Establishment and Eligibility
People 55 years of age and older will not be affected by the plan.
The program is voluntary for those born in 1950 or later. Individuals can choose to stay entirely in the system. Recipients will get "the benefits the system is able to pay," the official said, which may indicate that benefits will decrease over time.
The federal government's Thrift Savings Plan is the model for the accounts. TSP is the retirement savings plan for civilians who are employed by the U.S. government and members of the uniformed services.
A centralized, administrative entity will be created to administer the program. Management of the various investments funds will be contracted out. No big new government-run fund manager is being proposed.
The accounts can be bequeathed to survivors.
Costs could be incurred after that 10-year period.
Social Security trustees estimate that two-thirds of the workforce will participate.
Investments
Investors can choose from a number of accounts. The accounts will parallel those available under TSP. The five current TSP funds can be reviewed at
www.TSP.gov.
Because the program will be much larger than the TSP plan, more than five funds are likely to be available, a senior administration official said. Even if more funds are available, however, they will be limited in number.
Under the president's plan, a "life cycle fund" will be created. In this fund, the proportion of the money invested in stocks shrinks as an individual nears retirement in order to lower investment risks. This fund will become "a standard" at a certain age. If an individual has other money for retirement and chooses not to participate in this low-risk fund, he or she can choose to opt out of the program.
Accounts will be phased in starting in 2009. Every worker who wants to participate will be enrolled by 2011. In 2009, anyone born in 1965 or earlier can enroll. In 2010, anyone born 1978 and earlier can enroll. After 2010, citizens of any age can enroll.
Contributions will be phased in. Officials would like to permit individuals to put 4 percent of their payroll taxes into a personal retirement account. Annual contributions will be capped at $1,000 per year in 2009. The cap will gradually rise over time, growing by $100 per year after that. The contribution grows with growth of wages.
Administrative costs for TSP are currently at 0.3 percent of account balances. The official said a similar cost should be expected for the new accounts, primarily to pay for record keeping.
Workers will not be permitted to take loans against these accounts.
Wage inflation is generally 3 percent. The average rate of return on TSP funds ranges from 4.32 percent to 10.99 percent, according to a 10-year average taken from TSP.
Individuals cannot opt out of the program once they join. If individuals do not want to participate, their investments will be put into a separate fund like a Treasury bond-based fund that effectively will replicate the Social Security benefit.
Retirement
Upon retirement, restrictions will be placed on withdrawals. Individuals will not be able to withdraw any amount from the personal accounts combined with the traditional Social Security benefit that would put them below the poverty level.
