Details of president's Social Security plan emerge
The administration is floating details of the president's plan for Social Security reform. From the Washington Post:
President Bush's advisers have settled on a proposal for structuring the personal accounts they hope to create in Social Security ...
Under a plan recommended to Bush, the private accounts would resemble many company-sponsored retirement plans, with just a handful of investment options.
By default, workers would be enrolled in a "life cycle" account, in which investments become more conservative as investors age, if they do not choose one of the other options, according to two officials speaking on condition of anonymity.
[...]
Yet to be decided are several big questions, including how large the private accounts should be, how much guaranteed benefits would be cut and how to pay as much as $2 trillion needed in the first 10 years to effect the transition to a new system.
In devising a structure for the private accounts, the Bush administration is modeling its proposal after the Thrift Savings Plan, a tax-deferred retirement investment plan similar to a 401(k). The idea is to minimize risk for people at the outset by offering as few as three to five diversified investment funds.
[...]
Under the Thrift Savings Plan, federal workers have five investment options, including government and corporate bond funds, a stock fund that tracks the S&P 500, an international fund and other stock funds.
Under the emerging Bush plan for Social Security, the default investment would be a "life cycle" account. It would begin with investments that have greater potential for both risk and reward and shift to safer bonds as a worker ages, officials in and outside the administration said.
The government would be responsible for keeping track of how much money is in each worker's account and give the lump sums to a financial services company to invest, a mechanism aimed at keeping administrative fees low, they said.
That would mean only a limited profit potential for Wall Street.
[emphasis added]