Social Security and the 2001 Reform of the Railroad Retirement Program

Steven A. Sass

WP#2013-15

Abstract

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.