The administrative costs of individual accounts as part of social security reform.

An NBER project on the Administrative Costs of Social Security Reform is one part of a major NBER initiative that studies the U.S. Social Security system. The results of this project were presented at a conference in Cambridge on December 4. John B. Shoven, NBER and Stanford University, directed the project. The papers prepared in the project and presented at the meeting were:

John B. Shoven; and Sylvester Schieber, Watson Wyatt, "Administering a Cost-Effective National Program of Personal Security Accounts"

Fred T. Goldberg, Jr., Skadden, Arps, Slate, Meagher, and Flom LLP, and Michael J. Graetz, Yale Law School, "Reforming Social Security: How to Implement a Practical and Workable System of Personal Retirement Accounts" (NBER Working Paper No. 6970)

Discussants (for both papers): Olivia S. Mitchell, NBER and University of Pennsylvania, and Gloria Grandolini, World Bank

Gary Ferrier, University of Arkansas; Estelle James, James Smalhout, and Dmitri Vittas, World Bank; "Mutual Funds and Institutional Investments: What Is the Most Efficient Way to Set Up Individual Accounts in a Social Security System?" (NBER Working Paper No. 7049)

Discussant: David A. Wise, NBER and Harvard University

Peter A. Diamond, NBER and MIT, "Administrative Costs and Equilibrium Charges with Individual Accounts" (NBER Working Paper No, 7050)

Discussant: Martin S. Feldstein, NBER and Harvard University

James M. Poterba, NBER and MIT, and Mark Warshawsky, TIAA-CREF, "The Costs of Annuitizing Retirement Payouts" (NBER Working Paper No. 6918)

Discussant: David M. Cutler, NBER and Harvard University

Shoven and Schieber analyze several similar cost-efficient ways of organizing individual accounts, surveying the experience with privatized and partially privatized social security programs in Chile, Australia, the United Kingdom, and Sweden. Australia has a relatively new program, begun in 1973, and still in its startup phase. Nonetheless, the average administrative cost for the private accounts in that country was 0.835 percent of assets in 1997, and it is going down fairly rapidly as the average account size grows. Since U.S. financial markets are generally far more efficient and competitive than Australian markets, the United States should be able to administer a program of individual accounts for less than the Australians have. The authors also examine the administrative cost experience of U.S. 401(k) accounts. In 1997 the average total administrative cost for 401(k)...