Letter to Representative Capuano on H.R. 2109 - Savings Account for Every American Act of 2011

July 20, 2011

Representative Michael E. Capuano

United States House of Representatives
1414 Longworth Building
Washington D.C., 20515-2108

Dear Representative Capuano,

This is in response to your letter of June 30, 2011, requesting our evaluation of H.R. 2109, the "Savings Account for Every American Act of 2011," as introduced by Representative Pete Sessions (R., TX). The National Committee to Preserve Social Security and Medicare is strongly opposed to this bill and regards it as yet another attempt to privatize Social Security.

Under the bill that Representative Sessions has introduced, people would be permitted to "opt-out" of Social Security. Those who make this decision would see their 6.2 percent Social Security contributions diverted from the Social Security program and instead deposited into a financial account that would be owned by the individual. These accounts are called "SAFE" accounts. After 15 years, the employer's contribution to Social Security would also be deposited into the individual's account.

During the first five years after filing an "opt-out" election, an individual would be able to withdraw from the "SAFE" program and resume participation in Social Security. However, such a withdrawal would come with a heavy price. In addition to losing credit for the wages paid during the period of participation in the program, workers would incur massive penalty reductions in their future Social Security benefits. The amount of the reductions would vary from 20 percent of future Social Security benefits for individuals who participated in the "SAFE" program for up to 3 years to as much as 80 percent if participation extended into a 6 th year. These heavy penalties appear to be intended to effectively nullify the withdrawal provision.

Although participants in the "SAFE" program would still pay Medicare taxes and be eligible for benefits when they reach age 65, they would effectively lose eligibility to all other Social Security benefits. This bar to eligibility would also extend to family members who might otherwise have qualified for dependency or survivors benefits. And, since participants in the "SAFE" program lose eligibility for disability benefits, they also would lose the ability to qualify for Medicare benefits based on disability. One of the most serious flaws in this bill is the harmful effect it would have on Social Security's financial condition. As we well remember from prior privatization proposals, they all lead to an immediate and substantial drop in funding for Social Security as payroll taxes are diverted into private accounts. Any offsetting savings to the Social Security Trust Funds, in the form of reduced liability for benefits, occur decades later. There is no mention of any kind in H.R. 2109 of how the funding shortfall caused by this bill would be addressed.

Although the authors of the bill have not yet asked for an estimate of its effect on Social Security, we know from testimony given by the Social Security Administration's Chief Actuary, Mr. Stephen C. Goss, that enactment of H.R. 2109 would cause great harm toSocial Security's funding. At a June 23, 2011, hearing before the Social Security Subcommittee of the House Ways and Means Committee, Mr. Goss testified that, under this bill, "...the amount of revenue coming into Social Security would be dramatically reduced," that "...the ability to pay benefits to people who are currently receiving, or are now approaching the time of receiving benefits, would be severely compromised...," and that "...the year of Trust Fund exhaustion would certainly come to be much sooner than 2036."

As with prior privatization bills, H.R. 2109 places virtually all of the risk of a secure retirement on the individual. "SAVE" participants would not only own their accounts, but they will also bear full responsibility for their own retirement. Unfortunately, we have seen recently how uncertain retirement can be when it rests solely on the stock market.

We believe that Social Security and Medicare provide a bedrock of protection that should not be undermined by privatization schemes such as the one laid out in H.R. 2109. For that reason, the National Committee urges all Members of Congress to oppose thisharmful piece of legislation.

Sincerely,

Max Richtman
President & CEO