grow to an inflation adjusted balance of $58,000 by retirement at age 67. For purposes of comparison, this amount would be enough to purchase an annuity with a monthly payment equal to 46 percent of the today's average Social Security retirement benefit. A single matching payment of $1,000 by a parent on the occasion of their child's birth would endow an account which would produce almost 100 percent of the average benefit and, perhaps just as important, give that child the gift of a lifelong savings vehicle which offers the potential of greater financial security in retirement than can be provided by Social Security alone.

* Clearly, the focus of my legislation is long-term. Social Security's fiscal problems will begin to pinch long before children born today are ready to retire. By now, we're all familiar with the projections provided in the annual report of the Social Security Board of Trustees. The Trustees have forecast that our current Social Security surpluses will turn to deficits by 2017 and that the bonds collecting in the Social Security Trust Fund will be fully redeemed by 2041. At that time, it's anticipated that payroll taxes will be sufficient only to pay 74 percent of expected retirement benefits. Though my legislation would make no other
changes to Social Security, when combined with other reasonable reform ideas, it can provide a component of a comprehensive solution to Social Security's long and shorter-term financial problems.

* We've reached an important moment in the life of the Social Security program. It's obvious that we need to bring more money into the system to keep the promises we've made and to allow us to continue to offer some measure of retirement security. Personal investment accounts are one way to bolster the system, yet they have become the object of too much criticism and much disinformation. Many of our constituents have become concerned that the diversion of payroll tax revenue into personal accounts of today's workers will threaten the benefits of current retirees. A campaign is being waged which fosters these fears and may prevent the adoption of even those personal accounts which have no impact on the Social Security Trust Fund.

* My bill provides the opportunity for Congress to demonstrate that it can implement a system of personal accounts without diverting payroll taxes and that will build retirement savings for future generations without enriching stock brokers or introducing unacceptable investment risk to American workers. As the success of these personal accounts become apparent, growing numbers of Americans will have greater confidence in this avenue of reform, presenting opportunities to expand the use of personal accounts. The time has come for us to take this important step forward, and I encourage my colleagues to support this bill.

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