WASHINGTON D.C. — An analysis by the Center for Retirement Research at Boston College found that a Senate proposal to invest federal funds in equities would fail to cover its additional borrowing in 64 percent of scenarios. The proposal, introduced by Senators Bill Cassidy and Tim Kaine, aims to maintain current Social Security benefits.

Legislative reforms have not been passed, and recent projections indicate the Social Security trust fund will become insolvent earlier than previously estimated. Without legislative changes, Social Security benefit payments are projected to be reduced by 22 percent starting in 2032. Payroll tax revenue has been insufficient to fully fund current benefits for several years.

The current structure of Social Security funds benefit payments directly from payroll taxes collected from active workers. Historically, the Social Security trust fund has covered the financial gap between collected payroll taxes and distributed benefits. Once the trust fund is depleted, Social Security will only distribute revenue collected from current payroll taxes.

The Cassidy-Kaine legislation proposes an additional $1.5 trillion in federal borrowing to create an investment fund for stocks and other risk assets. The legislative plan also requires an additional $25.1 trillion in federal borrowing to address projected Social Security revenue shortfalls over a 75-year period, resulting in a total of $26.6 trillion in additional borrowing. The investment fund is structured to accumulate returns over this 75-year timeframe. Senator Ted Cruz said, "But the benefit over time is massive."

The proposal calculates nominal annual stock market returns at 8.9 percent, projecting real annual stock market returns of 6.5 percent after inflation. Simulations applying this 6.5 percent annual return project the investment fund will grow to $30.6 billion over 75 years. However, when accounting for equity market volatility, simulations show investment returns will fail to cover the additional debt in approximately 64 percent of scenarios.

Simulations assuming a 4 percent annual real return on equities result in the investment fund failing to cover the debt in 83 percent of scenarios. Anqi Chen, Alicia Munnell, and Jean-Pierre Aubry authored the analytical report. Major financial institutions project future stock market gains will fall below historical averages.