NEA Statement on Social Security Privatization
May 12, 2005
Chairman Thomas and Members of the Committee:
The National Education Association (NEA) respectfully submits the following comments for inclusion in the record of the Ways and Means Committee hearing on Social Security privatization.
NEA represents 2.7 million educators working in America's public schools. Many of our members, along with millions of other public employees, rely on Social Security to help ensure a secure retirement. 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.
Social Security is more than a retirement plan. It is our nation's most successful social insurance program. Proposals to privatize the system have thus far ignored the impacts on children who receive survivor benefits and persons with disabilities who rely on Social Security to survive. The impacts on these most vulnerable populations cannot be ignored.
NEA has three priorities for any Social Security legislation moving through Congress:
- Opposing any efforts to privatize Social Security;
- Ensuring that public employees who are enrolled in and have paid into other retirement security plans are not mandated to participate in Social Security; and
- Repealing unfair offsets -- the Government Pension Offset and Windfall Elimination Provision -- that deny earned Social Security benefits to many public employees.
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 will jeopardize the secure retirement of many Americans.
Private Accounts Lack the Important Social Insurance Properties of Social Security
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.
Private Accounts Would Turn Social Security into an "Individual Insecurity" Program
Rather than just shifting "ownership" of retirement assets from the government to workers, Social Security privatization shifts an inordinate amount of risk away from the government and onto American workers. The United States' experience with defined contribution pensions and 401(k) plans shows that many people fail to understand even the most basic aspects of investment and that many make bad investment decisions (e.g., failing to diversify their investments). Unfortunately, many people simply do not have adequate financial experience, training, or time to do a good job managing their own accounts.
The Impact of Privatization
Impact on Women
Women comprise over three-quarters of NEA's membership. Therefore, NEA has a particular concern about the impact of Social Security privatization 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.
Although privatization proposals say that participation in private accounts would be voluntary, the benefit cuts in the plan would be mandatory for everyone. These cuts would be devastating for women, who rely more on Social Security than men do. 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. Women comprise 58 percent of all Social Security beneficiaries aged 65 and older.
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 then men and have fewer years in the workforce. In contrast, privatization would provide benefits based only on worker contributions, disproportionately penalizing women for time spent out of the workforce for childcare and care of the sick and elderly.
Social Security pays 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 individual accounts could be drained by health costs, bad luck, or 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 $400,000 and a disability insurance policy worth over $350,000, according to the Social Security actuaries.
Impact on Ethnic Minority Communities
NEA has a diverse membership serving an increasingly diverse population. Some 10 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 20 years that percentage may well reach 50 percent.
Given the diversity of our membership and the students and communities they serve, NEA has a strong interest in the impact of policy decisions on minority communities. In fact, NEA is currently engaged in an outreach project designed to strengthen partnerships with minority communities in support of public education. We are, therefore, deeply concerned about the impact of privatizing Social Security on populations such as African Americans and Hispanics.
Impact on African Americans
Proponents of Social Security privatization have claimed that the current program is unfair to African Americans. For example, President Bush has asserted that "African American males die sooner than other males do, which means the system is inherently unfair to a certain group of people." However, while it is true that the current life expectancy for African American males at birth is only 68.8 years, this does not mean that an African American man who has worked all his life can expect to die after collecting only a few years' worth of Social Security benefits. African Americans' low life expectancy is largely due to high death rates in childhood and young adulthood. African American men who make it to age 65 can expect to live, and collect benefits, for an additional 14.6 years.
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 2002, the average monthly benefit for African American men receiving retired worker benefits was $850, and for women was $683. 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-three percent of all children receiving Social Security survivor benefits in 2002 were African American. A recent 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 30s would only have enough in his private account to cover less than 2 percent of the survivors' benefits now provided by Social Security to his widow and children.
- African American families benefit from disability insurance. In 2002, 13 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.
Impact on Hispanics
Like African Americans, Hispanics benefit from Social Security in a number of ways:
- Social Security is the only source of retirement income for 41 percent of elderly Hispanics. In 2002, the average monthly benefit for Hispanic men receiving retired worker benefits was $859, and for women was $619.
- 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 were age 65 in 2004 can expect to live to age 85, compared to age 81 for all men. Hispanic women who were age 65 in 2004 can expect to live to age 88, compared to age 85 for all women.
- Social Security disability benefits are important to Hispanics. Hispanics have a higher work disability rate than other Americans. While disability data from the Census show that the overall work disability rate was 11.9 percent in 2000, the work disability rate for Latinos was 16.7 percent. Thus, Hispanics are more likely to be in need of the disability benefits that the Social Security system provides. Private accounts would not provide disability protection.
Progressive Price Indexing
NEA is also deeply concerned about the President's most recent proposal, which would alter the benefit structure through progressive indexing. While the President has described the proposal as reducing benefits for the most affluent Americans, it would result in large benefit reductions for middle-class workers as well. In fact, seven of every 10 workers would be affected.
The benefit reduction for middle-class workers such as educators would be large. A teacher making $35,000 today would be subject to benefit reductions more than half as large as those imposed on people at the highest income levels. A worker making $60,000 today would be subject to benefit reductions that are nearly as large (as a percentage of his or her promised benefits) as the reductions that would be imposed on someone making several million dollars a year. For a $60,000-a-year worker who retires in 2045, the benefit cut would equal 25 percent, or about $6,500 a year.
For many workers, cuts would be deeper than if no action were taken and Social Security became insolvent. For workers who now make about $55,000 or more, Social Security benefits would be cut more deeply under the progressive indexing proposal than if nothing were done to restore Social Security solvency. Perhaps even more troubling is the fact that the benefit cuts would apply not only to retirees, but also to survivors and people with disabilities.
The Case Against Mandatory Coverage
NEA opposes mandating participation of all public employees in the Social Security system. Educators in 12 states (Alaska, California, Colorado, Connecticut, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, and Ohio) as well as selected districts in three additional states (Georgia, Rhode Island, and Texas) do not pay into Social Security. Instead, these states maintain separate retirement systems for educators. 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 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. Mandating coverage of public employees will 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.
Repeal of Social Security Offsets
NEA strongly supports full repeal of both the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP), both of which unfairly reduce earned Social Security benefits of some public employees. The GPO reduces public employees' Social Security spousal or survivor benefits by two-thirds of their public pension. The WEP reduces the earned Social Security benefits of an individual who also receives a public pension from a job not covered by Social Security.
The offsets penalize people who have dedicated their lives to public service by taking away benefits they have earned. Nine out of 10 public employees affected by the GPO lose their entire spousal benefit, even though their spouse paid Social Security taxes for many years. The WEP causes hard-working people to lose a significant portion of the benefits they earned themselves. The loss of income forces some people into poverty. Some 300,000 individuals lose an average of $3,600 a year due to the GPO -- an amount that can make the difference between self-sufficiency and poverty. Impacted people have less money to spend locally and sometimes have to turn to expensive government programs like food stamps to make ends meet.
The impact of the GPO and WEP is not just felt in those states in which public employees 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.
Finally, the GPO and WEP discourage people from entering/staying in the profession. Individuals who worked in other careers are less likely to want to become teachers if doing so will mean a loss of earned Social Security benefits. The GPO and WEP are also causing current educators to leave the profession, and students to choose courses of study other than education. Non-Social Security states are going to find it increasingly difficult to attract quality educators as more folks learn about the GPO and WEP.
NEA supports the Social Security Fairness Act (H.R. 147), introduced by Representatives McKeon (R-CA) and Berman (D-CA). This bipartisan legislation would correct the inequities in the current system by fully repealing both the GPO and the WEP.
NEA urges Congress to:
- Reject efforts to privatize Social Security;
- Oppose mandatory Social Security coverage for public employees; and
- Repeal the Government Pension Offset and Windfall Elimination Provision.
Thank you for the opportunity to submit these comments.