Everyone knows you don’t buy a pig in a poke.

It’s curious, then, that President Bush and his supporters are so gung-ho for personal savings accounts as a remedy to the Social Security funding shortfall.

No detailed plan is actually on the table, so critical questions remain unanswered. But it’s fair to wonder about savings-account enthusiasts’ motives.

Are they sincerely trying to help future retirees live comfortably? Or are they looking for a way to take credit for solving the problem while in fact leaving elderly Americans to fend for themselves?

We won’t know until a detailed plan has been proposed.

Something like it

Currently, the closest thing to a blueprint for personal savings accounts is the so-called “Model 2” option suggested in 2001 by the president’s Commission to Strengthen Social Security. It would allow but not require workers to put nearly a third of their payroll contributions – up to $1,000 per year – into private investments, most likely in selected stock and bond mutual funds.

In exchange, there would be a reduction in the guaranteed benefit that Social Security recipients have enjoyed for seven decades. The hope is that investment returns in private accounts would make up for lost benefits – perhaps more than make up for them.

Whether investments could do this would depend on how the stock and bond markets behave over the next 60 or 70 years. And we’d have to know what investments Social Security would offer.

But even without a detailed plan on the table, two things are clear about the savings-account concept.

Benefits would be cut

First, money going into private accounts would not be flowing into the fund used to pay benefits to current retirees. The benefits currently promised would therefore have to be cut, or payroll taxes increased, or some other funding source would have to be found. This could require trillions of dollars during a transition period that most experts think would last several decades.

The president has said benefits for people in or nearing retirement would not be cut, but he has not said where money for this period would come from.

Second, the shift to savings accounts would continue the two-decade trend of transferring retirement-funding risk onto workers’ shoulders.

That began as companies gave up traditional pensions in favor of 401(k)s, where a worker’s retirement income depends on his or her investing skill and luck. A shift to private savings accounts in Social Security would do the same thing.

Without the details, it’s too soon to know if the president’s idea is good or bad. But here are some questions to keep in mind when evaluating any proposal:

What would be the minimum benefit guaranteed by the government, and how would that compare to the minimum under today’s system?

Will the guaranteed benefits be designed to grow with inflation?

What assumptions will be made about future returns in stocks, bonds and other investments permitted by the plan, and how would they compare to experts’ forecasts?

Even if assumptions about average returns are sound, what will happen to retirees hit by the kind of periodic downturn we had from 2000 through 2002?

How much investment latitude will participants have? Will they be allowed to shift money from one investment to another whenever they want?

Who will administer these accounts and what fees will they charge? To what extent will fees undermine investment returns?

How will withdrawals from these accounts be taxed?

As you can tell, I’m skeptical about the president’s idea. I think it’s too soon to discard alternatives such as increasing employers’ contributions to the current system. Currently, workers and their employers each contribute 6.2 percent of the employee’s salary.

I’m particularly bothered by the rosy assumption that stocks and bonds will most assuredly provide attractive returns in the future. If savings-account advocates are so sure about that, why don’t they propose that the government take the investment risk?

Savings-account proponents say workers can handle their money better than the government. That makes a good sound bite, and each of us likes to think that’s true.

But study upon study has found that employees do a terrible job managing their 401(k)s, burdening themselves with returns far short of market averages. Why would the Social Security accounts be different?

For most Americans, Social Security is the largest source of retirement income, and it’s essential that they know just how much they’re going to get. So far, the president has not made a convincing case that his system would be as generous as the one we already have.

—

(Jeff Brown is a business columnist for The Philadelphia Inquirer. E-mail him at brownjphillynews.com.)

—

(c) 2004, The Philadelphia Inquirer.

Visit Philadelphia Online, the Inquirer’s World Wide Web site, at http://www.philly.com/

Distributed by Knight Ridder/Tribune Information Services.

AP-NY-11-15-04 0625EST