The Social Security Reform Bill Clinton Almost Brought to America
Twenty-five years ago, Bill Clinton was gearing up to “ save” Social Security. The year was 1998, and the national mood was cautiously optimistic. Internet startups were booming, the Cold War was seemingly behind us, and there were discussions about bringing the American spirit of innovation and personal freedom to one of the most stagnant policy areas: Social Security and retirement options more generally.
In part, this conversation had been sparked by the ideas of José Piñera, a relatively unknown (at least to the American public) Chilean official. His ideas came to prominence after a Newsweek article spotlighted Chile’s bold pension reform. The piece caught the attention of thinkers in Washington, and whispers of reform turned into White House meetings and Congressional speeches.
That Piñera was a bold thinker in this area isn’t a surprise; he wasn’t just another economist. He was a fervent believer in the American Dream and the power of the market to improve individuals’ lives. After earning his Ph.D. from Harvard in 1974, he returned to a Chile ravaged by Marxist and Keynesian policies. As Chile’s Secretary of Labor and Social Security, he didn’t just tinker with their public retirement system; he reinvented it. By 1980, Chile had implemented the world’s first fully funded system of personal retirement accounts, empowering workers to invest their own money, choose among private firms, and build wealth.
President Clinton’s team took notice. In 1996, Mack McLarty — Clinton’s special envoy to the Americas and former chief of staff — visited Chile and wrote upon his return, “Without a doubt, the reform of Chile’s pension system has been a critical contributing factor… to Chile’s ongoing economic success… I believe we can learn a great deal from your country’s bold initiative.”
In a 1998 letter to The Wall Street Journal, Piñera explained the Chilean reform:
This reform is about citizens’ empowerment… Individual retirement accounts will help people experiencing poverty. Workers now choose among competing private companies to invest the equivalent of what used to be their payroll taxes… harnessing the power of compound interest.
He understood what America once knew: that the dignity of the individual lies in choice, in ownership, in self-determination. The Chilean model didn’t just fix numbers — it affirmed that people, not the state, are best suited to control their futures.
Reform didn’t mean abandoning the elderly. Piñera emphasized maintaining benefits for current retirees and those who chose to stay in the government system. The transition had tradeoffs. The so-called “sunk costs” of our entitlement state wouldn’t disappear, with or without reform.
By 1998, Clinton stood at the podium for his State of the Union address and declared: “I will convene the leaders of Congress to craft historic bipartisan legislation… a Social Security system that is strong in the twenty-first century.”
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It was a moment. A window. A shot at real reform. But soon, Clinton, impeached, diminished, and drained of political capital, was sidelined. Personal retirement accounts, once on the verge of becoming law with growing bipartisan support, became just another “what if” in the annals of American policy.
In 1999, Clinton made one last effort.
“With the number of elderly Americans set to double by 2030,” he said, “I propose that we… establish universal savings accounts.”
It was the first time a sitting US president publicly called for personal retirement accounts. Clinton’s plan would have seen tax credits automatically invested in individual accounts, and funded by the then-projected budget surplus.
But the political moment for even the possibility had passed, and Clinton no longer had the strength and the credibility to lead significant legislative efforts.
So, the Social Security time bomb kept ticking — and continues to tick. Entitlements remain the largest drivers of federal debt, but the conversation has gone quiet. José Piñera’s vision remains as relevant today as it was 25 years ago. In a world of big government and even bigger debt, the American Idea — free markets, limited government, and personal responsibility — isn’t just worth defending. It’s the only way forward, and with the ticking growing louder, restarting that conversation is more important than ever.
Daily Economy
Chile now has four decades of experience with the SS privatization. The result.
Chile's privatized social security system, implemented in 1981, is widely considered a failure because it has produced low pensions, high administrative costs, and inadequate coverage for millions of retirees. This has fueled widespread social protests and prompted the government to approve a major reform in 2025 to create a mixed public and private system.
Key failures of the privatized system
- Low pensions: The private system delivered significantly lower-than-projected replacement rates, resulting in retirement payments that are often insufficient to live on. In 2014, one study found that private pension fund (AFP) payments were even lower on average than the benefits received by those remaining in the old public system.
- Limited coverage: The system failed to cover a large portion of the labor force, including many self-employed, low-income, and informal workers who did not contribute regularly. This left a significant number of people with inadequate or no retirement savings.
- High administrative fees: The private AFP system promised efficiency and low costs through market competition, but this did not materialize. High fees and commissions collected by the AFPs significantly cut into workers' savings and disproportionately penalized low-income earners.
- Market volatility: Workers' retirement savings were vulnerable to fluctuations in the financial markets, with downturns potentially causing significant losses.
- Gender inequity: The private system was openly discriminatory against women. Because women tend to earn less, have lower contribution densities due to childcare, and live longer, they receive significantly lower replacement rates on average than men.
- Increased public spending: The private system did not fully eliminate the government's financial responsibility. The state has had to fund a minimum pension for millions of low-income retirees, driving up public spending to compensate for the privatized system's shortcomings.
The 2025 pension reform
After years of protests and frustration, Chile's Congress passed a major pension reform bill in January 2025. The legislation transitions the country away from the failed privatized model toward a mixed public-private system.
Key provisions of the 2025 reform include:
- Increased employer contributions: The reform will introduce a mandatory employer contribution that will gradually increase to 8.5% of an employee's taxable income over several years. A portion of this will go into individual accounts, while the rest will fund a new social security pension insurance program.
- New social security benefits: Starting in 2026, a new social security retirement benefit will be introduced, financed by the new employer contributions. This benefit will provide additional support based on years of contributions and will include compensation for gender-based longevity differences.
- Universal guaranteed pension (PGU): The non-contributory solidarity pillar, which provides a minimum pension, will be strengthened, with increased benefits rolling out through 2027.
- Increased competition: The reform mandates changes to the AFP industry to increase competition and lower costs. This includes replacing the current multi-fund structure with new target-date retirement funds based on age and holding a periodic bidding process for a percentage of individual accounts.
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