Monday June 18 5:02 PM ET

On Wall St, O'Neill Pitches Private Social Security

By Daniel Sternoff

NEW YORK (Reuters) - U.S. Treasury Secretary Paul O'Neill took his pitch for private Social Security accounts to the heart of Wall Street on Monday, charging critics fail to grasp the solvency crisis facing America's retirement system.

O'Neill, addressing a Social Security reform advocacy group founded by Wall Street executives, said no harm would be done to seniors' benefits by allowing workers to invest part of their payroll taxes in private stock and bond accounts.

The treasury secretary said swift action was needed to head off the ``impending rush into the wall'' when the wave of baby boomers born after World War Two retire, threatening the safety net enjoyed by American retirees since the Great Depression.

``We need to be really clear about this issue,'' O'Neill told representatives of blue-chip U.S. corporations and major investment firms at a luncheon sponsored by the Coalition for American Financial Security atop New York's World Trade Center.

``This should be about creating a better future for every American, not about taking something away from anyone,'' he said.

He said private Social Security accounts would allow tens of millions of workers to discover ``the magic of compound interest'' and to build up assets that could be transferred to their heirs or given to charity.

``Given a choice between an account with money in it, and an account without any money in it, I doubt there are many Americans who would choose an account without any money in it,'' O'Neill said.

Under the present system, where current workers pay for the benefits of current retirees, O'Neill said Americans were subject to the ``lottery of life,'' whereby they could lose a lifetime of contributions should they die before or shortly after retiring.

``Those who are saying they are against this have not yet understood the facts. I believe anyone who understands the facts has got to say 'of course we want to do this, and of course we want to do this soon,''' he said.

PROTESTERS SEE WINDFALL FOR WALL STREET

One hundred and seven floors below him, several dozen union activists and Democrats protested plans to subject Americans' retirement needs to the perils of the financial markets.

Critics say such a move will drain the current system and harm the weakest workers while enriching financial firms, which could win a windfall for running individual accounts.

``I know what it was like when we had the 1929 (stock market) crash,'' said 82-year-old Florence Daniels. ``You don't trust Wall Street. It goes up and down, up and down. Wall Street is for
gamblers, only for gamblers.''

Reform of Social Security has moved to the top of President Bush's policy agenda in the wake of the passage of his $1.35 trillion tax cut.

A bipartisan commission asked by Bush to recommend ways to set up private Social Security accounts met for the first time last week amid criticism from labor unions and other groups that the panel was stacked in favor of privatization.

O'Neill said it was the current generation's obligation to take action to make sure the present system remains viable.

The Social Security program now collects far more in payroll taxes than it pays out in benefits, but that is changing as people retire earlier and live longer.

By 2016, benefit payments will begin to outstrip tax collections, and the program will begin to dip into its trust funds to meet obligations. By 2038 the trust fund will be exhausted, O'Neill said.

``There are still tens of millions of Americans who believe that I have their money in a vault in the Treasury. We need to get people to understand that these are not the facts,'' said O'Neill.

``The system worked just fine so long as we had 40 workers to every retiree. Today we have three. In the not-so-distant future we will have two and this is just not a sustainable proposition.''

The coalition O'Neill addressed on Monday was set up by executives from the Frank Russell Co., an investment firm based in Tacoma, Washington. Other charter members include investment
executives from State Street Global Advisers, Mellon Institutional Asset Management and Brinson Partners.

Richard Trumka, secretary-treasurer of the umbrella AFL-CIO labor group, said he would urge that trustees of union pension funds stop doing business with Wall Street firms pushing privatization.

``We will notify trustees and educate them and recipients of our pension funds and let them know which firms, like State Street and Mellon Financial are raising money to privatize, and to hurt them. We'll let them know and make the decision on what's in their best interest,'' Trumka told reporters.

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