How Can It Be This Simple?
The experts in Washington start with the assumption that Social Security is perfect, and cannot be improved. They have bypassed the logical starting point for reform: How do you make the system better? They start at the point of: how do I pay for the system. Or more precisely, how do I get someone else to pay for the system.

Why Do The Experts Miss The Obvious?
They miss the point of the system. People want security more than they want money. Money is a means not an end. The system can deliver security at a fraction of the cost of delivering money because everyone has a different view of security.

What Is In It For Me?
The upside to our plan is that you will get what you have paid for. Largely you will not be forced into making a decision. You will never have to listen to people rant about Congress raiding your IOUs. This plan puts security back into Social Security, and moves it from a worry to a peace of mind.

How Is The Social Security System Affected?
Our optimal target is about 5% of the work force, which is largely controlled by the price tag to join. The average American simply wants what he or she was promised. They don't want to have to look at risk tables and issuer exposure.

This means that roughly 40 billion dollars will be moved to segregated accounts every year. As FICA contributions are directed to segregated accounts, the Trust Fund will have to redeem Special Issue Bonds sooner rather than later. We believe that this is a good thing, and starts a process of unwinding 2.5 trillion dollars of US Treasury debt held by the Trust. From everyone's perspective it is better for the Social Security Trust Fund to unwind its investment in US Treasury debt over a longer period of time. Currently the US government is projected to refinance 4.2 trillion dollars of debt in 12 years.

That 40 billion will be invested in more productive assets. Higher productivity leads to higher wages. That is good for Social Security. That is good for America.

What Is The Downside?
For the individuals who choose the new benefits, there are upside and downsides will be determined by the market. For the rest of America, it is very limited downside. The new benefits are variable, and change with the earnings of the Trust Fund. So if the Trust has to pay more in benefits it is based on the fact that the Trust earned more. If the Trust loses money, the associated variable benefits are less. This process helps match revenue and expense better than the current system.

Why Not Have The Social Security Trust Fund Invest Directly In Equities?
It is true that you would see many of the benefits that we are discussing here if the Social Security Trust Fund invested some assets in equities. Unlike our plan, direct equity investment has no downside protection against falls in the market.

We see three problems with investing Social Security Trust Fund money in the stock market.

First, there is no downside protection as is created by the sub-account. The worker with a sub-account absorbs some of that risk.

Second, we are also concerned that moving hundreds of billions of dollars into a fixed list of companies will create a cost of capital gap between approved companies and non-approved companies. We believe that the government needs to create a smaller footprint in the capital markets instead of a bigger one.

Third, the access to cheap capital will create political forces to add district specific companies to the approved for investment list. Access to the S&P can move a company’s stock by hundreds of millions of dollars. Our approach removes the politics from the equation. That is the only safe way for the Social Security Trust Fund to invest in equities.