Social Security Reform, Pension Solvency and Retirement Savings Focus of S&P Special Report

Press Release, Mar 29, 2005

NEW YORK, March 29 -- While other industrial countries' social security and retirement systems may be in worse shape than the United States', indefinitely postponing action will make future changes more difficult and disruptive for US citizens and the overall economy, says Standard & Poor's in a special report to be published tomorrow, March 30. The report is the cover story in CreditWeek, the investment research leader's weekly magazine on credit issues.
 
CreditWeek asked four senior Standard & Poor's analysts to look at retirement issues broadly, focusing both on a number of the current proposed solutions to "fix" social security in the US and abroad as well as the overall state of pension solvency and retirement savings plans for American workers - the three "legs" that comprise most individuals' retirement strategies. A consistent theme running through each author's findings is that dramatically increasing national savings, at both the government and individual level, may be the only way, ultimately, to solve the fiscal problems of aging societies.

"The social security system is fixable, and it should be fixed", writes Standard & Poor's chief economist, David Wyss, in CreditWeek. "The Administration's proposal changes the problem, but doesn't solve it. The debt service on the loan will have to be covered, whether the borrowing is done as a bond issue to the public or simply added to the Social Security trust find directly from the Treasury. Financially, it makes no difference which is done; in either case, there needs to be future revenue to cover debt."

Echoing a similar theme abroad, Standard & Poor's senior credit analyst Moritz Kraemer notes that other nations besides the US risk elevating debt-to- GDP ratios to unsustainable levels by the mid-2020s, with possible implications on sovereign credit ratings. Also in this CreditWeek special report, Standard & Poor's senior credit analyst, Scott Sprinzen, states that the Administration's reform proposals for the Pension Benefit Guarantee Corporation (PBGC) may have unintended negative consequences on companies, perhaps increasing pressures on the cash flow and liquidity of the very companies who need to accelerate pension plan contributions to eliminate unfunded liabilities. Finally, David Blitzer, Chairman of S&P's Index Committees, tests various personal savings plans ideas and concludes that with the investment risk shifted from the government to individuals, most workers will find retirement difficult if they don't start saving early and aggressively enough.