FED ISSUES DISMAL SOCIAL SECURITY REPORT

ST. LOUIS -- Federal reserve Bank economists predict that in 15 years contributions from U.S. workers will fail to cover payments to Social Security recipients. In another 15 years, reserves in the retirement fund will be exhausted, they say.

Patricia s. Pollard, a senior economist at the St. Louis Federal Reserve and the lead researcher in an extensive study of the Social Security system, said that despite future problems facing the U.S. retirement plan, it is relatively healthy compared to public pension systems in other countries. She used as the basis of the Fed study the plans in six countries: Canada, France, Germany, Italy, Japan, and the United Kingdom.

The systems in four of the six European countries are currently in deficit, which means contributions from their current workers do not cover the payments to their current retirees. The deficit systems are in France, Germany, Italy and Great Britain.

By contrast, Pollard said, current contributions to the U.S. Social Security system exceed payments. And there is continuing growth in the trust fund, which was established to provide backup financing when contributions withheld from workers fail to keep the plan on a pay-as-you-go basis.

The bad news is that the U.S. Social Security Board of Trustees believes the trust fund will cover pay-as-you-go payments for only 15 years, a conclusion validated by Pollard's study.

This means that by 2029, the trust fund will be depleted, and by the following year contributions will cover only 75 percent of the benefits. Without an increase in Social Security taxes or a reduction in benefits, other government revenue will be required to cover the remaining 25 percent.

The St. Louis Fed study lists seven proposals aimed at improving the health of America's public retirement plan:

-- Increase the retirement age or make planned increases in the retirement age effective earlier.

-- Increase the work years required for full benefits.

-- Reduce the incentives to retire early or increase incentives to retire late.

-- Reduce the monthly benefits to new retirees as life expectancy increases.

-- Reduce the indexation of pensions.

-- Raise the contribution tax rate or broaden the tax base.

Pollard's study also considers other proposals, which suggest moving away from pay-as-you-go to a system in which each worker finances more of his or her own retirement.

Whether the U.S. adopts any of these ideas or the proposals of last year's U.S. Advisory Council on Social Security, the Missouri economist argues that wait-and-see is not a viable option.

"The clock is ticking," the Pollard study states. "If we lull ourselves into complacency, and wait until the crisis is right in front of us, the amount by which our taxes will rise or benefits will have to be cut will be greater than if action is taken now. Delaying reform also reduces the time that workers have to adjust their retirement plans."