Multiple Choices: Property Rights and Individual Accounts

Abstract

This paper begins a discussion of the appropriate property rights system for individual accounts in Social Security. Individual retirement savings accounts look simple but they are simple only until a spouse or dependent child enters the picture. Then more than one person has a potential claim against the account. There's a belief that if Social Security has individual accounts, the equity issues found in the present system will magically go away. But individual accounts will raise their own equity issues - not so much as between different types of families as between different members of the same family. At best, individual accounts are a zero sum game. Their assets are finite. When the account must be divided, what one person wins, another person loses. Family events such as divorce and death may precipitate division and distribution of account assets, considerably reducing the available retirement income. Social Security does not currently have a system to define and allocate competing interests to benefits. To implement individual accounts, a system of property rights must be created to manage the inevitable conflicts between the needs of the individual for retirement income and other members for support. This paper uses some familiar retirement schemes as models to analyze the following basic issues. What property rights should individual accounts have? Who should hold those rights? When and how should those rights attach to benefits? How should those rights be enforced? It also suggests four guiding principles for a property rights system in Social Security.