In evaluating these proposals we must understand
Social Security’s fundamental role in ensuring the income security of our nation’s elderly; the nature, extent, and timing of Social Security’s financing problem; and the differences between the current program and a program that might include individual accounts. Social Security Is the Foundation of Our Nation’s Retirement Income System

Social Security has long served as the foundation of our nation’s retirement income system. In addition, Social Security is the sole source of retirement income for almost a fifth of its beneficiaries. 1.) 2). Even if such actions were taken today, attention would need to be given to their sustainability. Another way to understand the magnitude of the problem is to consider what the system will cost as a percentage of taxable payroll in the future. 3). Some reform proposals incorporating individual accounts address the need for such protection by combining defined contribution and defined benefit approaches into a “two-tiered” structure for Social Security. This approach, however, raises a number of risks and administrative issues which I will discuss later in this statement. Balancing Equity and Adequacy in the Benefit Structure

Because individual accounts cannot contribute to restoring solvency without combining with Social Security in some way, it is useful to focus on the implications of individual accounts for Social Security’s defined benefit program. Centralizing these functions by building on the current system would not be without challenges, however. Some propose that these options be limited to a small set of passive or indexed funds similar to those offered under the federal Thrift Savings Plan, thus minimizing risk to the individual while providing some degree of choice.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed how best to ensure the long-term viability of the nation's social security program.

What GAO Found

GAO noted that: (1) social security forms the foundation of the nation's retirement income structure, and in so doing, provides critical benefits to millions of Americans; (2) yet, problems facing this program pose significant policy challenges that need to be addressed soon in order to lessen the need for more dramatic reforms in the future and to demonstrate the federal government's ability to deal with a known major problem before it reaches crisis proportions; (3) some social security proposals include adding individual accounts similar to defined contribution plans, to the current defined benefit program; (4) these individual accounts offer the potential for increased investment returns but they cannot by themselves restore social security's solvency without additional changes to the current system; (5) in assessing the proposals, policymakers must consider the extent to which the proposals offer sustainable financing for the system; (6) also, they must consider how to balance improvements in individual equity while maintaining adequacy of retirement income for those individuals who rely on social security as their primary or sole source of income; and (7) choosing whether to incorporate individual accounts into the social security system will require careful consideration of a number of design and implementation issues if such a system is to function effectively at a reasonable cost.