The experience of the reformed Railroad Retirement program has lessons for initiatives that would invest Social Security assets in equities:
- To address the risk in equity investment, Congress would likely require an automatic adjustment mechanism to keep the program “on track.”
- The adjustment mechanism should address surpluses as well as shortfalls, and cannot be expected to provide a complete solution to the problem of risk.
- Such a mechanism nevertheless presupposes a program in balance, or moving toward balance. The investment of Social Security assets in equities would thus need to be part of a package that produced a sustainable Social Security program.
- While introduced in response to the use of equity investments, the adjustment mechanism would respond to any shock, not just financial shocks. Had such a mechanism always been in place, it would have raised taxes or cut benefits, in response to the demographic shocks that created the program’s current long-term funding shortfall.