Policymakers, as they weigh whether to add private investment options to the Social Security system, must consider that stocks may not continue to outperform bonds, said Federal Reserve Governor Edward Gramlich.

"I'm not so sure stocks are going to be that much better an investment" than bonds, Mr. Gramlich said at a symposium sponsored by the National Economics Club Educational Foundation.

President Clinton and Republicans in Congress have proposed separate plans to set aside portions of the federal surplus to keep the U.S. retirement system solvent into the next century. Mr. Gramlich supports creating investment accounts for Social Security beneficiaries that would be centrally managed.

He previously endorsed the President's proposal to use budget surpluses to reduce the government's debt, though he criticized Mr. Clinton's 15-year plan to draw on general government revenue to finance the overhaul of the Social Security system, saying the plan should not rely on federal money outside the retirement system.

Mr. Gramlich did not offer any comments on the U.S. economy or on the Fed's interest rate policy. The Fed's Open Market Committee voted Tuesday to leave the overnight bank lending rate unchanged at 4.75%, and did not announce a so-called bias to change rates in the coming months, suggesting the Fed will leave rates alone for now.

Mr. Gramlich said the Social Security system will face financing problems, but he said he is not convinced that the problems are as serious as some members of Congress and the administration are saying.

The reform effort has run into trouble, with Democrats pushing for a centralized form of investment of Social Security assets, and Republicans pushing for the creation of individual accounts for beneficiaries.

"It's going to be hard to compromise," Mr. Gramlich told reporters after the speech. A long-lasting approach to saving Social Security will mean raising taxes or cutting benefits, Federal Reserve Chairman Alan Greenspan told the House Budget Committee's task force on Social Security last week.

That panel hopes to make a recommendation by July 1 for replenishing the Social Security system.

Mr. Clinton and the Republican-led Congress are trying to craft a bipartisan plan to replenish the federal retirement system, which is expected to run out of money by 2032.

The President has proposed setting aside more than 62% of the government surplus-about $2.7 trillion over the next 15 years-for Social Security, with a quarter of that being invested in the stock market.

Mr. Gramlich has agreed with Clinton's stated goal of paying down the federal debt, and he was chairman of an advisory panel on Social Security reform.

His panel proposed raising the retirement age and trimming some benefits for wealthier workers to help ensure the future of Social Security. Mr. Gramlich has also suggested that workers invest an additional 1.6% of their pay into individual retirement accounts, which could then be invested in approved stock- and bond-index funds.

Currently, payroll tax collections for the retirement system exceed the amount used to pay benefits. These excess funds are used to buy Treasury securities-which provide the government with cash to pay for other programs and reduce the overall federal deficit. In less than two decades, however, payroll tax receipts will start falling short of outlays.

The largest federal program, Social Security accounts for 22% of all federal expenditures. Created 60 years ago, its old-age pensions, survivors' benefits, and disability payments now cover some 44 million people.

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