SIMPSON/KERREY LEGISLATION TO ESTABLISH SOCIAL SECURITY PERSONAL INVESTMENT PLAN (PIP)

May 26, 1995 TO: BOARD OF GOVERNORS No. 51-95 FEDERAL LEGISLATION COMMITTEE No. 18-95 FEDERAL LEGISLATION MEMBERS No. 18-95 PENSION COMMITTEE No. 11-95 RE: SIMPSON/KERREY LEGISLATION TO ESTABLISH SOCIAL SECURITY PERSONAL INVESTMENT PLAN (PIP) _____________________________________________________________________________ On May 18, Senators Alan Simpson (R-WY) and Robert Kerrey (D-NE) introduced eight bills designed to deal with the long-term solvency of the Social Security system and to restrain spending growth on other federal retirement programs. Senator Simpson is chairman of the Social Security and Family Policy subcommittee of the Senate Finance Committee. In addition, he served on the 1994 Bipartisan Commission on Entitlements and Tax Reform, which was chaired by Senator Kerrey. Of special interest is S. 824, which would permit workers to invest a portion of their social security payroll tax and would restrain spending growth on other federal retirement programs. Employees could divert two percent of their OASDI payroll taxes to invest in either: 1. A program similar to the Federal employee thrift program, which offers the choice of investment in a low, medium or high-risk investment fund, or 2. A Personal Investment Plan (PIP) -- a separate individual retirement account or individual retirement annuity which would differ from a regular IRA in that (1) it could only receive money from the transferred social security payroll tax (not from voluntary contributions or from rollovers), and (2) money could only be taken out under the same conditions as social security payments (i.e., only in the event of death, disability or attainment of age 59 1/2). PIP contributions could be invested in vehicles currently permitted for regular IRAs, including mutual funds. Attached are excerpts from descriptive materials prepared by the Senators' offices, together with a copy of S. 824, the Personal Investment Plan Act of 1995. We will keep you informed as this matter develops. For additional information, please contact the Legislative Affairs Department at (202) 326-5890. This memo can be found on FUNDS, the InstituteGs Fund Userwork and Delivery System, under “Legislative Affairs; Washington Update.” Julie Domenick Senior Vice President Legislative Affairs