STATEMENT BY DALLAS SALISBURY commentary on Social Security has unfortunately--been a description of a program that "allows you to retire;" that's unfortunate Witness Disclosure because far too Statement, many Americans have wrongly thought Additional problems can arise in calculation as well. For example, a recent article by the President and CEO, Employee Benefit Research Institute (EBRI) this meant it would provide them with an adequate retirement income, rather than just a base. Iteritage Foundation attempts to calculate rates of return for stylized individuals from the Social pursuant to Clause 2(g)(4) of Rule XI of the Rules of the House: Comnfittee on Ways and Means, Subcommittee on Social Security This may well be a reason that only one-third of those now retired did any assessment of either Security Old-Age and Survivors Insurance Program (OASI). Aside from the worthiness of April 11, 2000 their expected income or expenses prior to taking the step of retiring, and only 52 percent of calculating rates of return discussed above, the paper made a crucial economic assumption that workers have yet done so. Hopefully, the statement will serve to increase that number in the immediately leads to a lower rate of return being calculated for all individuals. This crucial future. Second, the statement gives a clear picture of your retirement age options and the benefit • The Vv'ithess: assmnption is that all payroll tax revenue in excess of benefits paid in each year that has accumulated implications. in This the Social should Security provide people Trust Fund, with an andincentive is expected to work to continue longer, to an accumulate incentive tothere save Dallas Salisbury is president and CEO of the Employee Benefit Research Institute (EBRI), more, Wash orinboth, gton, as DC. theErecipient BRI is a pri will vate,now nonp know rofit, that nonpa the rtisan normal public age pofor licy full resea benefits rch organi iszation above bage ased Mr. untilChairman, 2015, is assumed and members to be never of thepaid Committee. out as benefits. I am Dallas Instead, Salisbury, in their President calculations, of the payroll in Washington, DC. Founded in 1978, its mission is to contribute to, to encourage, and to enhance the 65, and moving to 67. For many Americans, this statement may give them the first indication T- 122 of Employee taxes are increased Benefit Research to equal the Institute benefits (EBRI). to be paid EBRIinis each a non-partisan, year after 2014. non-lobbying Under this research and development of sound employee benefit programs and sound public policy through objective research education how little organization their parents or based grandparents here in Washington, are currentlyDC. living on, since over two-thirds of retirees assumption, approximately $2 trillion is counted as contributions in their report, but none of this and education. EBRI does not lobby and does not take positions on legislative proposals. Salisbury has essentially have Social Security as their only income source. revenue is counted as paying Social Security benefits. Therefore, it is quite easy to show small headed the Institute since its founding in 1978. rates of return when $2 trillion are counted as contributions but not as benefits, and instead more It is my pleasure to appear before you today to discuss efforts to inform the public on Social Should the Statement Provide More Information? Security. contributionsEBR! are published "required" and to be distributed raised to its payfirst those consumer benefits education that are directly brochureassociated on Social with Security The the first hearing $2 in trillion 1979; announcement its infirst contributions. study from ofChairman Social Consequently, Security Shaw also ineither 1982; raised the undertook the revenue question its that first of has whether public accumulated opinion the Social or • Tile Organization: will accumulate in the Trust Fund must be counted as paying benefits--or not counted as survey Security _Itmon Education statement Social Security and might Research provide in 1990 Fund ,more and (ERF), the information established most recent than in in 1979, it1999. now performs does. Our opinion the I am charitable, aware research ofeducational, three has made areas that have been discussed for additional information. and scientific functions of the Institute. EBRI-ERF is a tax-exempt organization (under IRC Sec. it contributions--to clear that the public gain does a potentially not have honest a good measure understanding of ratesofof crucial return details for the of OASI Social program. Security; I Subcommittee on Social Security 501(c)(3)) supported by contributions and grants. EBRI-ERF is not a private foundation (as defined by our say publications "potentially" seek because to increase of broader that issues understanding. noted previously. If a reader did not carefully IRC Sec. 509(a)(3)). First as was endorsed last week by delegates to the Choose to Save ® Forum on Retirement examine the assumptions and calculations of the Heritage paper, a seriously incorrect Security and Personal Savings--would be the addition of information on where to go for online Rating interpretation tile Social would Security be taken away Administration from the report. EBRI-ERE has a number of programs: and print retirement planning assistance. This would include Internet URL's for such resources Our sur_'eys show the Social Security Committee Administration on Ways and was Means given a "fair" rating by the public in American Savings Education Council as the Ballpark Estimate ® Retirement Planning Worksheet. 1990 Thus, on thehow assumptions well it kept used Americans in any model informed need about to be clearly the program. disclosed Two-thirds and understood of respondents to allow in United States House of Representatives Choose to Save _ Education Program 1990 individuals were not to correctly aware that evaluate action had any been resultstaken emanating to increase fromthe that normal model.retirement The ability ageto toeven 67 Consumer Health Education Council Second would be the addition of "warning" language on the benefit amount, so that the worker beginning attempt to in provide 2000. such (EBRI-Gallup full disclosure Survey on Number the Social 7, Security February statement 1990). would turn it into a book, Defined Contribution Research Program not a statement. knows that taxes may eventually have to be increased in order for the stated benefit to be paid, or Fellows Program that a reduction in the statement benefit may Hearing be required on if the Congress and the president were Health Confidence Survey Program Expected Benefits from Social Security and Support Health Security/Quality Research Program not willing to raise the necessary taxes or otherwise appropriate funds. Some have suggested Our Tile 1994 Trustees survey Re found port that 71 percent did not expect (correctly) to get as much out of Social Policy Forums that this "disclosure of risk" should note that current economic projections imply a future Security EBRI has asalthey so pu had blishpaid ed reg in;ula and r repor 46 percent ts based agreed upon that the repor taxestswould issued have by Tr toube stees raised of tin hethe Retirement Confidence Survey Program reduction of Social Security benefits of up to one-third of stated values. For more than 20 years, future program, to pay q%e benefits late 198in 0s the brou future. ght the (EBRI publi /Gallup cation of Survey a "summ Number ary" report 56, April by the 1994) Socia Our l Security Efforts to Inform the Public Retirement Security Research Program EBRI publications have encouraged full and complete disclosure of the nature of pension risk. Retirement Confidence Surveys from 1992 through 1998, which have asked a consistent question program, which provides a much clearer picture for the public, and that report continues to be Social Security Research Program on Social Security For private defined benefit and defined contribution pension plans, this relates to disclosure of about improved. confidence Now, www.ss in Social a.gov Security provides providing a wealt benefits h of inform of equal ation value, on dem have and, consistently which can al shown so be Education Programs--Policy Forums, Briefings, Round Tables the risk of lower benefits due to bankruptcy, investment losses, unanticipated increases in life one-third to be confident and two-thirds not confident about the future value of their benefits. obtained in printed form from the agency. Analysts have suggested over time that reporting by Publication Programs--printed and online expectancy, etc. For Social Security, this relates to economic risk and insufficient tax revenue the Trustees could be improved with dynamic estimates that presented future possible outcomes Yet, the surveys EBRI also I find ssue that Briefs, two-thirds EBRI Notes, voice EBRI strong Databook supporton for Employee the program. Benefits, Surveys suggest due to unanticipated factors such as a quick increase in life expectancy. Disclosure of risk serves that as more the public than jus understands tEBRI threeHealth possible that Benefits their static Databook parents projecti , oand n Fundamentals s, grandparents as is curren oftly Emplo rely do y upon n ee e tod Benefit Social ay. Programs, Security benefits. Policy Testimony of Studies to further encourage personal savings and retirement planning. P EBR ubliI c haKno s supp wleo dg rted e the Gaps development of a model that allows such dynamic analysis, and has Third would he the inclusion of an "expected rate of return on taxes paid" number. I have The publimost shed signific a number ant oa frea stu sdies in which based public upon th knowl at model, edge which is lacking is als rel oate now tobe how ing much used b Soci y the al Social • Contracts: reviewed studies on this subject since the very first report was published in the late 1970's. I am Security Administration, the General Ac Dallas counting Salisbury Office, the AARP, and others, to aid in their Security will provide in thc way of a benefit, and at what age. Surveys consistently support two EBRI does not have any contracts with the federal government. yet to see one that is not misleading, including some comparative research published by EBRI. I analysis of the present system and reform proposals. Prior testimony to this committee was statements: First, the public is more likely to overestimate the amount they will get from Social Employee Benefit Research Institute allowed EBRI to publish the comparative work on the theory that all the numbers were based upon our use of the model. Other organizations have developed models as well. Because Security than to underestimate it; and, second, few yet know that the normal retirement age--as Under the terms of the SAVER Act of 1997 (P.L. 105-92), EBRI did have a contract to serve as the consistently misleading, but did allow a constrained comparison of the present Social Security en ofacted their by complexity, Congress--is the most now important in the process thing of tomoving assure is up full from disclosure 65 years of and alltwo assumptions months to so 67. private-sector partner with the U.S. Department of Labor in staging the 1998 National Summit on design with a number of reform options. I do not believe that including such a "rate of return" that model results can be put into context and can be fully evaluated. Only 16 percent of respondents in our 1999 Retirement Confidence Survey knew when they Retirement Savings. The expenses for this event were divided between DOE and EBRI and no number would be a helpful addition to the Washington, Social Security DC statement, as it would not be possible woulpayment d be able wastomade get full to EBRI benefits; by the 59DO percent L. cited an age too early; 5 percent an age too late; and to explain all the ways that it is misleading. Additions to the Trustees Report 19 percent simply noted that they did not know. (EBRI Issue Brief Number 216, December 1999) The addition of rate of return information has also been suggested for the annual Trustees report. For instance, I noted that my wife received her statement. In theory, it would allow a For the reasons previously articulated, I do not believe that this is possible in a form that would The Social Security Benefit Statement 11 April 2000 calculation of her personal return, were the system not an "intra-generational" system. Both of int\_rm more than it would mislead. "Fhe annual Social Security statement, noted in the press release on this hearing from Chairman us, however, have living parents who rely on Social Security. Mine are now 86 and 83, and were Shaw, arrived in the mail for my wife last month. It provided us with an estimate of what it not tot their income from Social Security, I would be paying part of their living expenses Conclusion benefits would be available to my wife under the current program, at alternative ages, and a full directly. Instead, the taxes 1 pay to Social Security get mailed to my parents. How can that It has been my plcasure to appear before the Committee today. I offer the Committee the earnings and tax payment history. The earnings and tax payment history was accurate. It accurately be factored into my rate of return? Such an individual-by-individual assessment tocused on the lhct that full benefits would be at the age of 66, not 65. And, it focused us on the assistance of the Employer Benefit Research Institute and the American Savings Education would be very expensive and difficult, if not impossible, without substantial invasion of personal fact that xvc will need to save a lot of money to supplement Social Security in order to live as we Council as you continue your work, which is vital to the economic security to all working and privacy. Disability and survivor benefits in theory can be adjusted for in the rate-of-return would like to. retired Americans, and to millions of survivors. calculation when doing analysis on case studies, but to provide a realistic number to each worker would require an individual-by-individual assessment of all of one's family members. Such is The views expressed in this statement are solely those of the author and should not be attributed to the The statement provides important infornaation that will help correct the two most serious areas of the problem that arises in a social insurance program with multiple components and multiple ]['_mploycc Benefit Research Institute, its officers, trustees, sponsors, or other staff. The Employee Benefit low knowledge among the public. First, it gives a clear picture of the Social Security benefit that Rcscmch generations Institute , andis it a makes nonprofit, a simple nonpartisan, or objective public policy "rate of research return"organization. number impossible to produce or you might expect to receive. Our work suggests that the vast majority of Americans will be virtually meaningless. struck by how small the benefit will be, and will be motivated to save. The history of public 4