To amend the Social Security Act and the Internal Revenue Code of 1986 to preserve and strengthen the Social Security Program through the creation of individual Social Security accounts ensuring full benefits for all workers and their families, giving Americans ownership of their retirement, restoring long-term Social Security solvency, and for other purposes.

September 25, 2003

Mr. DEMINT introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Social Security Act and the Internal Revenue Code of 1986 to preserve and strengthen the Social Security Program through the creation of individual Social Security accounts ensuring full benefits for all workers and their families, giving Americans ownership of their retirement, restoring long-term Social Security solvency, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Social Security Savings Act of 2003'.

(b) TABLE OF CONTENTS- The table of contents is as follows:

Sec. 1. Short title and table of contents.

Sec. 2. Findings and purposes.

Sec. 3. Individual social security account program and individual social security accounts.

`Part B--Individual Social Security Account Program

Sec. 4. Conforming adjustments to monthly insurance benefits.

Sec. 5. Maintenance of adequate balances in the Social Security Trust Funds.

Sec. 6. Taxation of Individual Social Security Account Program.

Sec. 7. Report on private sector investment and management.

Sec. 8. Maintenance of current levels of FICA and SECA taxes.

SEC. 2. FINDINGS AND PURPOSES.

(a) FINDINGS- The Congress finds the following:

(1) Social Security is a defining American promise that must be kept. As one of the most successful Government programs of the 20th Century, it must always honor its founding purpose of protecting the elderly from poverty and bringing dignity to retirement.

(2) Social Security's retirement, survivors, and disability benefits help provide more than 46,000,000 Americans of all ages income security, without which nearly 50 percent of seniors would live in poverty.

(3) Social Security is of particular importance for low-income earners, for whom it may be their sole source of retirement income. In addition, it is especially important for widows and mothers caring for children, without which nearly 53 percent of these women would live in poverty.

(4) Social Security is unsustainable in its present form. The 2003 Report of the Social Security Board of Trustees projects that the system's obligations will exceed its annual tax revenue starting in 2018. From 2018 to 2042, the Government is obligated to pay full benefits using general tax revenues owed to the Social Security trust funds. However, this means that the long-term financing problem will begin in 2018.

(5) The Social Security trust funds will not solve the problem. These trust fund balances are available to finance future benefit payments only in a bookkeeping sense. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the general budget that, when redeemed, will have to be financed by raising taxes, borrowing from the public, cutting spending, or reducing benefits. The existence of large trust fund balances does not, by itself, have any impact on the Government's ability to pay benefits.

(6) Faster economic growth will not solve the problem. Under the Board of Trustees' 2003 Report, Social Security's yearly deficits will increase significantly every year. By 2038, Social Security will require more than 1 trillion a year in addition to the money raised through payroll taxes. By 2078, the annual Social Security deficit will be as large as the national debt in 2003. Even worse, these deficits will stretch far beyond the 75-year budget window with no sign of returning to balance. No amount of economic growth can overcome these substantial yearly deficits.

(7) The primary reason for this financial shortfall is demographic. In 1960 there were more than five workers paying into Social Security for every individual collecting benefits. Today, demographic changes have reduced the worker-to-beneficiary ratio to 3.4 to 1. By 2050, it will be just 2 to 1.

(8) If reforms are not made, younger workers will receive lower benefits for every dollar they pay into the current system. The inflation-adjusted rate of return averaged more than 25 percent annually for Social Security's first retirees in the 1940s, but are estimated to average roughly 4 percent for today's retirees, roughly 2 percent for `baby boomers,' and 1 percent for those who will be born 40 years from now. Since these figures do not include the extra cost of meeting Social Security's needs from 2018 to 2042, real rates of return for younger workers will likely be even lower.

(9) If reforms are not made, Social Security payroll taxes will have to be raised to balance the system over the next 75 years. When Social Security was first started, its tax was never supposed to go higher than 6 percent. Today, it is over 12 percent and if something is not done, it will go over 18 percent. Americans pay far too much into Social Security for what they receive to have their payroll taxes raised again.

(10) Inasmuch as payroll taxes already constitute the single largest tax burden for most American families, payroll tax increases will further harm low and middle income American families and add to the burden on employers. This would especially affect small businesses and harm job creation.

(11) If reforms are not made and payroll taxes are not raised, Social Security benefits will have to be cut by 35 percent to balance the system over the next 75 years. Seniors rely too heavily on Social Security for their retirement security and it would be unfair to reduce their promised benefits.

(12) Social Security is currently a Government-controlled, Government-owned program that does not save a penny for workers' retirement. Instead, it requires each generation to support the generation that came before it. With demographic changes, this structure passes on higher taxes, fewer benefits, and lower rates of return to younger Americans.

(13) In its current form, Social Security hinders wealth creation and accumulation. While Social Security does an adequate job of providing some Americans a steady poverty level income, it should also allow workers to build a nest egg that they can use to improve their retirement income, provide freedom and security in retirement, send grandchildren to college, or leave wealth to the next generation. Americans should have more to show for a lifetime of work than a small monthly check.

(14) Social Security does not currently help the low-income workers enough. The average monthly Social Security benefit check hovers at the poverty level. Despite popular perceptions, this means that in retirement the poor barely have enough money to sustain themselves on a monthly basis, and nothing to leave their children after their death.

(15) More than 50 percent of American households are invested in the economy. However, low-income and working poor individuals do not have access to the investment tools that help the middle class prosper and succeed. Personal Social Security savings accounts would allow even the poorest workers to participate in a growing economy.

(16) Social Security is currently unfair to minorities. A survey by the Federal Reserve Board of Governors shows that the wealth gap between whites and African-Americans is growing, despite the fact that the income gap between them is decreasing. As a result, white households have five to ten times as much wealth as black households. If this trend continues, this lack of wealth will prevent African-Americans from having the assets necessary to prosper and succeed, prohibiting full participation in the American dream. Personal savings accounts can provide a minimum level of investment that will help the poor build capital and wealth.

(17) As a result of mortality differences, African Americans receive nearly $21,000 less on a lifetime basis from Social Security's retirement program than whites with similar income and marital status. Because they are younger than the general population, disproportionate numbers of Hispanic Americans will enter retirement having received below the market rates of return from the Social Security program.

(18) Social Security is currently unfair to women who do not work for the required amount of time or would receive very low benefits based on their own earnings. Many women who have paid into Social Security over their working lives find that their best option is to claim benefits on their husband's contributions rather than on their own work history. Consequently, they get no return on the money they paid into a system. Personal savings accounts would allow women to build wealth with their own money, which can be combined with their husband's contributions for even larger benefit levels.

(19) Social Security's rigid benefit structure does not provide hard-working Americans with the flexibility to plan and shape their retirements to best suit their various lifestyles and life expectancies.

(20) Social Security is creating a culture of dependency. As the population ages, more and more Americans are becoming dependent on the government for their retirement income. This trend robs older Americans of their freedom, independence, and dignity.

(21) Social Security does not currently offer Americans any guarantee that they will receive their benefits. According to the United States Supreme Court, Americans do not own their Social Security benefits. In fact, the Court has said that Congress has the right `to alter, amend, or repeal any provision' of Social Security at any time. Americans have only a tenuous promise that Congress can change at any time, by any amount, and for any reason.

(22) Personal savings accounts would transform Social Security from an IOU into real assets that individuals could own and pass along to their children. Personal savings accounts would enable Social Security to start saving real economic assets for the first time, locking them away so they cannot be spent on non-Social Security programs.

(23) Personal savings accounts would generate higher returns on the payroll taxes currently paid into Social Security, drastically reducing the financial shortfall in the system and paving the way for a fully funded system that is permanently self-sustaining.

(24) Personal savings accounts would correct Social Security's inequities for the poor, minorities, and women by offering everyone ownership, independence, and access to wealth.

(b) PURPOSES- The Congress finds that it must act to reform the Social Security system so that--

(1) Social Security benefits are not changed for current retirees and near-retirees;

(2) payroll taxes and other Social Security taxes are not increased;

(3) Social Security surpluses are not used for other programs;

(4) Social Security taxes are only used to benefit workers;

(5) the Government will not invest in the stock market;

(6) Social Security's disability and survivors components are maintained;

(7) the current Social Security safety net is preserved and strengthened through individually owned, voluntary personal savings accounts;

(8) the current safety net is strengthened to give all workers with a personal savings account the opportunity to receive more than their currently promised benefits;

(9) low-income workers will be allowed to save a larger portion of their payroll taxes than higher income workers, helping many low-income Americans accumulate savings sufficient to pay retirement income higher than the current system;

(10) younger workers are empowered with generous savings that offer them the ability to completely own their retirement benefits;

(11) the transition to a funded system is financed from the general budget, which has taken money from Social Security for years; and

(12) the long-term solvency of the system is guaranteed for at least 75 years, and cash-flow deficits are completely eliminated, making Social Security permanently self-sustaining.

SEC. 3. INDIVIDUAL SOCIAL SECURITY ACCOUNT PROGRAM AND INDIVIDUAL SOCIAL SECURITY ACCOUNTS.

(a) IN GENERAL- Title II of the Social Security Act is amended--

(1) by inserting before section 201 the following:

`Part A--Insurance Benefits';

and

(2) by adding at the end the following new part:

`Part B--Individual Social Security Account Program

`DEFINITIONS

`SEC. 251. For purposes of this part--

`(1) ELIGIBLE INDIVIDUAL- The term `eligible individual' means an individual described in section 255(a) with respect to whom an election filed under section 255(b) renouncing such status has not been filed or has not taken effect, or with respect to whom an election filed under section 255(c) reinstating such status has taken effect.

`(2) ACCOUNT OWNER- The term `account owner' means an eligible individual holding an individual social security account.

`(3) INDIVIDUAL SOCIAL SECURITY ACCOUNT- The term `individual social security account' means an account established under section 256.

`(4) ACCOUNT- The term `account' means an individual social security account.

`(5) ACCOUNT BALANCE- The term `account balance' means, in connection with an individual social security account, the amount in the Savings Fund credited to such account.

`(6) SAVINGS FUND- The term `Savings Fund' means the Social Security Personal Savings Fund established under section 252.

`(7) EXECUTIVE DIRECTOR- The term `Executive Director' means the Executive Director appointed under section 253.

`(8) BOARD- The term `Board' means the Personal Savings Board established under section 252.

`(9) DISTRIBUTION BASE- The term `distribution base' has the meaning provided such term under section 260(c).

`(10) ELIGIBILITY FOR MONTHLY INSURANCE BENEFITS- An individual shall be deemed `eligible' for a benefit under section 202 for a month if, upon filing application therefor in such month, such individual would be entitled to such benefit for such month.

`PERSONAL SAVINGS BOARD

`SEC. 252. (a) ESTABLISHMENT- There is established in the executive branch of the Government a Personal Savings Board.

`(b) COMPOSITION- The Board shall be composed of--

`(1) 3 members appointed by the President, of whom 1 shall be designated by the President as Chairman; and

`(2) 2 members appointed by the President, of whom--

`(A) 1 shall be appointed by the President after taking into consideration the recommendation made by the Speaker of the House of Representatives in consultation with the Minority Leader of the House of Representatives; and

`(B) 1 shall be appointed by the President after taking into consideration the recommendation made by the Majority Leader of the Senate in consultation with the Minority Leader of the Senate.

`(c) ADVICE AND CONSENT- Appointments under subsection (b) shall be made by and with the advice and consent of the Senate.

`(d) MEMBERSHIP REQUIREMENTS- Members of the Board shall have substantial experience, training, and expertise in the management of financial investments and pension benefit plans.

`(e) LENGTH OF APPOINTMENTS-

`(1) TERMS- A member of the Board shall be appointed for a term of 4 years, except that of the members first appointed under subsection (b)--

`(A) the Chairman shall be appointed for a term of 4 years;

`(B) the members appointed under subsection (b)(2) shall be appointed for terms of 3 years; and

`(C) the remaining members shall be appointed for terms of 2 years.

`(2) VACANCIES-

`(A) IN GENERAL- A vacancy on the Board shall be filled in the manner in which the original appointment was made and shall be subject to any conditions that applied with respect to the original appointment.

`(B) COMPLETION OF TERM- An individual chosen to fill a vacancy shall be appointed for the unexpired term of the member replaced.

`(3) EXPIRATION- The term of any member shall not expire before the date on which the member's successor takes office.

`(f) DUTIES- The Board shall--

`(1) administer the program established under this part;

`(2) establish policies for the investment and management of the Savings Fund, including policies applicable to the outside entities and qualified professional asset managers with responsibility for managing the investment of account balances under section 258, that shall provide for--

`(A) prudent investments suitable for accumulating funds for payment of retirement income; and

`(B) low administrative costs.

`(3) review the performance of investments made for the Savings Fund;

`(4) review and approve the budget of the Board; and

`(5) comply with the provisions of section 263.

`(g) ADMINISTRATIVE PROVISIONS-

`(1) IN GENERAL- The Board may--

`(A) adopt, alter, and use a seal;

`(B) except as provided in paragraph (2), direct the Executive Director to take such action as the Board considers appropriate to carry out the provisions of this part and the policies of the Board;

`(C) upon the concurring votes of 4 members, remove the Executive Director from office for good cause shown;

`(D) provide to the Executive Director such resources as are necessary to carry out the requirements of section 253; and

`(E) take such other actions as may be necessary to carry out the functions of the Board.

`(2) MEETINGS- The Board shall meet--

`(A) not less than once during each month; and

`(B) at additional times at the call of the Chairman.

`(3) EXERCISE OF POWERS-

`(A) IN GENERAL- Except as provided in paragraph (1)(C) and section 253(a)(1), the Board shall perform the functions and exercise the powers of the Board on a majority vote of a quorum of the Board. Three members of the Board shall constitute a quorum for the transaction of business.

`(B) VACANCIES- A vacancy on the Board shall not impair the authority of a quorum of the Board to perform the functions and exercise the powers of the Board.

`(4) LIMITATION ON INVESTMENTS- Except in the case of investments required by section 258 to be invested in special Trust Fund obligations, the Board may not direct the Executive Director or any account trustee to invest or to cause to be invested

any sums in the Savings Fund in a specific asset or to dispose of or cause to be disposed of any specific asset of the Savings Fund.

`(h) COMPENSATION-

`(1) IN GENERAL- Each member of the Board who is not an officer or employee of the Federal Government shall be compensated at the daily rate of basic pay for level IV of the Executive Schedule for each day during which such member is engaged in performing a function of the Board.

`(2) EXPENSES- A member of the Board shall be paid travel, per diem, and other necessary expenses under subchapter I of chapter 57 of title 5, United States Code, while traveling away from such member's home or regular place of business in the performance of the duties of the Board.

`(3) SOURCE OF FUNDS- Payments authorized under this subsection shall be paid from the Savings Fund.

`(i) DISCHARGE OF RESPONSIBILITIES- The members of the Board shall discharge their responsibilities solely in the interest of account owners and beneficiaries under this part.

`(j) ANNUAL INDEPENDENT AUDIT- The Board shall annually engage an independent qualified public accountant to audit the activities of the Board.

`(k) SUBMISSION OF BUDGET TO CONGRESS- The Board shall prepare and submit to the President, and, at the same time, to the appropriate committees of Congress, an annual budget of the expenses and other items relating to the Board which shall be included as a separate item in the budget required to be transmitted to Congress under section 1105 of title 31, United States Code.

`(l) SUBMISSION OF LEGISLATIVE RECOMMENDATIONS- The Board may submit to the President, and, at the same time, shall submit to each House of Congress, any legislative recommendations of the Board relating to any of its functions under this part or any other provision of law.

`EXECUTIVE DIRECTOR

`SEC 253. (a) APPOINTMENT OF EXECUTIVE DIRECTOR-

`(1) IN GENERAL- The Board shall appoint, without regard to the provisions of law governing appointments in the competitive service, an Executive Director by action agreed to by a majority of the members of the Board.

`(2) REQUIREMENTS- The Executive Director shall have substantial experience, training, and expertise in the management of financial investments and pension benefit plans.

`(b) DUTIES- The Executive Director shall--

`(1) carry out the policies established by the Board;

`(2) invest and manage the Savings Fund in accordance with the investment policies and other policies established by the Board;

`(3) provide for the distribution of individual social security account balances in accordance with this part (including the purchase of annuity contracts with assets of the Savings Fund to the extent provided under section 260(b)(5));

`(4) administer the provisions of this part relating to the Savings Fund; and

`(5) prescribe such regulations (other than regulations relating to fiduciary responsibilities) as may be necessary for the administration of this part relating to the Savings Fund.

`(c) ADMINISTRATIVE AUTHORITY- The Executive Director may--

`(1) appoint such personnel as may be necessary to carry out the provisions of this part relating to the Savings Fund;

`(2) subject to approval by the Board, procure the services of experts and consultants under section 3109 of title 5, United States Code;

`(3) secure directly from an Executive agency, the United States Postal Service, or the Postal Rate Commission any information necessary to carry out the provisions of this part and the policies of the Board relating to the Savings Fund;

`(4) make such payments out of sums in the Savings Fund as the Executive Director determines are necessary to carry out the provisions of this part and the policies of the Board;

`(5) pay the compensation, per diem, and travel expenses of individuals appointed under paragraphs (1), (2), and (6) from the Savings Fund;

`(6) accept and use the services of individuals employed intermittently in the Government service and reimburse such individuals for travel expenses, authorized by section 5703 of title 5, United States Code, including per diem as authorized by section 5702 of such title;

`(7) except as otherwise expressly prohibited by law or the policies of the Board, delegate any of the Executive Director's functions to such employees under the Board as the Executive Director may designate and authorize such successive redelegations of such functions to such employees under the Board as the Executive Director may consider to be necessary or appropriate; and

`(8) take such other actions as are appropriate to carry out the functions of the Executive Director.

`SOCIAL SECURITY PERSONAL SAVINGS FUND

`SEC. 254. (a) ESTABLISHMENT OF SAVINGS FUND- There is established in the Treasury of the United States a Social Security Personal Savings Fund, consisting of all amounts transferred to or deposited in the Savings Fund in accordance with section 257, increased by the total net earnings from investments of sums in the Savings Fund or reduced by the total net losses from investments of the Savings Fund, and reduced by the total amount of payments made from the Savings Fund (including payments for administrative expenses).

`(b) AVAILABILITY- The sums in the Savings Fund are appropriated and shall remain available without fiscal year limitation--

`(1) to invest under section 258;

`(2) to make distributions in accordance with sections 260 and 261;

`(3) to pay the administrative expenses of the Board; and

`(4) to purchase insurance as provided in section 263(c).

`(c) LIMITATIONS ON USE OF FUNDS-

`(1) IN GENERAL- Sums in the Savings Fund credited to an individual social security account in the Savings Fund may not be used for, or diverted to, purposes other than for the exclusive benefit of the account owner or the account owner's beneficiaries under this part.

`(2) ASSIGNMENTS- Except as provided in paragraph (3), sums in the Savings Fund may not be assigned or alienated and are not subject to execution, levy, attachment, garnishment, or other legal process.

`(3) SUPPORT OBLIGATIONS- Moneys due or payable from the Savings Fund to any account owner shall be subject to legal process for the enforcement of the account owner's legal obligations to provide child support or make alimony payments as provided in section 459 or for the enforcement of a court order or other similar process in the nature of a garnishment for the enforcement of a judgment rendered against the account owner for physically, sexually, or emotionally abusing a child.

`(d) PAYMENT OF ADMINISTRATIVE EXPENSES- Administrative expenses incurred to carry out this part shall be paid out of net earnings in the Savings Fund in conjunction with the allocation of investment earnings and losses under section 256(c).

`(e) LIMITATION- The sums in the Savings Fund shall not be appropriated for any purpose other than the purposes specified in this section and may not be used for any other purpose.

`ELIGIBLE INDIVIDUALS

`Sec. 255. (a) STATUS AS ELIGIBLE INDIVIDUAL- Except as otherwise provided in this section, any individual who--

`(1) was born on or after January 1, 1950,

`(2) has attained age 18, and

`(3) has been assigned a social security account number under section 205(c),

shall be an eligible individual under this part.

`(b) RENUNCIATION OF STATUS AS ELIGIBLE INDIVIDUAL-

`(1) IN GENERAL- Within 540 days after the later of January 1, 2005, or the date on which an eligible individual first meets all requirements of subsection (a), such individual may elect to renounce such individual's status under this part as an `eligible individual' by filing an election under this subsection.

`(2) REQUIREMENTS- An election under this subsection must be filed with the Commissioner, in such form and manner as shall be prescribed in regulations of the Commissioner, and shall consist of a written and signed declaration of such individual's intention to renounce such individual's status as an eligible individual under this part. The Commissioner shall provide for immediate notification to the Board and the Executive Director of such election.

`(3) TERMINATION OF STATUS- An election under this subsection shall be effective with respect to wages earned, and self-employment income derived, on or after January 1 following the date of the filing of the election. On and after the effective date of the election the individual filing the election shall cease to be an eligible individual under this part, any individual social security account established for such individual shall be closed, and any balance in such account shall be paid into the Federal Old-Age and Survivor's Insurance Trust Fund as general receipts.

`(c) REINSTATEMENT-

`(1) IN GENERAL- Any individual who has filed an election under subsection (b) to renounce such individual's status as an eligible individual under this part may elect under this subsection to reinstate such individual's status as an eligible individual.

`(2) REQUIREMENTS- An election by an individual under this subsection must be filed with the Commissioner, in such form and manner as shall be prescribed in regulations of the Commissioner, consisting of a written and signed declaration of such individual's intention to reinstate such individual's status as an eligible individual under this part. Such regulations shall provide for regular, periodic opportunities for the filing of such an election. The Commissioner shall provide for immediate notification to the Board and the Executive Director of such election.

`(3) TERMINATION OF STATUS- An election under this subsection shall be effective with respect to wages earned, and self-employment income derived, on or after January 1 following the date of the filing of the election. The individual filing the election shall be treated as becoming an eligible individual under this part on the effective date of the election as if such individual first met the requirements of subsection (a) on such date.

`(4) IRREVOCABILITY- An election under this subsection shall be irrevocable.

`INDIVIDUAL SOCIAL SECURITY ACCOUNTS

`SEC. 256. (a) ESTABLISHMENT OF A PUBLICLY ADMINISTERED SYSTEM OF INDIVIDUAL SOCIAL SECURITY ACCOUNTS- As soon as practicable after the later of January 1, 2004, or the date on which an individual becomes an eligible individual under this part, the Executive Director shall establish in the Savings Fund an individual social security account for such individual. Each account shall be identified to its account owner by means of the account owner's social security account number. The Savings Fund shall accept any prescribed social security deposit made with respect to any eligible individual as provided in section 257. The Executive Director shall credit such deposit to such individual's individual social security account.

`(b) ACCOUNT BALANCE- The balance in an account owner's account at any time is the excess of--

`(1) the sum of all deposits and contributions described in subsection (a) credited to such account, subject to such increases and reductions as may result from allocations made to and reductions made in the account pursuant to subsection (c), over

`(2) amounts credited to such account and paid out of the Savings Fund with respect to such account owner under this part.

`(c) ALLOCATION OF EARNINGS AND LOSSES- Pursuant to regulations which shall be prescribed by the Board, the Executive Director shall allocate to each individual social security account an amount equal to the net earnings and net losses from each investment of sums in the Social Security Personal Savings Fund which are attributable, on a pro rata basis, to sums credited to such account, reduced by an appropriate share of the administrative expenses paid out of the net earnings, as determined by the Executive Director.

`PRESCRIBED SOCIAL SECURITY DEPOSITS

`SEC. 257. (a) IN GENERAL- As soon as practicable, the Secretary of the Treasury shall transfer amounts equivalent to 100 percent of the prescribed social security deposit for each eligible individual for each year from the Federal Old-Age and Survivors Insurance Trust Fund to the Social Security Personal Savings Fund, for subsequent crediting with respect to such individual under section 256. Such transfers shall be made in periodic installments, such installments to be determined, to the extent necessary, on the basis of estimates by the Commissioner of Social Security of wages and self-employment income, which shall be certified to the Secretary of the Treasury. Proper adjustments shall be made in amounts transferred for subsequent periods to the extent that amounts transferred for prior periods were greater or less than the proper amounts. Upon determining the actual amount of the prescribed social security deposit for an eligible individual for each year, the Executive Director shall promptly credit such amount to such individual's individual social security account under section 256. Prior to such crediting of amounts held in the Savings Fund to individual social security accounts, such amounts shall be invested by the Executive Director as provided in section 258 in accordance with regulations of the Board.

`(b) PRESCRIBED SOCIAL SECURITY DEPOSITS- For purposes of this part, the prescribed social security deposit for an eligible individual for any calendar year is an amount equal to the sum of--

`(1) the product derived by multiplying--

`(A) such individual's wages paid, and self-employment income derived, in such calendar year (as certified to the Secretary of the Treasury by the Commissioner of Social Security) not in excess of the contribution and benefit base for such calendar year, by

`(B) such individual's transfer percentage for such calendar year, and

`(2) the net return on the investment, in accordance with section 258, of amounts equivalent to the product determined under paragraph (1) during the period such amounts were held in the Savings Fund prior to deposit in such individual's individual social security account.

`(c) TRANSFER PERCENTAGE- For purposes of subsection (b)(1)(B), the term `transfer percentage' of an individual for a calendar year means the excess of--

`(1) 8.00 percent, over

`(2) the product derived by multiplying--

`(A) 5.00 percent, by

`(B) a fraction--

`(i) the numerator of which is the amount of such individual's wages paid, and self-employment income derived, in such calendar year (as certified to the Secretary of the Treasury by the Commissioner of Social Security) not in excess of the contribution and benefit base (determined under section 230) for such calendar year, and

`(ii) the denominator of which is the contribution and benefit base (so determined) for such calendar year,

rounded, if not a multiple of 0.01 percent, to the nearest multiple of 0.01 percent.

`INVESTMENTS IN COMMON STOCK AND GOVERNMENT OBLIGATIONS

`SEC. 258. (a) IN GENERAL- Any balance held in an individual social security account under this part and the balance of any other amounts held by the Savings Fund which are not necessary for immediate withdrawal shall be invested as provided in this section.

`(b) INVESTMENT MIX BETWEEN STOCK AND BONDS- Except to the extent otherwise elected by the account owner under subsection (e) with respect to the balance credited to the account owner's account, the Executive Director shall invest each balance referred to in subsection (a) under regulations which shall be prescribed by the Board so as to ensure, to the maximum extent practicable, that, of the total balance available for investment (after allowing for administrative expenses)--

`(1) 35 percent is invested in United States Government obligations in accordance with subsection (c), and

`(2) the remainder is invested in common stock in accordance with subsection (d).

`(c) INVESTMENT IN SOCIAL SECURITY TRANSITION BONDS AND OTHER UNITED STATES TREASURY OBLIGATIONS-

`(1) PURCHASE BY THE BOARD OF SOCIAL SECURITY TRANSITION BONDS- To the extent necessary to provide for investment of the portion of the account balance required to be invested as provided in subsection (b)(1), the Executive Director shall purchase Social Security Transition Bonds made available by the Managing Trustee of the Federal Old-Age and Survivors Insurance Trust Fund for purchase pursuant to paragraph (2) .

`(2) ISSUANCE OF BONDS- To the extent determined necessary by the Managing Trustee of the Federal Old-Age and Survivors Insurance Trust Fund to avoid a negative cash flow for such Trust Fund, the Managing Trustee shall issue special obligations of such Trust Fund (to be known as `Social Security Transition Bonds') for purchase by the Executive Director under paragraph (1), in such forms and denominations, bearing such maturities, and subject to such terms and conditions as may be prescribed by the Managing Trustee.

`(3) PURCHASE OF OUTSTANDING MARKETABLE LONG-TERM TREASURY SECURITIES- To the extent that purchase of Social Security Transition Bonds made available pursuant to paragraph (2) is insufficient to provide for investment in full of the portion of the account balance required to be invested as provided in subsection (b)(1), the Executive Director shall invest the account balance in United States Treasury bills issued under chapter 31 of title 31, United States Code, bearing interest at a rate at least equal to the average market yield (computed by the Managing Trustee on the basis of market quotations as of the end of the calendar month next preceding the date of issue of such obligations) on all marketable interest-bearing obligations of the United States then forming a part of the public debt which are not due or callable earlier than 4 years after the end of such calendar month.

`(d) INVESTMENT IN COMMON STOCK-

`(1) IN GENERAL- The Board shall establish by regulation standards which must be met by common stock selected for investment of the portion of any balance required to be invested in common stock under subsection (b).

`(2) STANDARD OPTION- In conformity with such standards, the Board shall select, for purposes of such investment, an index which is a commonly recognized index comprised of common stock the aggregate market value of which is a reasonably complete representation of the United States equity markets. Except to the extent otherwise elected by an account owner under subsection (e) with respect to the balance credited to the account owner's account, the amount of any balance which is required to be invested in common stock under subsection (b)(2) shall be invested in a portfolio designed to replicate the performance of such index. Such portfolio shall be referred to as the `Standard Option' for such calendar year.

`(e) ANNUAL OPPORTUNITY TO ELECT ALTERNATIVE INVESTMENT OPTIONS-

`(1) ELECTION OF APPLICABLE PORTFOLIOS-

`(A) IN GENERAL- In any case in which, as of the end of the second quarter of any calendar year, the balance of an individual social security account exceeds the election threshold specified in subparagraph (B) for such calendar year, the Board shall provide by regulation for an opportunity, during the third quarter of such calendar year, for such account owner to elect one or both portfolios described in paragraph (2) as applicable portfolios, in connection with such account, for the following calendar year, in lieu of or in addition to the Standard Option. In the case of such an election, amounts in the account invested in stock shall be allocated during such calendar year among the portfolio or portfolios so elected for such calendar year, in percentages specified in the election by the account owner for each applicable portfolio.

`(B) ELECTION THRESHOLD- The election threshold specified in this subparagraph for calendar year 2005 is $5,000. The Executive Director shall, on or before November 1 of 2005 and of every year thereafter, determine and publish in the Federal Register the election threshold for the succeeding calendar year. Such election threshold shall be the larger of--

`(i) the amount in effect for the calendar year in which the determination under this subparagraph is made, or

`(ii) the product of $5,000 and the ratio of the national average wage index (as defined in section 209(k)(1)) for the calendar year before the year in which the determination under this subparagraph is made to the national average wage index (as so defined) for 2003,

with such product, if not a multiple of $10, being rounded to the next higher multiple of $10 where such amount is a multiple of $5 but not of $10 and to the nearest multiple of $10 in any other case.

`(2) ADDITIONAL OPTIONS- For purposes of paragraph (1)--

`(A) SMALL CAPITALIZATION OPTION- The Board shall select an index which is a commonly recognized index comprised of small capitalization stock the aggregate market value of which is a representation of publicly held companies whose shares are traded on the small capitalization equity markets of the United States. The Board shall select for each calendar year a portfolio of stock included in such index designed to replicate the performance of such index. Such portfolio shall be referred to as the `Small Capitalization Option' for such calendar year. The portfolio shall be designed such that, to the extent practicable, the percentage of the total amount of the Savings Fund invested in such portfolio that is invested in each stock is the same as the percentage determined by dividing the aggregate market value of all shares of that stock by the aggregate market value of all shares of all stocks included in such index.

`(B) MEDIUM CAPITALIZATION OPTION- The Board shall select an index which is a commonly recognized index comprised of medium capitalization stock the aggregate market value of which is a representation of publicly held companies whose shares are traded on the medium capitalization equity markets of the United States. The Board shall select for each calendar year a portfolio of stock included in such index designed to replicate the performance of such index. Such portfolio shall be referred to as the `Medium Capitalization Option' for such calendar year. The portfolio shall be designed such that, to the extent practicable, the percentage of the total amount of the Savings Fund invested in such portfolio that is invested in each stock is the same as the percentage determined by dividing the aggregate market value of all shares of that stock by the aggregate market value of all shares of all stocks included in such index.

`(3) PUBLICATION OF AVAILABLE PORTFOLIOS-

`(A) IN GENERAL- The Board shall publish, prior to the third quarter of each calendar year, the Board's determination of the relative breadth of diversification represented by the Standard Option, the Small Capitalization Option, and the Medium Capitalization Option for the following calendar year pursuant to this subsection.

`(B) DEFAULT PORTFOLIO- The Board shall clearly identify, in each publication of the 3 options for a calendar year, the portfolio which is the Standard Option for such calendar year. In any case in which an account owner fails to make an election for a calendar year for any portion of the balance in the account, the

portfolio so identified by the Board as the Standard Option shall serve as the applicable portfolio for such calendar year in connection with such portion of the account.

`(4) VARIATION FROM THE STANDARD MIX BETWEEN STOCKS AND BONDS- In accordance with regulations of the Board, in connection with any election under paragraph (1) for a calendar year, the account owner may also elect to vary for such calendar year, from the Standard Mix specified in subsection (b), the allocation of the total balance in the account available for investment (after allowing for administrative expenses) between Social Security Transition Bonds and stock.

`(5) ELECTIONS EFFECTIVE FOR SUBSEQUENT YEARS- Any election made under this subsection for any calendar year shall remain in effect for subsequent calendar years until an election providing otherwise is made under this subsection.

`(6) INFORMATIONAL ELECTION FORMS- Elections under this subsection shall be made on a form which shall be prescribed by the Board. Such form shall include a statement, in language formulated so as to be understood by the typical eligible individual, which describes the extent to which risk of loss under the program established under this part may be avoided under section 235 by maintaining investments under the Standard Option and in accordance with the Standard Mix. Each eligible individual who elects to invest in the Small Capitalization Option or the Medium Capitalization Option, or to vary the allocation of investment from the Standard Mix under subsection (b), shall sign an acknowledgement contained in such form which states that the individual understands that, while there is a chance that an election to invest in either such option or an election of such a variance may result in increased returns on investment, such an election is made at the individual's risk, that the individual is not protected against any loss on such investment or by reason of such variance, and that a return on any such investment is not guaranteed by the Government.

`(f) LIMITATION ON VOTING RIGHTS- The Board, the Executive Director, and any account owner may not exercise voting rights associated with the ownership of securities held in the Savings Fund.

`ACCOUNTING AND INFORMATION

`SEC. 259. (a) ANNUAL, INDEPENDENT AUDITS-

`(1) INDEPENDENT ACCOUNTANT- The Executive Director shall annually engage, on behalf of all account owners under this part, an independent qualified public accountant, who shall conduct an examination of all accounts and other books and records maintained by the Executive Director under this part as the public accountant considers necessary to enable the public accountant to make the determination required by paragraph (2). The examination shall be conducted in accordance with generally accepted auditing standards and shall involve such tests of the accounts, books, and records as the public accountant considers necessary.

`(2) DETERMINATION REQUIRED- The public accountant conducting an examination under paragraph (1) shall determine whether the accounts, books, and records referred to in such paragraph have been maintained in conformity with generally accepted accounting principles applied on a basis consistent with the manner in which such principles were applied during the examination conducted under such paragraph during the preceding year. The public accountant shall transmit to the Board a report on his examination, including his determination under this paragraph.

`(3) RELIANCE ON ACTUARIAL MATTER- In making a determination under paragraph (2), a public accountant may rely on the correctness of any actuarial matter certified by an accredited actuary if the public accountant states his reliance in the report transmitted to the Board under such paragraph.

`(4) DEFINITION- In this subsection, the term `qualified public accountant' shall have the same meaning as provided in section 103(a)(3)(D) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1023(a)(3)(D)).

`(b) STATEMENTS-

`(1) IN GENERAL- The Board shall prescribe regulations under which each account owner under this part shall be furnished by the Executive Director with a periodic statement relating to the account owner's account, setting forth--

`(A) the current account balance,

`(B) a summary description of the investments made pursuant to section 258, and

`(C) an evaluation of the performance of such investments over the 5-year period preceding the date as of which such evaluation is made.

`(2) TIMING- Information under this subsection shall be provided at least annually.

`ACCOUNT DISTRIBUTIONS

`SEC. 260. (a) IN GENERAL- Subject to this part--

`(1) AVAILABILITY OF WITHDRAWALS- On and after the date on which an account owner becomes entitled to old-age insurance benefits under section 202(a), the entire balance in the account owner's individual social security account shall be available for withdrawal in a distribution meeting the requirements of this section.

`(2) DISTRIBUTION OF BALANCES IN EXCESS OF THE DISTRIBUTION BASE- Any amount withdrawn by the account owner pursuant to paragraph (1) which is in excess of the distribution base shall be payable to the account owner in such manner and in such amounts as may be determined by the account owner (in such form and manner as shall be prescribed in regulations of the Board to provide for efficient and effective payment).

`(3) DISTRIBUTION OF BALANCES REPRESENTING THE DISTRIBUTION BASE- On and after the first date as of which an account owner becomes entitled to old-age insurance benefits under section 202(a) and has requested commencement of distribution of the account owner's distribution base, the Executive Director shall provide for withdrawal of the portion of the account balance which is not in excess of the distribution base of the account

owner in accordance with subsections (b) through (e).

`(b) DISTRIBUTION OF AMOUNTS IN DISTRIBUTION BASE IN MONTHLY ANNUITY PAYMENTS-

`(1) IN GENERAL- Except as otherwise provided in this section, effective upon the date referred to in subsection (a)(3), the Executive Director shall transfer so much of the account balance as is not in excess of the distribution base of the account owner from the account owner's account to amounts otherwise held in the Savings Fund. In exchange for the amounts transferred, the Executive Director shall provide, payable from the Saving Fund--

`(A) if the covered individual is not married on such date, an immediate single life annuity for the account owner, payable in monthly installments, or

`(B) if the account owner is married on such date, an immediate annuity for the joint lives of the covered individual and the covered individual's spouse, payable in monthly installments, together with a survivor annuity to the one of them who survives the other of them for the life of the survivor payable in monthly installments equal to 66 2/3 percent of the monthly payment of the annuity that would be payable if both spouses remained alive.

The annuity shall be payable in amounts so as to have an actuarial present value equal to such distribution base, as determined on the basis of generally accepted actuarial assumptions.

`(2) COST OF LIVING ADJUSTMENTS- Any annuity provided for under this subsection shall provide for annual indexing of the monthly payments according to the Consumer Price Index for All Urban Consumers (United States city average), published by the Bureau of Labor Statistics.

`(3) OPTIONAL CASH DISTRIBUTION-

`(A) IN GENERAL- Effective on the date referred to in subsection (a)(3), in lieu of a distribution of the account balance as described in the preceding provisions of this subsection, the

account owner may elect, in such form and manner as shall be prescribed by the Executive Director--

`(i) an annuity determined under this subsection by substituting in paragraph (1) for references to the distribution base references to the reduced distribution base described in subparagraph (B), and

`(ii) a distribution from the account in cash equal to the excess of the balance in the account over such reduced distribution base.

`(B) REDUCTION IN AMOUNT AVAILABLE FOR ANNUITY FORM OF DISTRIBUTION- For purposes of subparagraph (A), the amount of the reduced distribution base is an amount equal to the greater of--

`(i) 35 percent of the balance in the account, or

`(ii) an amount necessary (as determined by the Executive Director) to fund an annuity providing annual payments in the amount of--

`(I) $8,950, in any case in which no individual other than the account owner is eligible for benefits under section 202 based on the wages and self-employment income of the account owner, or

`(II) $12,120, in any other case.

`(C) COST-OF-LIVING ADJUSTMENT- The Secretary shall adjust, for 2005 and for each calendar year thereafter, each dollar amount specified in subparagraph (B)(ii) for increases in the cost-of-living in accordance with regulations prescribed by the Secretary. Such regulations shall provide for an adjustment with respect to each calendar year based on the increase in the Consumer Price Index for All Urban Consumers (United States city average), published by the Bureau of Labor Statistics, for the calendar quarter ending September 30 of the preceding calendar year over such index for the calendar quarter ending September 30, 2003. Any increase under this clause which is not a multiple of $10 shall be rounded to the next higher multiple of $10 where such product is a multiple of $5 but not of $10 and to the nearest multiple of $10 in any other case.

`(D) INVESTMENT OF 35 PERCENT AMOUNT IN BONDS- In the case of a cash distribution under this paragraph, the investment of a portion of the account balance equivalent to the 35 percent amount determined under subparagraph (B)(i) shall remain invested solely in the form described in section 258(d).

`(4) PURCHASE OF ANNUITIES- The Executive Director shall, on an ongoing basis, survey the availability for purchase in the private sector of annuity contracts which would effectively assist in the distribution of individual social security accounts under this subsection. If the Executive Director determines that the return on investment of funds held in the private sector for the purpose of funding such annuity contracts would be (taking into account applicable administrative expenses) at least equivalent to the rate of return on funds held in the Savings Fund pending distribution as described in paragraph (1), the Executive Director shall provide by regulation for the purchase of such annuity contracts as a means of providing for payment of the monthly payment amounts otherwise prescribed under paragraph (2). Any such annuity contract shall provide for investment of amounts held to fund the annuity in the manner prescribed in section 258(b)(1).

`(c) DISTRIBUTION BASE- For purposes of this section, the distribution base of an account owner is the actuarial present value of the expected future benefits payable under section 202 on the basis of the wages and self-employment income of the account owner (determined without regard to section 215(a)(8)). The actuarial present value determined under this subsection shall be determined as of the date described in subsection (a)(3). In

making assumptions under this subsection, the Executive Director shall take into account the reasonably anticipated period for which each beneficiary will remain eligible for benefits under section 202 based on the account owner's wages and self-employment income and the current expected life expectancy of such beneficiary.

`(d) TREATMENT OF DIVORCE, ANNULMENT, AND LEGAL SEPARATION-

`(1) REALLOCATION OF ACCOUNT BALANCES ATTRIBUTABLE TO PRESCRIBED SOCIAL SECURITY DEPOSITS-

`(A) IN GENERAL- Upon the issuance of a court decree of divorce or annulment in the case of an account owner and the account owner's spouse before the date of the commencement of any distribution from the account owner's individual social security account under subsections (a) and (b), 50 percent of the amount in such account which is attributable to prescribed social security deposits under section 257(b) for calendar years ending during the period of marriage (and earnings thereon) shall be transferred from such account to the individual social security account of such spouse. In any case in which the spouse is not an eligible individual, such spouse shall be deemed an eligible individual upon the date of the decree, and the transfer provided for under this paragraph shall be made upon the establishment of the spouse's individual social security account. This paragraph shall apply in connection with such a decree only if notice of such decree was received by the Executive Director before the date of the commencement of the distribution.

`(B) REVOCATION OF STATUS BY SPOUSE- A spouse who is deemed an eligible individual under subparagraph (A) may, during the 540-day period beginning on the date of the decree of divorce or annulment, revoke his or her status as an eligible individual in a form and manner which shall be prescribed in regulations of the Board. Upon such a revocation, the spouse's individual social security account shall be closed and any amounts theretofore deposited in the account shall be transferred to the Federal Old-Age and Survivors Insurance Trust Fund.

`(2) TREATMENT OF ANNUITY PAYMENTS-

`(A) IN GENERAL- Subsections (a) and (b) shall be subject to the terms of any court decree, order, or agreement described in subparagraph (B).

`(B) COURT DECREE, ORDER, OR AGREEMENT DESCRIBED- A court decree, order, or agreement described in this clause is, with respect to an account owner, a court decree of divorce, annulment, or legal separation issued in the case of such account owner and such account owner's spouse or any court order or court-approved property settlement agreement incident to such decree if--

`(i) the decree, order, or agreement expressly relates to any annuity under subsection (b)(3), and

`(ii) notice of the decree, order, or agreement has been received by the Executive Director and, with respect to any annuity payment, such notice was received before the date on which payment is made.

`(3) 2 OR MORE CASES- The Board shall prescribe regulations under which this subsection shall be applied in any case in which the Executive Director receives notice of 2 or more decrees, orders, or agreements referred to in paragraph (1) or (2).

`(e) LUMP-SUM PAYMENT REQUIRED FOR MINIMAL AMOUNTS- Notwithstanding the preceding provisions of this section, if, upon entitlement of an account owner to old-age insurance benefits under section 202(a), the account balance is below $5,000, the entire account balance shall be distributed to the account owner in a single lump-sum amount.

`PAYMENTS UPON DEATH OF ACCOUNT OWNER

`SEC. 261. (a) DISTRIBUTION IN THE ABSENCE OF ELIGIBLE WIDOW OR WIDOWER-

`(1) IN GENERAL- Except as otherwise provided in this section, upon the account owner's death prior to the date described in section 260(a)(3), the account shall be payable in equal monthly installments (subject to paragraph (3)) to each individual (if any) who is a potential beneficiary under section 202 based on the wages and self-employment income of the account owner.

`(2) DETERMINATION OF MONTHLY PAYMENT AMOUNTS-

`(A) IN GENERAL- The amounts payable to each individual under paragraph (1) in connection with an individual social security account shall be determined so that the actuarial present value (as of the date referred to in subsection (a)(3)) of the future payments to each individual bears the same ratio to the actuarial present value (as of such date) of the total amount to be so payable to all individuals in connection with such account as the actuarial present value (as of such date) of the benefits for which such individual is (or will be) eligible based on such wages and self-employment income (determined without regard to section 215(a)(8)) bears to the account owner's distribution base (determined as if the date of the account owner's death were a date described in section 260(a)(3) and without any applicable reduction under section 260(b)(4)).

`(B) ASSUMPTIONS- In determining the monthly amount to be payable to each individual, the Executive Director shall take into account the reasonably anticipated period for which such individual will remain eligible for benefits under section 202 based on the account owner's wages and self-employment income and the current expected life expectancy of such individual.

`(b) TREATMENT OF SURVIVING SPOUSES ELIGIBLE FOR WIDOW'S OR WIDOWER'S INSURANCE BENEFITS-

`(1) IN GENERAL- In any case in which the account owner is survived by a spouse who is an eligible individual and who is also eligible for widow's or widower's insurance benefits under subsection (e) or (f) of section 202 based on the account owner's wages and self-employment income, subsection (a) shall not apply, and the account balance remaining at the time of the account owner's death shall be transferred to the individual social security account of such surviving spouse.

`(2) SPOUSES WHO ARE NOT ELIGIBLE INDIVIDUALS-

`(A) IN GENERAL- In any case in which the surviving spouse is eligible for widow's or widower's insurance benefits under subsection (e) or (f) of section 202 based on the account owner's wages and self-employment income but is not an eligible individual, such spouse shall be deemed an eligible individual upon the date of the account owner's death, and the transfer provided for under this subsection shall be made upon the establishment of the spouse's individual social security account.

`(B) REVOCATION OF STATUS BY SPOUSE- A spouse who is deemed an eligible individual under subparagraph (A) may, during the 540-day period beginning on the date of the account owner's death, revoke his or her status as an eligible individual in a form and manner which shall be prescribed in regulations of the Board. Upon such a revocation, the spouse's individual social security account shall be closed and any amounts theretofore deposited in the account shall be distributed, among all individuals who are potential beneficiaries (including the spouse) under section 202 based on the wages and self-employment income of the deceased account owner, in the same manner as is provided for distributions from the deceased account owner's account under subsection (a).

`(c) TREATMENT OF ACCOUNT BALANCE IN THE ABSENCE OF SURVIVING POTENTIAL BENEFICIARIES- In any case in which, upon the account holder's death, no distribution from the account holder's individual social security account is provided for under subsection (a) or (b), the balance in the account shall be distributed to the estate of the account owner.

`(d) BAR ON OTHER RECOVERIES- A payment made in accordance with subsection (a) shall bar any other recovery by the individual receiving the payment and any other individual.

`TREATMENT OF ACCOUNT BALANCES AND ANNUITIES

`SEC. 262. For purposes of this part, amounts held in individual social security accounts and annuities payable under section 261 shall be treated as the personal property of the account owners and annuitants, respectively, and shall be held in trust by the Board for the account owners and annuitants, respectively.

`FIDUCIARY RESPONSIBILITIES

`SEC. 263. (a) IN GENERAL- Under regulations of the Secretary of Labor, the provisions of sections 8477 and 8478 of title 5, United States Code, shall apply in connection with the Savings Fund and the individual social security accounts maintained in such Fund in the same manner and to the same extent as such provisions apply in connection with the Thrift Savings Fund and accounts maintained in the Thrift Savings Fund.

`(b) INVESTIGATIVE AUTHORITY- Any authority available to the Secretary of Labor under section 504 of the Employee Retirement Income Security Act of 1974 is hereby made available to the Secretary of Labor, and any officer designated by the Secretary of Labor, to determine whether any person has violated, or is about to violate, any provision applicable under subsection (a).

`(c) EXCULPATORY PROVISIONS; INSURANCE-

`(1) IN GENERAL- Any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void.

`(2) INSURANCE- Amounts in the Savings Fund available for administrative expenses shall be available and may be used at the discretion of the Board to purchase insurance to cover potential liability of persons who serve in a fiduciary capacity with respect to the Fund and individual social security accounts maintained therein, without regard to whether a policy of insurance permits recourse by the insurer against the fiduciary in the case of a breach of a fiduciary obligation.'.

(b) CONFORMING AMENDMENTS AND RULE OF CONSTRUCTION-

(1) CONFORMING AMENDMENTS-

(A) The Social Security Act is amended--

(i) in part A of title II (as redesignated by subsection (a)), by striking `this title' each place it appears and inserting `this part';

(ii) by striking `title II' each place it appears (except in sections 1110(a)(3), 1129A(d)(2), 1136(g), 1147(a)(1), 1148(h)(4)(A), 1148(j)(1)(A), 1148(k), 1612(b)(8), and 1613(a)(10)) and inserting `part A of title II';

(iii) by striking `title II or XVI' each place it appears in sections 1110(a)(3), 1129A(d)(2), and 1136(g) and inserting `part A of title II or title XVI'; and

(iv) by striking `title II or VIII' in section 1147(a)(1) and inserting `part A of title II or title VIII'.

(B) The Internal Revenue Code of 1986 is amended by striking `title II' each place it appears (except in sections 142(h)(1), 410(b)(3)(B), 451(d), 912(1)(C), and 912(2)) and inserting `part A of title II'.

(C) The Railroad Retirement Act of 1974 is amended by striking `title II' each place it appears (except in sections 15(a) and 19(c)(3)) and inserting `part A of title II'.

(2) RULE OF CONSTRUCTION- In each provision of Federal law (other than provisions amended or added by the amendments made by this Act), any reference to title II of the Social Security Act shall be

deemed a reference to part A of title II of such Act (as redesignated by subsection (a)).

SEC. 4. CONFORMING ADJUSTMENTS TO MONTHLY INSURANCE BENEFITS.

(a) IN GENERAL- Part A of title II of the Social Security Act (as amended by section 3 of this Act) is amended by adding after section 234 the following new section:

`PART B OFFSETS TO MONTHLY INSURANCE BENEFITS

`Benefit Reductions

`SEC. 235. (a) Notwithstanding the preceding provisions of this part, for purposes of determining any benefit under this part for any month based on the wages and self-employment income of an individual who is an eligible individual under part B, the Executive Director appointed under section 253 shall determine and certify to the Commissioner of Social Security the total amount of monthly payments which would be payable for such month under part B, from amounts in the Social Security Savings Fund allocated to such individual's individual social security account, in the distribution of amounts not in excess of such individual's distribution base, if the investment in stock of amounts allocated to such account had been invested solely under the Standard Option described in section 258(c)(2) and solely in accordance with the Standard Mix under section 258(b). Such determination shall be made, irrespective of the extent to which such amounts may have been invested under the Small Capitalization Option or Medium Capitalization Option described in section 258(e)(2) or a variance from the Standard Mix may have been elected under section 258(e)(4). The Commissioner shall reduce such benefit by the amount of the applicable part B offset in connection with such individual applicable to such benefit.

`Applicable Part B Offset

`(b)(1) For purposes of subsection (a), the applicable part B offset is--

`(A) in the case of a benefit based on the wages and self-employment income of an individual born on or after January 1, 1981, the full part B offset in connection with such individual allocable to such benefit, determined under paragraph (2), or

`(B) in the case of a benefit based on the wages and self employment income of an individual born before January 1, 1981, the reduced part B offset in connection with such individual allocable to such benefit, determined under paragraph (3).

`(2) For purposes of paragraph (1)(A), the full part B offset in connection with an individual allocable to a monthly insurance benefit under this part is the portion of the total amount of monthly payments payable for such month under part B in the distribution of amounts not in excess of such individual's distribution base which bears the same ratio to such total amount as the amount of such benefit bears to the total of benefits payable for such month under this part on the basis of such individual's wages and self-employment income.

`(3)(A) For purposes of paragraph (1)(B) the reduced part B offset in connection with an individual allocable to a monthly insurance benefit under this part is the product derived by multiplying--

`(i) the portion of the total amount described in subsection (a) which would be payable for such month under part B in the distribution of amounts not in excess of such individual's distribution base which bears the same ratio to such total amount as the amount of such benefit bears to the total of benefits payable for such month under this part on the basis of such individual's wages and self-employment income, by

`(ii) the reduction factor determined under subparagraph (B) in connection with such individual.

`(B) The reduction factor determined under this subparagraph, in connection with any individual, is the excess of--

`(i) 1, over

`(ii) the product derived by multiplying--

`(I) 0.0033 1/3 , by

`(II) the number of calendar years during the period beginning with the calendar year in which such individual was born and ending with calendar year 1980.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply with respect to benefits for months after November 2004.

SEC. 5. MAINTENANCE OF ADEQUATE BALANCES IN THE SOCIAL SECURITY TRUST FUNDS.

(a) IN GENERAL- Section 201 of the Social Security Act (42 U.S.C. 401) is amended by adding at the end the following new subsection:

`(n) In addition to amounts otherwise appropriated under the preceding provisions of this section to the Trust Funds established under this section, there is hereby appropriated for each fiscal year to each of such Trust Funds, from amounts in the general fund of the Treasury not otherwise appropriated, such sums as may be necessary from time to time to maintain the balance ratio (as defined in section 709(b)) of such Trust Fund, for the calendar year commencing during such fiscal year, at not less than 100 percent. The sums to be appropriated under the preceding sentence shall be determined by the Commissioner of Social Security and certified by the Commissioner to each House of the Congress not later than October 1 of such fiscal year. In making such determination and certification, the Commissioner shall use the intermediate actuarial assumptions used by the Board of Trustees of the Trust Funds in its most recent annual report to the Congress prepared pursuant to subsection (c)(2). The Commissioner shall also transmit a copy of any such certification to the Secretary of the Treasury, and upon receipt thereof, such Secretary shall promptly take appropriate actions in accordance with the certification.'.

(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply with respect to fiscal years beginning after the date of the enactment of this Act.

SEC. 6. TAXATION OF INDIVIDUAL SOCIAL SECURITY ACCOUNT PROGRAM.

(a) IN GENERAL- Subchapter F of chapter 1 of the Internal Revenue Code of 1986 (relating to exempt organizations) is amended by adding at the end the following new part:

`PART IX--INDIVIDUAL SOCIAL SECURITY ACCOUNT PROGRAM

`Sec. 531. Social Security Personal Savings Fund and individual social security accounts.

`SEC. 531. SOCIAL SECURITY PERSONAL SAVINGS FUND AND INDIVIDUAL SOCIAL SECURITY ACCOUNTS.

`(a) EXEMPTION FROM TAX- The Social Security Personal Savings Fund, and each individual social security account, is exempt from taxation under this subtitle. Notwithstanding the preceding sentence, such Fund and accounts are subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).

`(b) DISTRIBUTIONS FROM INDIVIDUAL SOCIAL SECURITY ACCOUNTS-

`(1) DISTRIBUTIONS ON ACCOUNT OF DEATH- Any distribution from an individual social security account on account of the death of the account owner shall not be includible in gross income.

`(2) INCOME INCLUSION AS SOCIAL SECURITY BENEFITS-

`(c) INDIVIDUAL SOCIAL SECURITY ACCOUNTS- For purposes of this section, the term `individual social security account' means an account established under section 256 of the Social Security Act.'.

(b) DISTRIBUTIONS TAXED AS SOCIAL SECURITY BENEFIT- Paragraph (1) of section 86(d) of such Code (defining social security benefit) is amended by striking `or' at the end of subparagraph (A), by redesignating subparagraph (B) as subparagraph (C), and by inserting after subparagraph (A) the following new subparagraph:

`(B) a distribution under section 260 of the Social Security Act, or'.

(c) CONFORMING AMENDMENT- The table of parts for Subchapter F of chapter 1 of such Code is amended by adding at the end the following new item:

`Part IX. Individual social security account program.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2004.

SEC. 7. REPORT ON PRIVATE SECTOR INVESTMENT AND MANAGEMENT.

(a) STUDY- As soon as practicable after the date of the enactment of this Act, the Social Security Advisory Board shall undertake a study of the manner and extent to which, upon attainment of balances in individual social security accounts sufficient to minimize the administrative costs involved, investment of amounts held in such accounts may be managed in the private sector by approved account managers. In carrying out the study, the Advisory Board shall consult with such public and private entities as it deems necessary and appropriate.

(b) REPORT- Not later than 5 years after the date of the enactment of this Act, the Social Security Advisory Board shall report to each House of the Congress and to the President the results of the study required under subsection (a). Such report shall include such recommendations for administrative and legislative changes as the Board may consider appropriate.

SEC. 8. MAINTENANCE OF CURRENT LEVELS OF FICA AND SECA TAXES.

Nothing in this Act shall be construed to affect the levels of taxes under chapter 21 of the Internal Revenue Code of 1986 (the Federal Insurance Contributions Act) or chapter 2 of such Code (the Self-Employment Contributions Act of 1954).

END