DEMOCRATS ASK THEIR QUESTION OF THE DAY ON SOCIAL SECURITY:

"How Much Will Investors in Private Accounts Pay in Administrative Costs?"

Social Security Actuaries Estimate Administrative Costs of 0.3 Percent.

Francis Cavanaugh, who helped organize the Federal Thrift Plan and served as its first executive director, believes that the administrative costs of a centralized system would be substantially higher than those of the Federal Thrift Savings Plan.

Edward Whitehouse reports that the cost of simply maintaining the records on the individual accounts in Sweden runs 0.3 percent of assets, and John Turner estimates that investing in the largest and most efficient funds through the Swedish system will involve total administrative charges of 0.75 percent of assets.

If the average account balance is only $5,000, Peter Diamond's estimate would imply administrative costs for the centralized portion of the system of about 0.8 percent of assets.

Francis Cavanaugh's much higher estimate of the cost of running a centralized system would be the equivalent of 6.0 percent of assets.

The Estelle James et al. estimate that costs in actively managed mutual funds in the U.S. average about 1.4 percent of assets.

John Boogle, founder of the Vanguard Group of mutual funds, estimates that the administrative charges in the average equity fund averaged 2.9 percent per year over the period 1984 through 2002.

[All Cites: Melissa Favreault et al., 2004, "Reform Model Two of the President's Commission to Strengthen Social Security: Distributional Outcomes Under Different Economic and Behavioral Assumptions," Center for Retirement Research Working Paper 2004-19]