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Statement of the NEA on Social Security Benefit Adjustment Proposals

August 27, 2013

House Ways and Means Committee
Subcommittee on Social Security

on
Bipartisan Proposals to Reform Social Security: Benefits Adjustments

Thank you for this opportunity to comment on the Committee’s proposed changes to the Social Security program. The National Education Association (NEA), along with a majority of Americans, opposes any measure that would diminish Social Security benefit payments for current and future recipients. We believe that Social Security is a social contract between the U.S. government and its citizens that must never be breached. Social Security provides unparalleled protections for millions of working men and women in this country and serve as an essential lifeline for a large number of seniors, disabled workers, and children. Almost half of retired single people and nearly a quarter of retired married couples rely on Social Security for 90 percent or more of their household income. Additionally, about 4.4 million children receive benefits because one or both of their parents are disabled, retired, or deceased.

At a time when employer-sponsored retirement benefits have been severely reduced or eliminated and personal retirement savings have dwindled, Social Security benefits are increasingly the supporting leg of the “three-legged stool” of economic security in retirement. The recession and the loss in home equity resulting from the bursting of the housing bubble have sharply increased the economic insecurity of many Americans, especially for those who would like to retire soon. While America’s Social Security benefits are modest compared to what most other industrialized countries provide, they are essential for many of our citizens. Our nation should not cut Social Security benefits. Instead we should look to improve the adequacy of the benefits provided.

The Committee’s discussion draft proposes three main changes: 1) raising the retirement age based on increasing life expectancy, 2) a benefit enhancement for long-time low-wage workers, and 3) benefit formula changes based on earnings. The changes are drawn from the 2010 Bowles-Simpson proposals. NEA makes the following recommendations for each of the three proposed changes.

  1. Raising the retirement age: NEA strongly opposes the Committee’s proposal to index and increase the Social Security retirement age. Under current law, the normal retirement age (NRA) is 66 and will increase to 67 for those reaching age 62 in 2022 and later. Making people wait longer to collect Social Security benefits would lower income for retirees. It would also reduce lifetime benefits and would require educators and other workers to work longer or suffer economic hardship from smaller monthly checks. According to an analysis done by the National Academy of Social Insurance, each additional year an individual has to wait to qualify for social security benefits is equivalent to a benefit cut of 6.5 to 7 percent.i The Brookings Institution calculated that raising the Social Security retirement age would cut lifetime benefits by 6.7 percent for every additional year added. Although the proposal to index the retirement age to longevity plays out over many decades, the analysis of this approach by the Social Security Administration actuaries is consistent and clear future retirees will face benefit reductions that worsen with each generation. By 2080, this proposal would result in an across-the-board 15 percent cut in benefits.

    The argument for indexing and raising the retirement age is that people are living longer.  However, that is not the same thing as having the ability to work longer, especially for those with the physically and mentally demanding working conditions that are typical for educators. Further, cost of living does no decrease just because the overall population is living longer. Although the Committee proposes a hardship exception to limit the age increase for disabled workers, independent analyses found that few of the individuals unable to work after attaining age 62 would qualify as disabled.
  2. Minimum benefits for long career workers: NEA supports this provision, but recommends that it be modified to cover more individuals. Social Security’s special minimum benefit provision was intended to increase the adequacy of benefits for long-term, low-earning covered workers and their dependents or survivors. However, the value of the current law’s special minimum benefit, last adjusted in 1972, has withered away over time.

    Millions of American workers are poorly compensated for the work they do. This is not because they do not work hard or deserve adequate compensation. Many NEA members who work as education support professionals, including paraprofessionals, bus drivers, and cafeteria workers, do not earn a living wage and are included in this group. NEA supports the Committee’s proposal to enhance the special minimum benefit for long-time low-wage workers so that they may have a benefit that lifts them above the poverty line. Unfortunately, the proposed enhancement as structured requires a low-wage worker to have 30 years in covered earnings to qualify for the full benefit enhancement. This would result in very few low-wage workers qualifying for the enhancement and would thus not protect them from poverty.

    According to Social Security’s Chief Actuary, about 60 percent of actual “Very Low” earners, those with earnings of around $10,771, would have their benefits cut under the Bowles-Simpson proposal. They would neither qualify for a hardship exemption, nor be helped by the proposed minimum benefit.  The Chief Actuary assumes that the hardship exemption would require 25 or more years of covered employment. However, the full enhanced minimum benefit proposed by the Committee would only be available to workers with 30 years of covered employment.ii It is well documented that for low-wage workers, Social Security is the primary, and in most cases, the only source of retirement income security. Low-income workers tend to have less access to pension coverage and savings, especially those who may have worked sporadically due to family responsibilities, and therefore need to rely on Social Security benefits for their income when they are older. Therefore, NEA recommends that the Committee modify its proposal so that more individuals would qualify for a benefit that will allow them to make ends meet.
  3. Benefit formula changes: NEA opposes the provision to change the formula for calculating benefits.

    Social Security’s benefit formula is applied to a worker’s average indexed monthly earnings. Under current law, Social Security contributions and benefits are based on earnings that fall below an annual cap, which is $113,700 in 2013. The Committee’s discussion draft changes that formula and would result in benefit cuts for moderate income earners. NEA opposes any reduction to earned benefits.

    NEA supports Social Security as social insurance, not as welfare or a means-tested program. Reducing Social Security benefits to higher-income retirees would not save much money and would alter the program’s philosophy and administration. While higher paid lifetime earners receive higher benefits, their benefits replace a smaller share of their past earnings than those provided to lower earners. However, the Committee’s proposal is not a benefit reduction for only the very wealthy—it would also cut benefits for the middle class, according to the analysis by the Social Security Chief Actuary of the Simpson-Bowles provision (the approach included in the draft text). The Social Security Actuary’s analysis found that the proposed changes in the basic benefit formula would reduce benefits. While these benefit cuts would be greatest for workers with above-median earnings, they would also significantly affect the majority of retired and disabled workers.

Impacts on other areas
Passage of this legislation may go well beyond affecting current and future Social Security recipients. Some employers that provide retirement benefits link their plan benefits directly to Social Security through a practice known as “pension integration.” In such a retirement plan, benefits or contributions are coordinated with Social Security benefits or contributions to meet a specific wage replacement level. For example, if a company using an integrated plan wanted to replace 50 percent of its employees' wages at retirement, it determines what its employees' Social Security benefits will be and contributes an amount that, added to the Social Security benefit, equals 50 percent of wages. While we are not aware of any public sector plans where such explicit integration exists, public pension plans in states where public employees are covered by Social Security are implicitly integrated with Social Security in that the plans provide lesser benefits than the plans in non-Social Security states. NEA’s research shows that there are usually differences between the benefits received by government employees who are also covered by Social Security with generally lower benefit formulas for those employees with Social Security coverage than those without.iii Generally speaking, employee retirement plans not coordinated with Social Security have higher benefits than those where employees are also contributing to Social Security. In addition, some plans that are coordinated with Social Security (plans in which the individual has Social Security coverage in retirement in addition to the benefit provided by the pension plan) offer an option for members who retire before they have reached the eligibility age to receive Social Security benefits. Under this option, a member may elect to receive a percentage of the  their estimated Social Security benefit from the retirement system before Social Security actually begins, and then receives a reduced allowance from the System when Social Security is received, and for the remainder of their life. Changes to Social Security benefits could cause states to evaluate the effect of these changes on retirement plans that would further reduce public employees’ retirement benefits. For example, reductions in Social Security benefits may create pressure on states that do not participate in Social Security to reduce their public employee pension benefits.

We thank you for the opportunity to submit these comments. We look forward to working with the Committee as considerations are made toward any adjustments in Social Security benefits. 

iStrengthening Social Security: What Do Americans Want? Views Among African Americans, Hispanic Americans, and White Americans (Washington, DC: National Academy of Social Insurance, 2013).

ii See SSA, Memo from Stephen C. Goss, Chief Actuary of the Social Security Administration, to Fiscal Commission Co-Chairs, February 2, 2010.

iiiCharacteristics of Large Public Education Pension Plans (Washington, DC, National Education Association, 2010.