An overhaul of the nation’s Social Security plan, one of the big-ticket items of newly reelected President Bush’s second-term agenda, could create a windfall for mutual fund firms specializing in index funds, CBS MarketWatch reports.

Privatization, which would give investors the choice of how to invest their Social Security money, may not create the huge industry-wide boom that some might expect, however.

"Many participants in the Social Security system may have little or no experience with long-term investing," admitted the Investment Company Institute on its Web site. "A significant public education campaign" would be necessary for privatization to be effective, the ICI added.

But safer mutual funds that track broad indexes like the S&P 500 – namely index funds – could help less-educated investors dip into the market with less risk. Thus, companies that offer a number of index funds – like Vanguard and Barclay’s – would probably see the most positive immediate impact of privatized Social Security.

However, according to East Greenwich, R.I., mutual fund consultant Geoff Bobroff, the privatized accounts would be small, thus making expense ratios high. "If it’s only good for a handful of firms, it’s not good for the industry," Bobroff said.

Opponents of privatized Social Security believe that stripping the "pay-as-you-go" nature of Social Security could eventually bankrupt it. "If you try to privatize it, that means you are going to divert funds from current payers into the system away from Social Security recipients," said Robert Reich, President Clinton’s former secretary of labor.

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The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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