SOCIAL SECURITY STOCK MARKET IDEA ADVANCES.

Byline: Robert Pear The New York Times

Members of a federal advisory panel told Congress on Monday that a portion of Social Security payroll taxes should be invested in the stock market, and several senators expressed cautious support for the idea.

The proposal, which represents a radical change in Social Security policy, survived its first test on Capitol Hill without criticism from any member of Congress or any of the experts on pension policy who testified before a Senate subcommittee.

Details of the proposal have not been worked out, and Congress is not expected to take action this year.

But lawmakers clearly were intrigued with the possibility that Social Security could earn a higher rate of return by investing some of its trust fund assets in common stocks and mutual funds. Since creation of the Social Security program in 1935, the money obtained from payroll taxes and not immediately needed for benefits has been invested in government securities.

Members of the advisory panel said stocks had outperformed bonds over long periods of time. The return on government securities, while relatively low, is guaranteed. The panel acknowledged that stock investments would entail a slight increase in risk for Social Security, but said the risk was manageable.

After hearing from three of the 13 members of the panel, the Advisory Council on Social Security, Sen. John Breaux, D-La., said: "There is agreement that the trust fund could be invested in equities. The question is, who controls those investments?"

The hearing Monday was held by the finance subcommittee on Social Security and family policy, headed by Sen. Alan Simpson, R-Wyo. The council, appointed in June 1994 by Donna Shalala, the secretary of health and human services, includes business executives, union leaders and pension experts chosen to represent self-employed workers and consumers in general.

Some council members said Social Security payroll taxes should be kept in one big pool and that a portion should be invested by federal officials or their agents in a broad selection of stocks intended to mirror the overall performance of the market.

Other council members want to create an investment account for each person covered by Social Security. Workers then could decide for themselves how the money should be invested, though the government still would provide some basic Social Security benefits.

Edith Fierst, a member of the advisory panel, testified: "All members of the advisory council favor private investments. That's a very significant change. The difference among us is whether investments in equities should be made by individual workers or by the trust fund."