q T-13 4 7 32 9 21 17 ii 13 18 12 i0 29 31 19 15 20 223 24 23 526 2 30 27 25 16 28 confidence of old and young alike. Many elderly beneficiaries fear that their savings for Social otherSecurity payroll benefits taxpayersare ifbased federal on lifetime workers are covercovered ed earnings under . Social There the purchasing power of benefits would continue to increase throughout the 1977, an average of 39 percent of the men and 63 percent of the women were not benefit Arguments example, eligibility the analysis, stwould rAgainst uctu inronly ecombination beneCovering to fit onethecohort from financing with Federal wider isage shown Social provisions Workers at. death SThis ecu ..rity coho Even Thretcoverage pthough rwas ospect .chosen aveApproximat facing ragebecause life Congress ely thes28 e rperiod years eflect.would time aBut lack (2) bein the Closed moderate ofwhich proposal undeCSRS rstanding toinbuild would Costs relative upnot of = FIG substantial ben Uthe Rterms, have e Efits pr 1oblem tothe (ol bebenefit d)actual oimplemented r plus of potential numbers refundsimmediately that minus effective would . show For ess insuranc diffe ence, rent e) this yea of rmeans the s will original that leadanyto Social policy a highe Security rchanges TABLE cost Act estimate 2Congin ress1935 . makes was Furthermore, rin aised the in currthe the ent Senate seven years government contributions exceeded employee contributions, catching of these Before models making would beanydetde ermined cisions byabout the changes Congress, to the Social coverage Security studythat group might Security polls matching that-- have cont This ribution been is one taken basis, of since the according stth rongest e packagto econcerns myofcalculations, recommendations that has been the has voiced fundbeewould n in have the ina thedequate solvency CSRS canincome of be the described prot CSRS ection --bydry the forthe pe following mrsons up and notsimple benefits coveredformula: cannot by Social 7/ be paid Secu.rity;In fact (2) rights. In the long run, howeve employee r, such contributions bonuses. are Future Average Family Social Security Benefits are three benefit calculations factors (often called "bend points") in the Security monthly implementation . benefits perwill iod. be cut off, and many young workers do not believe the insu solutions red .against disability. now expectancy is aCivil newincreases set Service of noov rRetirement mative er the options, simulation System all (CSRS] perof iod,which covers somesomewhat people federal change still workersdie theand between course percent up people Finance up example, envi actuaries in on ronment previous the would unwise of Committee ifunified have wom should itfeel enand we und .re reeecently mploy budget th rfun endange not eThe implemented demaximum ing dprissue r.omise might adjusted by ththe eAt was eff bmore esolvency in ethe fede ct aff th couched 1987 ecash reiof al end cted r the each fer of gov of benefits in tility by epthe 1941 rnment rof the ojected moving system thCla th ean for erdin options kadd accounts wi savings the by Ap amendment eth drdrawal il futu trsimulated ust 1978 rin would e oassumptions, which fund than rhad .be outannual balance we1would .o01 farethe help to resolveFEDERAL the long AGENCY -term ANDdeficit GENERAL itREVENUE is imporEXPENDITURE tant to conside PROJECTIONS r the under- designed plans that in combination at with Age 65 Social Security would provide the same if been employee totally contrdepleted ibutions some weretime the du only ring sou 1982 rce. ofToincome have continued to CSRS the thefund program wouldon opposition in compl equities eted (i]byto inherent CSRS the coveBudgeta National ringin rpartial new y CoCfederal mm ost ission exemption = ben woerfits on kersSocial from under plusparticipation Security refunds Social Security Reform minusin .ashow mandatory Topersist someent re- permitting (3) New dispropo CSRS Costs rtionately = benefitslarge(new) benefits plus re tofunds minus Mr. FOR ChaiTHE rman,CURRENT I am pleased CIVIL SERVICE to appear RETIREMENT before you SYSTEM today AND to discuss the employee contributions. OTHER CONSIDERATIONS pbenefit rogram will It formula iseven .also exist Each important year when these the to yremrfacto embe eachrrsrethat ti increase rement there age byar.etheoth Resolving reate r sources of ave the rage ofshoincome rwage t- In 1982 Dollars Workers in employment not covered by Social Security also exper 6 ience Social percent Security of payroll, is unnecessary still meeting-- the As with projected many policy deficit. issues If itthewerpe erception of from budge tsala he rt. ies ages the wo From "Double below This accumulation of rkesixty rsawould 4lifetime 10,000, who -dipping" two not mig-and of rbate enefits affect whe past suggests sixty rebas etween decisions -five, taxpaye only employee pereceiving rspective, uninsured r.7and pecosts rcont cent It sixty dual ris ibutions and fo -th five of repossible compensation insu fdist the ederal . and rrfede ibutional ed sixty th rre ally atti-reight ement if oremployed benefits Ceffects .ong . ressPeople mof ewe based nrtehe further exacerbating MODIFIED thSYSTEM e long-te INrmCONJUNCTION financing WITH deficiNEWLY t projecti HIREDonsWORKERS . have would sure exempted we have can been provide employers _131 . million This withishad pension especially contributions programs the case fralways om given participation been themade pending oninafinancing the matching old age llying eveal cuof rr implications ent average cost ben matching eof fitsalter asnative basis, the cu benefits rr polici ent esC.SRS would . TheTh rhave ee astudy rehadtwoto group basic havefocus app been erdoaches cut on 55 foto r extent this issue is jurisdictional and cannot be resolved without be dist widespread deplet ributive ed sk byeprog pticism 1987 ram;or and about 1988(3) at thesubsidi thlong e lat -zte ed erst m. benefits viability Even ifaffo th ofreded th syst e eprog pa mrtial rope am.ratedThein the employment and accumulate only small earnings in current deliberUNDER ations SOCIAL on Social SECURITY, Security SELECTED financing YEARS . 1983 I -appea 2050 r today in my If new federal workers are covered under Social Security and a supplemental term growthfinancing in the economy problems, . Thwhile e practical not specifically effect of addressing this procedurth e e long is to -term, raise may the There are certain facets of the package submitted by the National that will help to mitigate the effects of modifications in Social Security. By $10,000 (COLA] who did gaps this. dopin rCoposal's adjustment onversely, not benefits live. to value to only age These Janau vasixty 8rirpe gaps eysr-cent five 1984, fraom rise ofor pon erson becaus thwthe eho-to Feelive -othe de perrmany ally son r only .hand, ofemployed athe few Fo 52r alte pe the yerars cent women rnative individual into favo hadrpre ed esala nsion tirement who rthis ies presented va on implemented rious one peThe options rIn iod with (4) Stevens addition inofa2000 Social arcl se eeran vic bill quite the toe. Security slate, pth rwould oj edifferent Fo ect long reit drequi people Costs -temight .rsavings mre =pThe who rdesign cov benefits oblems ewould options work rage ain inpbe of (SS) rogram Social noncove that newly .80minus pe adjust rsignificantly ed rhi Secu cent red employee rity's employm the wo ofrke benefit payroll ernt, scash different and . there pinsurance roblems insured ofprogram the .employment HI program In co..mmittee, 3/This th raises is amendment the possibility was defeated that on adjustments a tie votemad . e basis 60.percent The government at that time contribution . rate continued to grow during World War II defined eliminating benefitthe plan long-te desi rmgnsdeficit: in an effort raising toadditional meet the benefit revenues taror gets slowing that the were fashion Cong numbers ressional that of the many reorgani National fedezration al Commission, .workersNeith beelieve rwhilof e it agr theedoes, eing Committees (i that .e.,prwi ovisions employee th jurisdiction saving 1.over 80 participation in Social Security. contributions. Current Policy Benefits capacity as Research Current Director Systemof theModified Employee System Benefit Research Net SavingsInstitute. EBRI pension is established the implications for taxpayers will depend on several resolve the concerns of beneficiaries, but not those of young and middle-aged Commission purchasing on power Social of Social SecuritySecuReform rity benefits that warras ant wages furthegrrow conside over rtime ation .. The The the time any of the long-term options being seriously discussed is fully policy systems ultimately while do not receives 43 provide percent a CSRS disability opposed pension it.and afte Onsu r the rvivor a relatively Commission's benefits full comparable proposal career to oftotax federal those Social offe from would fo is abov ben rmula rlittle eefits the incentives receive 420,000 The (ione .pdouble er.og Universal ,now rbams in ebend neknown for 1978, att fits th rpoint ibution ere cur Social for wh as rent eis reas Social adjust aaSecurity sho worke ofmom31 rents rservice teerSecurity rspercent ]immin period toCoverage te.nt emove bo ndth offinancing under But toto the toStudy, cluste athe Cong men this noncovered rrnew ess did probl which option the .system does emben Simila .was .pension enot fo fit rrmandated Obviously, ly, The have the reductions, savings system Medicare memb a clean by ers the and growth al today thoughmay inThis aoutlays have burgeoning option mo .re mday rastic workfo not rcbe effects e thperopelled first or provide that employee many greater policy contribution prog makers ram savings levels would naturally fa thran specified On Year May 20,by193 the 5 the Secreta Senat ry e(billions) ofFinance the Depa Committee rtment (billions) of filed Health, a repo Education rt in (billions) favor and of Welfa the re. The total unfunded liabilities of the CSRS at the end of 1955 were Social Secu9,000 rity in....either Modified the BHouse enefit Formula or the Senate have __.. jurisdiction over cont percent ributions of taxable plus apay matching roll wereagency neededcontin ribution the longplus run, tronly ust fund recomminte enderdest) the Opponents of expanded Social Security coverage for federal workers, on (5) Total Budget Cost = old CSRS cost plus new CSRS cost is a nonprofit organization dedicated to providing research and analysis which factors. In order to show the budgetary impact of covering new Federal workers workers. Without confidence that the program is solvent, continued support may adjustment to the benefit calculation procedure considered by the National pimplemented, rovisions forthetaxing portion benefits of thewould elderly's introduce population a "notch" receiving such that pension in certain and IRA Speof thei ermployment cu ovid rminority rity edlifbenefits eby time there Social groups benefits is 46Secu would little perrcent ity would benefit . need favo Abertfo ed wrfereduced rnty omadded while -one the-ysignificantly errar 49 etirement edist -old perributive cent .woincom opposed rkeraspects e can supplem itacquire . of entation With Social Social the . Congress beyond slate consider, to relative Social ; th theeto as rbut Secu eemployer current pais rrity given t a.ofdefined rate policy, the thDual e .problems 1977 st ben Afte rbelow euctu Social ficia r rewi the ry15 th plus with Sepercent wa curi the status r Social tan there yo.thinh eAmendments, occu rser Under were Security ent rsit massive because may set the be cost quantified pof rice a.withdrawals obligations recipients middle 8/ indexing th ground .e have of costs of fSocial rprogram om modifying Security which CSRS thAct e .National in accordanc Commission e with this did not proposal address would at all gr.ow significantly Under current Their future designs geRaising nerations called additional would for aaccept supplemental revenues . Forthrexampl ough thrift e,theplan ifpayit roll toisencou socially taxragor e alternative individual desirable to fund fede 1983 ral wouldretirement be depleted . Legislation sometime17.9 between originating 1993 , and fr17. om 1995 th7e. Committees The fact of with 0.2 theSocial matter modifications theapproximately other hand,that _ari0gue: would billion (i) net . The 1.By 22Civil comparison, percent Ser.vice ItofReti isthe reclea ment roughly r that System _500 the (CSRS) billion Congresscove inis rs 8,000_ _ 1985Avera_Ben_Lev_J....-'"'"'"" 1984 20.0 19.9 0.i can serve as the basis for sound policy toward employee benefits. EBRI as an unde witherr.Social Security and a modified pension I have analyzed and will discuss a Commission would index the benefit formula "bend points" by 75 percent of wage instances, annuities will an add beedsignificantly dollar of nonhigh -Social er than Security is currincome ently will the case result . Figure in 2 exception Security Secu For rity the. pTer hdisability oe7son f,Only 000 option thewho 12 latt .9falls th eprrat pe otection rcent item, raises off of the whe wi north th remer mal e rth cwhites yr-eedited go reti -r responses ound rement employed earnings beag fo weerreebybut fo within gth rrasping emaintains six fedethe qua ralthe rte 3rtgov pe shberreass cent rnment of curre wo ring, nt rk Congress of ea whe complied rnings rthese e different faces wi unwar options, th ranted mandatory the perbenefit spectives choice bonuses provisions between reductions fcan rom beSocial making und blended fo err aSecu both the . sertity majo Some cove of .rity red inc will The remental would andestimate pernoncove ceive also adjustments red is bthis e that less as ath thor ean after raise law the th the eDebate Medica turn levelreof onofth the financing real e bill centu Social ryindefi as thSecu ceits thSenate reityfede takebenefits ral began on much woron k info gJune reat rc theeer14 becom future . proportions eWhen s it prthe edominantly can Clark be than those employee sources 1985 would contributions help resolve as war th22 -etime .4projected personnel problem went 22 . .2 back To raise to regular revenue0.employment 2 sources. savings in addition to basic pension accruals. having difficulty resolving the remaining long-term deficit. is Secu unfunded th rity at the jurbenefit isdiction current pCSRS romises cannot is pon rima include the rilyCSRS pdreovisions pendent books aton foth retaxpay thend e er supplemental of suppo fiscal rt 1981, onfede whateve rnea al rly r federal workers and Social Security is unnecessary; (2) there is no modified Equation (2) is essentially the same as equation (i) discussed earlier, 1986institution does not take 24.3positions on public 24.1 policy issues. 0.Prior 2 to joining proposal that captures the essence of a bill ($2905] introduced by Senator Ted shows growth, theThe instead estimated most ofprevalent thave e rfull age pewage disposal rception indexation income of young th foat r participants futu is re now coho used rts .in Social of Thisreti would rSecurity ees befrom significant reductions in disposable income. Such a policy would appear to sampling benefit in howeve covre,redcut, eCSRS rroermployment; but has rangpersome ovisions of gaping in being fact, could evenly holes these .be split, made cIn redits the toeach discussion assure canofbeth thea eatrned particular ofbenefits arwith guments asdo relittle spons not for es as mo early ha cove employment 15rdepe rannual ed rradically cent reti by ..rement 6,0 sala the 00Und While rnew ies rest erage reach uctu system working below would ring .of410,000 lead the inUltimately, the se noncove toexisting options insomewhat red April themployment the esystem 1978, rsavings larger e .isbut abenefit cl would they 19 ea.r4 contributed modal pe grow reductions rcenttogroup nea of rminority ly towi onth their faced by the Social Security cash benefits programs. now Thus, amendment total accomplished 1987 tobonuses while the was extent thth eexce rrough eint gove erequi droduced rnm_the e2re ntdbillion legislativ di on to26 d.balance the 3not peerSenate match yea process the r. employ floo syst These r,at eem2e6.it that 1ove are contributions became r costs time the. the long incu The subject rr public te ed during r0m.2 bcould y of would the Social cause war, basis theSubsequent cost of th toe th system e report is conside of theredcoverage . study group the Congressional retirem one-quarte ent rsystem (23..9 percent) Conceivablyarose the durreing spective 1980 and Committe 1981 es. Th wieth growth jurisdiction in the CSRS Meanwhile, news is emanating from the Social Security actuaries that federal pension to coordinate with Social Security; (3) it would bankrupt the which applied to the current system. The difference is that equation (2) 1988EBRI, I served as the Deputy 28.4 Director of the 28.1 Office of Policy0.3Analysis in the Stevens (R. Alaska] during 1982. have continued today inherent is thuntil at inequities they Social will.Security neveIt r 'is get s oubenefits replacement r understanding fromof thpereretire thprog at ram subcommittee ment . Virtually earningsstaff was all isof our simulations under three different Social Security policy scenarios in 1982 was inconsistent with the overall assessment that taxes should be raised rather one month of covered employment in two consecutive years. To become insured cove declin rage e initrewas al suggested terms duringthatthespouse implementation and survivorperiod prot . ections From anothe offerred by average one Secu nar group r-rqua owly ityrete mployees In rthan dist and While 5,ou 000 of rrborne any ibuted simulation th itdid eofis .by cur the not benefit rIn th ent eother compa clear analysis taxpaye system's rrison, eoptions ductions how rs at much .pwho r11 oject EBRI .6being of This cont epe dwe this rribute coccu ent cost compa sprsituation read s.of red tobecause minority The acthe rthe oss net pthe rpot og apeople savings ream wide public fede ntial . ralraang rWhil eeffects understands estimates wo eexpected erkers of the of pension plan and became eligible for benefits. While working in covered the then extended 1989 latte haveracardimonious id muchnotclea rep redebate re r sent unde . 30 ractual standing .On 3 Juneinc19 rof eases ththe e amendment ne 30 ine.ds 0longof -term th wase liabilities eld finally erly 0.3population adopted . By by a Research massive unfundedtSe rust rvice liability fund has accumulations don ine 1980 additional and du 1981 ring analysis wasthemore 1990s andth.an design Unless 10 times workprovisions th ine this totalarea are. made over federal pensions could offer legislation that would move in tandem with this projected There are 1.80those percent who argue long-terthat m deficit taxpayer should supportbe is adjusted now requi upwa red rd bto ecause 2.09 CSRS; and (4) it would raise the cost of federal retirement for U.S. taxpayers. l l t I I I 1990 applied only to those workers 32.3 on the payroll 31o.r7 persons entitled 0.6to CSRS Social Security Administration. Prior to that I was Deputy Research Director Senator Stevens' bill called for Social Security coverage coordinated awar the reduced elong of-by term this roughly psavings roblem 985 10 and percent in 1990the is. devising Commission's 1995 Under 2a 000 thelegislative rassumptions ecommendations 2005 package 2010used arto e 2that 01by evaluate -products includesthe aof dollars. The top line in the figure represents estimated average disposable than unde Social to choose r benefits CSRS, Secuto rity threti reduced e same would re ,atperson enhance i/ an agewould close the hav protection to e the to work reti affo rement fiv rded e yeafede age rs runde al for rwo threcurrent kefede rs ral andpolicy, their population another five pe 1949 of employment rspectiv moving the long.er-ecommendation government, term tothey this Unde theSocial cont rmodified option these ributed onSeby curity can aoptions, msystem tatching hebe toCommission adjustments pe Social rdo ceived almost basis, notSecu include would as erverybody was ity bya benefit bcalculating erand hind educe any mends et savings oncut these thup cont e only the in eligibility rthat ibutions windfalls rpr oughly if esent could the the value and benefits ovbe er same of has and in sala the detail rrielative e,s itexceeding isbuclea rdenr 420,000 that that Social theper ir year, confidence Security whilefinancing in37.Social 5 percent will Security plac of white e has on wo Federal been rkersbadly . vote 1991of 51 to 32 and the Senate 34.2 then approved 33 the .7 Social Security 0.Act 5 77 to 6. Th toe handle result th ofosetheitrrustworkfunds, is inrcaising orporatedtaxesin might a bill crdeate evelopeedven by more Senato problems r Te.d To the Social Security bill. That does not appear likely at this time. of peraccumulation cent past imp unde rudence: r cur ofrent unfunded massive law. liability The liabilities Congress over (i should the .e.,firbenefit be st awa 35reyears promises) that ofthethe we long rprog e-term ram's Arguments for Coverage Year benefits (receiving or deferred) on the assumed date the modified system would 1995 42.4 41.6 0.8 of the Universal Social Security Coverage Study, a study mandated by Congress with a modified federal pension for new Federal employees beginning in 1983. pthei roposal r short this -termwould proposals take .aboutThe16implications years. Yet of overthethelong pe-rte iod rm offunding implementation deficit more familyequitable income unde provision r curr .ent Social Security policy. The middle line shows the government wo unde rkers r cur It .had rent issuch not policy salaries clearto what potential in people April re1978 perceiv tirees . e decades when thhence ey arearconf e conside rontedred withto be Social at boat, dependents requirements the soexpens Security .to espeak As forofb.an eanefits thSocial eexample Thelarva ge based rSecurity riations ofactua this, onrial thbin eeanefit the simulated rec reductions entdist asarributions well ticle life .in beyond bthei Many y Judy that r ofbenefits age Mann exist those sixty .infwho r-om two, The Ifreceive the older time, reali shaken zed.extending The ifWhile Social Confecove rit ence Sis reage cupossible rCommittee ityto new windfall tofedi de sepa dralrnot reduction atewobegin rkers shortprovisions -deliberations would and help long-fo teto rrmuntil old ameliorate considerations hires the enwe dth reeof additional One2000 has to inte assum rest e thato t the futurtune e54.C5ongr ofess _722 es million will .5be4.7equipp Thereed werto e assess only-0.two 2 approp yearrsiate St meervens ely schedule and Outside introduced futu of rth ee by tax legislative himincduring reases proc 1982 sufficient ess asth$2905 ere to .hasmeet Senator beenthea long St great ev-eterm ns'dealbill problems of accumulated projection existence. pbut rocThe ess neveonly rwill, funded reason in. all Fo that rlikelihood, exampl CSRSe,is James solvent raise Pie the rtoday ce avein ris age rebecause cent cost testimony ofthethetaxpayers Inadequate Protection for Persons Not Covered -- Most workers not in 1977. Source: Sylvester J, Schieber, Social Security: 2005 be put into operation. Equation 70.8 (i), in cont68 rast, .1 assumed that 2.futu 7 re new That is the implementation year used for this analysis; using 1984 as the first cannot the purchasing be expected powertoofinstill averagepublic benefits confidence would continue that the toNational grow steadily Commission . on projected Finally, path ofthave e rpage roposal incometo apply under th thee FSocial ICA taxSecurity to contributions benefit formula to cash or workers WashingtonIt were Inequities Post istotheextend 5/redist Inherent tellsrth ibutive eir of in two careers Exemptions examples aspectin of the offrom Social divorced future, Participation Security however, women whose that th inisaalso husbands phenomenon Mandatory gives were rise qu firmly alte unde eostions r rrnative even each committed health relating offormula theand --options toadjustments on cash global the . benway eWe fit policy calcul tostperthe mogoptions arted am from bank, adjustments, the vafo rso iations rstto re "ram aising speak in ofit . annual work taxes" may It bmand ay e benefits or exceedingly ebe arnings "cutting tenuous paid to probl du prefe ringremential the more1950s quickly treatment when . gove Perspectives from rnment Socialcontributions Secu on r Preserving ity because were thesubstantially ofSystem noncovered remployment educed, ben Jun2010 ee. fit All and diffe taxing rencepsrovisions in the93.in two 2 thei legislative r respective 86 ve.r1sions, times. with Policy themakers exception 7.1 then of would would pbe rovid toe levy for on Social today's Security children coverand age those of newnotworyet kersborhired n a buby rdenthethat federal system developmeental ven furth worekr done in the on future various . supplemental The reason ispension that the models annualthatcostcould be befohav ree the contrHouse ibuted Ways moreandthMeans an _120Social billion Securto itytheSubcom systemmittee since argued 1970 whil thate "the covered by Social Security are covered by pension plans sponsored by their I implemented. workers would continue to be covered under the current system. Equation (3) 2015 0_'ashington, 122.4 D.C.: EBRI, 102.91982) p. xxxi. 19.5 I have recently written, and EBRI has published, a book entitled Social year would not significantly change the analysis or results. The analysis here defe Social rred Secu Inarrang rou ityrement woReform rk at(CODA) EBRI has come plans we have toset grips compa upreunde with d rthaeS401(k) fundamental implications of theproblem IRS of vacode rious in may thelong be- modification that would slow bend-point growth to 75 percent of wages for a benefits Redistributive ." It is Program clear -- thatCaree each r noncove of theredlong-worke termrs options are exempted that hasfrombeenpaying each patte might assume to federal the rns yea bethird that rThe employees less inthat rthe the eason set extensiv a.exact simulations pe ofrthat son problems Shortly e level lived th than .eseof afte which thbonuses beyond eSocial r simulation their many age Secu take people divo sixty rity on rsuggests ces -two the believe benefits ;thmagnitude .eithis r The constitutes foto rcalculation me sibe rzth e at husbands paid ofthey the ten, theincluded do baby most died twenty, is -boom . receive dangerousIn absolutely sum, to ignore modifying no the reticrisis rth ement e CSRS ofbenalong confidenc efits thfrom ee lines that the of rejoins noncove thered Stevens all employer theprpoposal r'oblems s I cu will although the rr 2020 ent Clark be bette orthe amendment, prrio gove rable rnm gene ent to rations were judg cont reconciled er161 ibuted hav th .9ee relativ been less byeunwilling July inneeds eve 16 130 r.y.and 8toyear Thebear capabilities conferees than . Will the futu employ reported 31of .0rethei ees.r backBy gove userdnment to.coordinate It wouldthealso fedeeral stablish retirement a new prog defined ram contribution with Social Security pension program unfund employees ed deficit have originated contributed because less than the _federal 40 billion gove . rnmIt ent is failed clear the to pay current its CSRS eestimates mployers. areBoth geneSocial rated ove Secu rrity a 75anyea d rthetime typical horizonpension . As plan each ryear equirepasses, a period that Statement of represents the budgetary cost of the new federal retirement program. 2025Security: Perspectives 212on .6 Preserving the167System .3 that focuses45.3on the evolution breaks the ongoing costs of the total system into two components: (i] the rprog inconsistent un ram options . Ifusing Cwith ongress oathcomputer erfails general tomodel addr andethat ssFICAthsimulates is taxing problem, policy people's .support Given work forthat careers Social thereandhas defined period. The bottom line shows the projected path if the formula were into Inhavone e anmecase ninco tionmeth ed-r .eedist woman ributive and her pdisabled rogram that son have provides to depend proportionately on SSI and more food conside not or coho important thi rtonly rred tyand Unde worke yea inequity has the rrrsthe taken prben in ospects scenario ertfits esulting hon e futu political but ofrefoth rfrom spouse eisraising mass broadly opposition theand exodus cuboth rsu rent perceived rvivor of the from patte these nobenefits rvarious rmal naspeople firmly ofreti Social qua as rement rfrom twell co ermm s.Security itted .the andEach Those woea rnow krly.force who pension soci would because etyresult and of planhigh .economy in significant turnover than anyon among budgetary e newly can judge hisavings red today workers ove . r both in positions the short-not and covelong red - by 1959 to2030 thei thre gove resprenment ctive was bodies _2.7re 277commending billion .7 behind adoption (including 211.8of agreed interest -upon J facets 65th .9e employee of the fo taxpayers r federal bewowilling rkers. to Theacc combined ept thatprog burrams den? would Maybe compa therye will; favorably possibly with ththe ey is largely dependent on taxpayer support to meet current benefit payments; it sha ycoverag ear re isinto e. delet th The eed fund Congressionally from from the 1920 projection tomandated 1956period ." study It and is of not theuniversal clea nextr 75th whatcoverage yea thre gove is oadded rrnment's dered . bAs y of employment under the retirement program before the worker is eligible for Equation (4) shows the budgetary effects of Social Security coverage of 2035 360 Sylvester .0 J. Schiebe 273r.6 86.4 of Social Security in this country, its current financing problems, and the ongoing costs associated with the closed system that would apply to old hires, retirement Security canlivonly es. e2/rodeOnefurof therthe asoptions the shothat rt-term we analy adjustments zed was athis re implem benefit ented bmodified een absolutely and halfno ofanalysis Social of Security the revenue benefitseffects began ofto thbe is trpeated roposal asorregular its More important is Social Security's Research commit Direc menttor that future benefits will advocate might exemptions gSOCIAL won't benefit term rstamps eetirem ner..ouseresult nt SECURITY Cfor ove A.was scheduled benefits Histo more rag ages, aatt emeager rinically, rapp ibuted of si COVERAGE about rgn to opriate pay nificant eliving wrlow oll hi to 34 Social -wage r.FOR es pe th tax desc rewage cent unde Even FEDERAL pe Secu th rincreases iption ran rson grrof afte ity ow Social tothto WORKERS the rhigh widely policy whom among 36 or peopl -wag Security years general eeithas th used eha would woof drmembe attempted kers would in revenue ma benefit rr .rtbe shiage e maintain paid of Pa lite rinfusions rt;teductions oshe th rature is balance of that had tcoho the heis, char no rto level tpay of the apension -ras oll less of contribution Social Securityleveand l. high Beyondrates 1960ofgove Social rnmentSecucont rityributions recipiencyhaveamong exceeded CSRS bill 2040and seeking further instruction 465.7 on the Cla 36r0k.3 amendment. On105July .4 17, both retirement programs of other large employers in this country. "share" the continues 1977wasSocial during to accumulate Secu thris ity perAmendments iod added but liabilities employee provided contributions fodetailed r future specification genenet rations of refunds ofoftaxpayers four were an analogy, one could think of a locomotive pulling 75 freight cars. At each insurance protection. As a result, workers who have jobs not covered by Social new hires. The budgetary effect is different from the effect of the OASDHI 2045 604.1 499.2 104.9 prospects for the future. The analysis looks at Social Security in the and (2] the costs of the new system covering future employees. The budgetary an fodrmula the modification coming Hospitalevaluated Insuranceby th financing e Nationalcrisis Commission approaches . .The results of our income potential . The implications difference for between the distribution the current policy of ultimate and the benefits combinedsuch a policy claim tax cont . ributions In the othof er high case -wage the covered mother ofworke three rs childr is used en toandprovide homemakemore r had generous to go rpthey than acteri esolv rovideezbegin 5espe the Benefits arcent reasonable thto long e. retire relativ -ter Afforded Inm.efact ly base probl Tosom generous em Partial of some e suppo appear peopl FIextent, GURE rtParticipants epayments to wi fo 2 rth this hathe velong tophenomenon insuffi elderly's people lives in Social cient beyond with is retSecurity irement suppo captu perag iods rt eredsix at income -- of tin y-th eight, Wo noncove the is rkertim sreed employee espouse annuitants mployee countervailing 2050 as well benefit The ..cont contributions proposal ributions Forwas goals theattributed . by worke Employee offor the Howeve radequacy r786 eti National wh.orto r7,Benefit ement spends th because and e Cspouse, ommission pu eResearch quity up rposes of to .not additional five 683 thr.6 Institute ough that In toyears athnew its ebudgetary primary in interest ffinancing ede noncovered ral 103 sense beneficiary wo th .1rean ker dtsrthen, ust benhi efit rfund ed on any the Senate and the House accepted this conference report but the chambers While Some analysts there maywill be some point legislative to several ppublic roblems opinion with moving polls athat federhave al been station the train stops, the front car is taken off the train and another car only one-quarter of one billion dollars more than government appropriations and Sapp ecurity roaches or to whocoordinate shift between the fcove ederral ed pension and noncov prer oged ram ewith mploymSocial ent may Secuexpe rityrience accounts, in that the specific account would be credited for both employer and framework of the larger retirement income security system in this country. Fu(ure Average Disposable Family Income at Age 65 costs of the separate systems can then be aggregated to get the combined simulationIntergene analysis rational of the concerns option arabout e shown Social in figu Security res 1 and link 2.the Figu shore rt- 1and shows alternatives may deserve additional may be conside scrutiny red . as an 8 percent reduction in income at age benefits to retirees with low average before lifetime the earnings than they would to whose who secu simulation, with to gfind rewo ity tprer b.ked peaiods nefit ssage her If tobut own ofno athe ofrpossibly consensus noncove pmal rsuch ovisions spouse rre eti mdeasu rnot was ement cannot re employment dse.spite based sufficiently age .be Thos 14attained unde eAnnual who yea .rwho rsqualify both abenefits If of dvocat onma simulations, the rrr aising efo iag wages re. raising wer Social eretirement ofcalculated These would th th Security is e we reti coho rreeceive ages rrem not in tben entowe 1982 erfits re to pemployment employment instruct rst oposal ructure ed.coupl an as thdei eUntil d"windfall rthen wi respective th recently, retu Social rbnsenefits to confer Secu this .a"rity ecovered es process Thecoverage toUniv job, hold has ersal been lifetim fith rmatSocial relatively to ejust thei contributions maintains Srecudiffe rity uncont rent Cove ror ove can rdoes age positions rsial benot would after have Januaryearned i, 1984 if cont hasributions created more had always acrimonoybeenandmatched confusion the gove thanrnmen anyt other pension taken inplan recent in tandem years indicating with social a Security, greater public the practical willingnessissues to accept in planhigher contributionsIn order for the forperiod current1920obligations to 1955. to It be is met possible in the tofutu gore, backwhethe and r new is coveadded rage. on6/to The the OPM end. actuaries If the ca and r th other at ispension taken off specialists is lighterin than OPM worked the one periods without disability and survivor coverage. In 1982 Dollars employee contributions. Since Social Security is in the unified budget, the While my analysis touches on many aspects of the issues surrounding Social SOURCE: Sylvester J. Schieber, The Cost and Funding Implications of system's cost. th long e -grow termth conside in averrations age .familyPolic Social ymakersSecurity cannotbenefits seek solvency under the withcurtotal rent policy dis- sixty-five by the year 2015. Another way of expressing the difference is to otherwise receive if Social Security Committee were on not Finance tilted to favor low-income ahigher future rdolla increase rpon gis receive eoblems ,ethe resapp velifetime tax nClark rhighe and eciably total of indexing rates, rhusbands discounted amendment fede bebenefits nas eadjusting rfits it althe .having foby rreti in grunder inc oup arpement rre th selected 2opo as eapp percent rthe etion sbenefit roach benefits high in enot dreal to er- lif fo rereti th to ertirement mula eir rcannot eate hav rxp ement, eeccontributions ta mof -ay ncy, su ages cost rreturn vivo betherthe an also labor back scenario protection optaxpaye tion fto -afo cto erSocial c.refo saage ppa r re more achieving This --sixty ntly Secu they than -rtwo ity rStudy educ because edcharacte byvir10 tually rito zed 15 all pth erecent bewindfalls neficwhile iaries benefits as have "unintend rece atediv reeti d,subsidi rement or ecsould ."wouldexp Histo only ectrical be to re rece duced ive, Social continued facet ofSecu thto reitylose package taxes g.roundraIt threlative eris th than e only benefit to thre ecommenda employees reductions tion .through inIttheisthe package notdecade clear .being what By design have been researched thoroughly. From a purely mechanical perspective added, with workers the theuniversal arbu Modifying erden covere ondcove the the byrage Social locomotive Civilstudy Service Secugrrincreas ity oupRetirement in or es.developing not, thSystem, e taxpaye those(Washington, rsmodels will . beaThe rD.Cth .study :e estimate what would have happened to the CSRS trust fund had the government Public pension plans usually require at least five years of service United States Senate employer contribution Current wouldPolicy show up as an expense in the agencies' budgets and Security, $22,000. today I will focus primarily on two issues: first, Social EBRI, August 19, 1982). Tables 2,6,and 8. The total budgetary impact of modifying CSRS is different from the simulation regard for either in 1982 adequacy dollars as or equity the solid . The uppe rer isline gen .eralThe agbrreement oken lower acrosslinethein say that under current policy, average real disposable income is projected to workers occurs . becaus Thee highly their benefits paid noncovered would beworker calculated does not on share the basis this ofburden a benefit . There insu th Cong than participation we th toereergive rmountabl current long essional do cle-awo term the r reke cases rsystem value ssavings of conce opposition wi •....... whe the th of rnreonly lifetim elde deemed Modified about .Social rlycove eGiv unin Benefit necessary could reed benefits Security ntended th employment Formula be e sexpected ee by that subsidies cove ming .the ragwould esNational ta It to lof edates mbe rise is ent federal impo paid Co and back erncount mm tant to ission wo the to rall er kers ed .to Social 1939 peunde rwould sons on As when rstand Security th one ewho have the tof ax by attacked benefits 2 to 5inpthat ercent a coo substantially .rdinated Of newly media hi exceeded recampaign d federal the . value Fede workers ralof wo 37 thei rkers prerccont entdoributions hav leave e some .federalThe The Conference Committee set about having the amendment redrafted. t1969, th heese re is polls thenomatching re arason e telling tha shotrtfall aus, suppl however reach emental e.d _3In fed .5 earbillion arecent l pe.nsion Washington plan toPost coordinat - ABC e News with exactly group's largestmatched This models share is employee and exactly of the analysis liabilities th cont e ph ributions were enomenon . reviewed Onein that fundamental each inisdetail yea nowr occu ove bquestion yrrring the the Office pin rthat ogrthe am's of the OASDI Management Congress before the worker receives disability protection. Many employees in the as equal trust fund income inFebthe ruarySocial 23, Security 1983 accounts. The two would Security's ...... long-run Modified financing Formula situation, and Tax 50% and_.....second, / ...'"_ the expansion of coverage effect on the various accounts taken separately. Both CSRS and Social entire the figure political shows futu spect rerum aveth rage at retirees family Social must not Security be ravaged benefitby levels program under rise by 1.9 times between 1985 and 2015, whereas it might go up only 1.8 times benefitted survivors where CSRS did not. is benefit nothingreductions inherentlywould diffe berent less inpronounc the employment ed than the of noncov simulation ered wo results rkers shown that athe th fo House ndat rmula rpossible eal tiof th rewhose ough m2Rep e 0,000 ntresentatives' options this baege nd fpoints difference ronts, it ofshould Benefits ha Repo oth d errbeen tisbeop quantifiable, on publicly tions indexed the Social may _-debated thr wa ._'_. ee rran Security th.eadditional •" t ""issue "_' consid 2:['-''''" Act is erations Amendments yea still rs. highly in About light of 23 1939 of justification employment reached Ano early th within er fo retirement rpoint concern, five opponents years ageespand und ecially er of49Social cupercent rrent in light Secu policy leave rity of oin fo th cove rer less each rage policy thof an ofthe modifications 10 fede . policy ralAmong worke CSRS rs Afte years r seve are Ifralth quickly atweeks, _3.5passing billion the legislative when wereallaccumulated memb drafters ers ofwi indicat each th inte erdeti rest ring to tto hegroup th coemmitte pof resent eworkers that it Social poll 58Sepcu errcent ity cove prefe rage rred could raising not tax be esdesigned to 21 pe anrdcent put selecting in place well benefit beforcuts e as must address is whether covering new federal workers will raise the cost of six and ty-two Budget,yearDepa histo rtment ry. ofFortheexample, Treasury,the thgovernment e DepartmentmadeofnoLabor, contributions and the valuations initial .five For yearsexample, of service on thare e basis young ofpeople the Alte holding rnative their II-Bfirst assumptions major jobs used cancel each other out. to include new federal workers in the future. 1985 Averaec Famil\ Income /5.- "_ "..'.---'''" Security are now within the unified budget. Segregating the old and new 18,000 .-" .. modifications this option . that Atwould the slow same time, the grow the thre ofisinitial broad agbenefits reement levels that today's throughworakers under the modified policy. differentiates their work from that of noncovered workers. There are COMPARING VARIOUS LONG-TERM OPTIONS stated: It is little remembered that the Congress has already vigorously recent pin eer motional cent tablepolls of1and the suggest showing cont people .roversial that at .th thee uppe majority Language r end omust of f young thebedist sel worke reibution cted rs still carefully would do not expe so rbelieve ith ence at the options annuitants argu cane exp isethat ctthat over towas such rag eceiv simulated e ae62policy in mo.re1979, would than The 73value thultimat epervalue cent of elybenefits of werreaise thei getting r Soci under combined alaeach SSocial ecurity employe of Secu ther-e costs rity mploye . e bth eing eir considered work would fo ext rendtheir beyond retirement the endprof ogram ;;.. the ." legislative Before reaching session.any conclusions The Janua would thebudgetary federal rway y addi, toabout retirement 1984 resolve cost . _8ofbillion the the forSocial cur U.rSto ent . Secu th taxpaye esystem rity trust rs financing and fund now .the or Howeve pin roposed problem the r, futu . modified since re.But thin This e system passage evaluations is related andof the to i • s between 1921 and 1928. Had it matched employee contributions the additional to who Depa develop rt have ment nothof oetheHeal 1982 r th pension Annual and Human prTrustees otection Services, . Report, Although including the cost disability the of Social the isOASDI unlikely Security programforwas most LONG-RUN The CONSIDERATIONS total budgetary costs, modifying CSRS as considered here, can be BeaS SS The views in this statement are those of the author and do not necessarily 16,000 .. .. systems, the costs for the various accounts can be considered as follows: modification should beTheassu National of redthethat benefit Commission Socialformula Secu estimated r.ity Thwill e th clea at perrsist ifimplication .this The benefit re of evenfigu formula appears re 1 istothbe at o e $4" accountants, issues are notlawyers, obscured economists, by rhetoric.actuaries, blue-collar workers, clerks, and Soci benefit alt debated earnative l SeEstablishing If rcu whether eductions rity Social policy will theSecurity of options psurvive rva io 25 rrious per existence was is cent until aspects tothen or remain thmo compa of ey of reararthe eed pund ti ension re. national er corne with this rstone plan thepoption, rogram value should of outh while unde rexempt e rreti magnitude t10 rhe ement and pecu rcent rrent of as benefit The payroll rto e has theand tax never desi anothe rcontributions ability been r 3aperc sof .etecove ntof rThe ing cost werefuture federal estimates eligible balance wobut rby kersany had of both adequacy of not ththe yet e responsibl rclaimed and easons equity efo threm. pa has rties 4/to be rPublic confe eflect reesLaw theth 91 views en -93reco the of mmended the federal Employee that government the BeneSocial fit hasResea Security escalated rch Institute, Actitsbefunding adopted its Trwi ustees, thout the of nspecific et diffe Social rences recommendations Security . Basedcoverage onbythethof eproj e • National ¢federal ,,.ections, workers Commission moving would toththe ebankrupt sto modified ry was CSRS much syst --em on Administration the last contention . of those opposed to covering federal workers. estimated to be 11.78 percent of taxable payroll for 1982. Under the same • o _.. accumulated young workers, contributions it does occu plus r and inteth reestworker would ishave oftenbeenwith_out 164 million insurancein othe r calculat Aned average according wage to forequation mula will(5) also andhave compath red e eff with ect the cost of the current members, or other staff. The package of Social Security policy modifications that are now before 14,000 ., -... while agreement futurethatbenefits resolvingwould the decline long-termrelative deficittoisbenefits necessaryprovided to reestablish by current modification were implemented in 1984 the long-term savings for the OASDI secretaries in both the covered and the noncovered sectors. The only would system, employerlose One Fof it rand equ must braising option eenntly, his efits adjust orconsid th altogethe peopl heer level in er ewo edrth ke who r. ersof by futu have benefits fthe rThe rom e aNational wide participation tofavo meet rpayable rable distribution the Commission ratio in changing intheof Social of that beneeds nefits benefit Secu warrof rants ity tosociety re . ductions con furth -The . er Social cove policy involved considered rage Secu option, and thrat ity in the shows and the isargu somewhat the frthe mamework ents percentage net against cost arof bitra aof rchang byneed r.oade soceial rto Thin eset be Secu establishment benefits considered of ritypriorities rising was . .calculated ofas agae result sixty . -five Table of 1in app Clarropriations k amendment, . By withearthe ly 1973 understanding it had paidthatoffa all jointprioco rmmittee contribution be formed shortto - This differaent rgument . While Onismoving thactually e ultimate the a1985 mlevel ultischeduled -faceted of benefits payroll set of that analyses taxcould increase be dealing provided to 1984, withbyva 39an rious y one Effect on the cost of federal retirement -- Opponents of expanded trust assets Janua .fund ry i, at 1983, the end would of 1928 reduc .e The the government budgetary costs contribution of federal continued retirement to fall by _i assumptions 7/ See Sylveste ther projected J. Schieber, cost fo Ther Cost the yea and rs Funding 2055 andImplications 2060 were 16of .81Modifying percent 3/ system Houseearly derived of Rep yea resentatives, rson of thethbasis e syst76 eof m, thequation Cong but ress, it will (i)First . reduce Table Session, 2 showsReport the project no. 728, ed the Congress move significantly toward restoring the short-term financial 12,000. The Civil Service Retirement System (Washington, D.C.: EBRI, 1982) for a program credibility. The disagreement comes on specific proposals to address program shows distinction thewould results isbethat 1.o08 fsome these percent worcalculations kersof payroll are employed . for Yet allbyitindividuals employ wouldersonlywho intake do the 4not 3cohort billionof scrutiny most tributions The from unc rheated aising ertainty andfrissue om discussion the Social ofretirement inthetheext Secu would development erntity age, gradually ofbecause compa changes rof edadjust of thin ewipe th Title th riods eth the economy, e II benefit dist of prnoncove rovisions ibution prformula oductivity, red und .(eold mployment er This age the are 1935 covering as Social futu fede reralSecurity's costs workerbsy. eliminating reti Wishing rement thunwa at agerr the was anted numbers basically bonuseshowed s a normative such a cost decision inc.rease falls Social plus Security The Two re inteequally arrest eAct .three Amend impo Since pmrrents tant incipal 1973of policy itr1939 easons is goals th (Jeune geemployees nefo rially r, 1939), Social cit who epdSecu .are fo i0 rity r.behind extending are on solvency aSocial and develop such legislation for the next session o'_ s S of Congress. Such legislation aspects pe compl rSocial billion cent ete ofavo fdiscussion Secu ove past red rrityth and theecove first cu of recommendation; rr rage ent thefive de afunding rrgue ivation yearth s.at of 55of covering While Cpercent SRSth .esethFor eestimates opposed new cost example, federal savings .it. some worke Onduring increasing rcontend s will the that ea mean rthe ly of coveredWorkers payrollwho . leave The sefede venty ral -fiveemployment year period without on which CSRS annuity the 1982status, long-term for short 2/ Forof amatching complete employee description contributions of this analysis through see 1935.Sylvester By thenJ.anSchiebe addedr, _278 I | I I ! 4/ Robertpayable Dalrymple, under Susan the present Grad and formula Duke to Wilson, workers"Fede inral Civil Service balance of the Social Security cash benefits programs. Yet the public opinion 6/ See Chapter 5 of the final report of the Universal Social Security Coverage Social the problem Security: . 1985 Perspectives 1990 1995 on Preserving 2000 2005 the System 2010 (Washington, 2015 D.C.: out of the benefit pipeline between now and the end of the decade, or less than option charact pa birrttici 8/ hrat er paeSee would is, te zedSylv life in preas ovide ster the"double expectancy system aJ. slow Schi .dippe , eband err, and s."limited aThe host The Cost rof attribution eduction and otherFunding facto in is the rsImplications misl percentage suggests eading and that of of brings Modifying Congressa matching options Annuitants The wo orpublic rkers mer same elyfaged insu support ocont can rsaying and rmodifying red ibution be twenty . Sosaid employment cit, ial -If five about do thes basis Sthe eescurity," eto .not benefit only th goals thi eBy make rothe tyath -Research are fou computation, rfeeit wrend facets not so yea .in rof mset, and .In 1979 fiscal of Statistics fact, Thes adequacy .th stems eeTo 1981 prthe bonuses og flimit rrom am and estimates thNote eir late as the equity rcontribution well, (Washington, compl retirement bconsid yexity frthe omerations Social the ofage Secu was rity never coverage put forward to. workers now exempted from participation. These are: (i) self-employed payroll tax rate, 40 percent favored while 51 percent opposed the without new contributions the CSRS would go bankrupt and taxpayers would have million higher would futurehavebudgeta beenry in costs the trfor ust federal fund hadretirement the gove .rnmentThe matched budgetary cost of estimate example, Study Group, was are bas the The ed least Desirability included likelytheto and yea have rFeasibility s 1982 SocialthrSecurity ough of Social 2056.coverage Security This yand earCoverage 'sareestimate the for most Employee Benefit Research Institute, Year 1982). 5/ Judy Mann, "Survivors," The Washington Post, (Friday, February ii, 1983) p. D.C.the : Civil Social are justified, Service SecurityRetirement Administ if a total ration, System wage (Washington, December formula is1982), used, D.C.:ppin . EBRI, 1-2. 1982) for the Employees of Federal, State and Local Government and Private, Nonprofit two-tenths of one percent of total projected benefit payments over the CI. It should be kept in mind, however, that some noncovered employees are pshould reretiremadopt ent aincom Social e thSecu at rSocial ity policy Securitythatreallows places. some margin for error. In pe Secu will rjo detailed rrity ative becom the actuaries e ptone case rojections moot.to ofhave th old Questions eerof discussion consistently and the low about component .-paidSocial shown Both woel rke th ements si Security's resgndificant ewho scrof iption reti each solvency rshort e of and - these and thhave e policy long equations shaken -term . the There is no modified federal pension to coordinate with Social to inc shorrshoulde tfall ease. r plus When the interest bu asked rden. about was The delaying _infe 79.9rence billion theis . July that Had1983 employ the cost esystem e cont of ralways living ibutionsbeen allowance assu runre on a contributions each year and paid the additional interest on them. For the next will Organizations include the(Washington years 1983 , through D.C., 1980) 2057 .. The process of considering likely to need it. Of workers who left federal employment between 1973 and in the early years of the system and have not had SOLD.CE: Sylvester J. Schieber, Social Security" solutions low-paid woth rkers at havwho e been wouldputactually forward beto nefit solvefrom the expanded "double cove dipper" rage. problem Women, for Perspectives on Preserving the System i/ Barry Sussman, "Social Security Plan Splits Public Opinion." The @qashington, D.C." EBRI, 1982) p. xxxii. Washington Post (January 27, 1983] p. A4.