Holding the U.S. Government Accountable for Social Security
Holding the U.S. Government Accountable for Social Security
The federal government may soon have to report on the general welfare and long-term viability of the U.S. social insurance system. According to a proposed statement of the Federal Accounting Standards Advisory Board (FASAB), U.S. government financial reports should show whether social insurance programs, such as Social Security and Medicare, can meet their future obligations.
Many Americans who pay into Social Security every year have voiced their concerns that the Social Security fund will be exhausted when they need it for retirement. Congress and the White House have responded by placing the solvency of such programs at the top of their list of high-priority agenda items. According to the FASAB proposal, Accounting for Social Insurance , fundamental disclosures about the programs—including Social Security, Medicare, railroad retirement benefits, black lung benefits and unemployment insurance—should be provided to taxpayers and policy makers for long-term planning.
Understanding social programs
To make these programs more transparent, the FASAB recommends that federal reports be required to
- Recognize on the balance sheet a liability when benefits are due and payable to beneficiaries or service providers at the end of each fiscal year.
- Disclose stewardship information in a supplemental statement that includes long-range cash-flow projections and long-range projections of the ratio of workers paying taxes earmarked for the program to program beneficiaries. The supplement also should include an estimate of the amount future program participants would have to pay into the fund to cover the future benefits of taxpayers already participating in the program. Alan Greenspan, chairman of the Board of Governors of the Federal Reserve System, called this amount the “implicit liability” of social insurance programs.
“We want to help taxpayers and policy makers assess the sustainability of these social insurance programs,” said David Mosso, chairman of the FASAB. “These proposed requirements should help them do that.”
The statement’s provisions would be effective for periods after September 30, 1998. Comments are due by June 20. For copies of Accounting for Social Insurance , call the FASAB at 202-512-7350 or visit the FASAB Web site at www.financenet.gov/fasab.htm .
SEC Approves Summary Profiles for Mutual Fund Investors
Investors who wish to learn more about a mutual fund before they invest no longer will have to pore through pages of legalese to find clear risk-and-return information. Instead, investors soon will be able to buy shares in a mutual fund after receiving only a “profile” of the fund; a full prospectus will be delivered when the transaction is confirmed.
SEC rule no. 498 standardizes the following as the profile content: investment strategies, risk, performance and fees. A profile also will include information on the fund’s investment adviser, portfolio manager, purchase and redemption procedures, tax implications and shareholder services. Fund companies must give investors a toll-free number for ordering the prospectus before purchasing shares.
With key information about a fund summarized, “investors can sort more easily among funds to find the ones that best fit their needs,” said SEC Chairman Arthur Levitt. “Generic descriptions that apply equally to all funds are dispensed with, as is uninformative clutter that obscures other information helpful to investors.”
Something new for prospect uses
The new rule also overhauls the prospectus, requiring that it highlight information essential to an investment in a fund. Prospectuses must take a more analytical approach to risk disclosure that includes
- A concise, plain English description of the fund’s overall risks.
- A bar chart reflecting the fund’s 10-year annual returns.
- A table accompanying the bar chart that compares the fund’s performance with that of a broad-based securities market index.
- An improved fee table.
Mutual fund companies are required to comply with the new rules by December 1, 1999.
