As Social Security's problems become moreapparent, support for the concept of privatizingthe retirement program grows. As thedebate develops, it becomes increasinglyimportant to move beyond generalizations andto provide detailed proposals for how such privatizationcould be accomplished. Withoutendorsing any specific proposal, the CatoProject on Social Security Privatization will,from time to time, present a number of possibleprivatization scenarios.
In this study, Karl Borden and Charles Roundsoffer a proposal for the regulatory and administrativestructure of individual accounts. The core oftheir proposal is the private retirement account(PRA), which more closely resembles the individualretirement account model than the 401(k)model. Under the proposal offered by Borden andRounds, workers would be able to divert a portionof their Social Security payroll tax to a PRA.Workers would possess full property rights in theiraccount balances and would be responsible forcertain elements of investment direction.Employers would continue to operate as middlemen,facilitating the flow of cash and information.However, they would not serve as "plan administrators"(as the Employment Retirement IncomeSecurity Act of 1974 uses the term) and would notbear fiduciary responsibility for account balancesor account management. Actual management ofinvestment funds would be handled by privatemanagement companies, while collection and distributionof funds, as well as most regulatory func-tions,would be centralized in one or possiblymore national clearinghouses. The national clearinghouseswould be quasi-self-regulating bodies,similar to the National Association of SecuritiesDealers or the Depository Trust and ClearingCorporation. The government's role would belimited primarily to overseeing the system, actingas a court of final appeal for dispute resolution,and maintaining the fiscal integrity of the system.
Relying mainly on market-based structures toprovide a quasi-self-regulating framework for privatizationwould maximize flexibility and innovation.At the same time, the establishment of a centralizedcollection and management structurewould allow economies of scale to minimizecosts. The proposed structure would balance theneed for basic consumer protections with thedesire for maximum independence and freedomof choice.