(CNSNews.com) - There will be no pain-free choices in reforming the federal retirement system, according to a panel of experts testifying before the president's Social Security reform commission. They stressed the importance of economic growth in making up for the program's predicted future shortfall.
"There is no way the current Social Security system or any alternative structure can survive the baby boomers' retirement period without our society incurring substantial transition costs," said Sylvester J. Schieber, vice president of Watson Wyatt Worldwide, a financial consulting firm based in Bethesda, Md.
The $3.2 trillion in under-funding projected by Social Security's actuaries will require additional financing whether we stay with the current system or change it, said Schieber.
"If we put off addressing the imbalance in the current system until 2016 or 2037 or any other future date, the $3.2 trillion shortfall...will be much larger," Schieber warned.
A major policy challenge for many industrialized countries, said Schieber, is the fact that many middle and upper income workers retire in their 50s or 60s and no longer contribute to economic output or to Social Security itself, which is funded through payroll taxes.
Panelist Eugene Steuerle, senior fellow at the Urban Institute, agreed.
"The employment incentives within Social Security seriously threaten economic growth in the future and economic recovery from recession," said Steuerle.
"Although I also favor attempts to increase saving for retirement, their ultimate effects on national saving and increased future economic resources are less predictable," he said.
"The message that this commission sends at this point about Social Security reform is far more important than the particular proposals it suggests," remarked Eugene Steuerle, senior fellow at the Urban Institute.
Still, said Steuerle, "if this commission wishes to increase future economic resources as a way to help pay for future benefits... its surest two methods are... to adjust the early retirement age and... to reconfigure lifetime benefits so that more are received later in retirement rather than earlier."
Alicia Munnell, professor of management sciences at Boston College, was more critical of accounts-based reform, which would give individuals more control over their Social Security payments, and she argued "strongly against cutting back on Social Security's defined benefit promises and replacing them with individual accounts."
"Individual accounts will not solve Social Security's long-run financing problem, and they are unduly risky for people's basic retirement benefit," Munnell said.
Rather than a full or partial privatization of Social Security, Munnell advocated the creation of additional retirement planning vehicles.
"A defined benefit plan allows for better risk spreading, better protection for retirees and dependents and lower costs than individual accounts," said Munnell. "We should be talking about adding on savings options."
"Benefits will have to be cut and/or taxes raised," Munnell said. "Restoring balance will require painful choices."
President Bush created the commission in May 2001 to examine an accounts-based system without changing Social Security benefits for retirees or near-retirees, increasing Social Security payroll taxes, or having the government invest retirement funds in the stock market.
Bush also stipulated that the entire Social Security surplus must be dedicated only to the program itself; that modernization must preserve Social Security's disability and survivors insurance programs; and that individuals have control over the accounts that might augment Social Security.
The commission is expected to issue a final report later this fall with specific reform recommendations.