Congressional Democrats from Massachusetts, a state that many leading money management firms call home, are unifying in opposition to the Bush Administration's proposal to route a portion of Social Security into mutual funds.
Recognizing the implications the Bush plan might have for hometown fund giants like Fidelity Investments and Putnam Investments, at least eight of the 12-member delegation said they doubt the president's claims that Social Security is in crisis and expressed concern over the potential for diluting a safety net many of their constituents rely on, Boston Business Journal reports.
"Senior citizens' needs are more important than parochial interests," said Rep. Michael Capuano.
The Bay State delegation admits that the numbers of Social Security claims will likely strain the current system when Baby Boomers start to retire in 2008, but they would prefer tinkering with existing retirement options and creating new ones. The federal government could also encourage savings through tax incentives and expand uses for the Individual Retirement Account, the report indicates.
In addition, the Democrats suggested making people wait longer to receive benefits and even reducing benefits for wealthier retirees.
President Bush has not unveiled an official reform plan, but has floated a proposal that would divert about one-third of the 12.4% payroll tax into personal retirement accounts. Workers would have a choice of investment options, including mutual funds and lower-cost index funds.
Individual money management firms have yet to choose sides, but the industry's two major trade groups, the Investment Company Institute and the Securities Industry Association, have endorsed the Bush proposal. In fact, SIA estimates that privatization could result in a $39 billion to $279 billion windfall in fees for money managers over the next 75 years. However, others point out that this represents 1.5% to 7% of the fees funds currently collect.
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.