When Congress Killed Private Accounts

Originally published at National Journal
By K. Daniel Glover

Republicans who see personal retirement accounts as the salvation for Social Security have a new hero these days: Franklin Delano Roosevelt, the father of the program himself. Back in 1935, the Democratic president proposed that a government-run retirement system should include “voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age.” Republicans tout that statement as an early endorsement of personal retirement investments, like the kind President Bush now advocates.

But Republicans don’t mention what happened to FDR’s idea: The plan died quietly in Congress 70 years ago because few lawmakers in either party supported it, the insurance industry opposed it, and Roosevelt didn’t fight for it.

Roosevelt advocated old-age insurance as part of a broader effort to ensure economic security. His proposal was three-pronged: welfare pensions for the elderly; mandatory payroll deductions and retirement payouts for workers (the linchpin of Social Security today); and a voluntary program to let people buy government certificates and convert them into annuities upon retirement.

FDR’s voluntary annuities program was not designed for everyone. It was aimed at farmers, the self-employed, housewives, and others — an estimated 22 million Americans — who fell outside the other two parts of his plan. Although workers who paid payroll taxes could have boosted their retirement income by buying extra annuities, they were not the targets of the voluntary program.

“The primary purpose of the plan is to offer persons not included within the compulsory system a systematic and safe method of providing for their old age,” Roosevelt’s Committee on Economic Security wrote in a 1935 report that served as the genesis of debate.