Retirement option would need IT

A congressional proposal to rescue the Social Security program by permitting workers to invest part of their payroll taxes in private retirement plans may save the benefits program, but it would require the Social Security Administration to invest heavily in information technology systems to track the plans, according to government and industry officials.

Sen. Daniel Patrick Moynihan (D-N.Y.), along with co-sponsor Sen. Bob Kerrey (D-Neb.), recently announced legislation that would allow workers to divert two percentage points of their payroll taxes into private retirement accounts.

The bill, called the Social Security Solvency Act, attempts to stave off insolvency of the Social Security system, which, if left alone, will run out of money in 2029, when most of the baby boom generation has retired. Because the diverted money could be invested in stocks, bonds and interest-bearing accounts, the bill would reduce the need for increases in payroll taxes to keep Social Security solvent.

The proposal would reduce payroll taxes by almost $800 billion and return Social Security to a pay-as-you-go system. The bill would increase over a 10-year period the cumulative budget surplus by $170 billion, according to preliminary estimates from the Congressional Budget Office.

The proposal is one of many being discussed on Capitol Hill, and any proposal giving Americans the option to invest part of their Social Security funds in private investment accounts would require SSA to make a large expenditure on computer systems to track the investments, said Kathleen Adams, SSA's assistant deputy commissioner for systems. SSA services 43 million beneficiaries and processes 250 million W-2 forms each year.

"If you're going to have retirement accounts on every worker, you're talking about 250 million of them," Adams said. "Because of those volumes, it's got to be highly automated."

Adams said the agency has put together a team, which includes IT professionals, to analyze proposals for Social Security reform that have been put forth in Congress and by the Clinton administration. The administration opposes privatizing any part of Social Security. But she said the agency does not have hard-and-fast estimates for how much of an investment would be required to accommodate new requirements.

But a staff member on the Senate Finance Committee, on which Moynihan holds the minority leadership role, vehemently denied that the Moynihan-Kerrey bill would require SSA to track the investments and therefore invest in computer systems. "The investment accounts are voluntary, so [SSA] doesn't have to keep track of it," the staff member said. "It's not their money. It's just like me opening up a personal [Individual Retirement Account]."

The staff member added that under the bill, the Social Security tax rate would drop from 12.4 percent to 10.4 percent. "SSA would track the 10.4 percent, not the other 2 percent," the staff member said.

Still, vendors familiar with financial management systems said if Americans could invest some of the funds that were previously going to SSA, the agency most likely would need to develop systems that could electronically receive the information from banks and other financial institutions about the performance of the retirement accounts and tie it to a worker's existing record, said Al Picarelli, vice president of Booz-Allen&Hamilton Inc.

"A lot of the data is captured somewhere else," Picarelli said. "All the government has to do is get this data and codify it, so it becomes a big database.... It will be a healthy investment."

David Halwig, a partner at KPMG Peat Marwick, said the cost of the system would depend upon what type of information SSA would be required to track. Monitoring the aggregate earnings or losses for all the accounts lumped together would not be very difficult, he said. However, tracking each individual account and its changes would be "much more difficult," he said.

Mike Groneck, director of research at Vienna, Va.-based Input Inc.'s U.S. Government Office, said the challenge of tracking investments— as opposed to static payment records— would add to the complexity of the system.

"The majority of the infrastructure hit would take place in terms of new software programs that would have to be developed," Groneck said. "This gets extremely complex in terms of just the tracking measure. I'm sure [Congress wants] a tracking measure so people don't come back years later saying they lost their shirts."