Bush finds ally in Hub executive

WASHINGTON -- As Democrats hammered him earlier this year about his idea to use Social Security taxes to fund private investment accounts, President Bush sent a message to his top White House aides: Find a way to ensure that lower-income workers are protected from benefit cuts.

Coincidentally, Bush's Social Security adviser, Chuck Blahous, had been conducting private discussions for weeks with Boston investment company executive Robert C. Pozen, a man who calls himself a ''Social Security nerd." Pozen, chairman of MFS Investment Management, also happened to know a thing or two about private investment accounts; he had been vice chairman of Fidelity Investments, the nation's largest mutual fund company, and president of Fidelity Management & Research Company.

Pozen's interest in Social Security had led him to study computer models of ways to make Social Security solvent and he had become intrigued by an idea that he called progressive indexation. The theory happened to fit exactly what Bush wanted: It preserved promised government benefits for those who earned an average salary of $25,000, but reduced promised benefits for those who earned more, on a sliding scale. It would also go a long way toward making the system solvent.

Amidst the storm of criticism of the idea of private accounts, the White House had found an unusual ally: a registered Democrat who had backed Senator John F. Kerry for president and was proposing a plan that seemed made to order.

''You had a good confluence of factors working," Blahous said in a telephone interview yesterday. ''There was the work Pozen was doing and a set of desires on our end. When the ideas Mr. Pozen presented were sent up the chain, they got a very favorable reaction."

Over the last two weeks, as Democrats scored political points by noting that Bush had acknowledged private accounts alone wouldn't make the system solvent, the president decided to take a political gamble: By embracing the Pozen plan at his press conference Thursday night, Bush hoped to blunt the criticism that he didn't have a solvency plan, but he also risked an immediate backlash against a plan that involved reducing future government benefits.

Indeed, Democratic leaders have already castigated the idea, calling it another financial hit against the middle class. And they again vowed not to support any Social Security deal that involves private investment accounts.

Pozen and Bush might seem at first blush to be an odd couple. In 2004, Pozen gave $40,250 to Democrats, including $2,500 to Kerry's presidential bid. His national GOP contributions were $1,000, all of it going to Representative Rob Portman of Ohio, according to campaign finance records. Pozen said he voted for Kerry because ''I'm a Democrat."

But Pozen has a history of working with Republicans, too.

He spent about a year as Governor Romney's director of economic development in 2003. In an interview yesterday, Romney said Pozen spent much of his time working to help close a budget gap, but also played key roles on health and auto insurance overhaul. ''When he came into my administration, the economy was sour, we were trying to get our economic ship right," Romney said. ''He helped lead the economic stimulus plan."

Like others, Romney said Pozen approaches issues analytically, rather than politically.

''Nothing is redlined for Bob Pozen. Everything is on the table," the governor said. ''He's an unusual character. His personal style is more professorial than corporate. He can be rumpled and self-effacing. If you ran into him at a Starbucks, you'd never guess he had been the president of Fidelity."

Jim Lowell, editor of the private Fidelity Investor newsletter, said Pozen's disarming appearance can be deceiving, noting that Pozen shook up Fidelity when he became president in 1997. He took the helm at a time when the rate of return of the company's portfolio was being questioned.

''Sometimes when Bob Pozen comes into a room, he wears a sweater vest so he is mistaken for Mr. Rogers," Lowell said. ''That would be a deadly mistake. He is a very sophisticated, calculating, and I would say, cold-eyed, as opposed to cold-hearted, manager," Lowell said.

Pozen, who left Romney's administration to become chairman of MFS Investment Management, first worked with Bush when Pozen served in 2001 on Bush's bipartisan Social Security commission. Blahous, then executive director of the panel, also got to know Pozen at the time.

The panel produced three proposals, including creating private accounts and cutting future benefits, none of which Bush endorsed. But an aide said the president remembered Pozen's service on the commission and was intrigued earlier this year when he heard Pozen was working on a new plan that would ensure that lower-income workers received all currently promised benefits.

For months, Bush aides had said they were studying a change in the way benefits are calculated. Under the current system, annual increases in benefits are based on calculations that show the average yearly increase in wages. Bush aides figured if that calculation, known as a wage index, could be changed to a price index -- a calculation of the average rise in consumer prices, which typically rise more slowly than wages -- then most of the solvency issue might be solved.

Bush has said the government made promises on Social Security that can't be kept under the current system. But many Republicans feared that switching from wage indexing to price indexing would be seen as a huge benefit cut, even though the White House insisted that it simply reduces how fast future benefits will grow and doesn't affect current benefits.

Pozen's plan represents a compromise: It wouldn't change benefits for people who earn an average of $25,000 or less annually, but those earning between $25,000 and $113,000 would get benefits calculated on a sliding scale that blends wage and price indexes. Those who earned more than $113,000 would receive benefits based only on the price index, meaning they would have the biggest cut in future benefits.

Pozen outlined his ideas in various newspapers, including The Globe, earlier this year. His opinion piece in The Wall Street Journal about indexing may have caught the White House's attention.

On March 15, the same day the article appeared, Pozen attended a meeting at the White House with Blahous and other advisers. He spent about an hour explaining his indexing plan in detail. The advisers liked his presentation, setting in motion the events that led to Bush's public embrace of it in the Thursday press conference.

After Pozen described his idea at the White House, other Washington policy analysts quickly took notice.

''People have been talking about wage-price indexing for a while," said Michael Tanner, director of health and welfare studies at the Cato Institute, a libertarian think tank. But Pozen's idea to make the system progressive was a new and important wrinkle. ''A lot of us said, 'Oh, now that's interesting,' " Tanner added.

In a telephone interview yesterday, Pozen said he's not interested in political office. And while he supports Bush's concept of private accounts in Social Security, he questions the wisdom of Bush's insistence on private accounts as part of any overall plan to fix the system. ''I think he should be more flexible," Pozen said.

Indeed, having spent last Tuesday testifying before Congress, Pozen said he was struck by Democrats' unity in opposition to the accounts and in the number of Republicans questioning the idea. Pozen said it might make more sense to adopt an idea from Democrats to add optional private accounts to Social Security rather than insisting that the money for them come from Social Security taxes. So far, however, Bush hasn't adopted Pozen's thinking on private accounts, saying they must be part of any comprehensive package.