April 19, 2005 Mr. Ed Henry 1037 Franklin Place Rockford, IL 61103 Dear Mr. Henry: Thank you for contacting me regarding the President's proposal to privatize Social Security.  I appreciate hearing your views. President Bush has called attention to the fact that Social Security faces a long-term funding challenge.  According to the Congressional Budget Office, the program is fully funded for 47 years but will be able to pay only 80 percent of benefits starting in 2052.  The Social Security actuaries project that the program is solvent until 2041 and can pay 73 percent of promised benefits thereafter.  This is a challenge, but not a crisis.  Congress should take the time to find the right solution, so that Social Security stays strong for generations to come. The President has proposed taking money out of Social Security in order to create private Social Security accounts.  He has not described how he would make reforms to extend the solvency of Social Security but he has said that the Social Security Commission he established in 2001 provided a "good blueprint" for reform. The Commission's primary proposal has serious flaws that deeply concern me.  For example, it: (1)  Mandates deep benefit cuts: The Commission plan would cut future benefits for some current workers by 25 percent.  Later generations would suffer cuts of 45 percent or more, even after including projected proceeds from privatized accounts.  This is because the plan seeks to change the benefit calculation to reduce the amount by which benefits are adjusted for inflation and the growth of the economy. You can see how President Bush's plan would cut your Social Security benefit by using the Social Security Benefit Calculator located on my Web site: http://durbin.senate.gov. (2) Increases federal debt: Funding privatized accounts could cost $2 trillion or more over the first 10 years.  These enormous transition costs occur because if current workers take their money out of the system to invest in the stock market, we won't have enough to pay current benefits. The federal government would have to borrow $2 trillion over the next ten years to fill the funding gap. (3) Shifts risks to seniors: Linking benefits to volatile stock prices weakens Social Security's role as a guaranteed safety net for seniors. Also, seniors who invest differently and retire at different times could have vastly different benefits as a result of stock market fluctuations. (4) Generates large management fees that reduce benefits: A University of Chicago study found that management fees would reduce benefits by 20 percent, while Wall Street reaps a $940 billion windfall.  In contrast, Social Security's administrative costs are minimal (about ½ of one percent). I am ready to work with President Bush to address the challenge of long-term solvency, but not to advance his privatization plan.  Any reform proposal must ensure that Social Security is preserved and strengthened so that an adequate minimum benefit will be available to future retirees. Also, because Social Security is more than just a retirement program, reforms must not undermine our commitment to provide for workers who become severely disabled and for the families of workers who die young. Reforms should not be borne on the backs of lower-income laborers, and any changes should ensure that women, who move in and out of the workforce more frequently than men, are not disproportionately hurt by changes in Social Security. The last time we had a serious national debate about Social Security solvency was in the early 1980s when Social Security truly faced an imminent crisis.  Social Security was set to run out of funds in July of 1983.  President Reagan, a Republican, and Speaker Tip O'Neill, a Democrat, came together and decided to empanel a bipartisan commission headed by Alan Greenspan to make recommendations to Congress about how to shore up the program.  We passed bipartisan legislation in March of 1983, just two months after the Commission made its recommendations, and bought ourselves 58-69 years of solvency.  That should be the model for how we proceed today. Thank you again for your message. Sincerely, Richard J. Durbin United States Senator