Bush Aides Settle on Social Security Plan

President Bush's advisers have settled on a proposal for structuring the personal accounts they hope to create in Social Security (search), while on Capitol Hill Senate Democrats were launching an effort to defeat the plan altogether.

Under a plan recommended to Bush, the private accounts (search) would resemble many company-sponsored retirement plans, with just a handful of investment options.

By default, workers would be enrolled in a "life cycle" account, in which investments become more conservative as investors age, if they do not choose one of the other options, according to two officials speaking on condition of anonymity.

On Friday, Senate Democrats were to hold a session aimed at showcasing the problems with Bush's overall plan to let workers divert a portion of their Social Security taxes into individual accounts that could be invested in the stock market. Among those testifying before the panel were a pair of workers from the Social Security Administration complaining that the employees are being used for political purposes to sell the Bush plan to the public.

"The president is certainly going to use his megaphone to convince people this is a crisis, and he's dead wrong on that," said Sen. Byron Dorgan, D-N.D., chairman of the Democratic Policy Committee, which works to promote party policies on the Senate floor and is sponsoring Friday's session. "We have to make the case that he's wrong."

Also Friday, Bush was scheduled to speak to congressional Republicans at a retreat outside of Washington on Social Security and other issues.

Bush met last week with his Social Security advisers working to write a legislative plan. They briefed him on issues they had resolved among themselves as well as options in areas where there was no consensus.

Yet to be decided are several big questions, including how large the private accounts should be, how much guaranteed benefits would be cut and how to pay as much as $2 trillion needed in the first 10 years to effect the transition to a new system.

In devising a structure for the private accounts, the Bush administration is modeling its proposal after the Thrift Savings Plan (search), a tax-deferred retirement investment plan similar to a 401(k). The idea is to minimize risk for people at the outset by offering as few as three to five diversified investment funds.

Bush said in December that his plan would make sure people could not invest "in a frivolous fashion."

Under the Thrift Savings Plan, federal workers have five investment options, including government and corporate bond funds, a stock fund that tracks the S&P 500, an international fund and other stock funds.

Under the emerging Bush plan for Social Security, the default investment would be a "life cycle" account. It would begin with investments that have greater potential for both risk and reward and shift to safer bonds as a worker ages, officials in and outside the administration said.

The government would be responsible for keeping track of how much money is in each worker's account and give the lump sums to a financial services company to invest, a mechanism aimed at keeping administrative fees low, they said.

That would mean only a limited profit potential for Wall Street. More money might be available for industry if a second tier of investments were permitted. Under this model, once a worker's account reached a certain level, he or she could choose from a broader range of investment options. Any number of mutual funds could be approved for investment at this stage.

This second tier of investment was recommended by Bush's 2001 Social Security commission after the initial accounts top $5,000, and this idea is part of several bills pending on Capitol Hill. But no decisions have been made about whether to allow a second tier, one administration official said.