Funds Quietly Back Social Security Privatization

Published December 22, 2004, 1:00 a.m. EST

Updated December 22, 2004, 1:00 a.m. EST

1 Min Read

Although some mutual fund insiders have argued that privatizing Social Security would not be a boon for the industry because the account sizes would be small and the fees would be scant, other executives are circumspectly throwing their support behind the idea, The New York Times reports. Reluctant to come out publicly in favor of privatization for fear of being accused of wanton greed, fund companies are reportedly backing the proposal behind the scenes through trade associations, business groups, conservative think tanks and campaign donations.

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A recent report by the Securities Industry Association, for example, made the argument that fund companies would earn $39 billion in fees from privatized accounts over 75 years, compared to $3.3 trillion in other revenue over the same period or, in other words, just over 1% more in revenues.

And while the Investment Company Institute has not come out with a position on the idea, the Times points out that the communications director the ICI just hired, F. Gregory Ahearn, used to work for State Street Corp., which campaigned in support of privatization in the late 1990s.

There are other ties, as well. The SIA and Charles Schwab Corp. are members of the Alliance for Worker Retirement Security, which has been lobbying the White House and Congress for privatization. The alliance has at least one friend in the White House, Charles P. Blahous, special assistant to the president who used to be the alliances executive director. American Express and American International Group have given financial support to The Cato Institute, also in favor of privatization. Meanwhile, Morgan Stanley and Merrill Lynch together raised more than $1 million to help reelect President Bush, who made privatization one of the key issues of his campaign.

But publicly, however, the chief executives of most financial service firms refuse to comment on the matter. "There has been no lobbying because the industry knows it will be accused of making windfall profits," explained Robert C. Pozen, chairman of MFS Investment Management.

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.