ANN ARBOR—As America continues to debate the best way to reform the Social Security system to prevent it from going broke by the year 2030, the University of Michigan’s Edward M. Gramlich, chair of the national Social Security Advisory Council, favors a plan that would give Americans more control over retirement funds, while largely preserving the protections of the current system.

Gramlich, dean of the U-M School of Public Policy, calls for the creation of mandatory individual accounts that would require workers to contribute an amount equal to 1.6 percent of covered payrolls, in addition to the current tax.

These accounts, administered by the Social Security system, would allow individuals to invest their additional contributions in a variety of investment funds through their own choice, he says. The accumulated earnings would then be added to a person’s regular Social Security benefits upon retirement.

In addition, Gramlich would raise the normal retirement age for benefit eligibility and slow the growth of benefits for high- wage earners. His plan, he says, would increase the national saving rate, thereby boosting the overall economy.

“The critical element here is the new individual accounts,” Gramlich says. “Social Security has always been a ‘defined- benefit’ system, where contributions led to benefits only through a formula that involved some redistribution from high earners to low earners.

“The individual accounts would instead represent ‘defined contributions,’ where contributions are required, and payments based on these accounts rely solely on what has actually accumulated in the account.”

In addition to Gramlich’s plan, two other proposals, which also would invest some funds in private stocks and raise national saving, have been discussed by members of the Social Security Advisory Council.

One approach tries to preserve the present benefit system as nearly as possible, but raises taxes on Social Security benefits. It calls for a gradual investment of up to 40 percent of Social Security funds in a stock portfolio managed by a board of investment experts.

The problems, Gramlich says, are that such a plan relies heavily on an unpredictable stock market and investment management of funds may be hindered by “politics.”

“The plan is for the system to hold only passive index funds, managed by a prestigious investment board,” Gramlich says. “But however passive the investment and however prestigious the board, it might still be difficult to eliminate politics from the management of the fund.”

Another proposal takes a more privatized approach to Social Security saving by creating personal, privately held accounts that would let workers choose how to invest their contributions for retirement.

Workers would still pay the current 6.2 percent payroll tax, but about 80 percent of that would be earmarked for their personal accounts (the rest would go toward survivor’s and disability insurance)?instead of being used for someone else’s retirement, like today.

Upon retirement, individuals would then use their personal accounts, which could be held by private investment companies, to receive an annuity or lump sum, or add to their estates. In addition, retirees would receive a supplemental monthly flat-rate benefit of about $400 that would be paid by Social Security and funded by employers’ current contributions to the system.

Again, Gramlich says, this plan raises concerns because of the economic risk of letting employees invest large amounts of retirement funds in the stock market, and the potential political pressure to bail out individuals who have faired poorly, either by investing badly or by over-consuming in their early retirement years.

While individuals, especially those under 30, stand to gain more?but with greater risk?from one of the other plans, Gramlich believes his proposal offers long-term stability, minimizes risk, decentralizes decisions over how funds are invested, increases Americans’ sense of ownership of their Social Security rights, and provides a politically acceptable national saving plan.