Close
  • Latest News
  • Cybersecurity
  • Big Data and Analytics
  • Cloud
  • Mobile
  • Networking
  • Storage
  • Applications
  • IT Management
  • Small Business
  • Development
  • Database
  • Servers
  • Android
  • Apple
  • Innovation
  • Blogs
  • PC Hardware
  • Reviews
  • Search Engines
  • Virtualization
Read Down
Sign in
Close
Welcome!Log into your account
Forgot your password?
Read Down
Password recovery
Recover your password
Close
Search
Menu
Search
  • Latest News
  • Cybersecurity
  • Big Data and Analytics
  • Cloud
  • Mobile
  • Networking
  • Storage
  • Applications
  • IT Management
  • Small Business
  • Development
  • Database
  • Servers
  • Android
  • Apple
  • Innovation
  • Blogs
  • PC Hardware
  • Reviews
  • Search Engines
  • Virtualization
More
    Home Applications
    • Applications
    • Database
    • IT Management
    • Networking

    Technology May Hold Back Social Security

    By
    Larry Dignan
    -
    April 1, 2005
    Share
    Facebook
    Twitter
    Linkedin

      AARP runs television spots panning the idea of allowing tens of millions of U.S. citizens to establish private accounts for their retirement, as part of the federal Social Security program.

      President Bush travels the country pitching these accounts as a way to modernize the system.

      Meanwhile, think tanks are busy trying to weigh the policy implications of any Social Security tweaks.

      But while debate still roars about whether the program is in danger of running out of money by 2041, as the Social Security Administration estimates, none of the aforementioned parties have pondered the technology investment needed to make private accounts a reality.

      What would this information system look like? How long would it take to build a system to manage private accounts? What are the hurdles in data management?

      “Those are big questions,” says Virginia Reno, vice president of income security at the National Academy of Social Insurance, a think tank that examines social insurance policy. “I dont think many [people] are looking for answers.”

      Currently, the biggest idea about reforming Social Security revolves around allowing the 159 million workers currently covered to divert 2 percent to 4 percent of the 15.3 percent tax paid on income to private accounts.

      The goal? Close a $4 trillion unfunded liability in current dollars through 2079.

      In theory, these accounts would earn a better return than Social Security, whose assets will be depleted in 2041, according to the 2005 annual report from Social Securitys board of trustees, released March 23.

      Indeed, a report commissioned by President Bush on ways to strengthen Social Security, released in December 2001, didnt mention information technology once.

      Mark Lassiter, press officer for the SSA (Social Security Administration), says pondering the technology needed to handle private accounts is “premature” given that the proposals are still being formed.

      “In politics, you often decide what to do and then ask how to do it,” says Dallas Salisbury, CEO of think tank Employee Benefit Research Institute. “Its as if the question of how to do it is not being asked.”

      One thing is certain: Social Security reform would require heavy lifting on the IT side. And Bush has said he wants private accounts in place by 2009. Hitting that target is increasingly unlikely.

      “If the SSA built a system [for tracking private accounts] itself, it would take at least three to five years to build,” says Marcus Fedeli, manager of federal opportunity products at Input, a consulting firm. “Thats conservative. It could take three years just to design the system.”

      In the meantime, the key information management issues are:

      Challenge: Designing the system

      Fix: Limit options

      When current Social Security processes are compared to what would happen if private accounts are adopted, the complexity becomes apparent.

      Today, SSA systems account for a limited number of data inputs.

      Is the beneficiary alive? Whats the age? Are there dependents? Is there a divorce?

      Once those questions are answered, they are matched to rules and formulas, and a check is sent.

      Private accounts introduce moving parts.

      What percentage of funds will be invested in a private account? Did the allocation change this quarter? Should the accounts be paid in an annuity if below a set level or taken in a lump sum? This information would probably be collected quarterly.

      And money needs to go to accounts faster.

      Currently, it can take 18 months to reconcile individual contributions to Social Security, Salisbury says.

      That lag applied to private accounts means you could miss an entire bull market.

      “Its impossible to do what has to be done,” says Francis Cavanaugh, the first executive director of the Federal Retirement Thrift Investment Board, which was the agency responsible for administering the Thrift Savings Plan for federal employees. His tenure ran from 1986 to 1994.

      The Thrift Savings Plan is often cited as an example of how private accounts in Social Security could work. The plan is like a 401(k) for federal employees.

      The catch? You cant compare the two programs because Social Security processes millions more transactions, Cavanaugh said.

      Launching a record-keeping system for the federal savings plan was easy compared to what would be required for private accounts, he says.

      “Our system worked because I could rely on the agencies systems and only had to deal with one employer—the U.S. government,” Cavanaugh said. “Our challenge was getting all the agencies to work together and report data in a uniform fashion. We then built a record-keeping system that took it in.”

      According to Salisbury, building a system is daunting but not impossible.

      To simplify the system, individual choice could be removed by making accounts mandatory, setting an allocation rate, say 3 percent of all Americans salaries, and allowing one investment mix, say 40 percent in a stock fund, 40 percent bond fund and 20 percent cash.

      “Voluntary accounts are harder because they allow choice,” Salisbury says. “Every option makes the system more complicated. If accounts are mandatory with set options, you know the inputs.”

      Next Page: Managing the data.

      Managing the data


      .”>

      Challenge: Manage the Data

      Solution: Require Electronic Filing

      Even if a system could be designed to handle the private accounts of potentially all of the 159 million people covered by Social Security, managing all the account information would be a huge procedure, says Inputs Fedeli.

      Why? Much of that data arrives on paper forms.

      “You are talking stacks and stacks of paper. The principal challenge is collecting the information and then allocating the money,” Salisbury says. “We assume the world is automated. It isnt.”

      Without an all-electronic system, processes could easily bog down.

      Speaking before a House Appropriations subcommittee in February, SSA commissioner Jo Anne Barnhart said the agency is making progress with electronic filings, but still has a ways to go to become all-electronic.

      For fiscal 2004, 60 percent of employee wage reports were filed electronically, up from 27 percent in 2001.

      Barnhart added that the SSA is also encouraging online filing for benefits claims.

      In fiscal 2004, 217,000 benefit claims were filed online, up from 148,000 the year before.

      That lack of automation would magnify the problems with record-keeping if employers were required to report wages going into private accounts more frequently.

      Today, half of employers in the United States report data on wages, employees and taxes paid annually.

      Millions of small employers go bust and never pay Social Security.

      With private accounts, small employers would have a fiduciary responsibility to get 2 percent to 4 percent of Social Security funds to a private account.

      Click here to read more about government technologists seeking to reduce the rate of tech project failures.

      Meanwhile, private accounts would tax existing SSA systems. In 2005, the SSA projects it will pay $518 billion to 48 million beneficiaries, or 4 million checks a month.

      The agency also processes 8 million claims for benefits, conducts 58 million transactions through its 800 -number and issues 140 million Social Security statements.

      Private accounts would mean more statements and call volume.

      “Youd get to billions of transactions quickly,” Cavanaugh says.

      Challenge: Managing the project

      Fix: Set realistic time lines, up front

      If the SSA and Congress work out the aforementioned information management issues, the real work begins: implementing the system.

      To see the perils, look no further than the Federal Retirement Thrift Investment Boards Thrift Savings Plan.

      In July, Sens. Susan Collins and Joe Lieberman blasted the board and American Management Systems, now known as CGI-AMS, for “a failed computer-programming project that wasted $36 million in federal retirement assets.”

      In 1997, AMS was contracted to build a record-keeping system to allow federal employees to track investments online.

      Four years later, repeated delays and budget overruns produced an “almost useless” system, as stated in the report by Collins and Lieberman.

      Materials, Communications and Computers Inc. was hired in 2001 and completed the project in 18 months at a cost of $33 million.

      Fedeli says the SSA has a good track record with project management, but building a system to handle private accounts wont be easy.

      The SSAs fiscal 2006 information-technology budget of $494 million is devoted to office automation projects such eDib, an electronic disability claim processing system.

      Building a system to handle private accounts would be another ball game.

      “I hope the SSA realizes its strengths and weaknesses,” Fedeli says. “This project would be out of its specialty. There could be a lot of time and money wasted for a lot of work the SSA is not used to doing.”

      Avatar
      Larry Dignan
      Business Editor[email protected]Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis [email protected] Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, [email protected] Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.

      MOST POPULAR ARTICLES

      Android

      Samsung Galaxy XCover Pro: Durability for Tough...

      Chris Preimesberger - December 5, 2020 0
      Have you ever dropped your phone, winced and felt the pain as it hit the sidewalk? Either the screen splintered like a windshield being...
      Read more
      Cloud

      Why Data Security Will Face Even Harsher...

      Chris Preimesberger - December 1, 2020 0
      Who would know more about details of the hacking process than an actual former career hacker? And who wants to understand all they can...
      Read more
      Cybersecurity

      How Veritas Is Shining a Light Into...

      eWEEK EDITORS - September 25, 2020 0
      Protecting data has always been one of the most important tasks in all of IT, yet as more companies become data companies at the...
      Read more
      Big Data and Analytics

      How NVIDIA A100 Station Brings Data Center...

      Zeus Kerravala - November 18, 2020 0
      There’s little debate that graphics processor unit manufacturer NVIDIA is the de facto standard when it comes to providing silicon to power machine learning...
      Read more
      Apple

      Why iPhone 12 Pro Makes Sense for...

      Wayne Rash - November 26, 2020 0
      If you’ve been watching the Apple commercials for the past three weeks, you already know what the company thinks will happen if you buy...
      Read more
      eWeek


      Contact Us | About | Sitemap

      Facebook
      Linkedin
      RSS
      Twitter
      Youtube

      Property of TechnologyAdvice.
      Terms of Service | Privacy Notice | Advertise | California - Do Not Sell My Information

      © 2021 TechnologyAdvice. All Rights Reserved

      Advertiser Disclosure: Some of the products that appear on this site are from companies from which TechnologyAdvice receives compensation. This compensation may impact how and where products appear on this site including, for example, the order in which they appear. TechnologyAdvice does not include all companies or all types of products available in the marketplace.

      ×