An Architect of Bush Plan on Retirement Urges Retreat

By DAVID E. ROSENBAUM and EDMUND L. ANDREWS

New York Times

May 20, 2005

WASHINGTON, May 19 - Robert C. Pozen, the business executive who developed the theory behind President Bush's plan to trim Social Security benefits in the future, urged the president on Thursday to drop his insistence on using part of workers' taxes to pay for individual investment accounts.

This was one of two blows during the day to Mr. Bush's policies on Social Security and retirement saving. In the House, Representative Bill Thomas, chairman of the Ways and Means Committee, disregarded the methods favored by the president to encourage workers to save for retirement - mostly tax incentives for the affluent - and offered completely different proposals of his own.

The president's Social Security and retirement measures have faced trouble in Congress all year, and the developments on Thursday raised further doubt about their prospects.

On the question of Mr. Pozen's new position, Trent Duffy, a White House spokesman, said, "The president is committed to a voluntary personal account as part of a comprehensive Social Security modernization plan."

On Mr. Thomas's stance on retirement saving, Mr. Duffy said Mr. Bush "understands and welcomes the chairman's ideas."

Mr. Pozen, a member of Mr. Bush's advisory commission on Social Security in 2001, said at a forum at the Treasury Department that the president's approach to investment accounts would destroy the chances for a Social Security bill in Congress and would make it more difficult to resolve the long-term financial problems facing the system.

He developed the technique known as progressive indexing, which Mr. Bush embraced last month as a way to reduce the long-term cost of Social Security and get closer to the goal of permanent solvency for the system.

Under the technique, the promised retirement benefits of workers earning less than about $20,000 a year would be fully protected, but other workers' promised benefits would be cut on a sliding scale as income increased. In all cases, benefits would at least keep pace with inflation.

Unlike Democratic lawmakers who oppose as a matter of principle including investment accounts as part of Social Security, Mr. Pozen, himself a Democrat, says that some form of accounts could be useful. But, explaining his position in an interview after the forum at the Treasury, he said the president's plan to let workers divert up almost a third of their payroll taxes to accounts would reduce tax revenues and lower guaranteed retirement benefits too much.

"The accounts are just too large," Mr. Pozen said. He suggested that Mr. Bush consider a surcharge on payroll taxes for people who earn more than $90,000 a year, currently the ceiling on which Social Security taxes are paid, and the possibility of using some of that added revenue for private investment accounts.

"I believe some new revenue in the system is probably necessary for a legislative solution," Mr. Pozen said at the forum, called to generate enthusiasm for the administration's approach to Social Security.

At the Ways and Means Committee, Mr. Thomas, Republican of California, turned attention away from Social Security for the day and toward retirement savings. He offered several ideas that seemed to have bipartisan support, but Democrats were wary, suspecting that he was throwing up a smokescreen so he could later put private investment accounts into the legislation.

"We cannot be party to anything" that might lead to private accounts under Social Security, said Representative Richard E. Neal, Democrat of Massachusetts.

But Mr. Thomas, who has never maintained that personal accounts were an integral part of Social Security legislation, said he had no ulterior motive. "The chair has no interest in playing gotcha," he said.

He argued that it made no sense to consider changes in Social Security without addressing the array of policies affecting retirement.

In a hearing on what the government could do to encourage people to save for retirement, neither he nor the other Republicans on the committee dealt with the president's proposals to let upper-income taxpayers put more money in retirement accounts, like 401(k) plans and individual retirement accounts, in which the earnings would not be taxed.

Mr. Thomas offered two general ideas that seemed to have bipartisan support. One would require employers that offered their workers 401(k) plans to enroll the workers automatically unless the workers specifically opted out. The other would encourage new forms of annuities that would be attractive investments for low-income workers.