	Introduction

As policymakers contemplate ways to address Social Security's long-term financial challenges, pension reforms across the world have gained new attention. This report focuses on Chile, one of the most oft-cited cases of pension reform internationally. In 1981, Chile initiated sweeping reforms that replaced a state-run, pay-as-you-go defined benefit retirement system with a private, defined contribution individual retirement accounts system. As a pioneer of individual accounts, Chile has become a case study for many countries seeking to reform their retirement systems. Although the Chilean experience is not directly comparable to the United States situation because of large differences between the countries, the case may offer some valuable insights for policymakers who are interested in individual retirement accounts. The report begins with a description of the U.S. Social Security policy debate and a brief comparison of Chile and the United States. Next, the report explains what Chile's individual retirement accounts system is and how it works. The final section provides an assessment of the individual retirement accounts system's performance relative to some of its initial goals. Under the intermediate assumptions of the Social Security trustees, the system is projected to begin running cash flow deficits in the year 2017, at which point the system must begin redeeming any bonds (including interest) accumulated in previous years. The Social Security Debate

The longer it takes to address Social Security's financing challenge, the greater the changes will need to be. The Debate and the Chilean Case

As policymakers consider how to address Social Security's challenges in the United States, other countries' experiences with retirement reforms have gained attention. This CRS report focuses on the retirement component of Chile's social security system. Gender equity is also addressed in the pension reform bill. These trends reflect a growing concern in Chile that the current system does not cover the entire labor force and provides inadequate benefits to an important segment of workers. Individual retirement accounts have contributed to the Chilean economy in a number of ways and the returns on pension fund investments have been greater than expected. Analysts also agree that administrative costs have been too high.
Over the past few years, there has been intense debate about Social Security reform in the United States. A number of options, ranging from changing the benefit formula to adding individual accounts, has been discussed. The policy debate takes place against the backdrop of an aging population, rising longevity, and relatively low fertility rates, which pose long-range financial challenges to the Social Security system. According to the 2007 Social Security Trustees Report's intermediate assumptions, the Social Security trust funds are projected to experience cash-flow deficits in 2017 and to become exhausted in 2041.
As policymakers consider how to address Social Security's financing challenges, efforts of Social Security reform across the world have gained attention. One of the most oft-cited international cases of reform is Chile. Chile initiated sweeping retirement reforms in 1981 that replaced a state-run, pay-as-you-go defined benefit retirement system with a private, mandatory system of individual retirement accounts where benefits are dependent on the account balance. As a pioneer of individual retirement accounts, Chile has become a case study of pension reform around the world. Although Chile's experience is not directly comparable to the situation in the United States because of large differences between the countries, knowledge of the case may be useful for American policymakers.
This CRS report focuses on the Chilean individual retirement accounts system. It begins with a description of the U.S. Social Security policy debate, along with a brief comparison of Chile and the United States. Next, the report explains what Chile's individual retirement accounts system is and how it works. The pension reform bill sent to the Chilean Congress for debate in 2007 is also discussed. The report does not address other components of Chile's social security system, such as maternity, work injury, and unemployment.
The final section provides an assessment of Chile's now 26-year-old individual retirement accounts system. Pension reforms have contributed to the rapid growth in the Chilean economy over the past two decades and returns on pension fund investments have been greater than expected. Administrative costs, however, have been high and participation rates have been modest at best. There is concern that the system does not cover the entire labor force and provides inadequate benefits to low income workers.
This report will not be updated.