Social Security Reform: Information on Using a Voluntary Approach to Individual Accounts

GAO was asked to report on the implications of proposals to restructure the U.S. Social Security system by using a voluntary approach to individual retirement savings accounts accounts. GAO studied three countries that have enacted voluntary.individual account plans—the Czech Republic, Germany, and the United Kingdom. GAO found that making participation voluntary has significant implications for designing and administering the plan. While offering the choice to participate may be desirable, doing so substantially increases the complexity of an individual account plan and potentially its total costs. The design features of voluntary individual account plans can affect whether individuals participate in the accounts and what retirement incomes they will receive. Voluntary individual account plans can also affect the total system costs to the government, providers, employers, or participants, depending on design. Moreover, the uncertainty of participation rates in turn creates uncertainty for a variety of costs associated with individual account plans. Individuals would face complex participation decisions in addition to the contribution, investment, and withdrawal decisions they might face in a mandatory plan. Additional costs would arise from the need to educate individuals to help them make informed decisions about participating in voluntary accounts.