Pozen's Social Security fix sparks buzz
Plan would combine investment accounts, selective benefit cuts
Robert Pozen rose to the top echelons of Fidelity Investments, taught law at Harvard, served in Governor Mitt Romney's cabinet, and currently runs one of the nation's oldest mutual-fund companies.
Yesterday, he finally got his 15 minutes of fame.
At a press conference, President Bush spoke favorably about a plan Pozen has been pushing to fix the Social Security system.
''There are some interesting ideas out there," said Bush, in response to a question about Social Security reform. ''One of the interesting ideas was by this fellow by the -- a Democrat economist named of Pozen. He came to visit the White House. He didn't see me, but came and tossed some interesting ideas out, talking about making sure the system was progressive."
Pozen is actually a lawyer, not an economist, but he is a Democrat. Republicans who like what he has to say are hoping his ideas could form the basis of a bipartisan compromise. Pozen's plan combines small private investment accounts with benefit cuts that protect low-income workers.
Even before the Bush mention, the Pozen plan was gaining visibility. In the past few days it has been written about favorably in papers ranging from The Washington Post to The Wall Street Journal. In January, Pozen laid out his ideas in an opinion piece in the Globe. After yesterday's press conference, several television networks, including ABC News, requested interviews.
Pozen, 58, is chairman of MFS Investment Management, the Boston investment firm that claims to have invented the mutual fund, and served on Bush's 2001 ''Commission to Strengthen Social Security."
He starts out with the proposition that Social Security's long-term deficit has to be whittled down, a course that will involve painful steps. ''We have to stop talking about desserts and start talking about spinach," said Pozen in a telephone interview yesterday.
The Bush commission proposed a form of spinach known as price indexation. Currently Social Security benefit levels are tied to wages. The commission suggested instead that benefits be linked to prices, which rise more slowly over time. Over the course of several decades, price indexation amounts to a substantial cut in benefits for retirees. ''While price indexing stabilizes Social Security's finances, it sharply reduces the program's role as a source of retirement income," wrote a pair of Boston College economists in a recent paper on the subject.
Pozen favors price indexing with a twist he calls ''progressive indexation." He would allow low-wage workers -- those with average career earnings of less than $25,000 -- to stick with wage indexation. Those with incomes above $113,000 would be subjected to full price indexation. Everyone in the middle would experience a blend of the two.
Pozen says roughly 30 percent of America's wage earners would fall into the fully protected category. This group, says Pozen, relies on Social Security for a large fraction of its retirement income and has limited access to private pensions such as 401(k) plans.
Pozen describes private accounts as a ''sweetener," sugar to help the medicine go down more easily. ''You say to the middle and high-income earners: 'You are going to get less in benefits, so we will give you something you want in return,' " said Pozen. Unlike the White House, Pozen is skeptical that low-wage workers would find private accounts appealing.
He would allow workers to put 2 percent of their pay into investment accounts, rather than the 4 percent proposed by Bush. Creating smaller accounts would require less government borrowing. Deficit hawks in both parties worry the Bush plan would put too much pressure on the federal budget in the coming decades.
The Pozen plan would cut in half Social Security's estimated $3.7 trillion deficit over the next 75 years. Pozen argues that more draconian approaches would be politically unrealistic.
At the moment Republicans are more enthusiastic about the plan than Democrats. Republican Senators Lindsey Graham of South Carolina and Robert Bennett of Utah have said they want to incorporate progressive indexation in their Social Security fixes. Conservative think tanks like the idea, too. ''It redirects Social Security benefits to those who need them the most," said David John, a policy analyst with the Heritage Foundation.
John says Democrats are cool to the plan right now, because it includes private accounts. Still, he suggests some Democratic moderates might be willing to back a version of Pozen's scheme down the road.
Liberal economists don't see the plan's appeal. Alan Auerbach, an economist at the University of California at Berkeley, calls the Pozen scheme ''Bush lite." He says progressive indexation still cuts benefits sharply over time. Peter Diamond, an MIT economist, fears that Pozen's plan could make Social Security too unattractive to the affluent. ''I worry it would undo political support for the program," he said.
Pozen has always had an interest in public policy. Over the years his name has come up as a potential nominee for several national posts, including trade representative.
Charles Stein can be reached at email@example.com.