8-22-2001: WASHINGTON (Reuters) - A White House commission on Social Security reform reconvenes on Wednesday amid fresh criticism of President Bush's plan to create private accounts that would invest in stocks and bonds.

At its third meeting, the commission will hear testimony from experts including Roger Mehle, executive director of the Federal Retirement Thrift Investment Board, which oversees the Thrift Savings Plan, a 401(k)-style retirement plan for federal employees.

Advocates of private investment accounts, which would allow workers to invest part of their Social Security taxes in stocks and bonds, see the thrift as a possible model. It oversees approximately 2.5 million individual accounts and lets government workers decide how their money is invested.

But Francis Cavanaugh, who ran the Thrift Savings Plan from 1986 to 1994, said it should not be used as an administrative model by the commission. ``Privatized Social Security accounts will require massive government bureaucracy -- and they are doomed to failure,'' he said.

The White House commission, led by former Sen. Patrick Moynihan, a Democrat from New York, and AOL Time Warner Chief Operating Officer Dick Parsons, a Republican, was set up by Bush to recommend ways to overhaul the retirement system and set up the private accounts.

In its interim report, the commission said the current system was unsustainable and that by 2016, when it no longer takes in more revenues than it pays out in benefits, lawmakers will have to make tough choices to honor government bonds held in the retirement system's trust fund. The panel plans to issue a final report later this year.

PRIVATIZATION PR0POSAL FACES TOUGH FIGHT

Using its findings, Bush hopes to send Congress a proposal that lawmakers can act on early next year. But he will face a tough fight pushing a plan to partially privatize Social Security through Congress in the face of strong opposition by labor and a Senate controlled by Democrats.

Democrats assert that privatization would jeopardize the benefits of women and others who earn the least and rely the most on Social Security for retirement. They pointed to studies showing that the creation of private investment accounts could lead to cuts in retirement benefits.

One report by the Congressional Research Service found that for people retiring in 2020, personal accounts and other Social Security changes would still result in benefit cuts ranging from 4.7 percent to 10.8 percent. Those cuts assume that the accounts earn 6.4 percent per year, an amount that could be expected if the funds were invested in government bonds.

Even if the accounts earned 10 percent annually, as might be expected if the funds were invested in stocks, benefits would be trimmed by 3.9 percent to 7.5 percent for 2020 retirees, according to the analysis.

A separate report by the Center on Budget and Policy Priorities found that individual investment accounts would exacerbate Social Security's financial woes by diverting revenue away from system, and thereby force the federal government to reduce retirement benefits.

For example, if all workers chose to divert two percentage points of their Social Security contributions into private accounts, the trust fund would be exhausted starting in 2024, rather than 2038, the report said.

Supporters of private accounts argue that benefits to existing and near-term retirees would not be touched and that future retirees would benefit from higher rates of return on private investment accounts.

In addition to Mehle, the commission is expected to hear testimony on Wednesday from James Wolf, executive vice president of the Teachers Insurance and Annuity Association-College Retirement Equities Fund, the world's largest private retirement system.