A consensus has been reached on several issues in the debate over
the merits of the present government-run Social Security system
versus personal retirement accounts (PRAs). First, it is widely recog-
nized that the current government-run pay-as-you-go system is in
serious trouble and cannot pay promised retirement benefits within
the present tax structure. Second, it is widely acknowledged that
the returns of the present system will be zero to negative for most
of today's younger workers. As a result, trying to solve the Social
Security problem by raising payroll taxes or postponing the retire-
ment age, or both, ends up further reducing returns to today's work-
ers and turns a bad deal into something much worse. Third, it is
widely recognized that market-based returns to PRAs would pro-
duce returns that are three to five times higher than those promised
by the government system. Returns on PRAs would be so high that,
even when adjusted for risk, they would be far superior to the
returns promised by the government-run system. ¹

A remaining issue of concern involves the cost of administering
a system of PRAs versus the cost of the current system. By several
measures, the cost of administering the current Social Security sys-
tem seems to be fairly low. Some observers have suggested that the
cost of administering a system of PRAs would be far higher. A study
by the Employee Benefit Research Institute (EBRI) suggests that
various administrative issues relating to PRAs may make the
accounts too complex to understand or too difficult for record keep-
ers to administer. ² EBRI's study is correct in raising many important

Originally published as Cato Institute Social Security Paper no. 15, March 9, 1999, and
updated to reflect current information.

-313-