Testimony by NEA on Social Security
July 15, 2010
Submitted to The Committee on Ways And Means
Subcommittee On Social Security
United States House of Representatives
Chairman Pomeroy and Members of the Subcommittee
On behalf of the 3.2 million members of the National Education Association, we offer these comments for the written record in conjunction with your July 15 hearing on Social Security. We commend the Subcommittee for holding this important hearing, not only to commemorate the 75th anniversary of Social Security, but to highlight the need to protect and strengthen this core safety net program.
SOCIAL SECURITY AS A SOCIAL SAFETY NET
Teachers and education support professionals, like the majority of middle class Americans, rely on Social Security for their future. Educators are particularly vulnerable in their retirement security, both because of their comparatively low salaries and increasing attacks on their pension plans. In fact, Social Security is so important to NEA members that the organization’s resolution on Social Security begins with the imperative, “…Social Security is a social contract between the U.S. government and its citizens that must never be breached.”
Social Security is more than a retirement plan. It is our nation’s most successful social insurance program. Nationally, 20 percent of adults receive Social Security benefits, including 22 percent of women and 18 percent of men. About 24 million women, 18 million men, and 3 million children rely on Social Security benefits. Contrary to the political rhetoric, Social Security and Medicare did not cause our economic problems. Fiscal discipline is needed, but not at the expense of our nation’s most vulnerable populations. Cuts to Social Security would fall disproportionately on low-income individuals, particularly minorities, who depend on Social Security and Medicare. For example, according to the Social Security Administration, among Hispanics receiving Social Security in 2008, 38 percent of elderly married couples and 62 percent of unmarried elderly persons relied on Social Security for 90 percent or more of their income.
Women and Social Security
Women comprise 58 percent of all Social Security beneficiaries at age 65, and 71 percent of all recipients by age 85. Three-quarters of NEA’s members are women. Therefore, NEA has a particular concern about the impact of changes to Social Security on women. Women traditionally have lower lifetime earnings than their male counterparts, and women in the education profession face comparatively lower salaries than many other professionals.
According to the National Women’s Law Center, without Social Security, more than half of women over 65 would be poor. Social Security helps level the playing field for women, who on average earn less than men and have fewer years in the workforce as a result of time spent out of the workforce for childcare and care of the sick and elderly.
Social Security pays secure benefits that cannot be outlived, with annual cost-of-living adjustments. These features are particularly important to women because they tend to live longer than men but have fewer assets when they reach retirement. Savings in self-directed individual retirement savings accounts can be drained by health costs, bad luck, misjudgment in investments, or simply outliving one’s savings.
Finally, women are much more likely than men to receive Social Security benefits as family members when a worker dies, retires, or becomes disabled. For a young family, Social Security provides the equivalent of a life insurance policy worth over $433,000 and a disability insurance policy worth over $414,000, according to the National Academy of Social Insurance.
Ethnic Minority Communities and Social Security
NEA has a diverse membership serving an increasingly diverse population. Some ten percent of NEA members are African Americans. Representation in the education profession of Hispanics is also growing. Ethnic minority students in our nation's schools have risen from 30 percent in the late 1980s to almost 40 percent today. Over the next twenty years that percentage may well reach 50 percent.
Due to certain demographic trends, African American communities benefit from the Social Security program in several ways:
- Social Security is the only source of retirement income for 40 percent of African American seniors. In 2008, the average monthly benefit for African American men receiving retired worker benefits was $1,107, and for women was $886. The Social Security Administration estimates the poverty rate for elderly blacks would more than double – from 24 percent to 65 percent – without Social Security.
- Social Security survivors insurance provides significant help to African American children who would otherwise find themselves poor because of a parent’s death. African Americans make up approximately 13 percent of the American population. Twenty percent of all children receiving Social Security survivor benefits in 2007 were African American. A study by the National Urban League Institute for Opportunity and Equality showed that the benefit lifted one million children out of poverty and helped another one million avoid extreme poverty (living below half the poverty line). The National Urban League study also found that an African-American man dying in his thirties would only have enough in a retirement savings account to cover less than two percent of the survivors' benefits now provided by Social Security to his widow and children.
- African American families benefit from disability insurance. In 2008, 13.5 percent of the population was African American; however, 17 percent of disabled workers receiving benefits were African American.
- African American women in particular rely disproportionately on the non-retirement aspects of the program because they have a higher rate of disability than whites of either sex. African American women often survive deceased husbands. While African Americans make up 9 percent of all female beneficiaries, African American women constitute 18 percent of female disabled worker beneficiaries.
Like African Americans, Hispanics benefit from Social Security in a number of ways;
- In 2008, among elderly Hispanics receiving Social Security, 38 percent of elderly married couples and 62 percent of elderly unmarried persons relied on Social Security for 90 percent or more of their income. In 2008, the average monthly benefit for Hispanic men receiving retired worker benefits was $1,017, and for women was $794.
- The guaranteed benefit and cost-of-living adjustments of Social Security are important to Hispanics. An important feature of the Social Security system is its provision of a guaranteed benefit for workers and their spouses, which continues until death, with a cost-of-living adjustment (COLA) each year to index for inflation. Social Security beneficiaries cannot outlive the income, and their purchasing power does not erode over time. Because Hispanics tend to have higher life expectancies at age 65 than the majority of the population, elderly Hispanics will live more years in retirement and benefit from Social Security's cost-of-living protections. Hispanic men who are age 65 in 2010 can expect to live to age 85, compared to age 82 for all men. Hispanic women who are age 65 in 2010 can expect to live to age 89, compared to age 85 for all women.
- Social Security disability benefits are important to Hispanics. While Hispanics have a lower work disability rate than other Americans (6.7 percent of the total), Hispanics are more likely to be poor without the disability benefits that the Social Security system provides.
The Case against Privatization
NEA strongly opposes any privatization of Social Security. Social Security is the cornerstone of the social safety net for America's retired workers and should not be subject to risky, unproven schemes. Privatization carries great risk and would jeopardize the secure retirement of many Americans. IRA’s, 401(k)’s, and similar types of plans are valuable supplemental components of a retirement plan, but they are not, and should not be, the foundation for a secure retirement. When the stock or bond markets drop precipitously, as they did recently during 2008-2009, the impact on private retirement accounts can be devastating. The United States' recent experience with defined contribution pensions tragically illustrates the insecurity inherent in these types of accounts.
Social Security adjusts for inflation; is guaranteed to last an entire lifetime, no matter how long; is shielded from stock market losses; and is payable to multiple beneficiaries across generations (e.g., to surviving family members for their lifetime). Private accounts and defined contribution pension plans have none of these protections. Workers investing in private accounts will assume responsibility for the risks that are currently covered by Social Security protections. This could lead to many retired employees needing extra support in their elderly years – a time when they should live with a sense of peace and security.
Educators would be hard hit if Congress increases the retirement age further. Educators, who enter the classroom right out of college, as many do, already must work 43 – 45 years in their profession before qualifying for unreduced Social Security benefits. Additional increases in the retirement age would be a hardship for those who would not be able to handle the rigors of teaching in their latter years.
THE CASE AGAINST MANDATORY COVERAGE
Some Social Security reform proponents have suggested requiring Social Security participation for all public employees as a means of strengthening the system. A federal mandate for public employee participation in the social security system would be detrimental to teachers and other public employees and would create additional financial burdens for states and city governments. Mandatory coverage would weaken existing state and local retirement plans that often offer benefits superior to Social Security. Mandatory coverage would also increase the tax burden on public-sector employers, eventually leading to reductions in the number of new hires, limits on employee wage increases, reduced cost-of-living increases for retirees, and reductions in other benefits such as health care.
Currently, public pension plans are reeling from the combined impact of the 2008-09 stock market declines and the current recession. Historically, almost 75 cents of every dollar paid in pensions come from investment returns, not tax dollars. Because investment returns have done most of the work of financing pension benefits, the historic stock market decline during 2008-2009 had a huge impact on many plans’ funded levels. As a result, states need to make larger contributions to their public pension plans when they are least able to do so.
At the same time that pension funds experienced these significant investment losses, the recession hit nearly all states hard. According to the Center for Budget and Policy Priorities, “At least 46 states face or have faced shortfalls for the upcoming fiscal year (FY 2011, which will begin July 1 in most states). These come on top of the large shortfalls that 48 states faced in their current budgets (FY 2010). States will continue to struggle to find the revenue needed to support critical public services for a number of years, threatening hundreds of thousands of jobs. Fiscal year 2011 gaps — both those still open and those already addressed — total $112 billion or 17 percent of budgets in 46 states. This total is likely to grow as revenues continue to deteriorate, and may well exceed $180 billion. States will also face large gaps that could total $120 billion the following year (FY2012). As a result, state and local governments, public pension plans, public employees, and public services would be decimated by the burden of mandating Social Security coverage for those who are currently exempt.
Furthermore, mandating coverage of public employees would not solve the Social Security system’s financial difficulties. In fact, the amount of money gained by mandating coverage would be relatively small and would not solve the long-term Social Security crisis.
SOCIAL SECURITY OFFSETS
NEA strongly supports complete repeal of the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP), which unfairly reduce the Social Security and Social Security survivor benefits certain public employees may receive.
The Government Pension Offset reduces Social Security spousal or survivor benefits by two-thirds of the individual’s public pension. Thus, a teacher who receives a public pension for a job not covered by Social Security will lose much or all of any spousal survivor benefits she would expect to collect based on her husband’s private sector earnings. Congress and the President agreed in 1983 to reduce the spousal benefits reduction from a dollar-for-dollar reduction to a reduction based on two-thirds of a public employee’s retirement system benefits. This remedial step, however, falls well short of addressing the continuing devastating impact of the GPO.
The GPO penalizes individuals who have dedicated their lives to public service. Nationwide, more than one-third of teachers and education employees, and more than one-fifth of other public employees, are not covered by Social Security, and are, therefore, subject to the Government Pension Offset.
Estimates indicate that 9 out of 10 public employees affected by the GPO lose their entire spousal benefit, even though their deceased spouse paid Social Security taxes for many years. Moreover, these estimates do not include those public employees or retirees who never applied for spousal benefits because they were informed they were ineligible. The offset has the harshest impact on those who can least afford the loss: lower-income women. Ironically, those impacted have less money to spend in their local economy, and sometimes have to turn to expensive government programs like food stamps to make ends meet.
NEA receives hundreds of phone calls and letters each month from educators impacted by the GPO. Many are struggling to survive on incomes close to poverty, fearing they will be unable to cover their housing, medical, and food expenses on their meager incomes. For example:
In Oct 2008 my husband of many years was diagnosed with Glioblastoma, the most aggressive type of brain cancer. After brain surgery, radiation, and chemotherapy his sight was affected so he could no longer drive or read. Therefore, he could no longer work as a Real Estate Appraiser. We continued to live on my teacher retirement pension, my small Social Security benefit ($250.00 a month before Medicare), and his Social Security check of $1600.00. It was an adjustment having one income totally lost but with careful management and no unforeseen unexpected expenses, we could do it. My husband lost his battle on April 8, 2010. Within two weeks of his death his Social Security benefit no longer was coming. After having a phone interview with a Social Security representative I found out that I would see none of it. Now my income was almost cut in half again. Trying to deal with his death was compounded immeasurably by this huge loss financially. I still wonder how I am going to make it. He worked all his life and paid into Social Security. He was in the Marines and the Army and was a Vietnam vet. I worked as a teacher of young children most of my life as well as other jobs to earn my Social Security benefit. The GPO and the WEP are devastating to me. What can I do to help get these repealed? – Heidi from Maine
The Windfall Elimination Provision reduces the earned Social Security benefits of an individual who also receives a public pension from a job not covered by Social Security. Congress enacted the WEP ostensibly to remove an advantage for short-term, higher-paid workers under the original Social Security formula. Yet, instead of protecting low-earning retirees, the WEP has unfairly impacted lower-paid retirees such as educators.
The WEP penalizes individuals who move into teaching from private sector employment, or who seek to supplement their often insufficient public wages by working part-time or in the summer months in jobs covered by Social Security. Educators enter the profession often at considerable financial sacrifice because of their commitment to our nation’s children and their belief in the importance of ensuring every child the opportunity to excel. Yet, many of these dedicated individuals are unaware that their choice to educate America’s children comes at a price – the loss of benefits they earned in other jobs. For example:
“I graduated from college in 1990….I immediately went to work … in corporate America where I worked my way into management and was making three times what I do now as a school teacher. For twelve years I was in a rewarding position, doing the ‘right’ thing in life, making a good salary and was very proud of what I did for a living. Due to company management downsizing, I was forced to make a decision to move or demote. I chose to leave the company all together…and go back to school to get a teaching credential. To this day, I believe that it was one of the best decisions I’ve ever made…. Americans do not go into teaching for the money…..When I made this decision, I was fully aware that my former management salary would be cut in half, at best; however it was going to be worth it. I wanted to teach! I wanted to offer something to young people that could be passed on. I believed (and still do) that I could make a difference in students’ lives….So my financial reward for all these hard years of honest work is to have my Social Security benefits significantly cut each year that I teach?...This is a true example of the government making it ‘easier and better’ not to go into public service….There is something wrong when our country needs good, qualified, devoted teachers, and then takes away the money they earned before they decided to become good, qualified, devoted teachers. Some of the best teachers we have are those who have brought all their prior experience, travels, knowledge, training, and skills to the classroom. Why are we penalizing these great teachers? -- Carrie in California
While the amount of reduction depends on when the person retires and how many years of earnings he or she has accumulated, many public employees can lose a significant portion of the Social Security benefits they earned in other jobs. Like the GPO, the WEP can have a devastating impact on educators’ retirement security. In addition, many NEA members report that they are subject to double penalties – losing both their own benefits and spousal benefits due to the combined impact of the GPO and WEP.
The GPO and WEP have an impact far beyond those states in which public employees like educators are not covered by Social Security. Because people move from state to state, there are affected individuals everywhere. The number of people impacted across the country is growing every day as more and more people reach retirement age.
Perhaps most alarming, the GPO and WEP are impacting the recruitment of quality teachers.
At the same time that policymakers are encouraging experienced people to change careers and enter the teaching profession, individuals who have worked in other careers are less likely to want to become teachers if doing so will mean a loss of Social Security benefits they have earned. Some states seeking to entice retired teachers to return to the classroom have found them reluctant to return to teaching because of the impact of the GPO and WEP. In addition, current teachers are increasingly likely to leave the profession to reduce the penalty they will incur upon retirement, and students are likely to choose other course of study and avoid the teaching profession.
NEA strongly supports repeal of the GPO and WEP. The Social Security Fairness Act (H.R. 235), which would repeal these unfair offsets, has over 330 cosponsors in the House of Representatives. Yet, Congress has taken no action to move this important legislation. We urge Congress to stop delaying and to repeal the GPO and WEP.
Thank you for the opportunity to offer these comments.