Order Code RL30397
Report for Congress
Received through the CRS Web
Social Security Reform:
Individual Account Proposals
Updated July 26, 2002
James R. Storey
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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ABSTRACT
A number of measures to reform the Social Security system have proposed that individual
accounts be incorporated into a reformed system. Proposals introduced in the 106th and
107th Congresses are compared with respect to the role the accounts would play, whether
they would be mandatory or voluntary, the level of contributions, how funds would be
managed and invested, whether a minimum benefit is promised, and how the accounts would
be treated for income tax purposes. This report will be updated as legislative action occurs.

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Social Security Reform:
Individual Account Proposals
Summary
Many proposals have been advanced to reform Social Security. Some would
establish “Social Security individual accounts” (SSIAs) to accumulate contributions
for workers, invest their funds, and provide them with retirement income. Key
features of 18 SSIA proposals are compared in this report. The proposals vary in
regard to: the basic purpose of the accounts; whether participation is mandatory or
voluntary; the source and level of contributions; how account assets are managed;
what investment choices are available; whether or not a minimum benefit is
promised; and how the federal income tax applies.
Fourteen of the 18 SSIA proposals would use the new accounts to replace a part
(in one case all) of Social Security benefits (“carveout” plans). The other four
proposals would use SSIAs as a means for workers to supplement Social Security
(“add-on” plans). Five of the 14 carveout plans would mandate participation; the
other nine propose voluntary carveouts. Two of the four add-on plans would
mandate participation. However, three of the seven mandatory plans would limit the
mandate to workers under a certain age.
Proposed contributions to SSIAs range from 1% of wages subject to the Social
Security payroll tax up to the full 12.4% employee/employer payroll tax. The
carveout plans would divert some part (in one case all) of Social Security taxes for
contribution to SSIAs. However, eight of the 18 proposals would draw on general
federal revenue for some or all of the contributions.
Ten of the 18 SSIA proposals would limit investment options for account assets
to a few funds approved expressly for that purpose by a board of trustees. The eight
exceptions would allow individuals to invest their SSIA assets with a broader range
of existing financial institutions.
Five of the 14 carveout proposals would guarantee participants some minimum
SSIA benefit to protect against adverse investment outcomes, the guarantees being
based in most cases on an individual’s Social Security benefit entitlement. Of the
nine carveout proposals offering no guarantee, five do not mandate participation.
Two add-on proposals include a benefit floor.
Treatment of SSIAs under the federal income tax would vary, with five of the
18 proposals essentially following current tax policy for private retirement plans. At
the other extreme, one plan would make SSIA contributions, investment earnings,
and distributions completely tax-exempt.
This report will be updated as legislative action occurs.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Comparison of SSIA Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
List of Tables
Table 1. Selected Features of Social Security Individual Accounts Included
in Social Security Reform Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

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Social Security Reform:
Individual Account Proposals
Introduction
Congress has acted many times to promote voluntary individual retirement
saving through tax incentives. Landmark legislation includes: authorization of
individual retirement accounts (IRAs) for workers with no employer-sponsored
pension plan (1974); specification of rules for employer-sponsored salary deferral
retirement plans in §401(k) and §457 of the tax code (1978); expansion of IRA
eligibility to all workers and their spouses (1981); establishment of Roth IRAs in
1997; and increased contribution limits and more flexible portability rules in 2001.
Beginning with the 106th Congress, serious attention was given to making
individual retirement saving an integral part of the mandatory Social Security system.
Numerous Social Security reform proposals have been offered in light of actuarial
projections that indicate the Social Security trust funds may exhaust their financial
reserves during the first half of the 21st century. Concern about this possibility of
system insolvency is amplified by the demographic context, namely, the approaching
swell in the retirement age population as the large “baby boom” age cohorts begin to
reach age 65 in 2011. Some of these reform proposals would make “Social Security
individual accounts” (SSIAs) an integral part of a reformed Social Security system.
Other proposals would establish SSIAs for the purpose of supplementing the
retirement benefits paid by Social Security. In 2001, the President’s Commission to
Strengthen Social Security recommended that any reform of the system include
individual accounts as an element.
The features of SSIA proposals vary widely. This report summarizes 18
proposals that would establish SSIAs. Nine of them were introduced as bills in the
106th Congress, and nine have been introduced in the 107th Congress. (Several bills
in the latter group are revisions of bills introduced by the same sponsors in the 106th
Congress.) These 18 proposals are as follows:
Introduced in 106th Congress:
H.R. 874 (Porter)–Individual Social Security Retirement Accounts Act
H.R. 3206 (N. Smith)–Social Security Solvency Act
H.R. 4839 (Sanford)–Personal Lockbox Act1
H.R. 5659 (Kasich)–Personal Social Security Account Act
S. 21 (Moynihan)–Social Security Solvency Act
1 Earlier in the 106th Congress, Representative Sanford introduced three bills (H.R. 249, H.R.
250, H.R. 251) that also would have created SSIAs.

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CRS-2
S. 263 (Roth)–Personal Retirement Accounts Act
S. 588 (Bunning)–Social Security for the 21st Century Act
S. 1103 (Grams)–Personal Security and Wealth in Retirement Act
S. 2774 (Gregg)–Bipartisan Social Security Reform Act2
Introduced in 107th Congress:
H.R. 849 (Sessions)–Savings Accounts for Every American Act
H.R. 2110 (Petri)–Retirement Security Act
H.R. 2771 (Kolbe/Stenholm)–21st Century Retirement Act
H.R. 3497 (Shaw)–Social Security Guarantee Plus Act
H.R. 3535 (DeMint/Armey)–Social Security Ownership and Guarantee Act
H.R. 4022 (Matsui)–President’s Commission Reform Model 13
H.R. 4023 (Matsui)–President’s Commission Reform Model 2
H.R. 4024 (Matsui)–President’s Commission Reform Model 3
S. 2693 (Dorgan)–Social Security Plus Account Act4
Table 1 compares several significant elements of the 18 proposals. (Although
some of the Social Security proposals that include SSIAs also call for major changes
in Social Security benefits and/or financing, these broader reforms are not discussed
here, nor are these features of the proposals shown in Table 1. For a general
discussion of Social Security reform, see: CRS Issue Brief IB98048, Social Security
Reform.)
Comparison of SSIA Proposals
Some SSIA proposals are designed to replace a part of Social Security benefits
(“carveout” plans), with part of Social Security payroll taxes diverted into the SSIAs.
Others would use SSIAs as a means for workers to supplement Social Security (“add-
on” plans), either through their own contributions or with federal payments to their
accounts. Fourteen of the 18 proposals outlined in Table 1 are carveout plans.5 Five
of these 14 plans would mandate participation; the other nine propose voluntary
2 An earlier version of this bill, S. 1383, was also introduced by Senator Gregg in the 106th
Congress.
3 Representative Matsui’s three bills are not detailed proposals. They simply call for
implementation of the options set forth in the report of the President’s Commission to
Strengthen Social Security. These bills were introduced to stimulate a policy debate on
SSIAs during the 107th Congress. For more information on the Commission’s options, see
CRS Report for Congress RS21095, Social Security: Report of the President’s Commission
to Strengthen Social Security, by Dawn Nuschler, December 21, 2001.
4 This bill advances an approach originally proposed by President Clinton in his FY2000
budget, which advocated Universal Savings Accounts as part of a reform of Social Security.
5 H.R. 4024 (Commission Reform Model 3) is categorized as a carveout plan in this
discussion, but its carveout feature is contingent upon an individual’s election to contribute
an additional 1% of taxable wages to an account. The discussion of add-on plans refers to
those that are purely add-on in nature.

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CRS-3
carveouts. Two of the four add-on plans would mandate participation. Of the seven
mandatory plans (five carveouts, two add-ons), three would limit the mandate to
workers under a certain age.
Contributions would range from 1% of wages subject to the Social Security
payroll tax (H.R. 5659) to the full 12.4% employee/employer payroll tax (H.R. 849).
Eight proposals (H.R. 2110, H.R. 2771, H.R. 3497, H.R. 4024, H.R. 4839, S. 263,
S. 2774, S. 2693) would augment employee contributions with government transfer
payments or income tax credits.
Ten of the 18 SSIA proposals would limit the options for investment of
contributions to a few funds approved expressly for that purpose by a board of
trustees, in a manner similar to the operation of the federal employees’ Thrift Savings
Plan. The eight exceptions would allow individuals to invest their SSIA assets with
a broader range of existing financial institutions that meet certain federal standards.
Four of these eight proposals would allow this latter approach only for accounts
holding assets in excess of some minimum level.
Five of the 14 carveout proposals would guarantee participants some minimum
SSIA benefit to protect against adverse investment outcomes. Guaranteed minimums
generally are based on some combination of entitlement under Social Security and/or
absolute dollar amounts. However, S. 1103 sets a minimum at 150% of the official
poverty income level for a single-person household. Of the nine carveout proposals
offering no guarantee, six (H.R. 849, H.R. 4022, H.R. 4023, H.R. 4024, S. 21, S.
588) do not mandate participation, leaving H.R. 250, H.R. 2771, and S. 2774 as the
only mandatory carveout plans with no promised SSIA minimum. Two add-on
proposals (H.R. 2110, H.R. 3497) would provide a benefit floor – a benefit equal to
at least as much as an individual’s Social Security benefit under current law.
Treatment of SSIAs under the federal income tax would vary. Five of the 18
proposals essentially follow current tax policy for most private retirement plans; that
is, income tax is deferred on contributions and investment earnings and collected
when the funds are distributed. Nine proposals would tax all or part of employee
contributions, but one of these nine (S. 1103) would exempt investment earnings
from taxation. The other eight would apply the tax rules for Social Security benefits
to some part of previously untaxed distributions. S. 588 would make contributions,
investment earnings, and distributions completely tax-exempt in all circumstances.
Tax treatment was not specified in the three options offered by the President’s
Commission to Strengthen Social Security (H.R. 4022, H.R. 4023, H.R. 4024).

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CRS-4
Table 1. Selected Features of Social Security Individual Accounts
Included in Social Security Reform Proposals
[NOTE: abbreviations explained at end of table]
Federal income tax treatment of SSIA:
SSIA
Bill no.
contribution
SSIA
(sponsor),
SSIA
rate (pct. of
SSIA
minimum
and short
relationship to
wages subject
SSIA fund
investment
benefit
Investment
title
OASDI
to OASDI tax)
management
choices
guarantee
Contributions
earnings
Withdrawals
Bills introduced in 106th Congress:
H.R. 874
carveout;
5% employee,
trusts
options
lesser of
employee share
tax-deferred
tax-deferred
(Porter),
participation
5% employer
registered
offered by
95% of
taxable;
amounts
Individual
voluntary
match; from
with SSA to
SSA-
PIA or
employer
taxable, partly
Social
taxes diverted
administer
approved
40% of
match tax-
on same basis
Security
from OASDI
SSIAs
trustees
AIME
deferred
as OASDI
Retirement
benefits
Accounts
Act
H.R. 3206
carveout;
2.5% from
Social
3 indexed
OASDI
one-half
tax-deferred
taxable on
(N. Smith),
participation
taxes diverted
Security
funds with
benefit
completely tax-
same basis as
Social
voluntary for
from OASDI,
Board of
varied asset
less
deferred, other
OASDI
Security
covered
rising to
Trustees
mixes
account’s
half deferred
benefits
Solvency
workers under
2.75% for
standard
up to $2,000
Act
age 65 on
2026-2038;
annuity
1/1/2001
rate thereafter
value
depends on
OASDI
funding status
H.R. 4839
carveout;
pro-rata share
SEC-
all financial
none
voluntary
tax-deferred
for amounts
(Sanford),
participation
of FICA tax
approved
institutions
contributions
attributable to
Personal
required if
from surplus
Personal
that pass
taxable,
federal
Lockbox
born after
of OASI
Retirement
SEC risk
government
contribution,
Act
1944, but
receipts less
Account
screen
contribution
half not taxed,
individual
expenditures;
trustees
not taxed
half taxable
contributions
limited
on same basis
up to $10,000
contribution
as OASDI
are voluntary
from federal
benefits; other
revenue for
amounts not
low-income
taxed
individuals

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CRS-5
Federal income tax treatment of SSIA:
SSIA
Bill no.
contribution
SSIA
(sponsor),
SSIA
rate (pct. of
SSIA
minimum
and short
relationship to
wages subject
SSIA fund
investment
benefit
Investment
title
OASDI
to OASDI tax)
management
choices
guarantee
Contributions
earnings
Withdrawals
Bills introduced in 106th Congress (continued):
H.R. 5659
carveout;
from 1% to
Personal
range of
none
tax-deferred
tax-deferred
taxable
(Kasich),
participation
3.5%, depend-
Social
funds similar
Personal
voluntary for
ing on wage
Security Fund
to those of
Social Se-
those born
level, from
under Board
TSP
curity Ac-
after 1944
taxes diverted
of Trustees
count Act
from OASDI
S. 21 (Moy-
carveout;
1% employee,
Voluntary
options
none
taxable;
tax-deferred
tax-deferred
nihan),
participation
1% employer
Investment
offered by
employer
amounts
Social
voluntary; em-
match; from
Fund under
approved
match tax-
taxable
Security
ployee payroll
taxes diverted
SSA, or
institutions
deferred
Solvency
tax cut even if
from OASDI
private IRAs
Act
nonparticipant
S. 263
add-on;
government
Personal
G,F,C funds
none
tax-deferred
tax-deferred
taxable
(Roth),
participation
puts in $250 +
Retirement
like TSP,
Personal
required
share of
Accounts
other funds
Retirement
budget surplus
Board
Board
Accounts
proportional
recommends
Act
to employee’s
payroll tax
S. 588
carveout;
government
Retirement
options
none
tax-exempt
tax-exempt
tax-exempt
(Bunning),
participation
contributes by
Security Fund
selected by
Social
voluntary
diverting taxes
Investment
Board
Security for
from OASDI,
Board
the 21st
rising to 50%
Century
of tax after 20
Act
years

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CRS-6
Federal income tax treatment of SSIA:
SSIA
Bill no.
contribution
SSIA
(sponsor),
SSIA
rate (pct. of
SSIA
minimum
and short
relationship to
wages subject
SSIA fund
investment
benefit
Investment
title
OASDI
to OASDI tax)
management
choices
guarantee
Contributions
earnings
Withdrawals
Bills introduced in 106th Congress (continued):
S. 1103
carveout;
5% employee
Federal
options
150% of
employee share
tax-exempt
tax-exempt
(Grams),
participation
(up to 25%
Personal
offered by
poverty-
taxable;
Personal
voluntary
max.), 5%
Retirement
Board-
level
employer
Security
employer
Investment
approved
income for
match tax-
and Wealth
match; from
Board
trustees
single
exempt
in Retire-
taxes diverted
person
ment Act
from OASDI
S. 2774
carveout;
2% from taxes
Individual
same options
none
tax-deferred
tax-deferred
tax-deferred
(Gregg),
participation
diverted from
Savings Fund
as TSP;
amounts
Bipartisan
required
OASDI; up to
Board under
Board to
taxable
Social
$2,000 volun-
SSA
recommend
Security
tary, matched
other options
Reform Act
by govern-
to Congress
ment pay-
ments if low
income; one-
time govern-
ment pay-
ments to Kid-
save account
if born after
1994
Bills introduced in 107th Congress:
H.R. 849
new accounts
6.2% from
SAFE
options
none
tax-deferred
tax-deferred
taxable before
(Sessions),
offered in lieu
employee plus
accounts
offered by
age 59½
Savings
of OASDI if
6.2% from
approved by
Treasury-
unless funds
Account for
held at least 15
employer; no
Sec’y of
approved
used for
Every
years;
tax paid to
Treasury
trustees; life
certain
American
participation
OASDI by
insurance
purposes; tax-
Act (SAFE)
voluntary
either
contracts
free after 59½
employee or
excluded
employer

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CRS-7
Federal income tax treatment of SSIA:
SSIA
Bill no.
contribution
SSIA
(sponsor),
SSIA
rate (pct. of
SSIA
minimum
and short
relationship to
wages subject
SSIA fund
investment
benefit
Investment
title
OASDI
to OASDI tax)
management
choices
guarantee
Contributions
earnings
Withdrawals
Bills introduced in 107th Congress (continued):
H.R. 2110
add-on;
$1,000 one-
Social
G,F,C funds
OASDI
up to $5,000
tax-deferred
benefits
(Petri),
participation
time payment
Security
like TSP’s,
benefit
tax-deferred;
equivalent to
Retirement
required if
when account
Investment
other funds
paid to
other
OASDI
Security
born after
is established,
Trust Fund
Board
extent it
contributions
benefits
Act
6/30/2002, but
from federal
(under Fed.
recommends
exceeds
taxable
taxable on
employee/em-
revenue from
Ret. Thrift
benefit
same basis as
ployer contri-
tax on OASDI
Investment
from Re-
OASDI; other
butions are
benefits; up to
Board)
tirement
tax-deferred
voluntary
$10,000 by
Security
benefits fully
employee/em-
Act
taxable
ployer
combined
H.R. 2771
carveout;
3% of 1st
Individual
options
none
taxable
tax-deferred
tax-deferred
(Kolbe/
participation
$10,000 of
Security Fund
selected by
amounts
Stenholm),
required;
wages + 2%
Board under
Board
taxable on
21st Century
voluntary
of other wages
SSA; account
same basis as
Retirement
contributions
diverted from
can be
OASDI
Act
allowed for
OASDI; up to
transferred to
benefits
OASDI add-
$2,000 volun-
private firm
ons
tary, matched
when balance
by govern-
reaches
ment pay-
$7,500
ments if low
income
H.R. 3497
add-on;
2%-3% of pay
Social
qualified
OASDI
tax-deferred
tax-deferred
taxable on
(Shaw),
participation
contributed
Security
mutual
benefit
same basis as
Social
voluntary
from
Guarantee
funds;
OASDI
Security
government
Board under
stock/bond
benefits
Guarantee
payments
SSA
mix of 60/40
Plus Act
generally
required

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CRS-8
Federal income tax treatment of SSIA:
SSIA
Bill no.
contribution
SSIA
(sponsor),
SSIA
rate (pct. of
SSIA
minimum
and short
relationship to
wages subject
SSIA fund
investment
benefit
Investment
title
OASDI
to OASDI tax)
management
choices
guarantee
Contributions
earnings
Withdrawals
Bills introduced in 107th Congress (continued):
H.R. 3535
carveout;
3%-8%
Personal
options
OASDI
taxable
tax-deferred
tax-deferred
(DeMint/
participation
diverted from
Savings
selected by
benefit
amounts
Armey),
voluntary
OASDI;
Board
Board;
taxable on
Social Se-
additional
appointed by
stock/bond
same basis as
curity Own-
voluntary
President
mix of 60/40
OASDI
ership and
contributions
generally
benefits
Guarantee
allowed
required
Act
H.R. 4022
carveout;
2% from taxes
government
broadly
none
taxable
tax-deferred
tax-deferred
(Matsui),
participation
diverted from
board like
diversified
amounts
President’s.
voluntary
OASDI
TSP’s or Fed-
portfolio;
taxable on
Commis-
eral Reserve
only annual
same basis as
sion
Board; can
reallocation
OASDI
Reform
invest private-
allowed
benefits
Model 1
ly once ac-
count balance
above min.
threshold
H.R. 4023
carveout;
4% from taxes
government
broadly
none
taxable
tax-deferred
tax-deferred
(Matsui),
participation
diverted from
board like
diversified
amounts
President’s
voluntary
OASDI, not to
TSP’s or Fed-
portfolio;
taxable on
Commis-
exceed $1,000
eral Reserve
only annual
same basis as
sion
Board; can
reallocation
OASDI
Reform
invest private-
allowed
benefits
Model 2
ly once ac-
count balance
above min.
threshold

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CRS-9
Federal income tax treatment of SSIA:
SSIA
Bill no.
contribution
SSIA
(sponsor),
SSIA
rate (pct. of
SSIA
minimum
and short
relationship to
wages subject
SSIA fund
investment
benefit
Investment
title
OASDI
to OASDI tax)
management
choices
guarantee
Contributions
earnings
Withdrawals
Bills introduced in 107th Congress (continued):
H.R. 4024
both carveout
participant
government
broadly
none
taxable
tax-deferred
tax-deferred
(Matsui),
and add-on
may contri-
board like
diversified
amounts
President’s
features;
bute
TSP’s or Fed-
portfolio;
taxable on
Commis-
participation
additional 1%,
eral Reserve
only annual
same basis as
sion
voluntary
matched by
Board; can
reallocation
OASDI
Reform
2.5% (up to
invest private-
allowed
benefits
Model 3
$1,000) from
ly once ac-
taxes diverted
count balance
from OASDI;
above min.
partial rebate
threshold
of 1% through
tax credit for
lower-wage
workers
S. 2693
add-on;
up to $2,000,
private IRAs
all securities
none
employee share
tax-deferred
tax-deferred
(Dorgan),
participation
offset in part
eligible for
taxable;
amounts
Social
voluntary
by 20%
IRA
government
taxable on
Security
refundable tax
investments
share tax-
same basis as
Plus
credit;
deferred
OASDI
Account
matched by
benefits
Act
government
payments if
low income;
sum of indi-
vidual and
matching
contributions
limited to
$2,000
Notes: Dollar amounts in table for contribution limits and tax rules are annual amounts.
Abbreviations used in table are as follows:
AIME–average indexed monthly earnings
G,F,C – funds invested in government securities, fixed income securities, and corporate stocks, respectively

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CRS-10
IRA – Individual retirement account
OASDI – Old Age, Survivors and Disability Insurance
PIA – Social Security primary insurance amount
SAFE – proposed Savings Account for Every American
SEC – Securities and Exchange Commission
SSA – Social Security Administration
SSIA – Social Security Individual Account
TSP – Thrift Savings Plan

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