[House Hearing, 106 Congress]
[From the U.S. Government Printing Office]



 
           EFFORTS TO INFORM THE PUBLIC ABOUT SOCIAL SECURITY

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 11, 2000

                               __________

                             Serial 106-60

                               __________

         Printed for the use of the Committee on Ways and Means






                    U.S. GOVERNMENT PRINTING OFFICE
66-357 CC                   WASHINGTON : 2000



                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois
BILL THOMAS, California
E. CLAY SHAW, Jr., Florida
NANCY L. JOHNSON, Connecticut
AMO HOUGHTON, New York
WALLY HERGER, California
JIM McCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JIM NUSSLE, Iowa
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
MAC COLLINS, Georgia
ROB PORTMAN, Ohio
PHILIP S. ENGLISH, Pennsylvania
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                                     CHARLES B. RANGEL, New York
                                     FORTNEY PETE STARK, California
                                     ROBERT T. MATSUI, California
                                     WILLIAM J. COYNE, Pennsylvania
                                     SANDER M. LEVIN, Michigan
                                     BENJAMIN L. CARDIN, Maryland
                                     JIM McDERMOTT, Washington
                                     GERALD D. KLECZKA, Wisconsin
                                     JOHN LEWIS, Georgia
                                     RICHARD E. NEAL, Massachusetts
                                     MICHAEL R. McNULTY, New York
                                     WILLIAM J. JEFFERSON, Louisiana
                                     JOHN S. TANNER, Tennessee
                                     XAVIER BECERRA, California
                                     KAREN L. THURMAN, Florida
                                     LLOYD DOGGETT, Texas

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                    SUBCOMMITTEE ON SOCIAL SECURITY

                  E. CLAY SHAW, Jr., Florida, Chairman

SAM JOHNSON, Texas
MAC COLLINS, Georgia
ROB PORTMAN, Ohio
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
JIM McCRERY, Louisiana

                                     ROBERT T. MATSUI, California
                                     SANDER M. LEVIN, Michigan
                                     JOHN S. TANNER, Tennessee
                                     LLOYD DOGGETT, Texas
                                     BENJAMIN L. CARDIN, Maryland


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.




                            C O N T E N T S

                               __________

                                                                   Page

Advisory of April 4, 2000, announcing the hearing................     2

                               WITNESSES

Social Security Administration, Hon. Kenneth S. Apfel, 
  Commissioner of Social Security................................    24
U.S. General Accounting Office, Barbara D. Bovbjerg, Associate 
  Director, Education, Workforce, and Income Security Issues; 
  Health, Education, and Human Services Division; accompanied by 
  Kay Brown, Assistant Director, and Ken Stockbridge, Senior 
  Evaluator......................................................    33

                                 ______

Aaron, Henry J., Brookings Institution and National Academy of 
  Social Insurance...............................................    63
Alliance for Worker Retirement Security, and Hewlett-Packard 
  Company, Gary Fazzino..........................................    49
American Academy of Actuaries, Ron Gebhardtsbauer................    56
Hoekstra, Hon. Peter, a Representative in Congress from the State 
  of Michigan....................................................     8
John, David, Heritage Foundation.................................    75
National Women's Law Center, Joan Entmacher......................    70
Pomeroy, Hon. Earl, a Representative in Congress from the State 
  of North Dakota................................................    10
Salisbury, Dallas, Employee Benefit Research Institute...........    42
Sununu, Hon. John E., a Representative in Congress form the State 
  of New Hampshire...............................................    14
Third Millennium, Richard Thau...................................    46
2030 Center, Hans Riemer.........................................    53
Weller, Hon. Jerry, a Representative in Congress from the State 
  of Illinois....................................................     5

                       SUBMISSION FOR THE RECORD

Gregg, Hon. Judd, a United States Senator from the State of New 
  Hampshire......................................................    88


           EFFORTS TO INFORM THE PUBLIC ABOUT SOCIAL SECURITY

                              ----------                              


                        TUESDAY, APRIL 11, 2000

                  House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Social Security,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 3:08 p.m., in 
room B-318, Rayburn House Office Building, Hon. E. Clay Shaw, 
Jr. (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE

April 4, 2000

No. SS-15

                       Shaw Announces Hearing on

           Efforts to Inform the Public about Social Security

    Congressman E. Clay Shaw, Jr., (R-FL), Chairman, Subcommittee on 
Social Security of the Committee on Ways and Means, today announced 
that the Subcommittee will hold a hearing on efforts to inform the 
public about the Social Security program. The hearing will take place 
on Tuesday, April 11, 2000, in room B-318 Rayburn House Office 
Building, beginning at 3:00 p.m.

    Oral testimony at this hearing will be from invited witnesses only. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    Americans need to have a basic understanding of the Social Security 
program, its benefits, and its financing in order to make informed 
decisions about Social Security's future and their own retirement 
planning. This information may be provided through a variety of 
sources.
      
    For example, beginning last year, the Social Security 
Administration has been mailing annual Social Security statements to 
all workers age 25 and older to inform them about the Social Security 
program and to help them plan for retirement. The statement provides 
workers with estimates of their potential Social Security benefits 
based on their earnings. The statement also provides workers with a 
record of their earnings and a fact sheet about the Social Security 
program.
      
    Another important source of information about the Social Security 
program is the Board of Trustees' annual report on the financial status 
of the Social Security Trust Funds. This report includes a great deal 
of information about Social Security's financing and the projected 
economic and demographic trends which affect the program's future. The 
annual report is an important source of data on the Social Security 
program.
      
    In announcing the hearing, Chairman Shaw stated: ``The mailing of 
Social Security statements is an unprecedented, personalized outreach 
to all American workers about Social Security and what it means to 
their retirement security. American workers have the right to know as 
much as possible about their financial future, including the amount of 
Social Security benefits they have earned and any factors that may 
qualify their confidence in getting their full benefits. This hearing 
will examine what Social Security is telling taxpayers, and whether 
that information is accurate, understandable, and useful.''
      

FOCUS OF THE HEARING:

      
    The hearing will examine the information available to the public 
about the Social Security program, its benefits and its future 
financing. The hearing will also examine recommended changes to this 
information and the way information is delivered to the public.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Tuesday, 
April 25, 2000, to A.L. Singleton, Chief of Staff, Committee on Ways 
and Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Social Security office, room B-316 
Rayburn House Office Building, by close of business the day before the 
hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                


    Chairman Shaw. We will now proceed. Good afternoon. Today's 
hearing is about a simple and widely accepted truth: Knowledge 
is power. It is interesting to see how much power is sitting at 
that table in front of me. Only if American workers and 
families understand Social Security and how it may benefit them 
will they have the power to effectively plan their financial 
future. So several questions logically follow: What do 
Americans know about Social Security? What does the Social 
Security Administration tell them today? And how can we help 
Americans understand more about Social Security, so they can 
better plan for their retirement?
    With us today are a number of experts on these topics, 
starting with Social Security Commissioner Ken Apfel. We also 
are pleased to welcome witnesses from the General Accounting 
Office and a number of think tanks and associations 
representing young people, women, and employers. And for anyone 
who thinks that a Social Security Hearing is incomplete without 
testimony from an actuary and an economist, we have got those 
bases covered, too.
    We welcome all of our witnesses, as well as Representatives 
Weller, Hoekstra, Pomeroy, and Sununu, who will lead off our 
hearing. Together, we think through ways to provide workers and 
beneficiaries with the most accurate, useful, and personalized 
information about Social Security possible, especially given 
the challenges Social Security will face paying full benefits 
in the future. Getting that information out to workers and 
beneficiaries now is quite essential.
    As I mentioned at the outset, with that knowledge will come 
the power for workers and families to decide whether and how 
they must adjust their work, savings, and retirement plans for 
the long haul.
    Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman. I am just going to 
submit my statement for the record, given the fact that we have 
five panels today. And I want to welcome all the witnesses, the 
four here on this panel and, obviously, Mr. Apfel, the GAO, and 
others that will be testifying. Thank you.
    [The opening statement follows:]

Statement of Hon. Robert T. Matsui, a Representative in Congress from 
the State of California

    I would like to thank Chairman Shaw for holding this 
hearing. Our topic today is extremely important. I believe the 
American people deserve to receive the most accurate 
information possible about the Social Security benefits they 
have earned and about the future of the Social Security 
program.
    Last October, as required by law, the Social Security 
Administration (SSA) began mailing annual individualized Social 
Security Statements to every worker in the United States over 
the age of 25. SSA expects to send out 125 million Statements 
over the course of this fiscal year.
    The Statements serve two main functions. First, they are 
designed to assist workers with retirement and financial 
planning by providing them with an estimate of the Social 
Security benefits for which they will be eligible when they 
retire, if they become disabled, or if they die at an early 
age. Second, they are designed to help SSA maintain accurate 
earnings records so that workers are sure to receive the 
benefits that they have earned. Each Statement lists the 
earnings that SSA has on record for that worker and provides 
him or her with an 800 number to call if SSA's records are 
incorrect.
    Some Members of Congress as well as other individuals have 
suggested that more information should be added to the Social 
Security Statement. Clearly, in order for the American people 
to make sound decisions about their own retirements and about 
the changes that will have to made in the Social Security 
program, they should have as much information as possible at 
their disposal. But it is vitally important that that 
information is thorough, objective, and easy to understand.
    I am concerned, however, that the changes some would seek 
could diminish, rather than enhance the public's understanding 
of the Social Security program and the benefits they can expect 
to receive from it.
    Some proposals including one we will hear about today would 
require the Statement to compare rates of return under Social 
Security versus a hypothetical privatized system. Other 
proposals would require the Social Security Statement and the 
Trustees' Report to contain statements calling into question 
the existence of the Social Security Trust Funds.
    I would have serious concerns about either type of 
proposal.
    Of course, the most productive way to resolve the question 
of what level of benefits people workers can expect to receive 
from Social Security in the future is to enact legislation to 
strengthen Social Security.
    Rather than simply talking about Social Security Statements 
or the Trustees' Report and how they may influence the public's 
confidence in the future of Social Security, Congress should be 
acting to bolster America's confidence in the program. Instead 
of holding hearings to discuss hypothetically what may happen 
once the Trust Funds are exhausted in 2037, this Subcommittee 
should be marking up legislation to make it absolutely certain 
that the program will be able to pay full benefits to each and 
every generation of American workers.
    Democrats have introduced legislation to extend the Social 
Security Trust Funds beyond 2050, but that bill has not moved. 
I hope we can do a little more this year than consider lock-box 
proposals. As we all know, lock-boxes will do nothing to 
improve Social Security's finances and will not extend the 
Social Security Trust Funds by even a single day.
    I look forward to hearing from Commissioner Apfel and from 
Ms. Bovbjerg of the General Accounting Office about the steps 
the Social Security Administration has taken to enhance the 
annual Social Security Statement. I also look forward to 
hearing views from the other witnesses about the usefulness of 
the information contained in the Social Security Statement and 
in annual Trustees' Report.
    Thank you, Mr. Chairman for yielding me this time. I look 
forward to working with my colleagues toward our common goal of 
strengthening the Social Security program for future 
generations.
      

                                


    Chairman Shaw. I would say to all the witnesses that we do 
have your complete statement to be made a part of the record. 
We are going to be interrupted with a series of votes here 
shortly. I would like to try to get through as much as we can. 
So I would really, particularly today because of the length of 
our agenda, ask that if everyone can summarize we would be most 
appreciative.
    Mr. Weller.

 STATEMENT OF HON. JERRY WELLER, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF ILLINOIS

    Mr. Weller. Mr. Chairman, Mr. Matsui, I appreciate the 
opportunity to testify before a Subcommittee I am proud to be 
part of. And I appreciate the opportunity to work with you as 
we work to solve the challenges facing Social Security.
    And as we have all shared, you know, there are few concerns 
of greater priority to working families than their pension or 
retirement plans. And clearly, Social Security has emerged over 
the last 60-some years as a key component of retirement 
planning for most working Americans, something they are very 
sensitive to.
    And Mr. Chairman, let me commend you and Chairman Archer 
for your leadership on Social Security. And I am so proud of 
what we have accomplished over the last several years with your 
leadership as well as Chairman Archer's and Speaker Hastert's 
leadership on stopping the raid on Social Security and ending 
the unfair Social Security earnings penalty, the limit.
    It was a proud day last week when the President signed the 
legislation which passed unanimously with overwhelming 
bipartisan support. Of course, it was a big day when the 
President signed it, and of course, now that Social Security 
earnings penalty is now history. And working Americans that are 
seniors will be able to keep what they earn as well as their 
Social Security benefits.
    Today I wanted to talk about legislation that addresses 
some of the challenges facing Social Security. As we know, 
Social Security has some troubles ahead. It is facing 
insolvency in the long term in the year 2037. And I am one of 
those who believes that unless we solve this challenge now, it 
is going to be more difficult in the future.
    And I also believe that the public and the taxpayer have 
the right to know about the challenges facing Social Security 
and what it means to them. And Mr. Chairman, that is why I have 
joined with my friend and colleague who has initiated this 
legislation, John Sununu of New Hampshire; legislation that 
addresses the public's right to know about the state of the 
Social Security Trust Fund.
    Our legislation, H.R. 3578, the Social Security Right To 
Know Act, will better inform the public about the Social 
Security system by doing two things: First, requiring that 
specific information be included in the annual report of the 
trustees of the Social Security Trust Fund, detailing the state 
and the status of the Social Security system; and second, 
requiring that the Social Security personal earnings and 
benefits estimate statement include information about Social 
Security solvency and what rate of return taxpayers can expect 
from their Social Security wages.
    The Social Security Board of trustees has just released its 
report on the financial status of the Social Security and 
Medicare Trust Funds. And although the report does indicate 
that there has been a slight improvement from last year's 
report, Social Security still has serious challenges.
    The costs of maintaining the Social Security system will 
begin to exceed tax receipts in 2015. And that is a watershed 
year, since it also marks the time when, unless significant 
reform is enacted, decisions will have to be made to decrease 
benefits or increase taxes--something no one wants to do. It is 
that simple: Our children and grandchildren will have to pay 
the bill when Social Security is no longer solvent. And that is 
wrong, and I believe the public must be made aware of it.
    Mr. Chairman, we believe that by requiring the trustees to 
include information regarding long-term solvency of the system, 
the public will be better informed. H.R. 3578 will ensure the 
public's right to know, by requiring the annual report to 
include the total amount of the unfunded long-term liability of 
the Social Security system. Further, the Trustees' Report will 
show the amount of deficit or surplus the system will run in 75 
years, under this legislation. And finally, the legislation 
requires that specific language be included in the report 
explaining the nature of the Social Security Trust Fund. We 
believe this is an important step in ensuring the public's 
right to know.
    Each individual who contributes to the Social Security fund 
has a right to know where their retirement money is going. The 
Social Security Administration has begun mailing an annual 
statement, the Social Security Personal Earnings and Benefit 
Estimate Statement, to all those over age 25 who participate in 
the Social Security program, regarding the status of their 
benefits.
    This is a good step--I have received that myself--in 
ensuring that the public is well informed of their own 
contributions to Social Security. But it does not explain what 
rate of return they can expect to see on their benefits; nor 
does it show the financial troubles that the Social Security 
Trust Fund will be experiencing in the coming decades.
    H.R. 3578 clarifies the annual statement, and ensures that 
the Social Security Personal Earnings and Benefit Statement 
includes information regarding the solvency of the trust fund. 
Specifically, the bill requires that the annual statement 
include solvency dates based on the Office of Chief Actuary; 
ensuring that all future beneficiaries have the knowledge of 
when the system will begin to go bankrupt and when it will be 
insolvent.
    Further, the legislation requires a statement explaining 
the nature of the Social Security Trust Fund and its ability to 
fund future benefits. This legislation will give beneficiaries 
a clearer understanding of the status of the Social Security 
system currently and in the future. And this legislation 
provides workers the most up-to-date and accurate information 
that can help them plan for their future.
    Finally, and very importantly, the Social Security Right To 
Know Act requires language explaining the average rates of 
return that taxpayers can expect to receive from their Social 
Security retirement tax payments. This guarantees that the 
taxpayers know what they can expect to receive from their 
investment, and then they can compare it to alternatives in the 
marketplace: Stocks, bonds, and other investments.
    Mr. Chairman, the public has a right to know what their 
money is doing for them, and has a right to plan their 
retirement accordingly. I believe that H.R. 3578 is an 
effective means for increasing the public's awareness of the 
Social Security system, the challenges that it faces; but also, 
guaranteeing that Social Security beneficiaries and taxpayers 
have the right to know as they make plans for their own 
personal retirement.
    I thank you for the opportunity to testify today, and look 
forward to discussing this legislation with you.
    [The prepared statement follows:]

Statement of Hon. Jerry Weller, a Representative in Congress from the 
State of Illinois

    Thank you, Mr. Chairman, for the opportunity to testify 
today.
    Mr. Chairman, first let me commend you and Chairman Archer 
for your leadership on Social Security. Your leadership ensured 
passage of legislation which stopped the raid on Social 
Security and ended the unfair Senior Earnings Penalty. The good 
news about Social Security is our efforts are paying off. The 
Congress stopped the 30 year raid of the Social Security Trust 
Fund last year and we will not return to the days of spending 
the Social Security Trust Fund. Further, H.R. 5 is now law, 
ending the unfair earnings penalty for seniors. Again, Mr. 
Chairman, I commend you and Representative Sam Johnson for your 
tireless efforts in seeing this legislation passed.
    Nevertheless, Mr. Chairman, Social Security is in trouble. 
The Social Security Trust fund is facing insolvency. Unless we 
solve this problem now, the guarantee of Social Security will 
not be a guarantee for future generations. Social Security 
simply will not be there for those people born today. Mr. 
Chairman, the public has a right to know this. We must take 
steps to inform the public now what the future holds for Social 
Security.
    Mr. Chairman, I have joined in cosponsoring legislation 
introduced by Representative John Sununu addressing the 
public's right to know about the state of the Social Security 
Trust Fund. H.R. 3578, The Social Security Right to Know Act, 
will better inform the public about the Social Security system 
by doing two things. First, requiring that specific information 
be included in the Annual Report of the Trustees of the Social 
Security Trust Fund detailing the state of the Social Security 
System. Second, require that the Social Security Personal 
Earnings and Benefits Estimate Statements include information 
about Social Security's solvency and what rate of return 
taxpayers can expect from their Social Security wages.
    The Social Security Board of Trustees has just released its 
report on the financial status of the Social Security and 
Medicare Trust Funds. Although the report does indicate that 
the status of the Social Security Trust fund has improved 
slightly from their previous report, Social Security is still 
in serious trouble. The costs of maintaining the Social 
Security System will begin to exceed tax receipts in 2015. This 
is a watershed year since it marks the time when, unless 
significant reform is enacted, decisions will have to be made 
to decrease benefits or increase taxes. It is that simple--our 
children and grandchildren will have to pay the bill when 
Social Security is no longer solvent. This is wrong and the 
public must be made aware of it.
    Mr. Chairman, by requiring that the Trustees include 
information regarding the long term solvency of the system, the 
public will be better informed. H.R. 3578 will ensure public 
right to know by requiring the annual report to include the 
total amount of the unfunded long-term liability of the Social 
Security system. Further, the Trustees' report will show the 
amount of deficit or surplus the system will run in 75 years 
under this legislation. Finally, the legislation requires that 
specific language be included in the report explaining the 
nature of the Social Security Trust Fund. Mr. Chairman, this is 
an important step in ensuring the public right to know.
    Each individual who contributes to the Social Security fund 
has the right to know where their retirement money is going. 
The Social Security Administration has begun mailing an annual 
statement, the Social Security Personal Earnings and Benefit 
Estimate Statement, to all those over age 25 who participate in 
the Social Security program regarding the status of their 
benefits. This is a good first step in making sure that the 
public is well-informed of their own contributions to Social 
Security, but it does not explain what rate of return they can 
expect to see on their benefits nor does it show the financial 
troubles that the Social Security Trust Fund will be 
experiencing in the coming decades.
    H.R. 3578 clarifies the annual statement and ensures the 
Social Security Personal Earnings and Benefit Statement 
includes information regarding the solvency of the trust fund. 
Specifically, the bill requires that the annual statement 
include solvency dates based on the Office of the Chief 
Actuary. This will ensure that all future beneficiaries have 
the knowledge of when the system will begin to go bankrupt and 
when it will be insolvent. Further, the legislation requires a 
statement explaining the nature of the Social Security Trust 
Fund and its ability to fund future benefits. This legislation 
will give beneficiaries a clearer understanding of the status 
of the Social Security system currently and in the future. This 
legislation provides workers the most up-to-date and accurate 
information that can help them decide how to plan for their 
future.
    Finally and very importantly, The Social Security Right to 
Know Act requires language explaining the average rates of 
return that taxpayers can expect to receive from their Social 
Security retirement tax payments. This guarantees that the 
taxpayers know what they can expect to receive from their 
investment and can compare it to returns for stocks, bonds and 
other investments. Mr. Chairman, the public has a right to know 
what their money is doing for them and has a right to plan 
their retirement accordingly.
    Mr. Chairman, H.R. 3578 is an effective means for 
increasing the public awareness of the Social Security system 
and the problems it faces. The public has a right to know about 
their Social Security. I thank you for allowing me to testify 
today.
      

                                


    Chairman Shaw. Thank you.
    Peter.

STATEMENT OF HON. PETER HOEKSTRA, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF MICHIGAN

    Mr. Hoekstra. Thank you, Mr. Chairman, Mr. Matsui. I will 
keep mine short. You gave my speech when you gave your opening 
comments, and information is powerful.
    One example of hidden information is what is missing from 
every employee's annual W-2 tax form. What is missing is the 
employer's share of the Federal Insurance Contributions. Their 
FICA tax is what funds Social Security and Medicare.
    If you take a close look at your W-2 form, you will see the 
7.65 percent that every employee contributes to Social Security 
and Medicare. Employers must also pay another 7.65 percent in 
payroll taxes on their employees' behalf, adding up to a total 
of 15.3 percent of an employee's total income. That is the 
percent that is withheld.
    Many workers are unaware of this employer contribution to 
Social Security and Medicare, which also makes them unaware of 
how much their employment actually costs. Not only does this 
lack of information hide from employees the true cost of their 
employment, but it also makes them uninformed about how much of 
their paycheck funds two government programs which are vital 
for their retirement security: Social Security and Medicare.
    We can make sure that employees are informed about the real 
costs of these programs by requiring W-2 forms to include the 
employer's share of the payroll tax. The Right To Know National 
Payroll Act, H.R. 1264, which I introduced in March 1999, would 
give employees vital information on how payroll taxes affect 
their employment and how much they actually contribute to 
Social Security and Medicare.
    Hundreds of businesses and the State of Michigan have 
adopted a right-to-know payroll form in an effort to inform and 
educate their employees. H.R. 1264 would complete the picture 
for everyone else.
    Thank you.
    [The prepared statement follows:]

Statement of Hon. Peter Hoekstra, a Representative in Congress from the 
State of Michigan

           Tax Relief Bill Gives Employees the Right to Know

    Mr. Chairman, Members of the Subcommittee, thank you for 
the opportunity to testify.
    Most people would agree that information is necessary to 
make good decisions, whether in government, business or our 
personal lives. However, sometimes information is hard to come 
by or has been hidden from view.
    One example of ``hidden'' information is what is missing 
from every employee's annual W-2 tax form--the employer's share 
of Federal Insurance Contributions Act (FICA) taxes, which fund 
the Social Security and Medicare programs.
    For seven out of 10 households, the FICA (also known as 
payroll) tax is the greatest of all taxes they pay, not the 
income tax. Yet, calls for tax reduction have focused primarily 
on cuts in the income tax rate.
    Why has there been little public outcry over the payroll 
tax? Part of the reason is that half of the payroll tax is 
hidden from employees' view. If you've ever taken a close look 
at your annual W-2 form, you might have noticed boxes which 
show the amount of Social Security and Medicare taxes withheld 
from your paycheck. However, these amounts are only your 
contributions to the payroll tax, which is 7.65 percent of your 
gross income. Employers must also pay another 7.65 percent in 
payroll taxes on their employees' behalf, adding up to a total 
of 15.3 percent of an employee's income which is withheld.
    Many workers are probably unaware of this employer 
contribution to Social Security and Medicare, which also makes 
them unaware of how much their employment actually costs. It is 
possible that if the employer was not required to pay payroll 
taxes, or if the payroll tax was reduced, a portion of this 
money might go to the employee. Not only does this lack of 
information hide from employees the true cost of their 
employment, but it also makes them uniformed about how much of 
their paycheck funds two government programs which are vital 
for their retirement security--Social Security and Medicare.
    Until the solvency of Social Security and Medicare can be 
ensured for future generations, it is unlikely that any 
reduction in the payroll tax will occur. However, we can make 
sure that employees are informed about the real costs of these 
programs by requiring W-2 forms to include the employer's share 
of the payroll tax.
    The Right to Know National Payroll Act, (H.R. 1264) which I 
introduced in March 1999, would give employees vital 
information on how payroll taxes affect their employment and 
how much they actually contribute to Social Security and 
Medicare.
    Hundreds of businesses and the State of Michigan have 
adopted a Right to Know payroll form in an effort to inform and 
educate their employees. H.R. 1264 would complete the picture 
for everyone else.
      

                                


    Chairman Shaw. Thank you.
    Earl.

 STATEMENT OF HON. EARL POMEROY, A REPRESENTATIVE IN CONGRESS 
                 FROM THE STATE OF NORTH DAKOTA

    Mr. Pomeroy. Thank you, Mr. Chairman. I want to thank you 
and other Members of the Subcommittee for the opportunity to 
appear. Providing the American public with accurate information 
about Social Security is critical to their own retiring 
planning, as well as to our success in reforming the program as 
a whole.
    I am here as a note of discord, however. I do not think, in 
testifying in particular about the bills advanced by 
Congressman Sununu and Congressman Weller--I do not think that 
is the way to proceed. There are two reasons I would like to 
emphasize in my testimony this afternoon.
    First, the importance of Social Security statements in 
helping people with their own individual personal retirement 
planning decisions must not be underestimated. The statement 
has been advanced with very specific information about 
individual earnings records and the benefits of Social Security 
people can expect. Folks need really concrete information so 
they can make their own retirement planning.
    Second--and not to be confused with that objective--the 
Social Security debate, which is going to be vigorous and 
interesting, and in which the Chairman has been a very active 
and thoughtful participant, should be done up here in Congress, 
not through misleading, prejudicial comments imposed through 
legislative mandate on this disclosure form.
    Since its creation in 1935, Social Security has proven 
itself to be simply the most important, successful program, in 
my view, ever undertaken by the Federal Government. Social 
Security provides individuals a means to live with dignity in 
retirement, and protects families from unforeseen events such 
as premature death or disability.
    The four-page individual statement sent to workers ages 25 
and older not receiving Social Security benefits I believe has 
improved this program. These statements help individuals 
understand how Social Security fits in for their own plan for 
retirement. They help Social Security maintain accurate wage 
records. And they educate the public about the program and how 
it works.
    First, relative to assisting workers with retirement and 
financial planning, this is really extraordinarily important. 
The Employee Benefits Research Institute, EBRI, estimates that 
30 percent of American workers have no personal retirement 
savings. Almost 50 percent have never tried to figure out how 
much money they'll need for retirement.
    Given the upward trend in life expectancy, merely hoping 
and assuming isn't going to actually produce the nest egg 
people need to have a comfortable income stream in retirement. 
And so having the hard information out there in a very clear 
context about this is going to help people plan, and I think 
also be a very significant incentive to spur additional private 
retirement savings.
    Second, in receiving and maintaining accurate earnings 
records, Social Security has put on the form a 1-800 number. 
People look at the earnings record, they look at their records. 
If there are discrepancies, they get hold of Social Security, 
they clear it up. It has been a terrific thing for, in a 
proactive, timely way, making certain that people's individual 
records of their wage record is squaring what SSA has on file.
    And finally, Social Security statements have an education 
function. They explain Social Security's benefits. They explain 
the financial relationship of Social Security benefits compared 
to earnings. They talk about changes in retirement age--and 
after all, there is a phased-in retirement age that people I 
think are largely unaware of; it has been moved from 65 to 67. 
And it talks about the retirement earnings test. And I also, as 
Congressman Weller noted, applaud you and this Committee for 
lifting and eliminating the earnings test on the over-65 
population.
    Now, the Gallup Poll has been used to identify whether or 
not this statement is getting the job done. And I am very 
pleased to say we have got a fine report card relative to its 
accomplishments.
    Specifically, individuals receiving a statement are 
demonstrated to be more likely to know that the amount of 
Social Security benefits depends upon how much they earn; 
second, that Social Security pays benefits to workers who have 
been disabled; third, that Social Security provides benefits to 
dependents of workers who die; and fourth, that Social Security 
was designed to replace only part of a total retirement income 
package.
    Now, the problem that I have with the legislation is that 
they are, at best, confusing. They would add confusing 
information and convey also a relatively inaccurate picture of 
the reliability of the future Social Security benefit an 
individual can assume.
    I think that we are confusing policy debate with the 
vanilla benefits information people need to make their own 
retirement planning assessments. We just brought this online 
nationally. We do not want to muck it up with information that 
will be highly contested, of lower value, and ultimately will 
diminish the value of this disclosure form for the hard 
realities the individual household faces.
    We will have our debate. We will have it up here. But let 
us not start, just when we get this so broadly available to our 
workers, beginning to exploit the disclosure tool to drive 
policy ends.
    And I will be happy to speak more specifically to the 
policy objectives about the bill, the things that I object to 
in the bill, during Q and A, if you would like. I am out of 
time. Thank you very much.
    [The prepared statement follows:]

Statement of Hon. Earl Pomeroy, a Representative in Congresss from the 
State of North Dakota

    Mr. Chairman, Mr. Ranking Member, Members of the 
Subcommittee, thank you for the opportunity to appear before 
you this afternoon. I commend you for your attention to this 
issue. Providing the American public with accurate information 
about Social Security is critical to their own retirement 
planning as well as to our success in reforming the program as 
a whole.
    I would like to emphasize two main points in my remarks 
this afternoon. First, I want to underscore the importance of 
Social Security Statements in allowing individuals to plan for 
their own retirement. We must approach any recommended changes 
to Social Security Statements in that context, rather than 
viewing them in terms of the debate over reform. Second, I 
believe we must advance the public discussion of Social 
Security's future not through these Statements, but through 
discussions in Congress, with an eye toward development of a 
comprehensive bipartisan plan to extend the solvency of the 
program 75 years and beyond.

Social Security--America's Family Protection Program

    I would like to begin by making a few remarks about the 
Social Security program in general and what it has achieved 
since its creation in 1935. Mr. Chairman, Social Security is 
simply the most important and most successful program ever 
undertaken by the federal government. Social Security provides 
individuals the means to live with dignity in retirement, and 
protects families from unforseen events such as premature death 
or disability.
    Social Security is the cornerstone of our retirement 
system--it is the principal source of retirement income for two 
thirds of the elderly, and makes up 90 percent of the income of 
about one third of all Americans over the age of 65. Last year, 
Social Security benefits lifted roughly 15 million senior 
citizens out of poverty.
    Social Security is also America's most successful family 
protection program. Today, one in three beneficiaries is under 
the age of 62, receiving either disability or survivor 
benefits. Almost three in 10 of today's 20 year-olds will 
become disabled before reaching retirement age, and Social 
Security provides the only disability protection for three out 
of four in the workplace today.
    Social Security also provides survivor benefits to millions 
of families coping with premature death. One in six Americans 
will die before reaching age 67. Social Security helps protect 
us against the economic effects of such an event by providing 
survivor benefits equivalent to about a $354,000 life insurance 
policy.
    Mr. Chairman, Social Security has had a very personal 
impact in the lives of millions of American families, including 
my own. After my father passed away when I was a teenager, my 
mother, my brother and I all received survivor benefits. Quite 
frankly, I have no idea what my family would have done without 
the protection of Social Security as we tried to regroup after 
the unanticipated death of my father at a relatively young age.

The Importance of the Social Security Statement

    Because Social Security plays such a critical role in every 
American family, including my own, I believe that Congress has 
a responsibility to ensure that the information provided to the 
public is both adequate and accurate. As the General Accounting 
Office (GAO) noted in its 1996 report, public confidence in 
Social Security is directly linked to its understanding of the 
program's benefits. In my view, one of the most critical 
sources of public information on Social Security benefits is 
the Social Security Statement.
    As you know, Mr. Chairman, last October, the Social 
Security Administration (SSA) began sending four-page 
individual statements to workers ages 25 and older not 
receiving Social Security benefits. The purpose of these Social 
Security Statements is three-fold. First, they serve a public 
education function by offering basic explanations of Social 
Security's benefits, financial status, changes in the 
retirement age, and the retirement earnings test. The results 
of a Gallup poll showed that since October, these Statement 
have played a significant role in increasing Americans' 
understanding of Social Security. The survey revealed that 
individuals who receive a Social Security Statement have a much 
greater understanding of Social Security than those who do not. 
Specifically, individuals receiving a statement are much more 
likely to know that (1) the amount of Social Security benefits 
depends on how much they earned; (2) Social Security pays 
benefits to workers who become disabled; (3) Social Security 
provides benefits to dependents of workers who die; and (4) 
Social Security was designed only to provide part of total 
retirement income.
    Second, Social Security Statements help the Social Security 
Administration maintain accurate earnings records-each 
statement lists the earnings that the SSA has on record for 
that worker and provides an toll-free number to call to correct 
errors in SSA records. This feature of the Statements is 
especially critical because Social Security benefits are 
directly linked to lifetime earnings.
    Finally, Social Security Statements assist workers with 
retirement and financial planning by providing them with an 
estimate of the Social Security benefits for which they and/or 
their families will be eligible when they retire, if they 
become disabled, or if they pass away. In my view, this is one 
of the most critical functions of the Statements, because it 
addresses the problem of inadequate savings for retirement.
    According to the Employee Benefits Research Institute 
(EBRI), 30 percent of American workers have no personal 
retirement savings, and almost 50 percent have never tried to 
figure out how much money they will need to save for 
retirement. Given the upward trend in life expectancy, merely 
hoping and assuming will not result in sufficient savings for 
retirements that could well span decades. Not surprisingly, 
additional research has indicated that lack of planning results 
in substantially lower wealth holdings than households that 
have done some retirement planning. I believe that annual 
Social Security Statements can play a critical role in 
addressing this savings crisis both by providing workers with 
an estimate of their future Social Security benefits, and in 
prompting them to examine how much they will need to save in 
other vehicles, such as employer-sponsored pension plans.

Including Information on Rates of Return

    My colleague's legislation would require Social Security 
Statements to reflect the average rate of return that each 
individual can expect to receive from Social Security and to 
compare that rate of return to the rates of return for workers 
born in every year since 1900. Presumably, the purpose of such 
information would be to demonstrate to workers that internal 
rates of return in the Social Security program have varied from 
one generation to the next. Although rates of return have 
indeed varied among generations of beneficiaries, that is not 
in any way a flaw in the program's design. Social Security is 
an inter-generational program, in which the first beneficiaries 
naturally received a higher rate of return than beneficiaries 
today. Workers retiring in 1940, for instance, experienced a 
higher rate of return than later generations, because they 
received benefits after only contributing for a few years. The 
Social Security program was designed as a social insurance 
system to enable generations of workers to protect each other. 
Providing information on internal rates of return without 
discussing that aspect of the program would present an 
incomplete picture to the American public.

Description of the Social Security Trust Funds.

    Mr. Chairman, my colleague's legislation would also require 
Social Security Statements to include a paragraph to the effect 
that the Social Security Trust Fund balances ``do not consist 
of real economic assets.'' On the contrary, Social Security 
Trust Funds consist of U.S. Treasury bonds, backed by the full 
faith and credit of the United States, just as are Treasury 
bonds that are in traded in the market. Furthermore, the United 
States has never defaulted on any of its financial obligations. 
Including the statement that the Social Security Trust Funds do 
not represent real economic assets in individual Social 
Security Statements would disseminate inaccurate information to 
the American people, presumably with the intent of undermining 
public confidence in the program. It would portray the Social 
Security program as hopelessly bankrupt, when in fact modest 
prudent changes can make the system solvent for 75 years.

Congress should engage the public through open debate on long-
term solvency and Social Security reform.

    Mr. Chairman, I strongly believe that the American public 
should be engaged in the debate about the benefits of the 
current Social Security system versus any alternatives. But the 
appropriate context for discussion of changes to a major 
government program is not in individual Social Security 
Statements, but rather, through thorough debate in Congress and 
among the American people.
    Personally, I believe that rather than creating a new 
alternative retirement system, our central goal must be to make 
the modest reforms that are needed to place Social Security on 
a sound financial footing for the long term. Along with several 
of my colleagues, I have cosponsored legislation that would 
devote the entire Social Security surplus to reducing the 
federal debt held by the public. Under this proposal, debt held 
by the public would be reduced $3.1 trillion over the next 15 
years and eliminated by 2015. By paying down the publicly held 
debt, this proposal would dramatically reduces the federal 
government's interest costs. The proposal calls for the 
transfer of general fund revenue in the amount of these 
interest savings to the Social Security Trust Funds over the 
period 2011 to 2044 to extend the solvency of the program to at 
least 2050. I support this measure in the context of Congress' 
examination of programmatic reforms to extend the solvency of 
the Social Security Trust Funds for another 75 years and 
beyond.
    Again, regardless of the specific proposal I or other 
members of Congress support regarding Social Security reform, 
the fact remains that the most effective and appropriate way 
for Congress to engage the public in this debate is not through 
individual Statements but through open discussion of all reform 
proposals.

Conclusion

    Mr. Chairman, as your subcommittee moves forward to 
consider proposals to increase public awareness of Social 
Security benefits as well as reforms to the program, I hope 
that you will consider the effect of revising the Social 
Security Statement on public confidence in the program and the 
future of reform. Again, I thank you for the opportunity to 
share my views, and I would be happy to entertain any 
questions.
      

                                


    Chairman Shaw. Thank you.
    John.

STATEMENT OF HON. JOHN E. SUNUNU, A REPRESENTATIVE IN CONGRESS 
                FROM THE STATE OF NEW HAMPSHIRE

    Mr. Sununu. Thank you very much, Mr. Chairman. It is a 
pleasure to testify here today. I want to commend the 
Subcommittee on the effort it is putting forward to examine how 
best to inform people about our Social Security system.
    Planning for retirement is one of the most important 
responsibilities that all American workers will face during 
their lives. And as they make critical decisions in this 
process, they deserve to have the most up-to-date and accurate 
information possible.
    As part of this effort to provide more information, earlier 
this year I introduced H.R. 3578, ``The Social Security Right 
To Know Act.'' It is legislation that would give those paying 
Social Security taxes accurate and up-to-date information about 
the taxes they pay and the benefits they can expect to receive, 
in order to help make them make sound plans for their future.
    By expanding access to wage statistics, clearly explaining 
the status of the Social Security Trust Fund, and disclosing 
the rate of return on taxes paid, I believe my legislation will 
better enable individuals to understand what they can and 
cannot expect the Social Security system to provide for them, 
and to make sound decisions regarding retirement accordingly.
    Mr. Weller has provided, I think, a thorough and detailed 
description of some of the provisions, the key provisions, of 
the legislation. And what I thought I might do is at least take 
a minute or two to address some of the concerns that have or 
that may be raised regarding the legislation.
    I think critics could always argue that a piece of 
information might confuse someone, somewhere. But at the same 
time, I think that perspective disregards the fundamental 
points made at the beginning of this hearing: that knowledge 
and information represent power, and empower individuals to 
make good decisions for themselves; and that information 
ultimately will help consumers to make better decisions 
regarding their own future.
    The suggestion was made that the importance of this 
information is being underestimated. I think, quite to the 
contrary. This panel is an indication that the people on this 
Subcommittee, that those that have introduced legislation here, 
highly value and highly regard the importance of the 
information.
    We recognize that context can be important. And the work of 
this Subcommittee and the challenge of this Subcommittee is 
going to be to make sure that we are building on the value of 
the existing Social Security statement, that we are providing 
the best information possible. But that should not take away 
from the fact that important, objectively provided information 
in the end is in the consumer's best interests.
    And I think, in that regard, access for researchers to have 
to economic models and actuarial data is in the best interests 
of not just those researchers, but those who have an interest 
in Social Security itself; that facts regarding the rate of 
return that an employee might get on the taxes that they pay is 
certainly in the employee's best interest; and clarification 
regarding the nature of the trust fund I think is of great 
value.
    Those on this Subcommittee that understand how the Social 
Security Trust Fund works I am sure have been frustrated from 
time to time, not just in talking to the public, but talking to 
other Members of Congress that might labor under a 
misconception of how the Social Security Trust Fund even works.
    I think these are not just important pieces of information 
that are keys to good decisionmaking for consumers and good 
retirement planning for beneficiaries, but ultimately they are 
also keys to making good decisions in carrying on a substantive 
debate about reform itself. And therein lies a twofold value to 
having access to good information.
    Today we have a Federal projected surplus over a 10-year 
period of two, three, even four billion dollars, depending on 
the economic estimations that are made. But we do have the 
opportunity to create a dramatically better, more modern 
retirement Social Security system. Those who have carefully 
considered the options for reform--among them, the Members of 
this Subcommittee--recognize that we may have difficult choices 
ahead, but there is a real need for bipartisan effort. And in 
fact, that need has never been greater.
    I believe that this modest legislation to provide 
additional information will help workers better understand the 
system, understand the need for reform, and understand the 
options that they have for their own retirement security.
    I appreciate the time and the effort of all of the Members 
of the Subcommittee in understanding more about and moving 
forward this important legislation. And I am happy to assist 
you with any questions you might have. Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of Hon. John E. Sununu, a Representative in Congress from the 
State of New Hampshire

    Thank you, Mr. Chairman. It is my pleasure to testify here 
today and I would like to commend the Subcommittee for its 
efforts to examine how best to inform the public about our 
Social Security system.
    Planning for retirement security is one of the most 
important responsibilities faced by all Americans during their 
working lives. And as they make critical decisions in this 
process, they deserve to have the most up-to-date and accurate 
information possible.
    As part of this effort to provide more information to 
workers regarding Social Security, earlier this year I 
introduced H.R. 3578, ``The Social Security Right to Know 
Act.'' This legislation would give those paying Social Security 
taxes accurate and up-to-date information about the taxes they 
pay, and the benefits they can expect to receive in order to 
help them make sound plans for their future. By expanding 
access to wage statistics, clearly explaining the status of the 
Social Security Trust Fund, and disclosing the rate of return 
on taxes paid, my legislation will better enable individuals to 
understand what they can, and can not, expect the Social 
Security system to provide for them and to make sound decisions 
regarding retirement.
    This modest legislation will require that additional 
information be included in the Annual Report of the Trustees of 
the Social Security Trust Funds and the Personal Earnings and 
Benefit Estimate Statements--which has been renamed ``Your 
Social Security Statement.'' It also will allow the Treasury 
Department's Continuous Work History Sample to be made 
available to qualified researchers for statistical analysis.
    There are three parts to my legislation that I would like 
to explain briefly:

    Part I deals with the Annual Report of the Trustees of the 
Social Security Trust Funds. My legislation would require the 
trustees to include addition information in both the report and 
in the report's summary. Some of this can be derived from 
information that is already included in the body of the report, 
but this legislation would require it to be clearly and simply 
stated in the summary as well. This information includes:

    1. The aggregate amount of the unfunded long-term liability 
of the system, and its change from the previous year's report.
    2. The amount of deficit or surplus that the system will 
run in the last year in the 75-year projection period included 
in the report.
    3. Language explaining the nature of the Social Security 
trust fund, including the following wording:
    ``The Trust Funds balances reflect resources authorized by 
Congress to pay future Social Security benefits, but do not 
consist of real economic assets that can be used in the future 
to fund benefits. These balances are claims against the United 
States Treasury that, when redeemed, must be financed through 
increased taxes, public borrowing, benefit reduction, or 
elimination of other Federal expenditures.'')
    Finally, Part I requires that SSA publish the economic 
model and all relevant data which they use to make financial 
projections.
    Part II involves the ``Your Social Security Statement'' 
statement. This legislation would add three elements to the 
statement:

    1. Each statement would include the information that while 
Social Security currently collects more in taxes than it pays 
out in benefits each year, it will begin to run cash flow 
deficits in 2015. (The Social Security trust fund will cover 
the deficit through 2037, but after that point Social 
Security's tax collections continue to cover only a portion of 
benefits that it must pay. These dates and percentages shall be 
adjusted annually based on the findings of the Office of the 
Chief Actuary.)
    2. Each statement would also include language similar to 
that in the Annual Report which explains the nature of the 
Social Security Trust Fund.
    3. Each statement will include language explaining the 
average rates of return that taxpayers can expect to receive 
their Social Security retirement benefits as compared to the 
total amount of Social Security retirement taxes that they can 
be expected to pay. (This language shall include chart 2.1 from 
GAO report GAO/HEHS-99-110 and the following wording:
    ``Inflation-adjusted rate of return estimates were more 
than 10 percent for birth groups born before 1905. They fell 
below 6 percent for those born in 1920, below 3 percent for 
those born in about 1940, and below 2 percent for those born in 
about 1960. They will reach 1 percent for those who will be 
born in about 2040.'')
    Part III would allow researchers to gain access to 
important wage data. The Continuous Work History Sample (CWHS) 
is a data base compiled by the Treasury Department for the 
Social Security Administration's use in making economic 
estimates about the future of programs that the agency 
administers. It consists of income information over a number of 
years for a random sample equal to 1 percent of the US 
population.
    This legislation would require the Office of Research and 
Statistics of the Social Security Administration to make the 
sample available to qualified researchers who will use it for 
statistical research only. The Office will be able to require 
researchers to reimburse all costs and to impose any reasonable 
conditions to ensure that the data's security is protected. In 
addition, the Office will be required to take steps to ensure 
that any identifier that might compromise any individual's 
identity is removed from the data prior to its being released.
    Today, with a projected federal budget surplus of $4.1 
trillion over the next ten years, we have the opportunity to 
create a dramatically better, more modern, retirement Social 
Security system. Those who have carefully considered the 
options for reform recognize that the choices ahead may be 
difficult, but the need for a bipartisan effort has never been 
greater.
    I believe that this modest step of providing fundamental 
information to the public will help workers to better 
understand the current system, the need for reform, and the 
options they have for their own retirement security.
    I appreciate the opportunity to appear before you today, 
commend the hard work of the Chairman and the members of the 
Subcommittee, who have been steadfast in their efforts to 
better inform the public about Social Security.
    I look forward to participating in this endeavor and would 
be happy to assist you in any way possible.
      

                                


    Chairman Shaw. Thank you, John.
    Mr. Matsui?
    Mr. Matsui. Thank you very much, Mr. Chairman. I am going 
to ask perhaps a couple of questions. The Social Security 
Commissioner came out with a form that he distributed, and then 
GAO made some recommendations. And of course, that form then 
was revised. And I think, as Mr. Pomeroy suggested, perhaps we 
should actually allow that to set in for a while and let the 
American public review that plan. Then if changes need to be 
made in the future, obviously we would then have that 
opportunity to look at it, or maybe even make recommendations, 
since this could be simply an administrative matter.
    But I think all of us agree that we want to give the best, 
most complete information out, so people can make long-term 
financial planning decisions. And second, if in fact there need 
to be corrections, they have that information, and then with 
the 1-800 number they can make those changes and corrections.
    The problem I have with some of the legislation that is 
being discussed is that it sounds like it is an attempt to move 
public opinion in a way that may be moving to private accounts. 
Now, I do not want to ever question any motives behind 
legislative actions, but the fact of the matter is, it would 
have that tendency, if in fact the information is just rate of 
return, for example, or if it compares Social Security with, 
obviously, the stock market, particularly in the last decade in 
terms of the stock market.
    The problem is that information in and of itself is 
terribly misleading. Because the administrative cost for Social 
Security is less than one percent. In fact, it is 0.9 percent. 
And we have had a series of hearings over the last year, year 
and a half, on the whole issue of Social Security. And this is 
not really the time to debate the Social Security issue. I 
mean, we have other opportunities, and we have had other 
opportunities on that. But this is just to inform the public on 
those two principles that I mentioned: Financial planning 
abilities, and certainly to correct mistakes.
    But the problem that I see is that, first of all, you have 
to factor in the unfunded liability, which is over $8 
trillion--about five times, or four times the annual Federal 
budget. And obviously, Social Security does do that; whereas 
the marketplace, if you had individual accounts, would not do 
that. And that has to be factored in. It would be misleading to 
the public if you did not have that $8 trillion and you 
actually put that into the account.
    Second, you know, you could be a day trader and use your 
individual account, and maybe have very minimal overhead costs; 
but if you go into the market and hire one of the stock 
brokers, we estimated--and, you know, there are some 
variations--but it could be anywhere up to 20 percent, and as 
low as 10 percent, in terms of the overall cost of maintenance 
of one's account over a period of years. And if you annuitize 
that, you are talking about over a 40-year period a rather 
significant sum of money: Maybe overall, 20, 25 percent of 
one's entire account.
    In addition, I would assume that we want to annuitize. At 
the end of the day, you want to annuitize whatever money you 
have, so that you then could pay it out for your life 
expectancy. And we have talked to some insurance companies. 
Many do not even carry that, because it is too complex, 
particularly if you want to put an inflation kicker in there, 
the CPI. And women in particular need that, because they live 
much longer than men. But that is anywhere from 15 to 20 
percent, minimum, cost. And so you are talking about maybe 20, 
30, 40 percent off the top. And so you need to factor that in 
onto that statement, as well, and maybe make a rather lengthy 
explanation of why you are adding all those factors in.
    And the problem there is that it then becomes somewhat 
meaningless. It does not give anyone real opportunities to 
understand what this rate of return is all about. And I think 
we are going to have testimony from Mr. Salisbury and from 
Henry Aaron and a number of others in the fifth panel, in which 
they are going to discuss how complex and perhaps impossible it 
is to come up with really a rate of return for somebody 30 
years old, projecting what it might be when he or she is 65 or 
62 or 70 years old. And that is the problem.
    I really appreciate what you are all trying to do. We want 
to give as much information as we can. But I think in the last 
analysis, unintentionally, you are going to be giving out very, 
very misleading information that perhaps will create tremendous 
problems and maybe create people taking actions that they will 
someday live to regret.
    Now, perhaps Mr. Weller, as a Member of the Committee, may 
want to comment, or anyone else may want to comment on this. 
But I think it is a serious issue. But we should restrict it 
really to the issue of the statement, and how the statement 
will carry out the two principles: That is, financial planning 
for the individual, and how that individual can correct 
mistakes.
    Mr. Weller. Sure. Mr. Chairman, if I could respond to my 
friend Mr. Matsui.
    Chairman Shaw. Yes.
    Mr. Weller. And I know Mr. Matsui shares, as I do, a 
concern for ensuring that workers have a right to know. We have 
worked together on the issue, addressing particularly the cash 
balance conversion issue. We have partnered up on legislation 
that is bipartisan and helps ensure that workers have a right 
to know, if there is a change in their pension, what it means 
to them when it is their turn to retire.
    And I really believe that this legislation which I have 
joined and cosponsor with Representative Sununu works toward 
the same goal. I would point out that the language required on 
the average rate of return that taxpayers can expect to receive 
from the Social Security retirement tax payments only would be 
listed on that form addressing the rate of return on the Social 
Security tax that is paid. It does not mention requiring any 
other comparisons.
    Mr. Matsui. If you could just let me respond, what is the 
purpose of that? Because the idea of the two principles--and I 
think we all agreed to that when we passed this in the Omnibus 
Act to have the Social Security Administrator implement this--
were to give accurate information, if the information is 
inaccurate, so that the individual, the recipient, can then 
make that correction; and two, so the individual can make a 
determination on future planning.
    Mr. Sununu. If I could address that?
    Mr. Matsui. Well, if I may just--So why is that relevant, 
unless you want to make a comparison?
    Mr. Weller. Sure. And I would like to briefly respond, but 
I want to yield to my----
    Mr. Matsui. You cannot avoid--You cannot now say, ``Well, 
we do not really want them to make that comparison,'' because 
that is what this is really all about.
    Mr. Weller. Well, and I am not saying that they should not 
have a right to compare. You know, I am going to yield in just 
a second to my friend, Mr. Sununu. But you know, I believe this 
legislation really salutes the wisdom of the average worker 
today. I find that workers are increasingly sophisticated when 
it comes to making plans for their retirement, what the options 
are.
    Mr. Matsui. Would you agree, then, to put these other 
points in here that I mentioned? You know, the unfunded costs, 
the costs of annuitization, the costs of maintenance? Because 
if we want to respect their intelligence and their judgment, 
why do we not put all that in there, that if you do invest in 
the private sector, these are additional costs?
    Mr. Weller. Well, but I would point out that our 
legislation does not require any statements regarding private 
sector investments. Essentially, it is very simple. It just 
points out what the rate of return is on their taxpayer 
investment. They put an equivalent of 12.6 percent of their 
income, which is a big chunk of someone's income over a 
lifetime, that is going into the Social Security Trust Fund. 
And we believe that they have a right to know what the rate of 
return is. They are sophisticated.
    And let me yield to my colleague now.
    Mr. Sununu. Yes, if I could make a few points that I think 
do go directly to concerns that have been raised. First, 
regarding the unfunded liability, that is also part of this 
legislation. There are three parts. One puts the information 
that you raised concerns about--the nature of the unfunded 
liability--in the report of the Social Security trustees. 
Because I think that is important information. You raised it.
    Mr. Matsui. Yes, I was only referring to that with respect 
to the rate of return issue. But you are right. I have not even 
discussed that other part yet.
    Mr. Sununu. You talked about the nature of the unfunded 
liability. You used a figure of approximately $8 trillion, I 
think, and I have seen similar estimates. And we do think that 
is important. And that is addressed in this legislation.
    There is a second part of the legislation that deals with 
economic models and actuarial models, and the fact that there 
is a real value to making those available to researchers.
    But regarding the rate of return information, we do not 
call for a comparison of the rate of return on Social Security 
to any private sector vehicle.
    Mr. Matsui. Well, why do you have that information in 
there? I mean, it has to be for a purpose.
    Mr. Sununu. Well, because the consumer--It does have a 
purpose. But we are not----
    Mr. Matsui. What is the purpose?
    Mr. Sununu. If I might----
    Mr. Matsui. Please do.
    Mr. Sununu [continuing]. At least finish my sentence here. 
Rather than prejudge a particular vehicle, compare it to a 
historic rate of return on the stock market, compare it to a 
historic rate of return on Treasuries. We believe, I believe 
the consumer is able to make that judgment. Compare it to the 
rate of return that they get on their savings account. If I can 
finish----
    Mr. Matsui. Well, no, no. Is that what you want them to do 
with that?
    I have run out of time. And you are my expert. I need to 
ask you these questions, because I have to make a judgment. Is 
that what you want them to do, make comparisons? Because if you 
do----
    Mr. Sununu. Well, I am trying to answer the question. To 
make a comparison to the rate of return on their IRA, their 
401(k), whether they have a matching plan. I think that rate of 
return, a fair estimate on the rate of return is of value.
    Moreover, it is not merely a prospective rate of return. We 
include historical information that ought not to be in doubt, 
what was the historical rate of return for those born in a 
particular year, or over particular years--prior to 1940, or 
after 1940 for example. And again, those are technical issues. 
And I believe that the Subcommittee is able, I hope, to make an 
objective determination to what extent those kinds of estimates 
on historic rate of return might be based.
    Mr. Matsui. Yes, thank you. If I could just have your 
answer on this one question in terms of--since you do 
acknowledge that the idea is to have them make this 
comparison--would you put in the annuitization issue? Because 
they have to annuitization these private accounts. Would you 
put in the cost of this?
    Mr. Sununu. Well, amortization?
    Mr. Matsui. Is that something that would be helpful to the 
general public?
    Mr. Sununu. What is that? Cost of maintenance for a 
particular private savings vehicle, a savings account, checking 
account, or IRA, or 401(k)? We have disclosure regulations. My 
Fidelity mutual fund----
    Chairman Shaw. If we could have in the audience no talking. 
The young lady down there, I can hear every word you are 
saying.
    Mr. Sununu. The mutual funds that you or I might invest in 
have to disclose the administrative costs of those funds. And I 
think that is valuable consumer information. So that is already 
being provided in the private sector. So I think there is a lot 
of room for discussion about context for determining the range 
of historical data that might be provided, but I do not think 
the idea of providing the consumer with information about rate 
of return is without merit. And I think they can make honest 
judgments about different private sector vehicles themselves, 
as they have to do already every day.
    Mr. Pomeroy. Mr. Chairman, if I might also respond?
    Chairman Shaw. Yes, we are going to have to wrap this one 
up.
    Mr. Matsui. But if I could have this--and I apologize.
    Mr. Pomeroy. I will be very brief. You know, Mr. Sununu 
said in his opening statement objectively reported information 
is important. I agree with that. But the rate of return 
question really does not capture the value of the disability 
benefits provided through Social Security, it does not capture 
the value of the survivor benefit which is loaded in. Those 
have an absolute value. But if you are just doing a rate of 
return calculation, that is not reflected. So it is an 
erroneous figure.
    Second, capturing the return over time does not in any way 
reflect the natural transition dimensions of implementing the 
Social Security program. Did the first participants in Social 
Security get a better rate of return than our children will? 
Absolutely. But that is just the nature of bringing the program 
like this online, and I do not think any of us would suggest 
that it should not have been brought online. But bringing a 
program like this online involves those kinds of variations. 
Now, putting that into a form without an adequate explanation 
is going to be highly prejudicial; and what's more, I think, 
not accurate.
    And then finally, they say that they have got to report 
that the Social Security Trust Fund is not an economic asset. 
What is the public going to make of that? I do not know what it 
means. The Trust Fund is funded with Federal Treasuries. And as 
Chairman Archer has noted in the hearings that I have attended, 
it is an absolute rock-solid commitment of the Federal 
Government that has never, ever defaulted.
    And so again, this is information that really is not 
objective information. It does not contribute to anything.
    Chairman Shaw. No, I would correct the gentleman. We have 
had testimony which has been unanimous pretty much with all the 
experts. The question is, are Treasury bills held by the 
Federal Government a real economic asset? And the economists 
tell us ``No.'' That is not my opinion, or anyone else's. That 
is what the economists tell us. But from the standpoint of the 
Government's obligation to pay back what it borrowed from 
Social Security, I agree it is rock-solid.
    Mr. Pomeroy. For the recipients' standpoint, I think they 
want to know, ``Is this backed by the United States government, 
and will it be there when I retire?'' And I mean, I think the 
track record is one hundred percent.
    Chairman Shaw. I could only answer you this way; that case 
law tells us that under the existing system there are no vested 
rights. I would like to change that. That is the case law. That 
is not Clay Shaw talking; that is the courts talking. That is 
why the Congress can change the benefits.
    Mr. Pomeroy. Mr. Chairman, I look forward in trying to find 
common ground with you on that question. I look forward, in the 
event we cannot find common ground, to vigorous debate.
    But one thing I do not think we want to do is to put 
misleading--you know, where one side gets their little comments 
into this universal disclosure form that needs to provide 
Americans with hard information about where they are at 
relative to Social Security so they can plan their own 
financial savings and retirement.
    Thank you, Mr. Chairman.
    Chairman Shaw. I am not sure there is any disagreement in 
the room.
    Mr. Cardin?
    Mr. Cardin. I thank you, Mr. Chairman. I am wondering 
whether there has been a cost analysis done of this bill. 
Because it seems to me that if we were to enact it, we would 
have to increase the congressional budget by at least one 
staffperson an office, to deal with the calls that we are going 
to get in our congressional offices when this information hits.
    We already get a lot of phone calls in our office on Social 
Security. And I do not know about your office, but my person in 
Baltimore who handles the calls can spend one-half hour to an 
hour with one constituent on one issue. And it seems to me, to 
try to explain the rate of return on their Social Security will 
be challenging to each Member of Congress.
    John, I am trying to figure out your definition of ``rate 
of return.'' So let me just see if I can understand. I am going 
to give you a chance to respond. How would you calculate the 
rate of return? Someone gets this notice at 30 years of age, 
let us say. And the information there projects where that 
person is going to be 37 years later. Are you adding up all the 
anticipated contributions that individual is making and then 
using a life expectancy based upon today's life expectancy, or 
what we project the life expectancy to be in 37 years for that 
individual? And do you factor out the two points that Mr. 
Pomeroy mentioned about the survivor benefit and disability 
insurance?
    Mr. Sununu. To your last point first. First, calculating 
the actuarial benefit of the survivor benefit I think can be 
done. And to the extent that this Subcommittee or those 
involved in the final crafting of the legislation think that 
ought to be considered, I think that is a very reasonable 
request. But I think that is a technical problem more than 
anything. And obviously, on an actuarial basis to calculate the 
value of that part of the program can be done.
    Mr. Cardin. On that point, would you do it based upon the 
person's current family status, or the average family status in 
the country?
    Mr. Sununu. I think you can calculate the overall actuarial 
benefit of the program based on its outlays and payments for 
disability, and back those anticipated future payments out of 
the trust fund itself and out of the FICA tax base itself, and 
use an adjusted FICA tax base for calculating rate of return.
    Mr. Cardin. The problem is that if I were to buy a 
disability insurance policy, it would be based upon my current 
status, not based upon an average status. So would the Social 
Security Administration have to figure out what my current 
status is for a disability insurance policy?
    Mr. Sununu. No, based on historical payments under the 
disability program----
    Mr. Cardin. But I'm 30 years old; I'm not married yet.
    Mr. Sununu. And therein lies perhaps a misleading 
interpretation of the legislation. What the legislation calls 
for is including language on the average rates of returns for 
taxpayers, as compared to the total amount of taxes that they 
might pay. And again, this gets back to the language, looking 
at the adjusted rates of return for groups of workers born 
during different decades, talking about what the forecasted 
rate of return is for those born after a particular year.
    And it is based on average rates of return; because I do 
not think in the statement it is appropriate to suggest to 
someone that the Social Security Administration, or anyone 
else, knows exactly how long they are going to live.
    Mr. Cardin. I think that is a good point. I guess an easier 
way to get at what you are trying to do--which I disagree 
with--but I think an easier way would be just to point out what 
the Social Security system is as it relates to the age of your 
birth and your average income. Because it is progressive. We 
make no bones about it being progressive.
    Mr. Sununu. That is an alternative approach to trying to 
provide similar information about the nature of the program and 
the benefits received relative to the taxes paid. And I am 
perfectly willing to concede that there may be, again, 
disagreements in the exact context of presenting this 
information. But I think presenting information in and of 
itself, and trying to communicate anticipated rate of return 
for the program as a whole, is not in and of itself a bad idea.
    Mr. Cardin. Yes, but let me make an observation. I 
understand what you are trying to do. And I think the better 
way to do it is to use the envelope to include additional 
information, and not relate it to the individual, because 
relating it to the individual would be extremely confusing.
    But I would also take what Mr. Pomeroy and what Mr. Matsui 
have said; in that, let us give this a chance to work first. 
Let us get an evaluation of what we have already done. The 
information is being sent out. We could include more 
information if we thought it was useful, and if we could do it 
in a way that does not try to show any particular bias to any 
policy objective, but is one to try to get our constituents 
more informed as to the nature of Social Security. I think we 
could work on that in a bipartisan way. But I think the way 
your bill is worded causes many of us to have some concerns.
    And I appreciate your patience, Mr. Chairman.
    Chairman Shaw. Thank you. I have just run out of patience. 
[Laughter.]
    Chairman Shaw. I would like to thank this panel for being 
here this morning--``this morning''--this afternoon, excuse me. 
I will be saying ``this evening'' pretty soon.
    Mr. Commissioner, we have your full statement, which will 
be put into the record. You may proceed as you see fit.

 STATEMENT OF KENNETH S. APFEL, COMMISSIONER OF SOCIAL SECURITY

    Mr. Apfel. Thank you, Mr. Chairman. And I will be very 
brief, for the sake of the length of the hearing. Mr. Chairman, 
Mr. Matsui, Mr. Weller, Mr. Cardin, Members of the 
Subcommittee, thank you for inviting me to discuss one of the 
Agency's premier achievements: The Social Security Statement.
    One of our basic responsibilities is to help Americans 
understand the importance and value of Social Security and how 
it fits into their long-term financial planning. About 152 
million workers support our Social Security system with their 
tax contributions, and about 45 million individuals receive 
monthly Social Security retirement, disability, or survivor 
benefit payments.
    The annual Social Security Statement is the best way we 
have to help people understand the basics of Social Security, 
and to help them prepare for their long-term financial 
security. As you know, the statement is the new version of the 
Personal Earnings and Benefit Estimate Statement that we have 
made available since 1988. Since '95, we mailed the statement 
to people by age grouping, and provided more than 70 million to 
workers age 40 and older through March 1999.
    Beginning on October 1, 1999, Social Security launched the 
largest customized mailing ever undertaken by a Federal agency, 
when it began mailing out the newly designed statement to 125 
million workers over age 25. About a half-million statements 
are mailed each day, a total of about 10 million each month. 
Workers automatically receive their statements about 3 months 
before their birthday.
    The statements provide workers with a list of their yearly 
earnings on record at Social Security, taxes paid, and benefit 
estimates for the Social Security retirement, disability, and 
survivors programs. And retirement benefit estimates give 
workers estimates of projected benefit amounts at age 62, at 
full retirement age, and at age 70, helping people plan when to 
retire.
    The statements also give workers a chance to review their 
earnings record on which future benefit payments will be based. 
And the statement provides general program information, and 
tells people how to contact us if they have any questions.
    The statement has been very well received. Several 
financial columnists have praised its value as a financial 
planning tool. And a recent survey shows that more than two-
thirds of the people who received the statement were 
knowledgeable about Social Security, compared to about half of 
those who did not receive the statement.
    One of our goals in designing the new statement was to make 
it user friendly and easily understood. We have worked very 
hard to achieve this goal. Focus groups and survey 
participants, as well as stakeholder organizations, 
overwhelmingly found the redesigned statement an improvement 
over its predecessor. I am also proud that the statement 
received Vice President Gore's Plain Language Award.
    Since its release in October, we have made further changes 
to improve the statement. For example, we included an 
explanation that the benefit estimate may be different from the 
worker's actual benefit amount, because of earnings changes in 
future years or changes in laws governing benefit amounts. And 
we have included information on the long-term challenges facing 
the program, including the projected trust fund exhaustion 
date.
    Should further information be included in the statement? As 
you know, proposed legislation would require Social Security to 
include an individualized estimate of the rates of return 
workers would receive on their contributions to the Social 
Security system. The intent is to provide enough information to 
let workers compare Social Security with other investments.
    When Social Security originally designed the current 
statement, we considered, but rejected, this idea. Social 
Security, like other social insurance programs such as 
Medicare, is not designed in a way that would be appropriately 
evaluated by individual rate of return estimates. The program 
is designed to provide a foundation of income for workers and 
their families when the worker retires, becomes disabled, or 
dies.
    Historically, the program has been judged by the extent to 
which benefits replace pre-retirement earnings, or how much 
those benefits help reduce poverty; not by estimates of 
individual rates of return on contributions. In addition, the 
General Accounting Office concluded that adding rate of return 
information could significantly increase the statement's length 
and complexity, and undermine our efforts to provide a 
simplified but useful statement.
    I believe it is germane to remember that Social Security is 
a social insurance program, and that individual rate of return 
information would not capture many complex aspects of the 
program. These include the fact that Social Security provides 
not only retirement benefits, but also dependent and survivor 
benefits; that it is a family program which provides greater 
benefits for larger families or that assures income replacement 
rates for lower income workers that are greater than for 
workers with higher incomes.
    Mr. Chairman, in conclusion, let me say that Social 
Security is committed to making every effort to ensure that the 
public understands Social Security and its importance to them 
and their families' financial future. We have, in fact, just 
announced a new service: An online Social Security retirement 
planner which will allow people of any age to compute estimates 
of their future Social Security retirement benefits on our SSA 
website. The retirement planner provides people with three 
options, which allow for lesser to greater degrees of 
sophistication in computing benefit estimates--all with 
complete privacy.
    This new service and other Agency efforts will complement 
the Social Security Statement, which I strongly believe is our 
most valuable tool to increase public understanding of our 
programs and to help people plan for their financial future. 
The statement explains and makes real to people that Social 
Security is indeed a foundation on which they can build, 
together with other investment options, their financial future.
    I will be happy to answer any questions that you have at 
this time.
    [The prepared statement follows:]
    [Attachments are being retained in the Committee files:]

Statement of Hon. Kenneth S. Apfel, Commissioner of Social Security

    Mr. Chairman and Members of the Subcommittee:
    Thank you for inviting me to discuss one of the Agency's 
achievements of which I am most proud--the Social Security 
Statement.

Background

    Social Security touches the lives of virtually all 
Americans. At least 152 million workers pay into Social 
Security and more than 44.6 million individuals receive monthly 
Social Security benefits because they are retired, disabled, or 
dependent family members or survivors of a worker. Social 
Security is the largest source of income for most elderly 
Americans and keeps millions of elderly out of poverty.
    Throughout its history, Social Security has made a 
difference in the lives of Americans, and one of our basic 
responsibilities to the public is to help Americans understand 
the value of the Social Security programs and their importance 
to them and their families. The Social Security Statement is 
the most significant vehicle we have to increase the public's 
understanding of the basic features of Social Security and 
enable Americans to prepare for their long-term financial 
security. As part of our ongoing public education efforts, SSA 
began in 1988 to issue earnings and benefit estimate Statements 
to individuals who requested them. Since then, SSA has sent 
about 3 million of these statements annually.

SSA Initiated Statements

    In amendments to the Social Security Act in 1989 and 1990, 
Congress required SSA to send Personal Earnings and Benefit 
Estimate Statements (PEBES) to workers. SSA was required to 
mail a PEBES to all workers aged 60 or over in FY 1995; in FY 
1996 through FY 1999 to individuals who reach age 60 in those 
years; and annually to all covered workers age 25 and older 
beginning in FY 2000. In addition to the PEBES mailing required 
by law, SSA sent PEBES to increasingly younger individuals in 
advance of the schedule in the law. SSA sent a PEBES to workers 
aged 40 and older--about 73 million people--between September 
1995 and March 1999.
    Beginning October 1, 1999, the SSA launched the largest 
customized mailing ever undertaken by a Federal agency when it 
began sending a newly-designed PEBES, now called the Social 
Security Statement. SSA staggers the mailing of the Statements 
throughout the year, with approximately a half million 
Statements delivered each day, a total of about 10 million 
mailings delivered each month. The Statements are mailed so 
that workers will automatically receive their Statements about 
three months before their birth month.
    The Statements provide workers with a list of their yearly 
earnings on record at SSA, information about their eligibility 
for benefits, and estimates of these benefits. Estimated 
retirement benefits at age 62, at normal retirement age (the 
age at which unreduced benefits are payable) and at age 70 are 
provided. Thus, the Statements help individuals decide when to 
retire and claim benefits. The Statement also contains 
estimated totals of the Social Security taxes that have been 
paid by the worker and by his/her employer over the 
individual's working career. The Statements provide workers an 
opportunity to review the earnings (or self-employment income) 
posted on their Social Security record to ensure their record 
of earnings is complete and accurate. This is an important 
feature because the amount of a worker's future benefits will 
be based on his or her earnings record. SSA also provides 
general information and explanations to help individuals 
understand their personal data and how to contact us if they 
have any questions.
    The new Statement, like its PEBES predecessor, provides 
estimates of Social Security retirement, disability, and 
survivors' benefits that workers and their families could be 
eligible to receive now and in the future. To design the new 
form and simplify the language, SSA used extensive public and 
employee input. The new design is based on the results of 
testing four prototypes with focus groups in three different 
age groups (ages 25-35, 36-50, and over 50). We also obtained 
additional public input through a nationwide mail survey of 
16,000 randomly selected individuals from the same age groups. 
We also received comments from agencies and organizations that 
represent diverse sections of the public. We found that focus 
group and mail survey participants alike overwhelmingly found 
the redesigned Statement an improvement over PEBES. 
Communicating technical and complicated information in a way 
that is understandable to a diverse public can be difficult, 
but SSA has worked diligently to ensure that the message in our 
Social Security Statement is clear. I am proud that the Social 
Security Statement received Vice President Gore's Plain 
Language Award.
    I am pleased to report that the results of a recent survey, 
undertaken at SSA's request, revealed that receipt of a 
Statement has helped in increasing Americans' understanding of 
Social Security. Sixty-eight percent of the people who recalled 
receiving a Statement were knowledgeable about Social Security, 
as compared to 53.3 percent of persons who did not recall 
receiving a Statement. The survey also found that individuals 
who have received a Social Security Statement from SSA have a 
significantly greater understanding of some important basic 
features of Social Security. Those who have received a 
Statement are significantly more likely to know that (1) the 
amount of Social Security benefits depends on how much they 
earned; (2) Social Security pays benefits to workers who become 
disabled; (3) Social Security provides benefits to dependents 
of workers who die; and (4) Social Security was designed only 
to provide part of total retirement income. The survey 
validates the performance measures we use to track our progress 
in meeting our ``Public Understanding'' strategic goal. We 
track both the increasing numbers of Statements we send to the 
public and the increasing public knowledge about our programs. 
Awareness of the Statement increased from 49.5 percent of the 
public in 1998 to 62.2 percent (about 125 million Americans) in 
1999. SSA's public education activities to announce the 
Statement appear to have been very successful. This is 
significant because awareness is the first step to knowledge.
    Comments we have received from those who got the new 
Statements indicate that the Statement not only helps the 
public understand the Social Security program but assists in 
financial planning. In fact, 66% of those surveyed said that 
the Statement would be helpful for that purpose. In addition, 
the favorable reaction from financial columnists all over the 
county has reinforced for the public the importance and 
usefulness of the Statement. I have attached to my testimony a 
number of such columnists' reactions for inclusion in the 
record.
    Since its release in October, we have made further changes 
to improve the presentation of the material contained in the 
Statement. We have added information about Social Security's 
future, pointing out that Social Security will be there when 
workers retire, but that changes will be needed in order to 
resolve the program's long-range financial issues. We have 
included an explanation that the benefit estimate may be 
different from the worker's actual benefit amount because of 
changes in his or her earnings in future years and any changes 
that could occur in the current laws governing benefit amounts. 
We have also included information on the long-term challenges 
faced by the program, including the date when benefits exceed 
income and the date of the exhaustion of the trust funds.
    We will continue to make changes to the Statement as 
needed. SSA immediately updates the Statement for legislative 
changes, when a new Trustees Report is issued or if an error is 
detected. At the end of the calendar year, we update the 
Statement to reflect changes in the maximum covered earnings 
amount, retirement test limitations, and changes to the benefit 
calculations. In conjunction with these necessary end-of-year 
changes, we review public reaction, Congressional concerns, and 
employee input to identify and include suggested revisions and 
additions to the Statement that would make it more useful and 
understandable for recipients. Of course, in the near future we 
will be updating the Statement to reflect the 2000 Trustees 
Report and the enactment of HR5, the bill that abolished the 
Social Security earnings limit for Social Security 
beneficiaries at or above the normal retirement age.
    As we continue our efforts to educate the public about the 
value of our programs and their role in family financial 
planning, SSA will be conducting information campaigns 
throughout fiscal year 2000 encouraging individuals to use the 
information in the Statements to prepare for their financial 
futures.
    Last week, we unveiled a new electronic service to help 
Americans better prepare for their financial future--an online 
retirement planner. SSA's online retirement planner will allow 
individuals to compute estimates of their future Social 
Security retirement benefits online at the SSA internet 
website--www.ssa.gov.
    Our new Internet service, Social Security Retirement 
Planner, will assist workers with their retirement planning by 
helping them understand the amount of Social Security benefits 
they can expect in retirement. With this information and with 
information from their employer about private pensions, workers 
will be able to make better informed decisions about their 
family savings and investment needs. Social Security is the 
foundation on which to build a stable financial future; but a 
comfortable retirement has always rested on a three-legged 
financial stool--Social Security, pensions and savings.
    To maintain privacy and to protect records from 
unauthorized users, none of the calculators are linked to 
individual earnings records or any other information in SSA's 
database. All benefit estimates are based strictly on input 
from the users.
    The Social Security Retirement Planner also walks 
individuals through the retirement planning and application 
process. The service offers valuable information on issues to 
consider when contemplating retirement, what documents are 
needed when applying for benefits, other potential benefits for 
the worker or family members, and how and where to apply for 
benefits.

Cost of Issuing the Statement

    The Social Security Statement is completely funded through 
SSA's administrative budget (from the Social Security Trust 
Funds). The cost to produce the annual mailing to 125 million 
individuals is about $70,000,000 about 56 cents per recipient.

Proposal to Revise the Statement

    All of us here today are well aware of the recent debates 
regarding plans to restore long-term solvency for the Social 
Security program. As part of the discussions, legislation has 
been proposed that would require SSA to place on the Social 
Security Statement an individualized estimate of the rates of 
return workers would receive on their contributions to the 
Social Security program. The intent of the proposal is to 
provide information that would enable workers to compare the 
current Social Security program with other investments. I 
mentioned earlier in my testimony that SSA conducted extensive 
surveys to design a Statement that is both useful and 
responsive to the public. Clearly, our goal has been to provide 
a Statement that contains necessary information for the public 
to understand our programs and plan for their financial 
futures. As part of that effort, SSA considered but rejected 
including additional information such as an individualized rate 
of return on the Statements.
    In September 1998, the General Accounting Office reported 
that there was substantial disagreement about whether it is 
appropriate to apply the rate of return concept to the Social 
Security program. The GAO report said:
    Supporters of such an application point out that a rate of 
return would provide individuals information about the return 
they receive on their contributions to the program. However, 
others contend that it is inappropriate to use rate of return 
estimates for Social Security because the program is designed 
to pursue social insurance goals, such as ensuring that low-
wage earners have adequate income in their old age or that 
dependent survivors are adequately provided for. In addition, 
calculations for rates of return rely on a number of 
assumptions that affect the resulting estimates. For 
individuals, the actual rates of return can vary substantially 
from the estimates due to various uncertainties, such as a 
worker's actual retirement age and future earnings.
    SSA strongly agrees that it is inappropriate to apply 
individual rate of return estimates to Social Security. Social 
Security, like other social insurance programs such as 
Medicare, is not designed in a way that it could be 
appropriately evaluated by individual rate of return estimates. 
The program is designed to provide adequate income for workers 
and their families when the worker retires, becomes disabled, 
or dies. Historically, the program has been judged by the 
extent to which benefits replace pre-retirement earnings and 
how much those benefits help reduce poverty, not by estimates 
of the individual rate of return on contributions.
    Furthermore, the program's full value cannot be accounted 
for when using individual rate of return estimates. Social 
Security is more than a social insurance program that protects 
people when they retire. It also protects workers against other 
risks over which they have little control. Almost 3 in 10 of 
today's 20 year-olds will become disabled before age 67 and 1 
in 6 Americans will die before reaching age 67. Individuals 
benefit from Social Security not just through their own worker 
benefits but through the protection provided to workers' 
families against these risks. Currently millions of Americans 
are directly benefiting from that protection: about 1 in 3 
beneficiaries is not a retiree but a disabled worker, dependent 
of a disabled worker or a survivor of a worker who has died.
    Our ability to inform workers of the rate of return on 
their Social Security contributions is limited for several 
reasons. For example, the Social Security program is a family 
program that, generally, provides greater benefits to workers 
with larger families. But our records do not include family 
linkages until benefit applications have been filed. Similarly, 
replacement rates for lower income workers are greater than for 
workers with higher incomes. Without knowing lifetime average 
earnings or the size of a worker's family, any information 
provided in the Social Security Statement could significantly 
misstate many workers' actual rate of return. Moreover, any 
rate of return estimate would be extremely sensitive to periods 
of unemployment and other related factors.
    In addition, the GAO report concluded that adding rate of 
return information to the Statement could significantly 
increase the Statement's length and complexity and undermine 
SSA's effort to provide a simplified but useful Statement. If 
rate of return estimates were added to the Statement, detailed 
explanations would be required about how the calculations were 
made, and the assumptions that were used about the individual. 
In addition, comparisons between rates of return estimates for 
Social Security and private investments would need to include 
the transaction and administrative costs and acknowledge the 
additional risk associated with private investments.
    We carefully weighed considerations to include individual 
rate of return estimates when developing the Statement. In 
addition to finding that individual rate of return estimates 
are an inappropriate method of representing the benefits' 
value, we agreed with GAO's findings that adding this 
information would increase the complexity of, rather than 
enhance, the Statement. Clearly it would not serve the public 
to provide them with a tool that misrepresents the value of 
their benefits and is so complex they would need an accountant 
or an actuary to translate the information.

Conclusion

    Mr. Chairman, SSA is dedicated to provide world class 
service to all of the people it serves. Social Security will 
continue to play a key role in the lives of Americans when they 
retire, or become disabled, or die with dependents or 
survivors. SSA is committed to ensuring that the public 
understands Social Security and its importance to them and 
their families' financial future. The Social Security Statement 
has been a valuable tool to increase public understanding of 
our programs, and explain that Social Security is indeed a 
foundation on which they can, together with other investment 
options, build their financial future. Thus, the Statement 
helps people understand not only what Social Security is, but 
also what it is not. I am very proud of the overwhelmingly 
positive reaction the Statement has received, and we will 
continue to monitor the public's reaction to it.
    I will be happy to answer any questions you may have.
      

                                


    Chairman Shaw. Thank you.
    Mr. Matsui?
    Mr. Matsui. Thank you, Mr. Chairman.
    I just want to thank you, Mr. Apfel, for your testimony and 
for the responsiveness to the GAO in terms of the 
recommendations that they have made. I think this form does 
appear to be easier to understand and easier to kind of read 
and figure out, so I think it has served its purpose. And I 
think you and your office, in working with the GAO, have 
probably made a better form for the American public.
    I know that on the first form you, or at least some group, 
did some opinion surveys in terms of the impact on the public, 
what the public might think about, and it was all very 
positive. Have you begun that with the second form? Or is it 
too early yet?
    Mr. Apfel. We have started that. And we have found a 
significantly positive response. There is greater knowledge 
about Social Security and greater knowledge of the key elements 
of Social Security and the fact that it has disability 
retirement, and survivors programs; that benefits are based 
upon what a person's earnings are over the lifetime; that the 
program is inter-generational; and that taxes paid help support 
the elderly, and so forthetera. So we are finding a growing 
understanding of Social Security. That is issue number one for 
us.
    Issue number two, then, is, how do we help people plan for 
their own financial futures? And again, I think we are finding 
a majority of Americans view this as a helpful document to help 
them personally plan for their financial futures.
    We will continue to do survey information. But we really 
believe two and three and 4 years from now that this will have 
an increasing impact on the American public to help them plan 
for the future.
    Mr. Matsui. And last, in terms of making sure that you were 
not biased and your office was not biased in preparing this 
form, what kinds of checks did you use? You know, because 
obviously, we are going to be reforming the system.
    In fact, you had stated in your statement to the American 
public that it will be unfunded by 2034. And obviously, it is 
an issue, what system we are going to be moving to over the 
next few years. How did you ensure that there was no bias one 
way or the other?
    Mr. Apfel. Well, we conducted a number of focus groups. We 
did mailings with thousands of Americans. We listened to 
comments. We reached out to organizations, to take a look at 
what we were trying to provide. And we assimilated all that 
information to provide what I believe is good, solid 
information for American consumers.
    The General Accounting Office was quite critical of the 
form years ago, and said that, ``This has got to be simplified 
so that individuals can use it to help in their own personal 
financial planning.'' And I believe we have met that test. I 
believe this is good, solid information that has gone through a 
number of focus groups, surveys with the American public, 
discussions with organizations, and we are very proud it. As I 
earlier stated, the form has been praised by several financial 
columnists as a valuable planning tool.
    I must say, one of my personal greatest prides is this 
statement. I think that it is one of the best things that we 
have done for years for the American public. It is important 
for their own financial planning; but also, we now include 
information about the long-term challenges that the system 
faces: The 2015 date, when revenues start to be less than 
anticipated expenses; the 2034 date, now 2037; the percentage 
of benefits that can be funded after that period of time. This 
is information to help people understand what Social Security 
is, but also to provide some strong caveats that there is a 
need for change in the future.
    We hope this will complement our other efforts. And we are 
very proud of what we do.
    Mr. Matsui. Thank you. Thank you, Mr. Chairman.
    Chairman Shaw. Mr. Collins?
    Mr. Collins. Thank you, Mr. Chairman.
    Mr. Commissioner, how are you today, sir?
    Mr. Apfel. How are you?
    Mr. Collins. Fine. I apologize for being a little bit late. 
I got in on the tail-end of your comments, and was trying to 
read through them hurriedly.
    On the annual statement, I was trying to find the annual 
cost--Oh, here it is, 125 million individuals; $70 million.
    Mr. Apfel. That is correct. About 56 cents per letter. And 
that includes not only the mailing cost and the processing 
cost, but the fact that we now receive about two million to two 
and a half million extra inquiries a year about the statement. 
So people are calling to say, ``Give me more information.''
    Also, the corrective actions. There are about a half-
million requests to change the earnings records on the 
statement. In other words, someone will call in and say, ``In 
1977 I had earnings, and it doesn't show up here.'' So it is 
very important for people to be doing that now, rather than 
waiting until the day before they are going to retire.
    Mr. Collins. Right.
    Mr. Apfel. So there are about a half-million of those. So 
all of those costs together--not only the mailing cost and the 
distribution cost, but the telephone calls and the corrective 
actions--are all about $70 million, 56 cents per mailing.
    Mr. Collins. OK. Well, now, do you see some point in time 
in the future--this will be an annual review now, an annual 
statement--that the time might be extended to maybe every 2 
years or every 3 years, once you kind of get people into the 
system and they understand and have had an opportunity correct 
those measures; that then we could maybe reduce the costs by 
extending it out some?
    Mr. Apfel. Mr. Collins, I do not disagree with the notion 
that in the future, some time in the future, there may be a 
need to send this less than every year, particularly for the 
youngest recipients. I would say that we are several years away 
from making that assessment.
    I would not recommend it at all right now. But we may find 
after two or three or four or 5 years that individuals have now 
read it; they are now keeping it in their financial folder; 
every year they have got the information. Possibly, for some 
groups, particularly younger workers, it might be better at 
that point in time to have it be, say, every other year.
    I would also say that in the future, particularly for older 
workers, that we may want to expand this some, to provide 
better information for individuals as they get near retirement, 
to give them better information about their own dates about 
when to retire.
    So I would see that this always will be an evolving 
document. Every year, I would like to be able to assess, ``How 
do we make improvements in the document? How do we reach out 
better to the American public? Should we customize the 
information to different age brackets?'' I think those are all 
good things for us to be looking at.
    Right now, I would agree with Mr. Matsui and Mr. Cardin. I 
would not recommend major changes this year, until we have had 
a year or two under our belt.
    Mr. Collins. To get a feel for it.
    Mr. Apfel. But in the long run, that might make sense.
    Mr. Collins. OK. Well, good. Now, you can also go to your 
website and get a lot of this information, too; is that not 
true?
    Mr. Apfel. You can go to the website. We have just 
announced the creation of a new retirement planner, where an 
individual can compute estimates of their retirement benefits. 
However, they cannot get this same information directly from 
the planner, because it is not directly tied into our private 
records.
    Mr. Collins. OK.
    Mr. Apfel. The decision was made two to 3 years ago not to 
provide access to that information, until privacy could be 
assured.
    But we now have three separate calculators that people can 
use to go with a number of economic assumptions, or different 
options in the future, to be able to make their own projections 
based upon future wages, what their disability benefits might 
be, what their government pension offset might be--a whole 
series of different things, that we think is a very good 
service for the American public.
    Mr. Collins. Well, that is good. That is really the only 
question I had. And I know it is out in the future that we have 
to look at that.
    I want to say thanks, too, for Bill Halter and your other 
staff, who jumped in here about 10 days ago when we had a truck 
that broke down that had 125,000 checks on it headed for 
Georgia.
    Mr. Apfel. And Mr. Collins, where was that truck? I know we 
found it.
    Mr. Collins. I think it was in Charlotte; wasn't it? The 
last I heard.
    Mr. Apfel. I believe so. And you alerted us, and we jumped, 
and so did the Post Office. And we got right on it, and we 
fixed the problem.
    Mr. Collins. You sure did. And I appreciate that very much, 
and so do the people that I represent. Thank you.
    Mr. Apfel. Thank you, sir.
    Chairman Shaw. If that truck was headed for Florida, the 
state would have closed down. [Laughter.]
    Mr. Apfel. That is right.
    Chairman Shaw. Commissioner, I would just like to make one 
possible suggestion with regard to the statement that you do 
send out: It is almost too slick. And I say that in a 
complimentary way----
    Mr. Apfel. We will take it.
    Chairman Shaw. Because as you are reading through it, you 
do not realize when you get down to your own personal 
information. And if I were going to change it, I would say, 
well, put all of this text first, and then put the individual's 
information on one page, so they know when they are getting 
down to information about themselves. I think probably a lot of 
people sort of wear out before they get to it, and do not 
realize this is a personal statement about them.
    But the information is good, but the transition into the 
personal--I say that because I was reading my own statement 
that I got a couple of months ago. And I kept saying, ``Is this 
about me?'' And I sort of skimmed it, because I felt I knew 
most of this stuff--At least, I hope I did. Maybe I should read 
it carefully. [Laughter.]
    Mr. Apfel. Mr. Chairman, I know you do.
    Chairman Shaw. But you know, when I got to my own personal 
stuff I sort of said, ``Oh, that is me.'' Because there is 
nothing on there that looks like you are getting to a 
typewriter or something that has been filled in that is 
personal about the individual. That is the only comment that I 
have.
    Mr. Apfel. Well, Mr. Shaw, it is our goal to continually 
find ways to make this better. The General Accounting Office, 
in testimony you are about to hear, will consider it to be a 
much improved document that meets its purpose for basic 
information. And it also indicates the statement is probably 
not the right vehicle for a rate of return discussion, which I 
think is appropriate--that I believe is the right decision: It 
should not be in there.
    But they also make a series of suggestions. And you have 
just made another one. And we need to assess those every year 
to determine how to improve the system.
    Chairman Shaw. OK. That is not meant to be a criticism. It 
is just a suggestion as to how I read the statement, where I 
was sort of looking for my own personal stuff, and then 
realized I was in the middle of it by the time I got through 
it.
    We thank you very much for being here, and congratulate you 
on the progress you have made. Thank you.
    Mr. Apfel. Thank you, sir.
    Chairman Shaw. Now we are going to hear from the United 
States General Accounting Office. We have got Barbara Bovbjerg.
    And Barbara, I am going to learn to pronounce your name 
correctly one day, instead of always having someone jump up and 
tell me, whisper it in my ear.
    She is the Associate Director of Education, Work force, and 
Income Security Issues; Health, Education and Human Services 
Division.
    And Ms. Bovbjerg is accompanied by Kay Brown, the Assistant 
Director of Education, Work force, and Income Security Issues; 
the Health, Education and Human Services Division. And by Ken 
Stockbridge, who is a senior evaluator, Education, Work force, 
and Income Security Issues; Health, Education and Human 
Services Division.
    Welcome. We have your full statement, and it will be made a 
part of the record. And we invite you to summarize as you wish.

     STATEMENT OF BARBARA D. BOVBJERG, ASSOCIATE DIRECTOR, 
   EDUCATION, WORKFORCE, AND INCOME SECURITY ISSUES; HEALTH, 
EDUCATION, AND HUMAN SERVICES DIVISION, U.S. GENERAL ACCOUNTING 
 OFFICE; ACCOMPANIED BY KAY BROWN, ASSISTANT DIRECTOR; AND KEN 
                 STOCKBRIDGE, SENIOR EVALUATOR

    Ms. Bovbjerg. Thank you, Mr. Chairman, Members of the 
Subcommittee. I am pleased to be here today to discuss 
information the public should have about Social Security, and 
how that information could be provided.
    Specifically, I would like to address the role that the 
individualized Social Security statement plays in providing 
that information. Beginning this year, the Social Security 
Administration must provide such a statement to almost every 
U.S. worker over age 25. Hence, this statement can be a primary 
means to convey important Social Security related information 
to a broad range of American workers.
    I would like to organize my remarks by describing three 
broad types of information the public should have about the 
Social Security program, and discussing the role of the 
individualized statement for each type.
    First, basic information about program benefits. 
Individuals need information about what benefits they can 
expect from Social Security for their personal financial 
planning. Workers should also be informed that their Social 
Security benefit levels depend upon their average lifetime 
earnings, and that the benefits are meant to be a foundation 
for retirement income, not a replacement for pensions and other 
forms of saving.
    The individualized statement is one of the key vehicles for 
providing such basic information. As such, it represents not 
only an important tool for workers' financial planning, it also 
provides the means for program participants to check SSA's 
records of their past earnings.
    Because the statement reaches a wide audience and is the 
only direct communication that many workers will have with SSA 
until they retire, the statement must communicate simply and 
clearly. It has not always done this. SSA's programs are 
complex, and it can be challenging to explain them in simple, 
straightforward language, without providing so much information 
that it overwhelms the reader.
    In GAO's review of earlier versions of the statement, we 
recommended that SSA make revisions to shorten it, to improve 
its layout and design, and to simplify its explanations. The 
newly revised format of the statement is indeed shorter and 
better organized, and thus communicates more effectively.
    Let me turn now to the second type of information 
individuals need. The public should also understand the 
financial status of the Social Security program. Knowing this 
helps workers to understand that in the future some combination 
of revenue increases and benefit reductions will be necessary 
to restore solvency, and that they should view their personal 
benefit estimates in that context.
    In the most recent version of the statement, SSA has indeed 
added information on this topic, explaining that, absent a 
change in law, payroll taxes will fall short of paying full 
benefits owed. More technical and detailed financial 
information is available in the Trustees' Report and the annual 
financial report of the U.S. Government.
    These reports are widely used by experts and specialists, 
but the information they contain would be difficult to convey 
clearly in the statement without confusing general readers. For 
this reason, such technical information should not be included 
in the individualized statement, but should be readily 
accessible to those who request it.
    Let me now discuss the third type of information the public 
should have. In addressing the Social Security solvency 
problem, the public needs understandable, independent, and 
objective information to appreciate the difficult choices our 
Nation faces. To this end, as you know, GAO has developed 
criteria to help provide balance and structure to evaluating 
reform proposals. The criteria balance the extent to which 
proposals would achieve sustainable solvency with the adequacy 
and equity of the benefits structure, and with the feasibility 
of the implementation and administration. We have observed the 
importance of balancing the criteria, and have stated that no 
single criterion should be considered in isolation.
    Some participants in the reform debate focus especially on 
the implicit rate of return as a primary indicator of program 
success, and have called for rate of return estimates to be 
included in the individualized statement. Substantial 
controversy surrounds applying the rate of return concept to 
Social Security, with some arguing--and we have heard that 
today--that such a concept is inappropriate to a social 
insurance program.
    GAO has reported that rate of return estimates are 
inherently very uncertain, especially for specific individuals, 
because such rates vary with life expectancy, earnings, and 
family size. We have also observed that it is crucial to 
compare such returns only with those for comprehensive reform 
proposals. To be clearly understood, then, any published 
estimates should include an explanation of how they are 
calculated, the degree of uncertainty that would pertain, and 
what they can be compared to.
    In our view, adding rate of return information to the 
statement would make it longer and more complex, and could 
undermine its purpose. Ultimately, such information should be 
provided as part of a broader evaluation of reform proposals, 
and in a context that focuses on reform options, not benefit 
disclosures.
    In conclusion, the public should have easy and timely 
access to a wide range of reliable, consistent, and verifiable 
information. The Social Security statement has come a long way 
toward more successfully meeting its purpose of providing basic 
information for individual workers. However, it is not the 
right vehicle for the complex technical information that 
requires extensive and complicated explanation.
    That concludes my statement, Mr. Chairman. We will be happy 
to answer any questions you have.
    [The prepared statement of follows:]
    [An attachment is being retained in the Committee files.]

Statement of Barbara D. Bovbjerg, Associate Director, Education, 
Workforce, and Income Security Issues, Health, Education, and Human 
Services Division, U.S. General Accounting Office

    Mr. Chairman and Members of the Subcommittee:
    Thank you for inviting me here today to discuss information 
the public should have about Social Security and strategies for 
providing that information. Social Security touches the lives 
of virtually all our nation's citizens. Last year, it paid $386 
billion in benefits to over 44 million beneficiaries, including 
aged and disabled workers and their dependents and survivors. 
Ninety percent of elderly households received Social Security 
benefits, and 17 percent of such households received no income 
other than Social Security. Moreover, Social Security collected 
$460 billion in payroll taxes from over 150 million workers, or 
96 percent of the nation's workforce. Currently, 12.4 percent 
of workers' covered earnings are paid in payroll taxes, divided 
equally between workers and their employers. Clearly, to help 
in their personal financial planning, our citizens should know 
where their Social Security payroll taxes go and what benefits 
they can expect to receive. In addition, Social Security faces 
a significant long-term financing shortfall because of the 
aging of our population and other demographic and economic 
trends. The public should also have the information it needs to 
participate in the debate about Social Security's future.
    Today I would like to discuss the three broad types of 
information the public should have about the Social Security 
program--basic information about program benefits, the current 
and projected financial status of the Social Security program, 
and information about proposed changes to the program. For each 
type of information, I would like to focus on what role the 
individualized Social Security Statement might play in 
providing it. My testimony is based on work we have done over 
the past few years \1\ and an assessment of the most recent 
statement.
---------------------------------------------------------------------------
    \1\ See the list of related GAO products at the end of this 
statement.
---------------------------------------------------------------------------
    In summary, the individualized Social Security Statement 
currently plays a specific and important role in providing 
some, but not all, of the information the public needs. First, 
individuals should have clear and easy to understand 
information about what benefits they can reasonably expect to 
receive. This is the specific and primary purpose of the Social 
Security Statement, which is now sent annually to nearly all 
working participants. In addition, the statement helps 
individuals and the Social Security Administration (SSA) ensure 
that individual earnings records are accurate, which in turn is 
crucial to providing accurate benefit payments. SSA has 
recently revised this statement so that it more effectively 
conveys this important information. Second, the public should 
understand the current and projected financial status of the 
Social Security program. The Social Security Statement now 
contains a brief disclosure about this, but technical and 
detailed information about it is more appropriately conveyed 
through other vehicles, such as the annual Trustees' Report \2\ 
and the federal government's consolidated financial statements. 
Third, the public should have information to help it evaluate 
different proposals to restore solvency and make other program 
changes. However, such information is complex and must be 
presented in a fair, consistent, and comprehensive way that 
helps the public weigh and balance the various difficult 
choices that must be made. This type of information goes beyond 
estimating benefits and verifying earnings, which is the Social 
Security Statement's central purpose. Given the difficulties 
SSA has had in making just this information clear in the 
statement, adding information on reform proposals would likely 
make the statement lengthy, more complex, and even more 
difficult to understand. Doing so could undermine the basic 
purpose of the statement.
---------------------------------------------------------------------------
    \2\ The 2000 Annual Report of the Board of Trustees of the Federal 
Old-Age and Survivors Insurance and Disability Insurance Trust Funds, 
Mar. 30, 2000.

---------------------------------------------------------------------------
Background

    The Social Security trust funds have a projected financial 
shortfall or funding gap of approximately $3 trillion over the 
next 75 years. This long-term financing problem is largely a 
result of greater life expectancy, lower birth rates, and the 
forthcoming retirement of the baby-boom generation. Social 
Security is financed primarily on a pay-as-you-go basis, which 
means that current workers pay current retirees' benefits. 
Today, there are approximately 3.4 workers for every 
beneficiary, and by 2030 this number is projected to fall to 
2.1. Thus, in the foreseeable future relatively fewer people 
will be paying into the system and more people will be drawing 
benefits.
    Restoring Social Security's long-term solvency will require 
some combination of increased revenues and reduced 
expenditures. Various options are available within the current 
structure of the program including raising the retirement age, 
reducing inflation adjustments, increasing payroll tax rates, 
and investing trust fund reserves in higher-yielding 
securities. In addition, some proposals would go beyond 
restoring long-term solvency and would fundamentally alter the 
program structure by setting up individual retirement savings 
accounts and requiring workers to contribute to them.

Public Should Have Basic Information on Estimated Benefits to 
Plan Personal Finances

    Individuals need basic information on the Social Security 
program for their personal financial planning. This information 
includes what benefits workers can expect for themselves, their 
dependents, and their survivors when they retire, become 
disabled, or die. In addition, workers should understand that 
their benefits depend on their average lifetime earnings.\3\ 
Finally, they should also understand that Social Security is 
meant to be only a foundation of retirement income. Social 
Security does not guarantee a benefit that meets the poverty 
threshold. Therefore, if workers know what benefit levels they 
can expect given their earnings history so far, they can better 
understand how much to save to meet their retirement income 
goals.
---------------------------------------------------------------------------
    \3\ The benefit formula calculates average lifetime earnings after 
adjusting earnings for inflation and growth in average real wages.
---------------------------------------------------------------------------
    SSA's individualized Social Security Statement is one of 
the key vehicles for providing the public with this basic 
information about Social Security. It provides workers with an 
important tool for personal financial planning because it 
provides estimates of potential retirement, disability, and 
survivor benefits. It also asks statement recipients to check 
SSA's records of their past earnings. In this way, the 
statement can help SSA correct errors in agency records and 
help ensure that benefit payments are correct when workers 
retire, become disabled, or die. It also explains that Social 
Security benefits were not intended to be the only source of 
retirement income and encourages workers to supplement their 
benefits with a pension, savings, or investments. This 
statement reaches a very wide audience; starting in this fiscal 
year, SSA is sending the individualized Social Security 
Statement annually to almost every U.S. worker aged 25 and 
older--an estimated 126 million people each year.\4\ (The 
statement can be found on SSA's website at http://www.ssa.gov, 
where workers can also request personalized statements.)
---------------------------------------------------------------------------
    \4\ See 42 U.S. C. 1320b-13. SSA must send a statement to those who 
are 25 years old, have a Social Security number, have wages or earnings 
from self-employment, are not receiving Social Security benefits, and 
have a current address obtainable by SSA.
---------------------------------------------------------------------------
    Because it reaches such a wide audience and is the only 
direct communication many workers will have with SSA until they 
retire or become disabled, the statement must communicate 
simply and clearly. It has not always done this. SSA offered 
benefit statements to some workers long before this fiscal 
year, and we reviewed the agency's 1996 version. At that time, 
we raised concerns about its usefulness.\5\ We reported that 
although the public felt the statement could be a valuable tool 
for retirement planning, the statement provided too much 
information and failed to communicate clearly the information 
its readers needed to understand SSA's current programs and 
benefits. We found that the six-page statement was too long for 
many readers, the purpose was unclear, and the design and 
organization were not user-friendly. The statement was 
disorganized--it contained a patchwork of explanations 
scattered throughout, requiring the reader to flip from one 
page to another to find needed information. Finally, feedback 
from the public and SSA staff indicated that readers were 
confused by several important explanations, such as those 
describing family benefits and credits needed to be eligible 
for benefits. We recommended that SSA revise the 1996 version 
of the statement to improve its layout and design and to 
simplify explanations. We also recommended that SSA evaluate 
and test alternative formats for the statement.
---------------------------------------------------------------------------
    \5\ SSA Benefit Statements: Well Received by the Public but 
Difficult to Comprehend (GAO/HEHS-97-19, Dec. 5, 1996).
---------------------------------------------------------------------------
    Consistent with our recommendations, SSA embarked on a 
multi-year effort to revise its statement. The agency developed 
four different prototypes and conducted focus groups to assess 
layout and presentation preferences and how well the material 
presented was understood. SSA then conducted a public opinion 
survey of the four prototypes. Based on this information, SSA 
chose for its fiscal year 2000 mailing a new four-page layout.
    We believe this new statement is much improved. It is 
shorter, better organized, easier to read, employs good design 
principles, and in a number of cases, provides simpler 
explanations. The revised statement more effectively achieves 
its intended purpose of providing important basic information 
on the Social Security program as well as individualized 
information on earnings on record at SSA and estimated 
benefits. In fact, SSA reports that in a recent survey to 
measure public understanding of its programs, workers who 
received the statement have a significantly greater knowledge 
of the Social Security program than those who did not receive a 
statement.
    Naturally, further improvement is always possible. Working 
with our communications consultants, we have identified some 
remaining rough spots. These include:
     Clarity of purpose: We believe that SSA could more 
clearly and quickly spell out the statement's purpose and 
inform readers that the agency wants them to take some action--
that is, check their earnings as listed on the statement and 
inform SSA of missing or incorrect information.
     Explaining inflation-adjustment of benefit 
estimates: The statement explains that the estimates are 
provided in ``current dollars.'' However, readers may not 
understand what this means for their financial planning. It 
means that the estimates reflect today's price level, not the 
price level that will exist when they actually start to receive 
benefits.
     Some explanations still unclear: Other 
explanations, such as the one regarding the credits required 
for benefit eligibility may still leave the reader confused.\6\ 
Also, the revised statement no longer cautions recipients that 
the estimates are based on their own individual earnings 
records and may also depend on their spouses' earnings if they 
have spouses.
---------------------------------------------------------------------------
    \6\ Credits are earned by working for employers who pay taxes to 
the Social Security system. The minimum number of credits needed 
varies, depending on the type of benefit and the age of the worker.
---------------------------------------------------------------------------
    SSA's programs are complex, and it is challenging to 
explain them in simple, straightforward language without 
providing so much information that it overwhelms the reader. 
SSA will need to continue to revise and streamline the 
statement to make it more clear and easy to understand.
Public Should Have Information on Social Security's Current and 
Projected Financial Status

    The public also needs to understand the fundamentals of 
Social Security financing, including the program's current and 
projected financial status. Workers should understand that 
their contributions are not deposited into interest-bearing 
accounts for each individual but are credited to the Social 
Security trust funds, which are largely used to pay for current 
benefits. Under current law, the trust funds must invest any 
surplus in interest-bearing federal government securities. In 
addition, workers should understand that though significant 
surpluses are currently building up the trust funds to help pay 
future benefits, this situation will deteriorate over time. 
According to the most recent trustees' intermediate 
projections, benefit payments will exceed cash revenues in 
2015, and the trust funds will be depleted in 2037. At that 
time, revenues would only be sufficient to pay for roughly 72 
percent of promised benefits. Knowing this helps workers to 
understand that some combination of revenue increases and 
benefit reductions will be necessary to restore solvency. In 
turn, workers can better understand how to view their personal 
benefit estimates.
    Some recent proposals to provide information to the public 
call for the Social Security Statement to more fully disclose 
Social Security's long-term financial outlook, the status of 
the trust funds over time, and the effect on SSA's ability to 
pay future benefits in the absence of changes to the program. 
In its most recent version of the statement, SSA has added 
information on this topic. On the first page, as part of the 
message from the Commissioner, the statement now provides basic 
information on the demographic reasons for the financing 
problems and on the future status of the trust funds, including 
the date that the trust funds will be exhausted. On the page 
where the benefit estimates are provided, the statement 
explains that when this date arrives, absent a change in the 
law, payroll taxes collected will be enough to pay only a 
portion of the benefits owed.
    However, according to our communications experts, the 
information is somewhat confusing and contradictory, though it 
could be fixed. The Commissioner's message first reassures 
readers that ``of course'' Social Security will ``be there'' 
when they retire and then provides the information about the 
future financing problems and the resulting percentage 
reduction in benefits. The statement explains that SSA is 
``working to resolve these issues'' and offers a booklet with 
more information upon request. Overall, the explanation may 
leave readers wondering how SSA can be sure the program will be 
there to pay the benefits they are expecting in the future. The 
status of the trust funds and the need for change can be 
clarified with minor adjustments in wording. However, the 
statement does not need to go into excessive or technical 
detail; not every reader of the statement will need or be 
interested in this additional detail. If statement recipients 
want more information, they can request the booklet listed in 
the statement. This booklet, which is written in simple, 
straightforward terms for a wide audience, provides additional 
information on the reasons for the financing shortfall and the 
difficult choices needed to ensure long-term program stability.
    More technical and detailed information on the status of 
the trust funds is available, however, in a number of vehicles 
that are used extensively and studied by a more narrow audience 
of experts and specialists. These include the annual Trustees' 
Report and the annual Financial Report of the United States 
Government. To be most effective and useful to the broadest 
audience, the information in these reports needs to be 
reliable, consistent, accessible, timely, verifiable, and 
complete. We have recently noted a problem related to their 
timing and consistency.\7\ The Financial Report uses data from 
the previous year's Trustees' Report although a new Trustees' 
report with sometimes significantly different numbers is issued 
at nearly the same time. The discrepancies between the two 
reports may cause confusion, which can serve to reduce 
confidence in and the credibility of the government's annual 
financial report. Steps should be taken in future years to 
ensure that the government's Financial Report contains up-to-
date information. In addition, given the importance and 
materiality of this information, the Comptroller General has 
stated that the time may have come for this information to be 
subject to audit.
---------------------------------------------------------------------------
    \7\ Auditing the Nation's Finances: Fiscal Year 1999 Results 
Continue to Highlight Major Issues Needing Resolution (GAO/T-AIMD-00-
137, Mar. 31, 2000).
---------------------------------------------------------------------------
    In addition, information on the magnitude of the trust 
funds' financial gap should focus not only on the next 75 years 
but also beyond that to help focus on sustainability. The 
conventional 75-year measure of solvency is highly transient 
because the 75-year period changes by one year in each 
successive year's projections. Currently, the years early in 
the 75-year period have surpluses while the years at the end of 
the period have large deficits. As a result, changes made to 
restore solvency only for the current 75-year period will 
result in future actuarial imbalances almost immediately. 
Therefore, in addition to examining the 75-year actuarial 
balance, examining Social Security's percentage of the federal 
budget, the size of the imbalance in the 75th year, and the 
trend in the annual balance at that time would help focus 
attention on the issue of sustainability.

Public Should Have Information to Help It Evaluate Options for 
Restoring Solvency

    To address Social Security's long-term solvency problem, a 
wide and often confusing variety of proposals have been 
offered. To participate in the reform debate, the public needs 
understandable, independent, and objective information that can 
help it appreciate the difficult choices that the nation faces. 
We have concluded that three broad criteria help provide 
balance and structure to evaluating the alternatives. These are 
1) the extent to which proposals would achieve sustainable 
solvency, including how they would affect the federal budget 
and the economy; 2) the balance of adequacy and equity in the 
benefits structure; and 3) the feasibility of implementation 
and administration.\8\ Adequacy refers to the level and 
certainty of benefits, and equity refers to the relationship 
between the contributions made and benefits received, sometimes 
referred to as ``money's-worth.'' No single criterion should be 
considered in isolation, and taken together these criteria 
highlight the difficult trade-offs that exist between efforts 
to achieve solvency and to maintain adequate retirement income 
for current and future beneficiaries.
---------------------------------------------------------------------------
    \8\ Social Security:Criteria for Evaluating Social Security Reform 
Proposals (GAO/T-HEHS-99-94, Mar. 25, 1999). Also, see the list of 
related GAO products at the end of this statement.
---------------------------------------------------------------------------
    Some participants in the reform debate focus especially on 
individual equity and on one particular measure of equity--the 
implicit rate of return workers can expect on their Social 
Security contributions. Accordingly, some recent proposals call 
for the Social Security Statement to include estimates of the 
implicit rate of return. However, substantial controversy 
surrounds applying the concept of rates of return to Social 
Security.\9\ Some analysts argue that rates of return on 
contributions would be much higher under a new system with 
individual accounts, and they would like the public to compare 
its return on Social Security to returns available on market 
investments. Other analysts contend that the rate of return 
concept should not be applied to Social Security because it is 
a social insurance program and is not designed to provide 
returns on contributions.
---------------------------------------------------------------------------
    \9\ Social Security: Issues in Comparing Rates of Return with 
Market Investments (GAO/HEHS-99-110, Aug. 5, 1999).
---------------------------------------------------------------------------
    In our work on this topic, we have observed that rate of 
return estimates are inherently very uncertain, especially for 
specific individuals, because of the many complex factors that 
affect rates of return. Such factors include how long 
individuals will live, how much they will earn, and what size 
families they will have. To be clearly understood, Social 
Security rate of return estimates need an explanation of how 
they are calculated and how uncertain the estimates are. Also, 
instead of making simple comparisons between Social Security 
and historical market returns, one should make any rate of 
return comparisons among comprehensive return estimates for 
specific reform proposals that include all costs and benefits 
of any individual accounts as well as the Social Security 
components of the resulting system. In addition, such estimates 
would not help individuals plan their personal finances 
because, under current law, they do not have the choice of 
putting their contributions into alternative investments. 
Moreover, providing estimates of the implicit rate of return on 
Social Security contributions could mislead readers to think 
they have an interest-bearing account under the program, which 
they do not. Adding rates of return to the Social Security 
Statement--or for that matter any information that is not 
directly relevant to the statement's purpose--would make the 
statement longer and more complex and could undermine its 
important and specific purpose of providing benefit estimates 
and verifying earnings records.

Concluding Observations

    Given the importance of Social Security to the financial 
security of most Americans and the value of citizen 
participation in the difficult reform decisions that lie ahead, 
the public should have easy and timely access to a wide range 
of reliable, consistent, and verifiable information. Much of 
this information is already available; however, questions have 
been raised about the best vehicles to use to make sure the 
information is available to as wide an audience as possible. 
Reasonable people can disagree about the best vehicle, 
particularly for the more complex or technical information. 
However, we believe the Social Security Statement is not the 
right vehicle for this more technical information, such as 
rates of return. The newly revised statement more successfully 
meets its purpose of providing basic information to individual 
workers. Adding the explanations necessary to fairly portray 
rate of return information would likely increase the 
statement's length significantly and undermine efforts to 
shorten and simplify it, thereby running the risk that 
recipients will not read or fully understand it.
    Mr. Chairman, this concludes my prepared statement. At this 
time, I will be happy to answer any questions you or other 
Members of the Subcommittee may have.

GAO Contact and Staff Acknowledgments

    For information regarding this testimony, please contact 
Barbara Bovbjerg at (202) 512-7215. Individuals making key 
contributions to this testimony include Kay Brown, Ken 
Stockbridge, Elizabeth O'Toole, and Kimberly Granger.

Related GAO Products

    Auditing the Nation's Finances: Fiscal Year 1999 Results 
Continue to Highlight Major Issues Needing Resolution (GAO/T-
AIMD-00-137, Mar. 31, 2000).
    Social Security Reform: Information on the Archer-Shaw 
Proposal (GAO/AIMD/HEHS-00-56, Jan. 18, 2000).
    Social Security: The President's Proposal (GAO/T-HEHS/AIMD-
00-43, Nov. 9, 1999).
    Social Security: Evaluating Reform Proposals (GAO/AIMD/
HEHS-00-29, Nov. 4, 1999).
    Social Security Reform: Implications of Raising the 
Retirement Age (GAO/HEHS-99-112, Aug. 27, 1999).
    Social Security: Issues in Comparing Rates of Return With 
Market Investments (GAO/HEHS-99-110, Aug. 5, 1999).
    Social Security: Implications of Private Annuities for 
Individual Accounts (GAO/HEHS-99-160, July 30, 1999).
    Social Security: Capital Markets and Educational Issues 
Associated with Individual Accounts (GAO/GGD-99-115, June 28, 
1999).
    Social Security Reform: Administrative Costs for Individual 
Accounts Depend on System Design (GAO/HEHS-99-131, June 18, 
1999).
    Social Security Reform: Implementation Issues for 
Individual Accounts (GAO/HEHS-99-122, June 18, 1999).
    Social Security: Criteria for Evaluating Social Security 
Reform Proposals (GAO/T-HEHS-99-94, Mar. 25, 1999).
    Social Security: Individual Accounts as an Element of Long-
Term Financing Reform (GAO/T-HEHS-99-86, Mar. 16, 1999).
    SSA Benefit Estimate Statements: Adding Rate of Return 
Information May Not Be Appropriate (GAO/HEHS-98-228, Sept. 2, 
1998).
    Social Security: Different Approaches for Addressing 
Program Solvency (GAO/HEHS-98-33, July 22, 1998).
    Social Security Financing: Implications of Government Stock 
Investing for the Trust Fund, the Federal Budget, and the 
Economy (GAO/AIMD/HEHS-98-74, Apr. 22, 1998).
    Social Security: Restoring Long-Term Solvency Will Require 
Difficult Choices (GAO/T-HEHS-98-95, Feb. 10, 1998).
    SSA Benefit Statements: Well Received by the Public but 
Difficult to Comprehend (GAO/HEHS-97-19, Dec. 5, 1996).
      

                                


    Chairman Shaw. Thank you.
    Bob?
    Mr. Matsui. Thank you, Mr. Chairman.
    I just have one question. Has the Social Security 
Administration pretty much responded to most of the issues that 
you raised in response to their initial form? Do you feel 
satisfied that it pretty much carries out the mandate--I 
shouldn't use the word ``mandate,'' but the recommendations 
that you have suggested?
    Ms. Bovbjerg. Well, we are very pleased with the new 
version of the statement. It is shorter. We have gone from six 
pages to four pages. It is better organized. It is well 
designed. It is easier to read. I think that the focus groups 
and the consultants that the Agency used clearly served them 
well.
    As you will see in the written statement, we do have some 
things that we think could still be done better. There is 
always room for improvement. But we thought that this was very 
responsive, and a big improvement from the last version.
    Mr. Matsui. Thank you.
    Chairman Shaw. I would like just to draw a parallel here 
with information overload. The Federal Government has for years 
been dictating how much information it has to get when you get 
a loan, when you get a mortgage. And I can tell you, having 
been the attorney for a number of banks before I came here, and 
having recently, not too long ago, had a loan closed myself 
that I signed onto, by the time you get to about the third or 
fourth required document, people's eyes are just glazing over. 
And you know, even though they say that they understand, you 
know that they just do not have a clue; they just want to sign 
everything, get their money, and get out.
    And I think that there is no question but that if you do 
overload these statements, that you are going to lose the value 
of them. And I think that is something we have to be very, very 
cautious about. And that is something I am concerned about as 
far as all of the disclosures. Those are wonderful things to 
have. And perhaps we should be looking at the Trustees' Report 
and make that a little clearer and more concise and a little 
compact and more consumer-friendly for people that are going to 
be wanting to review it. I think those are very important 
things.
    Do you have any comment on that?
    Ms. Bovbjerg. We have considered some of the Trustees' 
Report information and some of the things that are provided in 
that. And we think that it is really for a different audience; 
that it is widely used by experts and analysts, and certainly 
should be made easily and readily accessible to people who want 
to see it; but it is not necessarily a document that you would 
want to have the Plain Language Award for and that you would 
want to send out to everybody.
    I think that you want to be sure that there is technical 
information in that document that the specialists and Members 
of Congress need to make some of these decisions; and you want 
to be sure that people can get it who would like to see it. I 
think that having the website reference and the 800-number in 
the statement is a step in that direction.
    Chairman Shaw. Thank you. Thank you for being here.
    Ms. Bovbjerg. Thank you.
    Chairman Shaw. We now have a panel, and I will read your 
names in the order in which you appear. Dallas Salisbury is the 
president and chief executive officer of the Employee Benefit 
Research Institute.
    Richard--Is it ``Thau''?
    Mr. Thau. ``Thau.''
    Chairman Shaw. Thau--the ``H'' does not come into it--is 
president of Third Millennium, New York, New York.
    Gary Fazzino, the director of Federal public policy at 
Hewlett-Packard Co., on behalf of the Alliance for Worker 
Retirement Security.
    Hans Riemer is the director of the 2030 Center. Is that 
``REE-mer'' or ``RI-mer''? ``REE-mer''? I got that one right.
    Ron Geb--Whoa.
    Mr. Gebhardtsbauer. It took me 8 years: ``Gebhardtsbauer.''
    Chairman Shaw. The senior pension fellow, American Academy 
of Actuaries.
    Henry Aaron, Dr. Henry Aaron, who is a senior fellow, 
economic studies, at Brookings Institute.
    Joan----
    Ms. Entmacher. Entmacher.
    Chairman Shaw. This is really something. What happened to 
``Smith'' and ``Jones''? They are not with us.
    Joan is the vice president and director of family economic 
security of the National Women's Law Center.
    And David C. John, who is a senior policy analyst, Social 
Security, from the Heritage Foundation.
    Mr. Salisbury, you may proceed.
    Will you hand the microphone down to Mr. Salisbury?
    And as I have stated for the previous panels, we do have 
your full statement, which will be made a part of the record.

 STATEMENT OF DALLAS SALISBURY, PRESIDENT AND CHIEF EXECUTIVE 
          OFFICER, EMPLOYEE BENEFIT RESEARCH INSTITUTE

    Mr. Salisbury. Thank you, Mr. Chairman and Members of the 
Committee. The Institute has undertaken survey work for now 
nearly 20 years on public knowledge regarding Social Security, 
and has found significant areas of knowledge gaps.
    Probably the most important are absence of public 
understanding of the level of benefits that they can expect 
from Social Security, as well as the age at which they will be 
eligible.
    Our first survey in 1990 on the retirement age issue showed 
that the vast majority of Americans underestimate the age of 
eligibility for full benefits. And our 1999 survey--I 
emphasize, 1999--found that only 16 percent of Americans 
realize that the Social Security retirement age is moving above 
the age of 65. And nearly a third believe that full Social 
Security benefits are already available, or will be, below the 
age of 62.
    Turning to the Social Security benefits statement then, the 
importance of it in helping individuals understand these two 
critical points--how much they might expect to receive in 
benefits, or frankly, even a reasonable estimate; and second, 
at what age they will be eligible for what amount of benefit--
if the statement accomplishes nothing else, it will have 
fundamentally increased public understanding of these important 
programs. And in that the statement does and will help correct 
these two fundamental shortcomings.
    I would add per the statement and the earlier discussion on 
frequency, that, if anything, we might consider that the 
statement should begin going to individuals younger than the 
age of 25, which is the current cutoff. And as opposed to the 
suggestion in testimony that frequency might be made less 
frequent for the young, I would suggest, if anything, the most 
important group to receive the statements are in fact the 
young, so they might come to understand how relatively small 
Social Security benefits are--in fact, it is intended to be a 
floor of income--and be, as a result, incented to have the 
ability to begin saving and the necessity of saving early.
    In terms of the content of the statement, one thing that 
came out of the delegates of the Choose To Save Forum on 
retirement security and personal savings here in Washington 
last week was a firm recommendation that the statement actually 
be somewhat expanded, even with only a sentence or two, 
directing individuals to where they might go for additional 
information on retirement planning and on savings calculations 
to help them get started.
    Second, vis-a-vis the warning language that is in the 
letter at the front of the statement, to possibly actually put 
a little more of that in the personal information; so that 
there is a bit of a caveat, and that people understand that 
these benefit amounts are simply an estimate, and that estimate 
could in fact change based on many, many factors--some of their 
own control, and others of political control.
    Third has been the discussion and legislation related to 
expected rate of return being added to the statement. Our work 
simply finds it difficult, in the context of a social insurance 
program with many benefits, to understand--and we have done 
much work trying to figure out how one could do a reasonable 
statement to individuals of rate of return--exactly how to do 
that in a way that would not be highly misleading. And to this 
point, even on a total program basis, we have been unable to 
come up with that methodology.
    Recent studies have been published; for example, a recent 
study from the Heritage Foundation that both had a national 
average and congressional district averages. And even looking 
at the methodology there, the numbers are highly misleading in 
terms of the way they deal with current Social Security Trust 
Fund balances and taxes.
    Now, they have disclosed that methodology, so one might say 
it is not misleading. But the care one would have to take to 
read all of the disclosures in order to come to that conclusion 
is far more than it would be possible to include in that 
individual statement without, like the loan documents, making 
it far more complex than one would ever deal with.
    Regarding the Trustees' Report, it does provide a 
tremendous amount of disclosure information, including issues 
as one goes through the final tables and appendices on issues 
of risk to the system and long-term tax rates necessary to 
finance the system. It would be possible to add some additional 
data there, but our assessment, again, is that adding rate of 
return information might in fact lead more to misunderstanding 
that to enlightenment.
    In conclusion, it has been a pleasure to be here today and 
to provide some insights. We would be happy to provide full 
reports of all of our 22 surveys on Social Security, including 
we have a retirement confidence survey--our tenth--in the field 
as we speak, to collect new information on public 
understanding, that hopefully will provide some insight as to 
whether or not those who have already received their statements 
show a higher level of understanding than a year ago. Thank 
you.
    [The prepared statement follows:]

Statement of Dallas Salisbury, President and Chief Executive Officer, 
Employee Benefit Research Institute

    Mr. Chairman, and members of the Committee. I am Dallas 
Salisbury, President of the Employee Benefit Research Institute 
(EBRI). EBRI is a non-partisan, non-lobbying research and 
education organization based here in Washington, DC.
    It is my pleasure to appear before you today to discuss 
efforts to inform the public on Social Security. EBRI published 
and distributed its first consumer education brochure on Social 
Security in 1979; its first study of Social Security in 1982; 
undertook its first public opinion survey on Social Security in 
1990, and the most recent in 1999. Our opinion research has 
made it clear that the public does not have a good 
understanding of crucial details of Social Security; our 
publications seek to increase that understanding.

Rating the Social Security Administration

    Our surveys show the Social Security Administration was 
given a ``fair'' rating by the public in 1990 on how well it 
kept Americans informed about the program. Two-thirds of 
respondents in 1990 were not aware that action had been taken 
to increase the normal retirement age to 67 beginning in 2000. 
(EBRI-Gallup Survey Number 7, February 1990).

Expected Benefits from Social Security and Support

    Our 1994 survey found that 71 percent did not expect 
(correctly) to get as much out of Social Security as they had 
paid in; and 46 percent agreed that taxes would have to be 
raised in the future to pay benefits in the future. (EBRI/
Gallup Survey Number 56, April 1994) Our Retirement Confidence 
Surveys from 1992 through 1998, which have asked a consistent 
question about confidence in Social Security providing benefits 
of equal value, have consistently shown one-third to be 
confident and two-thirds not confident about the future value 
of their benefits. Yet, the surveys also find that two-thirds 
voice strong support for the program. Surveys suggest that the 
public understands that their parents and grandparents rely 
upon Social Security benefits.

Public Knowledge Gaps

    The most significant areas in which public knowledge is 
lacking relate to how much Social Security will provide in the 
way of a benefit, and at what age. Surveys consistently support 
two statements: First, the public is more likely to 
overestimate the amount they will get from Social Security than 
to underestimate it; and, second, few yet know that the normal 
retirement age--as enacted by Congress--is now in the process 
of moving up from 65 years and two months to 67. Only 16 
percent of respondents in our 1999 Retirement Confidence Survey 
knew when they would be able to get full benefits; 59 percent 
cited an age too early; 5 percent an age too late; and 19 
percent simply noted that they did not know. (EBRI Issue Brief 
Number 216, December 1999)

The Social Security Benefit Statement

    The annual Social Security statement, noted in the press 
release on this hearing from Chairman Shaw, arrived in the mail 
for my wife last month. It provided us with an estimate of what 
benefits would be available to my wife under the current 
program, at alternative ages, and a full earnings and tax 
payment history. The earnings and tax payment history was 
accurate. It focused on the fact that full benefits would be at 
the age of 66, not 65. And, it focused us on the fact that we 
will need to save a lot of money to supplement Social Security 
in order to live as we would like to.
    The statement provides important information that will help 
correct the two most serious areas of low knowledge among the 
public. First, it gives a clear picture of the Social Security 
benefit that you might expect to receive. Our work suggests 
that the vast majority of Americans will be struck by how small 
the benefit will be, and will be motivated to save. The history 
of public commentary on Social Security has--unfortunately--
been a description of a program that ``allows you to retire;'' 
that's unfortunate because far too many Americans have wrongly 
thought this meant it would provide them with an adequate 
retirement income, rather than just a base. This may well be a 
reason that only one-third of those now retired did any 
assessment of either their expected income or expenses prior to 
taking the step of retiring, and only 52 percent of workers 
have yet done so. Hopefully, the statement will serve to 
increase that number in the future. Second, the statement gives 
a clear picture of your retirement age options and the benefit 
implications. This should provide people with an incentive to 
work longer, an incentive to save more, or both, as the 
recipient will now know that the normal age for full benefits 
is above age 65, and moving to 67. For many Americans, this 
statement may give them the first indication of how little 
their parents or grandparents are currently living on, since 
over two-thirds of retirees essentially have Social Security as 
their only income source.

Should the Statement Provide More Information?

    The hearing announcement from Chairman Shaw also raised the 
question of whether the Social Security statement might provide 
more information than it now does. I am aware of three areas 
that have been discussed for additional information.
    First--as was endorsed last week by delegates to the Choose 
to Save Forum on Retirement Security and Personal Savings--
would be the addition of information on where to go for online 
and print retirement planning assistance. This would include 
Internet URL's for such resources as the Ballpark Estimate 
Retirement Planning Worksheet.
    Second would be the addition of ``warning'' language on the 
benefit amount, so that the worker knows that taxes may 
eventually have to be increased in order for the stated benefit 
to be paid, or that a reduction in the statement benefit may be 
required if the Congress and the president were not willing to 
raise the necessary taxes or otherwise appropriate funds. Some 
have suggested that this ``disclosure of risk'' should note 
that current economic projections imply a future reduction of 
Social Security benefits of up to one-third of stated values. 
For more than 20 years, EBRI publications have encouraged full 
and complete disclosure of the nature of pension risk. For 
private defined benefit and defined contribution pension plans, 
this relates to disclosure of the risk of lower benefits due to 
bankruptcy, investment losses, unanticipated increases in life 
expectancy, etc. For Social Security, this relates to economic 
risk and insufficient tax revenue due to unanticipated factors 
such as a quick increase in life expectancy. Disclosure of risk 
serves to further encourage personal savings and retirement 
planning.
    Third would be the inclusion of an ``expected rate of 
return on taxes paid'' number. I have reviewed studies on this 
subject since the very first report was published in the late 
1970's. I am yet to see one that is not misleading, including 
some comparative research published by EBRI. I allowed EBRI to 
publish the comparative work on the theory that all the numbers 
were consistently misleading, but did allow a constrained 
comparison of the present Social Security design with a number 
of reform options. I do not believe that including such a 
``rate of return'' number would be a helpful addition to the 
Social Security statement, as it would not be possible to 
explain all the ways that it is misleading.
    For instance, I noted that my wife received her statement. 
In theory, it would allow a calculation of her personal return, 
were the system not an ``intra-generational'' system. Both of 
us, however, have living parents who rely on Social Security. 
Mine are now 86 and 83, and were it not for their income from 
Social Security, I would be paying part of their living 
expenses directly. Instead, the taxes I pay to Social Security 
get mailed to my parents. How can that accurately be factored 
into my rate of return? Such an individual-by-individual 
assessment would be very expensive and difficult, if not 
impossible, without substantial invasion of personal privacy. 
Disability and survivor benefits in theory can be adjusted for 
in the rate-of-return 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 problem that arises in a social 
insurance program with multiple components and multiple 
generations, and it makes a simple or objective ``rate of 
return'' number impossible to produce or virtually meaningless.
    Additional problems can arise in calculation as well. For 
example, a recent article by the Heritage Foundation attempts 
to calculate rates of return for stylized individuals from the 
Social Security Old-Age and Survivors Insurance Program (OASI). 
Aside from the worthiness of calculating rates of return 
discussed above, the paper made a crucial economic assumption 
that immediately leads to a lower rate of return being 
calculated for all individuals. This crucial assumption is that 
all payroll tax revenue in excess of benefits paid in each year 
that has accumulated in the Social Security Trust Fund, and is 
expected to continue to accumulate there until 2015, is assumed 
to be never paid out as benefits. Instead, in their 
calculations, payroll taxes are increased to equal the benefits 
to be paid in each year after 2014. Under this assumption, 
approximately $2 trillion is counted as contributions in their 
report, but none of this revenue is counted as paying Social 
Security benefits. Therefore, it is quite easy to show small 
rates of return when $2 trillion are counted as contributions 
but not as benefits, and instead more contributions are 
``required'' to be raised to pay those benefits that are 
directly associated with the first $2 trillion in 
contributions. Consequently, either the revenue that has 
accumulated or will accumulate in the Trust Fund must be 
counted as paying benefits--or not counted as contributions--to 
gain a potentially honest measure of rates of return for the 
OASI program. I say ``potentially'' because of broader issues 
noted previously. If a reader did not carefully examine the 
assumptions and calculations of the Heritage paper, a seriously 
incorrect interpretation would be taken away from the report.
    Thus, the assumptions used in any model need to be clearly 
disclosed and understood to allow individuals to correctly 
evaluate any results emanating from that model. The ability to 
even attempt to provide such full disclosure on the Social 
Security statement would turn it into a book, not a statement.

The Trustees Report

    EBRI has also published regular reports based upon the 
reports issued by Trustees of the program. The late 1980s 
brought the publication of a ``summary'' report by the Social 
Security program, which provides a much clearer picture for the 
public, and that report continues to be improved. Now, 
www.ssa.gov provides a wealth of information on demand, which 
can also be obtained in printed form from the agency. Analysts 
have suggested over time that reporting by the Trustees could 
be improved with dynamic estimates that presented future 
possible outcomes as more than just three possible static 
projections, as is currently done today.
    EBRI has supported the development of a model that allows 
such dynamic analysis, and has published a number of studies 
based upon that model, which is also now being used by the 
Social Security Administration, the General Accounting Office, 
the AARP, and others, to aid in their analysis of the present 
system and reform proposals. Prior testimony to this committee 
was based upon our use of the model. Other organizations have 
developed models as well. Because of their complexity, the most 
important thing to assure is full disclosure of all assumptions 
so that model results can be put into context and can be fully 
evaluated.

Additions to the Trustees Report

    The addition of rate of return information has also been 
suggested for the annual Trustees report. For the reasons 
previously articulated, I do not believe that this is possible 
in a form that would inform more than it would mislead.

Conclusion

    It has been my pleasure to appear before the Committee 
today. I offer the Committee the assistance of the Employer 
Benefit Research Institute and the American Savings Education 
Council as you continue your work, which is vital to the 
economic security to all working and retired Americans, and to 
millions of survivors.
      

                                


    Chairman Shaw. Thank you.
    Mr. Thau.

  STATEMENT OF RICHARD THAU, PRESIDENT, THIRD MILLENNIUM, NEW 
                         YORK, NEW YORK

    Mr. Thau. Thank you, Mr. Chairman, for inviting Third 
Millennium to participate in this dialog on Social Security, 
the largest program in the Federal budget. In announcing this 
hearing, Mr. Chairman, you asked whether the information being 
provided to taxpayers about Social Security is ``accurate, 
understandable, and useful.'' My short answer to each of these 
questions is ``Maybe, yes, and partially.''
    Let me explain. First, for a young worker, the retirement 
benefit projections on the Social Security statement are 
probably not accurate. This is because the calculations take a 
worker's current salary and project it forward at its current 
level for decades. Many workers receive salary increases as 
they age, so a benefit calculation based on a typical young 
worker's present compensation is probably artificially low. 
However, since Social Security, according to the trustees, will 
only be able to pay approximately three-quarters of the 
benefits currently being promised to my generation, this low 
number could actually, and accidentally, turn out to be 
accurate.
    Second, I believe that the benefit statement is 
understandable to a lay person.
    Third, the statement is only partially useful to young 
adults. Let me explain why this is so, and how it would be far 
more useful. First, the Social Security statement indicates 
that ``Social Security benefits were not intended to be the 
only source of income for you and your family when you retire. 
You need to supplement your benefits with income from a pension 
plan, savings, or investments.''
    This is a critically important bit of information; yet it 
could be strengthened. I suggest adding the following 
personalized text: ``In order to maintain an adequate standard 
of living in retirement, you will need an annual income of 
approximately 70 percent--'' 7-0 percent ``--of the amount you 
make before you retire. Social Security, according to the 
projections and depending upon the age you retire, will provide 
you only `X' or `Y' percent of the income you need. If you were 
to rely solely on Social Security for your income in 
retirement, you would be living near the poverty level.''
    If you made that point clear in that statement, that if you 
were to rely only on Social Security in retirement you would be 
living at or near the poverty level, that would be, to use the 
phrase, hitting people over the head with a frying pan about 
how important it is at a young age to start saving and 
investing for retirement.
    Second, while the statement indicates how much a worker has 
paid in FICA taxes to date, and estimates what benefits that 
worker may receive in old age, it does not indicate how many 
thousands of dollars in FICA taxes that worker will pay from 
now until retirement in order to receive those benefits.
    Third, the statement does not indicate, using figures from 
the latest Trustees' Report, how much a worker's annual 
benefits could shrink if Social Security is not reformed 
between now and the time he or she reaches ages 62, 67, or 70.
    Fourth, the statement does not estimate what advanced age 
one needs to attain in order to receive back the value of one's 
lifetime contributions.
    Fifth, many adults of all ages do not understand how Social 
Security works, and it would be useful to explain that there is 
no interest-bearing account with their accrued benefits sitting 
in a government office somewhere; rather, the statement should 
say that FICA taxes paid today are used to finance the 
retirement, disability, and survivor benefits of current 
recipients. Future benefits will be provided by the tax dollars 
of workers in the future.
    Moreover, citizens will benefit from a better understanding 
of the status of the Social Security Trust Fund. As the Office 
of Management and Budget acknowledged last year, ``These 
balances are available to finance future benefit payments only 
in a bookkeeping sense. They do not consist of real economic 
assets that can be drawn down in the future to fund benefits. 
Instead, they are claims on the Treasury that, when redeemed, 
will have to be financed by raising taxes, borrowing from the 
public, or reducing benefits or other expenditures.''
    Mr. Chairman, I would be remiss if I did not point out the 
``pink elephant'' in the hearing room today. While improving 
the Social Security statement is important and can provide 
useful information to members of my generation, Congress would 
be doing far more important work if it set itself on the task 
of reforming the entire Social Security system in advance of 
the ``Baby Boom'' generation's retirement. America's leaders 
are wasting precious time. There is no national plan whatsoever 
to accommodate the massive retirement and health needs of this 
generation.
    For the good of America's future, Congress and the 
President should act expeditiously to fix Social Security and 
Medicare. If you do not, future generations will rightly wonder 
why you waited so long, and only tinkered at the margins. Thank 
you.
    [The prepared statement follows:]

Statement of Richard Thau, President, Third Millennium, New York, New 
York

    Thank you, Mr. Chairman, for inviting Third Millennium to 
participate in this dialogue on Social Security, the largest 
program in the Federal budget.
    My name is Richard Thau. I am the president and co-founder 
of Third Millennium, a national, non-profit, non-partisan group 
of Americans born after 1960. We are based in New York City.
    My colleagues and I have appeared before Congress 18 times 
over the past six years, testifying on the need to overhaul 
Social Security and Medicare. We greatly appreciate the 
opportunity to once again serve as a voice from within our 
generation on these vital issues.
    In announcing this hearing, Mr. Chairman, you asked whether 
the information being provided to taxpayers about Social 
Security is ``accurate, understandable and useful.'' My short 
answer to each of these questions is ``maybe, yes and 
partially.'' Let me explain.
    First, for a young worker, the retirement benefit 
projections on the Social Security Statement are probably not 
accurate. This is because the calculations take a worker's 
current salary and project it forward, at its current level, 
for decades. Many workers receive salary increases as they age, 
so a benefit calculation based on a typical young worker's 
present compensation is probably artificially low. However, 
since Social Security, according to the Trustees, will only be 
able to pay approximately three-quarters of benefits currently 
being promised to my generation, this low number could 
actually, and almost accidentally, turn out to be accurate.
    Second, I believe that the benefit statement is 
understandable to a layperson.
    Third, the statement is only partially useful to young 
adults. Let me explain why this is so, and how it could be far 
more useful:
    a) The Social Security Statement indicates that ``Social 
Security benefits were not intended to be the only source of 
income for you and your family when you retire. You need to 
supplement your benefits with income from a pension plan, 
savings or investments.'' This is a critically important bit of 
information, yet it could be strengthened. I suggest adding the 
following personalized text: ``In order to maintain an adequate 
standard of living in retirement, you will need an annual 
income of approximately 70% of the amount you make before you 
retire. Social Security, according to our projections and 
depending upon the age you retire, will provide you only X to Y 
percent of the income you need. If you were to rely solely on 
Social Security for your income in retirement, you would be 
living near the poverty level.''
    b) While the statement indicates how much a worker has paid 
in FICA taxes to date, and estimates what benefits that worker 
may receive in old age, it does not indicate how many thousands 
of dollars in FICA that worker will pay from now until 
retirement in order to receive these benefits.
    c) The statement does not indicate--using figures from the 
latest Trustees report--how much a worker's annual benefits 
could shrink if Social Security is not reformed between now and 
the time he or she reaches ages 62, 67 and 70.
    d) The statement does not estimate what advanced age one 
needs to attain in order to receive back the value of one's 
lifetime contributions.
    e) Many adults--of all ages--do not understand how Social 
Security works, and it would be useful to explain that there is 
no interest-bearing account with their accrued benefits sitting 
in a government office somewhere. Rather, the statement should 
say that FICA taxes paid today are used to finance the 
retirement, disability, and survivor benefits of current 
recipients. Future benefits will be provided by the tax dollars 
of workers in the future. Moreover, citizens would benefit from 
a better understanding of the status of the Social Security 
Trust Fund. As the Office of Management and Budget acknowledged 
last year, ``These balances are available to finance future 
benefit payments. . .only in a bookkeeping sense. They do not 
consist of real economic assets that can be drawn down in the 
future to fund benefits. Instead, they are claims on the 
Treasury that, when redeemed, will have to be financed by 
raising taxes, borrowing from the public, or reducing benefits, 
or other expenditures.''
    Mr. Chairman, I would be remiss if I did not point out the 
``pink elephant'' in the hearing room today. While improving 
the Social Security Statement is important, and can provide 
useful information to members of my generation, Congress would 
be doing far more important work if it set itself on the task 
of reforming the entire Social Security system before the Baby 
Boom generation retires.
    America's leaders are wasting precious time. There is no 
national plan to accommodate their massive retirement and 
health needs of the generation that is ahead of mine. For the 
good of America's future, Congress and the President should act 
expeditiously to fix Social Security and Medicare. If you 
don't, future generations will rightly wonder why you waited so 
long--and only tinkered at the margins.

            Thank you.
      

                                


    Chairman Shaw. Thank you.
    Mr. Fazzino.

  STATEMENT OF GARY FAZZINO, DIRECTOR, FEDERAL PUBLIC POLICY, 
 HEWLETT-PACKARD COMPANY; ON BEHALF OF THE ALLIANCE FOR WORKER 
                      RETIREMENT SECURITY

    Mr. Fazzino. Thank you, Mr. Chairman, and Mr. Matsui, my 
fellow Californian, who shares an abiding affection for 
Stanford University along with me.
    I am Gary Fazzino. I am director of Federal public policy 
for Hewlett-Packard. Today I am testifying on behalf of the 
Alliance for Worker Retirement Security, of which Hewlett-
Packard is a member. AWRS is a coalition of more than 30 
organizations that support Social Security reform which will 
put our Social Security system on a sound financial footing and 
offer all workers the opportunity to create wealth by investing 
a portion of their Social Security payroll taxes in regulated 
funds.
    I want to commend you and your colleagues for your hard 
work on Social Security reform, and for this hearing. Hewlett-
Packard has long believed that reforming Social Security is a 
critical public policy issue that needs immediate attention.
    Over 3 years ago, the company initiated an effort to 
provide educational materials to our employees about the future 
of Social Security and Medicare. HP produced a pamphlet that 
was distributed to all 65,000 HP workers in the United States, 
and a copy of that pamphlet is provided to you with this 
statement. And at the time, our chief executive officer, Lew 
Platt, indicated that he wanted all HP employees to be better 
informed about decisions that could impact their future.
    HP had an overwhelmingly positive response from our 
employees, many of whom wanted to continue receiving updated 
information. Other employers and employer trade associations 
have joined in this educational effort.
    The National Association of Manufacturers has dedicated 
significant resources to informing employers and employees 
about the Social Security issue, including launching the AWRS 
coalition last year. Included in your materials is a NAM-
created calculator with which a worker can compare his or her 
promised Social Security benefit with a reformed program.
    Some companies have begun including the employer's share of 
FICA taxes on the worker's pay stub. And most large employers 
now give workers an annual report of all payroll taxes paid, 
employee and employer share. There are many such examples of 
educational efforts, but indeed much more needs to take place.
    The Social Security statements now being sent annually by 
the Social Security Administration to nearly all workers is a 
very good first step. We applaud Congress and the SSA for 
making these statements available. Workers appreciate receiving 
them, and it gives employers the perfect opportunity to 
supplement the statements with additional information.
    Now, what more do workers need to know? They need to be 
given a clearer understanding of how Social Security is 
financed, and the challenges facing us ahead. Believe it or 
not, tens of millions of workers still think that there is a 
government account with their name on it into which payroll 
taxes are deposited. They believe that during their working 
career the money accumulates, and then is then disbursed to 
them during retirement.
    This is what is behind the oft-heard statement at HP from 
our employees, ``It is my money, and I am entitled to it.'' 
Little do they know that the taxes they pay today are 
immediately transferred to today's retirees. The Social 
Security statement should be made more clear in this regard.
    Likewise, the Social Security statement gives the 
impression that the excess payroll taxes are deposited into a 
Trust Fund that acts like a bank account. Relatively few 
workers understand that the trust fund holds no cash, but 
contains IOUs that must be redeemed with future taxes if 
promised benefits are not [sic] to be paid.
    HP and other employers in this country are willing to help 
in this educational effort. Information about the Social 
Security system must be factual, accessible, and presented in 
such a way that it is both technically accurate and not 
misleading to the American public.
    AWRS strongly supports H.R. 3578, Senate Bill 2364, and 
Senate Bill 2294, and other measures that will help educate our 
workers. We also strongly suggest that Members of Congress 
follow in the footsteps of their colleagues who have held 
Social Security townhall meetings in their districts.
    No matter what reform measure you support, the more your 
constituents--in other words, our workers--understand about the 
issue, the more Congress will be doing the will of the people, 
and the people of this country will be able to accept the very 
difficult decisions that you have to make in the future 
regarding Social Security.
    AWRS member organizations and Hewlett-Packard stand ready 
to help you. Thank you very much.
    [The prepared statement follows:]

Statement of Gary Fazzino, Director, Federal Public Policy, Hewlett-
Packard Company, on behalf of the Alliance for Worker Retirement 
Security

    Good Afternoon. My name is Gary Fazzino and I am Director 
of Federal Public Policy for Hewlett-Packard Company located in 
Palo Alto, California. Today, I am testifying on behalf of the 
Alliance for Worker Retirement Security (AWRS), of which 
Hewlett-Packard is a member. AWRS is a coalition of more than 
thirty organizations that support Social Security reform which 
will put our Social Security system on a sound financial 
footing and offer all workers the opportunity to create wealth 
by investing a portion of their Social Security payroll taxes 
in regulated funds. A large number of AWRS members are 
employer-based trade associations, such as the National 
Association of Manufacturers, the Retail Federation, the 
Business Roundtable, the NFIB, and others.
    I want to commend you and your colleagues for your hard 
work on Social Security reform and for this hearing in order to 
review the type, accuracy and amount of information that is, or 
should be, available to Congress and the public in the area of 
Social Security.
    Hewlett-Packard has long believed that reforming Social 
Security is a critical public policy issue that needs immediate 
attention. We believe HP has a responsibility to provide our 
workers with accurate information on their long-term financial 
security, including Social Security. Over three years ago, we 
initiated an effort to provide educational materials to our 
employees about the future of Social Security and Medicare. HP 
produced a pamphlet that was distributed to all 65,000 HP 
workers in the United States. A copy of that pamphlet is 
provided to you with this statement. In a cover letter to HP 
employees, then-Chairman and CEO Lewis Platt, wrote:
    ``You may wonder, 'What is HP's motivation?' First and 
foremost, it is to help you be better informed about decisions 
that could impact your future. By thinking about these issues 
today, you may be in a better position to plan for your 
retirement. In addition, the time is right to let others know 
what you would like to see happen with Social Security. .  I 
hope that you will share your views with us and with others, 
including your elected representatives who will be making key 
decisions affecting the future. . .''
    HP had an overwhelmingly positive response from our 
employees, many of whom wanted to continue receiving updated 
information. Other employers and employer trade associations 
have joined in this educational effort. The National 
Association of Manufacturers has dedicated significant 
resources to informing employers and employees about the Social 
Security issue, including launching the AWRS coalition last 
year. Included in your materials is an NAM-created 
``calculator'' with which a worker can compare his/her promised 
Social Security benefit with a reformed program. Some companies 
have begun including the employer's share of FICA taxes on the 
worker's pay stub, and most large employers now give workers an 
annual report of all payroll taxes paid, employee and employer 
share. There are many more examples of educational efforts, but 
much more needs to take place.
    Why is it so important for employers to help educate 
workers? The Social Security system is like a train that we 
know will soon be derailed--but not all of the passengers on 
board are aware of the wreck ahead. The cost to our workers, 
retirees and our entire economy could be severe. Before a 
wreck--in other words, before our workers, retirees, and our 
economy are derailed from their expected destination--we must 
redirect the train onto a stronger, sustainable track.
    The Social Security Statements now being sent annually by 
the Social Security Administration (SSA) to nearly all workers 
are a good first step. We applaud Congress and the SSA for 
making these statements available. Workers appreciate receiving 
them and it gives employers the perfect opportunity to 
supplement the statements with additional information.
    What more do workers need to know? They need to be given a 
clearer understanding of how Social Security is financed and 
the challenges facing us ahead. Believe it or not, tens of 
millions of workers still think that there is a government 
account with their name on it, into which payroll taxes are 
deposited. They believe that during their working career, the 
money accumulates and is then disbursed to them during 
retirement. This is what is behind the often heard statement: 
``It's my money and I'm entitled to it!'' Little do they know 
that the taxes they pay today are immediately transferred to 
today's retirees. The Social Security Statement should be made 
more clear in this regard.
    Likewise, the Social Security Statement gives the 
impression that the excess payroll taxes are deposited into a 
trust fund that acts like a bank account. The statement 
explains the trust fund in this way: ``The excess funds are 
credited to Social Security's trust funds which are expected to 
grow to over $4 trillion before we need to use them to pay 
benefits.'' Is it any wonder that workers believe their payroll 
taxes are being held in an account for benefit payments later? 
Relatively few workers understand that the trust fund holds no 
cash, but contains IOUs that must be redeemed with future taxes 
if promised benefits are to be paid.
    We applaud Congress for no longer spending the excess 
payroll taxes and using them instead to buy down public debt. 
This is good for the economy and is a necessary step forward, 
absent real reform of the system. However, statements from 
Congress and the White House such as: ``We are going to save 
every penny of Social Security and not spend it,'' only fuels 
this misperception of the existence of a savings account.
    HP and other employers in this country are willing to help 
in the educational process. Information about the Social 
Security system must be factual, accessible and presented in a 
way that is both technically accurate and not misleading to the 
American public.
    What do we recommend? AWRS strongly supports H.R. 3578, the 
``Social Security Right To Know Act,'' sponsored by Congressman 
Sununu, S. 2364, a similar bill introduced by Senators Santorum 
and Gregg, and other measures that will help educate our 
workers. We also strongly suggest that members of Congress 
follow in the footsteps of their colleagues who have held 
Social Security Town Hall meetings in their districts. With 
outside experts brought in to explain the problems ahead, these 
Members have found the meetings to be extremely helpful in 
educating their constituents and the press.
    The fact is that no matter what reform measure you support, 
the more your constituents--in other words, our workers--
understand about the issue, the more Congress will be doing the 
``will of the people,'' and the people of this country will be 
able to accept the difficult decisions that you must make in 
the future. AWRS member organizations stand ready to help. 
Thank you again for asking me to appear today, and I would be 
happy to answer any questions.

AWRS PRINCIPLES

    The Alliance for Worker Retirement Security is a broad-
based coalition of organizations dedicated to reforming the 
Social Security system to ensure an adequate retirement income 
and an opportunity for workers to create personal economic 
wealth.

Principles of the Alliance

    1. Permit workers to invest their retirement payroll taxes 
(FICA) in individually-directed personal retirement accounts 
(PRAs).
    2. Oppose an increase in payroll taxes.
    3. Guarantee a ``safety-net'' (minimum government benefit) 
for all retirees.
    4. Preserve the benefits of retirees and near-retirees.
    5. Oppose government investment in the stock market
    6. Oppose general revenue transfers (primarily income 
taxes) to Social Security in the absence of structural reform.

Mission of the Alliance

    Develop and implement a strategy for passage of Social 
Security reform legislation that incorporates the principles of 
the Alliance.
    September, 1999

                 ALLIANCE FOR WORKER RETIREMENT SECURITY



Aetna.....................................               NCR Corporation
American Bankers Association..............        National Federation of
                                                  Independent Businesses
American Farm Bureau Federation...........           National Restaurant
                                                             Association
Americans for Tax Reform..................    National Retail Federation
Black America's PAC.......................                  Pfizer, Inc.
The Business Roundtable...................       Seagrams and Sons, Inc.
Citizens for a Sound Economy..............           Securities Industry
                                                             Association
Committee for Good Common Sense...........           60 Plus Association
Council for Government Reform.............       Small Business Survival
                                                               Committee
Economic Security 2000....................    Society for Human Resource
                                                              Management
Jeld-Wen Corporation......................                    StorageTek
Hewlett-Packard...........................                           TRW
Hispanic Business Roundtable..............   Windway Capital Corporation
National Association for the Self-Employed      U.S. Chamber of Commerce
National Association of Manufacturers.....    United Seniors Association
National Association of Women Business         National Council of Chain
 Owners...................................                   Restaurants


      

                                


    Chairman Shaw. Thank you.
    There is a vote on the floor. In fact, there are two votes. 
I would think that we can get back here in approximately 15 
minutes and conclude the hearing. But I will have to recess it 
for at least that long, 15 to 20 minutes possibly. And we will 
start with you when we return.
    [Recess.]
    Chairman Shaw. OK. Mr. Riemer.

  STATEMENT OF HANS RIEMER, FOUNDER AND DIRECTOR, 2030 CENTER

    Mr. Riemer. Thank you, Mr. Chairman, Mr. Matsui, and 
Members of the Committee. My name is Hans Riemer, and I am the 
founder and director of the 2030 Center, a public policy 
organization for young adults. The 2030 Center conducts 
research and public education in order to provide a voice for 
young workers on important economic issues such as 
strengthening Social Security and improving job opportunity.
    We are concerned about Social Security because we want to 
make sure that today's young workers and future generations 
will be able to collect their full benefits, guaranteed. There 
is no doubt that young people want Social Security to remain 
financially strong. This desire is an important explanation for 
why young people on a nearly two-to-one basis support using the 
budget surplus for Social Security rather than a tax cut.
    As you know, the Social Security Administration recently 
began to send benefit statements to working Americans. These 
personalized statements estimate the projected retirement, 
disability, and life insurance benefits that a worker may 
claim. I believe this is one of the most important developments 
in the history of Social Security, and I applaud you, Mr. 
Chairman, and Members of the Committee, for supporting this 
remarkable legislation.
    Promoting public understanding of Social Security has been 
a concern of ours for some time. In 1998, Peter Hart Research 
Associates, a national survey research firm, conducted a poll 
for the 2030 Center that closely evaluated public attitudes--
particularly the attitudes of young workers--toward Social 
Security. We discovered that efforts to inform the public about 
Social Security still have a long way to go.
    One of the most striking examples pertains to expectations 
of future retirement benefits. Most Americans seem to think 
that Social Security is going to run out of money entirely in 
just a few years, or at most a decade or so; that every penny 
of Social Security funds soon will be used up. This, of course, 
is far from true. Even if Congress does nothing, Social 
Security benefits are fully financed for at least the next 37 
years. And even after then, the payroll tax at current levels 
can fund at least 72 percent of promised benefits.
    For most Americans this reality represents a dramatic 
improvement over their current expectations. We need to do a 
much better job educating the public about the present fiscal 
health of the program, so that informed judgments can be made 
about the future.
    Another important area where improvement is needed: 
Americans do not have an adequate understanding of the range of 
benefits that they are earning. As you know, one-third of all 
Social Security beneficiaries today--more than 13\1/2\ million 
people--are not retired workers. They are disabled workers, 
survivors, and their family dependents, including millions of 
children.
    In our poll we asked young adults if they could name any 
benefit or coverage provided by Social Security other than 
retirement. Fewer than 16 percent could name disability, and 
only 13 percent could name survivors benefits. Fully 42 percent 
said that Social Security provides no other benefits at all. 
And 22 percent did not know or respond. All in all, nearly 
three-fourths of all respondents were unaware of the survivors 
and disability insurance coverage that protects them and their 
families right now.
    In other words, most young workers, upon opening their 
personalized benefits statements from the Social Security 
Administration, will learn for the first time that they are 
also qualifying for disability and survivors insurance; that 
Social Security is already there for them today. Considering 
that Social Security provides about as much life insurance and 
disability insurance as all private-sector providers combined, 
it is a good public service indeed for the government to notify 
working Americans about these important benefits.
    While the current benefits statement is limited to 
explaining the benefit formula guaranteed under present law, I 
am aware that some have proposed to use these statements to 
address other issues. I believe that any attempt to do this 
should be resisted, Mr. Chairman.
    I strongly believe that the mission of the Social Security 
statements should remain focused and clear: To notify Americans 
of their contributions and benefits under present law.
    I think that these statements will send Americans precisely 
the right message: Social Security provides disability and 
survivors benefits, and it is the foundation of a secure 
retirement, but it is not enough.
    I am certain that this is an agenda that we can all 
support. And I thank you for inviting me to testify before your 
Committee today.
    [The prepared statement follows:]

Statement of Hans Riemer, Founder and Director, 2030 Center

    Thank you, Mr. Chairman, Mr. Matsui, and members of the 
Committee for inviting me here to testify today. My name is 
Hans Riemer, and I am the founder and director of the 2030 
Center, a public policy organization for young adults. The 2030 
Center conducts research and public education in order to 
provide a voice for young workers on important economic issues 
such as strengthening Social Security and improving job 
opportunity.
    We are concerned about Social Security because we want to 
make sure that today's young workers and future generations 
will be able to collect their full benefits--guaranteed. There 
is no doubt that young people want Social Security to remain 
financially strong so that it will pay full benefits to current 
and future retirees. This desire is an important explanation 
for why young people, on a nearly two-to-one basis, support 
using the budget surplus for Social Security rather than a tax 
cut.
    As you know, the Social Security Administration recently 
began to send ``benefit statements'' to working Americans. 
These personalized statements estimate the projected 
retirement, disability, and life insurance benefits that a 
worker may claim. I believe this is one of the most important 
developments in the history of Social Security, and I applaud 
you, Mr. Chairman, and members of the committee, for supporting 
this remarkable legislation.
    Promoting public understanding of Social Security has been 
a concern of ours for some time. In 1998, Peter Hart Research 
Associates, a national survey research firm, conducted a poll 
for the 2030 Center that closely evaluated public attitudes, 
particularly the attitudes of young workers, towards Social 
Security. We discovered that efforts to inform the public about 
Social Security still have a long way to go.
    One of the most striking examples of the need to improve 
public education about Social Security pertains to expectations 
of future retirement benefits. Most Americans seem to think 
that Social Security is going to run out of money entirely in 
just a few years or, at most, a decade or so--that every penny 
of Social Security funds will soon be used up. This, of course, 
is far from true; even if Congress does nothing, Social 
Security benefits are fully financed for at least the next 37 
years; and even after then, the payroll tax at current levels 
can fund at least 72 percent of promised benefits. For most 
Americans, this reality represents a dramatic improvement over 
their current expectations. We need to do a much better job 
educating the public about the present fiscal health of the 
program so that informed judgments can be made about the 
future.
    Another important area where improvement is needed: 
Americans do not have an adequate understanding of the range of 
benefits they are earning. As you know, one third of all Social 
Security beneficiaries today--more than 13.5 million people--
are not retired workers. They are disabled workers, survivors, 
and their family dependents, including millions of children. 
While about 45 million Americans are collecting Social Security 
checks today, there are even more who were raised with Social 
Security as a crucial source of income because a parent died or 
became disabled. This aspect of Social Security is not well 
understood.
    For example, in our poll, we also asked young adults if 
they could name any benefit or coverage provided by Social 
Security other than retirement. Fewer than 16 percent could 
name disability, and only 13 percent could name survivors 
benefits. Fully 42 percent said that Social Security provides 
no other benefits at all, and 22 percent did not know or 
respond. All in all, nearly three fourths of all respondents 
were unaware of the survivors and disability insurance coverage 
that covers them and their families right now.
    In other words, most young workers, upon opening their 
personalized benefits statement from the Social Security 
Administration, will learn, for the first time, that they are 
also qualifying for disability and survivors insurance--that 
Social Security is already there for them today. Considering 
that Social Security provides about as much life insurance and 
disability insurance as all private sector providers combined, 
it is a good public service indeed for the government to notify 
working Americans about these important benefits.
    While the current benefit statement, Mr. Chairman, is 
limited to explaining the concrete benefit formula guaranteed 
under present law, I am aware that some have proposed to use 
the statement to address other issues and concerns. With the 
great many opportunities that all parties have to reach the 
public with an advocacy agenda, I hope that you will use your 
leadership to draw the line so that official information 
provided by the U.S. Government may only be used to explain 
present law, rather than various contingencies that may or may 
not occur.
    I strongly believe that the mission of the Social Security 
statements should remain focused and clear: to notify Americans 
of their contributions and benefits under present law.
    Thanks to the Social Security statements, millions of 
workers who are contributing to Social Security and want 
benefits to be there for them will now be able to determine how 
much more they need to save for their retirement.
    I think that these statements will send Americans precisely 
the right message: Social Security provides disability and 
survivors' benefits and it is the foundation of a secure 
retirement--but it is not enough.
    I am certain that this is an agenda that we can all 
support, and I thank you for inviting me to testify before your 
committee today.
      

                                


    Chairman Shaw. Thank you.
    Mr. Gebhardtsbauer. Thank you, Mr. Chairman. Good 
afternoon----
    Chairman Shaw. No, no, no, no, no, no. I have got to try 
this one: Gebhardtsbauer.
    Mr. Gebhardtsbauer. Very good. Yes.
    Chairman Shaw. Would you try it?
    Mr. Gebhardtsbauer. Sure. [Laughter.]
    Mr. Gebhardtsbauer. Actually, it took me 8 years to learn 
how to say it, so you have done it a lot quicker than I. It is 
``Gebhardtsbauer.''
    Chairman Shaw. I did get it right.

    STATEMENT OF RON GEBHARDTSBAUER, SENIOR PENSION FELLOW, 
                 AMERICAN ACADEMY OF ACTUARIES

    Mr. Gebhardtsbauer. Good afternoon, Members of the 
Committee and staff. I am the senior pension fellow at the 
American Academy of Actuaries. The Academy is the non-partisan 
professional organization of actuaries in the United States. 
And we want to thank you for allowing us to testify today.
    I have been specifically asked to talk about two proposed 
bills that would add information to the Trustees' Report. And 
in background for this, I actually looked at some of the 
extensive material that Social Security has on its website. 
They actually have the very first Trustees' Report from 1941, 
and it is 12 pages.
    But over the past 60 years, Social Security I think has 
been very responsive to the public and to Congress' requests. 
And so now it is 220 pages--a massive document. So you can see 
why maybe they are concerned about, how much more is going to 
go into it.
    But I think there are a lot of good ideas that the 1999 
technical panel, came up with. Experts, economists, actuaries 
were in that group. And also, in these two bills. There are 
some good ideas. And in fact, one, for instance, is a 
projection of poverty rates in the future. Some reform bills 
would raise the poverty level for people who are elderly, and 
some reform bills would actually lower poverty levels. So it 
would be good for you to have a projection of those poverty 
levels before you vote. So you would want to see those 
comparisons. But maybe it does not necessarily have to be in 
the Trustees' Report. It can be somewhere, so that you can make 
that vote.
    But the reason why I am here today is to note that the 
Academy have some concerns about some of the provisions in the 
bills. So even though we like a lot of the provisions, we also 
want to talk about some of our concerns, because I think there 
are some unintended consequences in the bills that maybe the 
sponsors did not know.
    For example, they would also require budget projections. 
And I think those are very valuable, too, because some bills 
would use general revenue, and some bills would not. And so it 
is good to have a budget projection to see what the deficits 
could be like in the future. And that is understandable. You 
also may want to have a budget projection to see if we can 
easily redeem those bonds after the year 2015. So there are 
lots of good reasons for them.
    But there could be an unintended consequence. If the Social 
Security actuaries are the ones that have to do those 
calculations, they would do them using their own calculations 
and their own assumptions, so that it would be consistent with 
all their work. But then you would now have a third projection 
of what the budget deficits are going to be like in the future.
    And I think there would be a tendency to tell the Social 
Security actuaries not to use their assumptions, but to use the 
OMB's or CBO's assumptions. So I think it puts them in a 
difficult position, maybe hurts their independence. And so 
maybe a way to craft that--is to require CBO or OMB to do those 
calculations. In fact, I think one of the bills is doing this.
    The other area that I think is a concern is that in the 
Sense of Congress part of one of the bills it says, ``We would 
recommend that all the recommendations of the technical panel 
be implemented by Social Security.'' And that is a hundred 
pages. There is an awful lot of information in there. They say, 
``if reasonable''; but still, I think Social Security would 
feel they had to implement all of them, to the extent they 
could.
    And I think before you do something like that, you would 
want to make sure you agree with all of the ideas in there, and 
there are an awful lot. And here is one, for instance: You 
require stochastic projections.
    And I apologize if your eyes glaze over. This is probably 
something only economists or an actuary would like. I know in 
my speeches around the country at townhall forums sponsored by 
members and the White House, we always give people a lot of 
time to ask questions. They have never wanted a stochastic 
valuation, though. And I am not sure the members here do, 
either because here is what a stochastic valuation does.
    Right now, we project what our best estimate is of the 
future. And if we fix Social Security, then our best estimate 
would say, ``Social Security is now in balance.'' But what a 
stochastic valuation would do is it would say, ``Here are all 
the ranges of a possible future.'' So the day after you have 
solved Social Security and put it in balance, the headline in 
the paper the next day would say, ``Social Security Fixed: The 
Probability of Failure Is Now Only 50 Percent.'' So I am not 
sure you want something like that.
    I think the unintended consequence of a stochastic 
valuation would be, it would force you to increase taxes or cut 
benefits even more than maybe you intended. So that is a 
concern. So you may want to look at that technical panel's 
report, and only specify what you like out of it, instead of 
saying the whole thing.
    I guess the other major concern is ``money's worth.'' We 
have been talking about that already. We feel at the Academy 
that a ``money's worth'' or internal rate of return can be 
misleading. And I think it was shown pretty well in the 
exchange earlier today between Mr. Matsui and Mr. Sununu.
    The response to, ``Why would it be on that benefits 
statement?'' is so that you could compare it with your rate of 
return on your 401(k). The only problem with that is, you are 
going to see this 2 or 3 or 4 percent number from Social 
Security, and your 401(k) is getting 10 or 20 percent. But that 
is because all of the 401(k) money is being invested; none of 
that money in your 401(k) is going to your parents. And so it 
is an unfair comparison. It should not be done.
    So what the Academy would say: ``Money's worth'' and 
internal rate of return calculations are helpful if they are 
used to, say, compare different proposals--``What is this 
proposal like compared to this proposal?'' But to have an 
internal rate of return by itself could be very misleading. And 
I have some more information on that in my document.
    And I notice I have a red light, so I want to finish up.
    I guess my main point at the end is that Social Security 
has implemented a lot of the recommendations coming from 
Congress and the technical panels in the past. And so maybe we 
might want to give them some time to kind of incorporate some 
of these ideas.
    But if you do want to have some of these mandated, then I 
think you ought to look at them very carefully and itemize 
which ones you want, before you say all of them should be done. 
Thank you.
    [The prepared statement follows:]
    [An attachment is being retained in the Committee files.]

Statement of Ron Gebhardtsbauer, Senior Pension Fellow, American 
Academy of Actuaries

    The American Academy of Actuaries is the public policy 
organization for actuaries of all specialties within the United 
States. In addition to setting qualification standards and 
standards of actuarial practice, a major purpose of the Academy 
is to act as the public information organization for the 
profession. The Academy is nonpartisan and assists the public 
policy process through the presentation of clear, objective 
analysis. The Academy regularly prepares testimony for 
Congress, provides information to federal elected officials and 
congressional staff, comments on proposed federal regulations, 
and works closely with state officials on issues related to 
insurance.
    Chairman Shaw, committee members, staff, and fellow 
panelists, Good Afternoon. My name is Ron Gebhardtsbauer and I 
am the Senior Pension Fellow at the American Academy of 
Actuaries. The Academy is the nonpartisan, public policy 
professional organization for actuaries in the United States. 
We at the Academy thank you for inviting us to speak at this 
hearing on ``Efforts to Inform the Public about Social 
Security.''
    In the interest of time, I have provided the subcommittee 
with copies of my full testimony on this subject, so that I can 
focus on my most important points. I've been asked to discuss 
two proposed bills that recommend adding information to the 
Trustees Report. These are H.R. 3578 and S. 2249. I also will 
comment on the 1999 Social Security Advisory Board Technical 
Panel recommendations for expanding the data included in the 
Trustees Report.

What Issues about Social Security Are of most Concern to the 
Public?

    One of the more interesting parts of my job over the past 4 
years was to serve as the Social Security expert at many Town 
Hall forums across the country sponsored by Members of 
Congress, the White House, and several non-partisan 
organizations.
    At the Town Hall forums, the most frequent questions were:
     Did Congress really spend our Social Security 
money?
     Are Social Security's bonds real money, or not?
     Will Social Security be there for me when I need 
it?
     Are we getting a good return on our contributions?
    The Questions are Really for Congress: Unfortunately, these 
questions ultimately cannot be answered by a Trustees' Report 
or a Benefit Statement from Social Security. They can really 
only be answered by Congress. It will be difficult for Social 
Security to answer these questions fully until Congress puts 
Social Security back into balance. Nevertheless, the American 
public can find much valuable information in the annual report 
of the Social Security trustees.
The Trustees' Report

    In preparation for this testimony, I reviewed Social 
Security's web sites and was fascinated by how extensive they 
were. For example, they have all the Trustees' Reports back to 
the first one in 1941. The first one was only 12 pages. The 
past was so much simpler. Yet it had many familiar items, such 
as graphs and charts, optimistic and pessimistic assumptions, 
caveats about how hard it is to forecast the future, and 
important dates (e.g., when benefits would exceed taxes and 
funds would be exhausted). Over the past 6 decades, Social 
Security has responded to the needs of the public and Congress 
by including many more items. Current reports are around 220 
pages.
    Suggestions for additional information in the Report: 
However, various experts and recent advisory panels have 
suggested including still more information in the Trustees' 
Report. See the attached recommendations from the 1999 
Technical Panel. Many of their suggestions are valuable. I will 
discuss the controversial ones and provide advantages and 
disadvantages, so that you can decide if you want to require 
them.
    For Comparing Reform Proposals: Some items would be very 
helpful for comparing specific proposals (e.g., projections of 
poverty rates and budget deficits). For example, some reform 
proposals use Individual Accounts, which could increase poverty 
rates among the elderly. Other proposals fix this by 
subsidizing small accounts or coupling them with a flat 
universal benefit. That could reduce poverty rates. Thus, you 
may want poverty projections for comparing these proposals 
before voting on them. Other reform proposals from both sides 
of the aisle use General Revenues. Again, you may want a 
projection of future budget deficits (such as those found in 
the recent GAO Report HEHS-00-29) to compare these reforms. 
Thus, some items may only be needed in certain circumstances, 
and may not be needed forever, especially after you put Social 
Security back in balance. Therefore, instead of requiring them 
in the Trustees' Report, you may want to just encourage Social 
Security to put them in a separate report and/or on their web 
site. You may find that they would be happy to do that. The 
Trustees have taken prior Technical Panel reports seriously and 
generally respond to their suggestions. In addition, you might 
give them some time to determine how best to provide them or 
display them, so it may be preferable not to be too specific in 
your requirements.
    The Academy has also released today, Quantitative Measures 
for Evaluating Social Security Reform Proposals, which provides 
policy makers with a framework to evaluate the financial effect 
of competing reform proposals on the program's long-term 
solvency and the impact of proposed changes on the financial 
needs and expectations of current and future workers. A copy of 
the issue brief is attached to my testimony.
    Budget Projections: There are difficulties in calculating 
some of the numbers (e.g., the budget projections). The 
Trustees would need to reproduce the extensive budget 
projections from OMB, and would have to convert them to the 
Trustees' assumptions, so that the projections are consistent. 
In addition, they would have to project OMB's numbers beyond 
the typical 10 years that they project them, and decisions 
would have to be made on whether dynamic scoring should be 
used. But this is not an insurmountable problem. GAO has made 
such a projection (GAO Report: Evaluating Reform Proposals 
HEHS-00-29). There may be an unintended consequence though. The 
administration might push for using the OMB assumptions 
instead. In the past, the actuaries strenuously objected to 
using OMB's or CBO's assumptions for fear that they might be 
politically motivated (however slight it might be). If the 
actuaries are forced to calculate budget numbers using OMB's or 
CBO's assumptions, it could harm the independence of their 
work. Possible solutions would be for the bill to require using 
the actuaries' assumptions, or require CBO to perform the 
budget projections.
    Stochastic valuations: The current report provides the 
Trustees' best estimate of what they think will happen in the 
future, along with an optimistic and a pessimistic projection. 
A stochastic projection will estimate the probability that the 
system will fail in 75 years. You may find this an interesting 
piece of information and helpful if you want to quantify when a 
certain reform proposal is more risky, such as a reform that 
would invest in stocks. On the other hand, it can have some 
drawbacks besides being complex and expensive. It can be 
confusing and have unintended consequences on policy. Congress 
really wants only one answer, but stochastic valuations will 
provide multiple answers, and they may not be the answers you 
want. For example, suppose Congress puts Social Security back 
in balance the usual way using our best estimates of the 
future. The next day's headline, using a stochastic valuation, 
might say ``Social Security's probability of failure is now 
only 50%.'' I'm not sure that is a message Congress would like. 
On one hand, that is reality. On the other, it could make 
Congress look bad. Would it push Congress to raise taxes 
further in order to assure a lower level of failure? Thus, 
using the stochastic measure could make Social Security more 
expensive. In addition, arguments about the assumptions will 
escalate, because the Trustees would have to determine the 
shape of the distribution for each assumption, the standard 
deviation from the mean, and the covariance with all the other 
assumptions. If you think people are arguing about the 
assumptions now, wait until you have stochastic valuations.
    Money's Worth Tables: Some additions are voluminous and 
would dramatically increase the size of the report with tables 
of many numbers and graphs (such as money's worth tables). As 
the 1999 Technical Panel suggested, this item can be shortened 
by just doing prospective money's worth calculations for small 
number of age and income cohorts. Retrospective returns 
depending on how long you lived, whether you received a 
disability benefit or survivor benefit, etc., can produce a 
voluminous amount of results.
    Money's Worth numbers can be misused and misleading. For 
example, Social Security's assets had a yield of 7% this past 
year. People are pleasantly surprised when they hear that. They 
think it is lower, due to what other people say the returns are 
using money's worth calculations. These implicit rate of 
returns should not be compared with market returns. They can 
even be negative for some people. But that's the nature of 
insurance--you don't mind it when your insurance policy doesn't 
pay off (e.g., you didn't get in a car accident). In that 
situation, your rate of return is more than a little negative; 
it's negative 100%. You didn't get any money back on your 
insurance premium. You can also get negative returns on social 
welfare programs and taxes, because some people pay in more 
than they get back. Thus, this rate of return cannot, should 
not, be compared to the yields you get on your assets. If we 
decide to privatize Social Security, we will still have to pay 
benefits to our parents. Thus, at least some, maybe all, of our 
contributions are going to someone else. A money's worth 
analysis forgets that we can't get out of that promise to our 
parent's generation. In addition, in Social Security, single 
people are paying taxes that help married people, and high-
income people are paying in for lower earners. If they have a 
low return, it may be because their contributions are going to 
others. This wasn't a problem in the past, because they would 
get more from the next generation. But now the system is 
mature, that won't happen again (unless fertility rates 
increase dramatically or our current huge productivity gains 
last forever). As you can see, individual money's worth 
analysis, gets more to the question of distribution among 
classes. If we want the system to have a better return, we can 
invest in stocks or just increase the bond yields by 
Congressional action. (Since it is Congress that keeps Social 
Security from investing in stocks and corporate bonds, they 
could compensate by giving them a return of 10% will just raise 
our income taxes and it will add an element of politics into 
the system.) There is another concern with rates of return 
analysis. One way to fix Social Security would be to give it $5 
trillion of General Revenues. The rates of return would look 
great, but that wouldn't be fair. All sources of contributions 
must be included in the calculation, so that the comparison is 
not manipulated. This is not as easy as it sounds however. For 
example, how would you calculate it if Congress gave Social 
Security's bonds a slightly better rate of return? (Should some 
of the additional investment return be included in 
contributions?) Thus, providing each individual's rate of 
return can be misleading, so we need to be careful, before we 
require them.
    One last concern for individual rates of return for Social 
Security is that they depend on how Social Security will be 
fixed, and who will be affected. So again, Social Security can 
not adequately answer this question--only Congress can.
    Social Security could just provide some of the extensive 
recommendations on their Web site, not the Trustees' Reports or 
benefit statements, unless you think they would be misleading 
even on the web site.
    Recent proposed legislation, H.R. 3578, would require 
certain additional items in the Trustees' Report. We discuss 
the advantages and disadvantages, so that you can assess them.
    The Unfunded Liability (and Change since Prior Year): This 
number is useful for reform proposals that want to move to an 
advance-funded system. It is sometimes referred to as the 
closed group obligation, the transition cost, or the unfunded 
termination liability, and would be around $9 trillion today. 
Private-sector pension plans are required to display their 
unfunded termination liability prominently. However, some 
people contend that it is not a relevant number for an ongoing 
Social Security system, which is just a transfer system from 
workers to retirees. They contend it should not appear in the 
Report, because it will be confused with the open-group 
unfunded number (approximately $3 trillion today). When the 
system gets back in balance the open-group number will be zero, 
but the closed-group number will still be around $9 trillion. 
Will this confuse people? Advocates of this number say it is 
important for us to acknowledge that Social Security is not 
advance funded and that we have made these promises without 
funding for them. I can only give the advantages and 
disadvantages on this, not take a position. It is a political 
issue for you to decide if you want to require it and how 
prominent it should be--whether it should be in the Summary, 
the Report, or just available on a website. The number is 
calculated annually already, so it won't add any administrative 
costs. H.R. 3578 would have to define it better. For example, 
is it the number that private-sector plans must provide--the 
closed group unfunded termination liability or is it the on-
going unfunded accrued liability? Is it a calculation closed to 
just the people paying into the system today, or is the 
calculation open to new workers coming into the system in the 
future. If open, is it open forever or limited to 75 years? 
H.R. 3578 has 3 versions. Only the present value calculation is 
meaningful. Another would just add up nominal dollar unfunded 
amounts from the future. Another uses CPI-adjusted numbers. 
These two numbers are misleading and should not be used. They 
can increase dramatically even in good years (e.g., if 
productivity improves), which is a not a helpful result.
    The Deficit in the Last Year of the Projection: This amount 
is helpful for understanding the sustainability of the system 
and already appears in Table III.B4 on page 183 ($7 trillion in 
2075 dollars). H.R. 3578 also wants the inflation-adjusted 
amount displayed more prominently. Relating it to pay or GDP 
would be preferable. Chart C in the Summary shows the 2075 
deficit is 6% of taxable payroll. This is more meaningful than 
the $7 trillion number or even the $300 billion number which is 
inflation-adjusted, because benefits and taxes increase at 
rates more closely tied to pay. The further out in years, the 
more the numbers become misleading by the additional 
compounding over the inflation rate. This deficit is also 
discussed in the Summary, which states that the benefit outgo 
is 1\1/2\ times as large as the tax income in that year.
    The Economic Model, Relevant Data, and Changes: We agree 
that all of these items should be in an actuarial valuation. In 
fact, actuarial standards of practice require that actuarial 
valuations be sufficiently documented so that another actuary 
can assess whether the results are reasonable. If the sponsors 
are encouraging more details, I note that page 144 refers the 
reader to a web site and some Actuarial Studies (which are 
listed on the web) that can be requested from the Office of the 
Actuary.
    Quality of Trust Funds' Assets: H.R. 3578 also requires the 
Trustees' Report to explain that the Trust Fund balances are 
not real economic assets. This hints at the very controversial 
debate on whether the money is real or not. However, I don't 
know if Congress can do this without contradicting its full 
faith and credit backing of the bonds. I think I know what the 
sponsor wants. Prior Trustees' Reports gently expressed a 
concern about how the bonds would be redeemed, which might be 
acceptable. Maybe people can work together to finesse this 
difference without the law getting into this controversy. The 
proposed bill requires the Report to state that Congress will 
need to raise taxes, increase the debt, or cut benefits to 
redeem the bonds. This is a reasonable factual statement.
    Technical Panel: Another bill (S. 2249) says it's the Sense 
of the Senate to implement the recommendations in the 1999 
Technical Panel's report. Many of them have value, and we have 
discussed some of their advantages and disadvantages already. 
However, some people are concerned about an unintended 
consequence of referencing the 1999 Panel in the bill. You may 
prefer that a bill just state its specific requirements without 
referencing the Panel. Citing the Panel elevates them above the 
Trustees (which includes their bosses' boss--the Commissioner 
of Social Security, and also the Secretaries of Treasury, HHS, 
and Labor). In addition it could give future Panels (which 
might have very different ideas) more importance than you might 
want, or it could give some items in the 1999 Report more 
authority than you wanted. Do you agree with all of the 
recommendations? How important are they? Are their benefits 
worth the cost to provide them? If some of them take an 
inordinate amount of space, could they be on the web instead 
and referenced? Since the suggestions are from a panel of 
experts, we doubt that any of their requirements would be 
misleading to knowledgeable readers, but some people are 
concerned that items, such as stochastic valuations and 
internal rates of return, could confuse and mislead some 
people. There are lots of items in those 100 pages of their 
report. Some additional advantages and disadvantages of S. 2249 
follow:
    Emphasize income and cost rates and balances for all 75 
years with the same emphasis as the actuarial solvency numbers. 
It appears that all 225 numbers are being required in all the 
places the solvency number appears. Since this would take a lot 
of space, maybe the intent is to just have it appear up front, 
prominently. Since the intent is to present measures of long-
term sustainability, maybe only the 75th year is needed, as 
suggested in H.R. 3578.
    Percentage Increase in Taxes/Decrease in Benefits Needed 
for Solvency in all 75 years: These percentages can be 
determined by a quick division from numbers in the Report 
(e.g., Table II.F.13 or III.B2, or B3, or B4, or C1). They will 
add to the length of the report, but can be helpful.
    Effects on National Savings: These numbers can be important 
when comparing certain reform proposals. For example, if 
contributions are increased (whether for the Trust Fund or for 
Individual Accounts) and/or benefits cut, National Savings 
could increase, which could have other beneficial affects on 
productivity and the economy. However, there is strong 
disagreement on whether savings will increase a lot or a 
little. Some would say they are unknowable. In fact, there are 
disagreements even on how to measure savings (e.g., whether to 
include capital gains). In addition, these numbers are 
primarily of value in comparing proposals.
    Effects on the Budget: Again, these numbers are valuable 
when comparing certain reform proposals. For example, some 
reform proposals use General Revenues, which can increase 
future budget deficits. Members will want projections of these 
deficits (such as those found in the recent GAO Report HEHS-00-
29) to compare these reforms. Thus, this item may only be 
needed in certain circumstances, and may not be needed forever, 
especially after you put Social Security back in balance.
    Average Lifetime Values of Benefits (by age, income, 
gender, and type of benefit): As the 1999 Technical Panel 
noted, this will show that the value of lifetime benefits 
received from Social Security is increasing as people live 
longer. Life expectancies also show this. The panel also noted 
that the lifetime values can help us compare lifetime benefits 
from reform proposals that distribute benefits in different 
patterns. The panel however, recommended fewer numbers for the 
Trustees' Report. They suggested the larger group of numbers be 
available electronically. Some panel members also suggested 
that the lifetime value of taxes paid also be provided. This 
would help the reader determine their money worth, the 
advantages and disadvantages of which were discussed earlier.

Conclusion

    Experts and panels have recommended new items for the 
Trustees' Reports, many of which are valuable. Social Security 
may over time accept many of them, as they have in the past. 
However, if Congress chooses to mandate certain items, I would 
suggest it study them thoroughly. Some recommendations may be 
costly and you may want to do a cost-benefit analysis before 
requiring them. Some are voluminous, so you may decide that 
they are important enough to have somewhere, but not 
necessarily in the Trustees' Reports. Some items are good but 
they need to be defined better and clarified, so that they are 
not misleading. Some items are only needed for today's reform 
proposals, which is why they are not in the annual Trustees' 
Report. They may not be needed in the future. However, they may 
be needed as a base number from which to compare the proposals. 
Thus, they can go on the web site if necessary, but they don't 
have to be in the Report. Some may cause confusion or be 
misleading, so you will want to be careful before adding them. 
Some proposals just want more prominence for certain items, 
which shouldn't be a problem, unless you think the prominence 
over-emphasizes them to unwary readers. Some have unintended 
consequences. For example, the 1999 Technical Panel's 
recommendation for stochastic valuations could raise Social 
Security taxes.
    Hopefully by providing these advantages and disadvantages, 
you will be able to decide which additions are important enough 
to require by law.
    Finally, my experience listening to participants at Town 
Hall forums around the country has revealed that the public's 
most important questions can not be answered by the Trustees' 
Report, only by Congressional action. We at the Academy are 
available now and any time in the future if you have more 
questions. Thank you for inviting us to speak at this hearing.

1999 TECHNICAL PANEL TABLE OF RECOMMENDATIONS

    Presentation Issues (for the Trustees Report and elsewhere)

     The format can be improved to allow easier access 
and understanding.
     The uncertainty of projections should be displayed 
more clearly and in ways that reflect better the relationship 
of that uncertainty to the design of the law.
     Cohort life expectancy should be shown (period 
life expectancy, as now shown, is easily misunderstood).
     The lifetime value of benefits (and possibly 
taxes) for various types of workers over time should be 
displayed.
     Alternative estimates of the unfunded obligations 
of the Social Security system should be presented in the 
Trustees Report.
     Traditional definitions of ``typical workers''--
low and average earners--result in an overstatement of the 
lifetime income and benefits of the typical low-income and 
average-income worker and should be revised.
     Less emphasis should be placed on the 75-year 
actuarial balance and more on long-term sustainability (as 
reflected, for instance, in balance during the last part of the 
projection period).
     Benefits under existing tax rates and taxes under 
existing benefit rates should be presented to better reflect 
consequences of current law.
     Prevalence rates for Disability Insurance, not 
just incidence rates of new awards, should be displayed.

Methodology and Models

     A published consistent set of criteria is 
recommended for comparing reform proposals and current law.
     General equilibrium modeling is necessary for 
consistency and to understand interactions.
     Models (micro simulation) to demonstrate 
distributional effects, as well as to estimate better those 
features influenced heavily by distributional factors, are 
necessary and must be enhanced significantly.
     Greater public access to Social Security 
information should be encouraged.
     Ongoing technical review of several issues is 
necessary.
     Modeling capabilities (stochastic modeling) are 
necessary to display uncertainty and the effect of policy on 
that uncertainty.
     Estimation methodology would benefit from new 
techniques to reflect consistency among variables.
      

                                


    Chairman Shaw. Thank you.
    Dr. Aaron.

STATEMENT OF HENRY J. AARON, BRUCE AND VIRGINIA MACLAURY SENIOR 
   FELLOW, BROOKINGS INSTITUTION, AND CHAIRMAN OF THE BOARD, 
              NATIONAL ACADEMY OF SOCIAL INSURANCE

    Mr. Aaron. Thank you very much. I have a suggestion with 
respect to this gentleman's name, if it is problematic. Just 
think of the Minority Leader's flower garden: ``Gephardt's 
Bower.'' [Laughter.]
    Mr. Aaron. It is very easy.
    Mr. Gebhardtsbauer. Except he spells his name wrong, with a 
``P.'' And mine is with a ``B.'' [Laughter.]
    Mr. Aaron. I cover a number of points in my statement, but 
in my oral remarks I want to focus on the discussion of rate of 
return calculations: Should you do it in the reports? And my 
answer is a clear ``No.''
    And the reason is that it cannot be done right. Not that it 
is not done right, not that it has not been done right; but 
that it cannot be done right. Let me list five questions that 
you would have to answer in order to do a reasonable evaluation 
which would permit the kinds of comparisons to which attention 
was just drawn.
    What is full protection against inflation risk worth? No 
private asset provides this protection. Social Security does.
    What is full protection against financial market risk 
worth? All private assets analogous to individual accounts 
carry financial market risk, which the accountholder must bear. 
Social Security spreads such risks over all workers and through 
time. How much is such risk diversification worth?
    How should one value political risk? Social Security is 
subject to political risks that benefits or tax rates may be 
changed. Individual accountholders are subject to the risk that 
income or estate taxes could be changed in ways that affect the 
value of their accumulation. How should one value each of those 
kinds of risks?
    How much is the insurance protection in disability and 
survivors insurance worth? People regularly pay premiums that 
exceed the expected payout for property and casualty, 
disability, life, and health insurance. They do so because the 
insurance spares them the risks that they feel ill equipped to 
bear. That means that the value of such insurance exceeds its 
costs, although the payments are less than the cost. How should 
one estimate the extra value in the case of insurance 
protection provided by Social Security against loss of income 
from disability or premature death of the breadwinner?
    How much is the earnings insurance provided by Social 
Security worth? When workers enter the labor force, it is 
usually unclear whether they are going to be high or low 
earners. Social Security's benefit formula provides higher 
replacement rates if earnings turn out to have been low than if 
they turn out to have been high--a form of earnings insurance. 
How much is it worth?
    None of these questions has been answered well with respect 
to Social Security. Many more equally difficult questions could 
be listed. Of course, I want to stress, any good analyst could 
come up with answers to almost any question at all. 
Unfortunately, the answers are going to differ enormously.
    What this means, I think, is that responsible people would 
make radically different estimates. For that reason, mandating 
the reporting of rates of return would be to mandate highly 
uncertain, even arbitrary, estimates.
    When workers enter the labor force, they typically do not 
know anything more than their own race and sex. They do not 
know what they will earn. They do not know when or whether they 
will marry, or get divorced, or remarry, or have children, and 
if so how many. They do not know how often or how long they 
will be unemployed. They do not know if they will become 
disabled, or how long they will live, and, if married, how long 
their spouse will live. They do not know future asset yields or 
rates of inflation. They do not know how risk averse they will 
be, and how much they will pay to avoid those risks in the 
future.
    Not only do workers not know these things; neither does any 
actuary or economist. Yet, without knowing these things it is 
impossible--not difficult, but completely impossible--to 
construct meaningful estimates of the rate of return on a 
complex set of contingent payments such as Social Security.
    Let me repeat: Some analysts can make assumptions about 
each of these variables, plug them into a computer, and come up 
with a numerical answer. I am simply asserting that this 
numerical answer would not be worth the powder to blow it to 
hell.
    And if you would like me to be more clear in response to 
questions, I will try to do so. [Laughter.]
    [The prepared statement follows:]

Statement of Henry J. Aaron,\1\ Bruce and Virginia MacLaury Senior 
Fellow, Brookings Institution, and Chairman of the Board, National 
Academy of Social Insurance

    Mr. Chairman:
    Thank you for the invitation to testify on the quality of 
information provided to workers and citizens through the annual 
Social Security statements and the reports of the Trustees of 
the Social Security program.
---------------------------------------------------------------------------
    \1\ Bruce and Virginia MacLaury Senior Fellow, the Brookings 
Institution; Chairman of the Board, National Academy of Social 
Insurance. The views expressed here are my own and do not necessarily 
reflect the views of the staff, officers or trustees of the Brookings 
Institution or the members, staff, or directors of the National Academy 
of Social Insurance.
---------------------------------------------------------------------------
    The initiation of annual information reports is a major and 
constructive innovation, as you stressed in your announcement 
of these hearings. The Trustees Reports, which have been 
available since the inception of Social Security, are a 
remarkable source of information, unmatched as far as I know by 
analogous releases in any other country.
    Although these reports are very good indeed, it is 
important and constructive to ask whether they could be better. 
There has never been a data source that analysts did not 
believe they could improve in some way. And I shall not break 
that chain. Improvements are possible. For that reason, you are 
to be congratulated on scheduling hearings to consider possible 
improvements.
    Having said that, I think that legislative micromanagement 
of these reports is more likely to reduce their quality than to 
improve it. Congress showed great wisdom in mandating these 
reports. But with even greater wisdom it left the design of 
these reports to non-political professionals. These civil 
servants--in my view among the most dedicated and capable in 
the federal government--have made and continue to make annual 
improvements and modifications based on consultation with 
governmental and nongovernmental professionals.
    Before turning to the specifics of these reports, I want to 
highlight two facts. First, the debate on Social Security 
reform has benefitted from the agreement by most participants 
to work from the same set of estimates about the long-term 
financial status of the program. These estimates have driven 
home the two key statistical facts about the status of Social 
Security. Firs, the system is currently running large cash flow 
surpluses and will continue to do so for many years. Second, 
the program faces a projected long-term deficit.
    We all realize that any changes in the program will be 
phased in gradually. The proper mind-set for Social Security 
reform--to borrow a term immortalized by the Supreme Court in 
another context--is that we should move with all deliberate 
speed to enact the reforms on which Americans and their 
representatives can agree.
    My second point is that agreement on the two key facts I 
just mentioned has permitted debate to focus on matters that 
are more important than finances and have little to do with 
them--whether the Social Security system as currently designed 
is the best way to serve the purposes of social insurance--to 
assure basic income to American retirees, the disabled, and 
survivors. My own view is that it is well designed for that 
purpose. Others disagree. But the key point is that we can 
focus on that debate. For the most part, we have avoided a 
wonkish numbers squabble. The prospects for resolution of the 
debate on structural reform of Social Security will diminish 
sharply if we become occupied by squabbles about the numbers. 
If the public begins to think that the experts cannot even 
agree on what the numbers are, they will either get diverted 
from the more important issues or they will get bored and tune 
out. We should avoid a situation in which dueling estimates 
contend for public attention. We should make sure that the 
numbers used in public debate are done carefully, according to 
reasonable assumptions and are presented in a manner that the 
public can readily understand.
    So much for homilies. Now I should like to apply these 
principles to specific suggestions that have been advanced by 
various critics of the current estimates as contained in the 
Trustees Reports or the annual statements sent to workers. 
Because many assumptions go into these projections, there are 
many points of potential debate. I shall focus my remarks on 
just two. If you wish to go into others, I should be glad to 
respond to your questions.

Mortality Rates

    The Technical Panel on Assumptions and Methods that 
reported last November urged the Trustees approximately to 
double the rate of improvement in mortality rates assumed in 
projecting long term costs. The 1999 Trustees Report assumed 
faster declines in mortality rates than have been observed 
since the early 1980s, but slower than rates of improvement 
measured over longer periods. The Technical Panel's 
recommendation was based on analyses by reputable demographers 
and others who served on the panel. Not all outside experts 
share the Panel's views, but the projection of sharply improved 
longevity can certainly be defended. Great medical advances lie 
in the future. They could greatly extend life expectancy. 
Unfortunately, as I have noted, the most recent trends in 
mortality rates are not so encouraging--or discouraging, from 
the standpoint of Social Security's finances.
    For experts to miss a turning point or to expect one that 
hasn't occurred yet is not unusual. Nor is it unusual for them 
to change their minds. The problem is that experts often guess 
wrong.
     In the 1930s, few foresaw they baby boom. In the 
1950s and 1960s few foresaw its end.
     Five years ago, budget experts foresaw large and 
explosively growing budget deficits. Today they foresee 
virtually permanent budget surpluses.
     Three years ago, economists believed that 
unemployment much below 6 percent would trigger explosively 
growing wage and price inflation. Many now maintain that 4-
percent unemployment without inflation can go on indefinitely.
     Some now believe that productivity growth will 
remain so high that little of the projected long-term deficit 
in Social Security will remain. Other's think current rates 
cannot be sustained or even believe that they will relapse to 
the dismal rates that prevailed from 1973 through 1996.
    The Social Security trustees often have to decide what to 
do when expert judgment is not yet confirmed by the facts. The 
prudent course of action, I believe, is to take account of the 
experts' views, modifying assumptions a bit at first. Then, if 
evidence confirms the experts' views, further adjustments are 
in order.
    With the amply documented history of real howlers by 
experts in mind, I believe that we should admire the prudence 
with which the Trustees handled the Technical Panel's 
recommendations on assumptions regarding mortality rates. In 
the 2000 report, the Trustees increased the assumed rate of 
improvement in mortality by one-third--a sizeable shift, but 
much less than the huge shift suggested by the Technical Panel. 
Presumably, they found in the promise of the biological 
revolution sufficient reason to increase assumed longevity. But 
they sensibly decided to wait for the revolution to show up in 
the numbers before making even larger shifts.
    As I noted, expert judgment may change a lot--and quickly. 
If the Trustees promptly and completely incorporated the 
latest, best wisdom of economic or demographic experts, the 75-
year projections would oscillate crazily from year to year. The 
result would be alternate bouts of euphoria and panic and a 
breakdown of trust in the projections. Instead of conveying the 
important message that Social Security faces a projected long 
term deficit that we should close promptly, people would look 
at current surpluses and shrug off the long-term projections as 
undependable.
    I have focused on projected mortality, but the same 
cautionary note applies to other key assumptions. Productivity 
growth is dramatically above what the actuaries assume. Rather 
than incorporating these higher levels into long-term 
projections, the Trustees raised assumed productivity growth a 
modest 0.1 percentage point. The ``new economy'' is great fun. 
Let's enjoy it as long as we can. But only if it lasts a decade 
or more, are the Trustees likely to incorporate it fully into 
long-term Social Security projections. Given the history of 
trend reversals, the Trustees' practice of cautious and highly 
damped adjustments to new events is the only prudent course.

Rates of Return

    Oceans of financial data wash over us. Every mutual fund 
routinely reports its annualized rates of return for various 
past periods. Business school professors have computed rates of 
return on common stocks, 30-year Treasury bonds, Treasury 
bills, and just about everything else. Shouldn't Social 
Security provide such data to each worker and as part of the 
annual Trustees Reports? The answer, I believe, is a clear and 
unambiguous ``No!; There are three reasons:
     the enduring effects of Social Security's past 
history on the continuing operation of the system;
     the character of the Social Security benefit 
package; and
     the fallacies that arise from choosing incorrect 
perspectives for measuring rates of return.
    Social Security is a combination of annuities, insurance, 
and income redistribution. Furthermore, the program's history 
shapes its present and future. For workers who live to 
retirement, Social Security is an annuity. For people who 
become disabled or die, it is insurance that provides payments 
to workers or their dependents. For low-earners and large 
families, the program provides social assistance, financed by 
high earners and small families. Furthermore, the program today 
must deal with the consequences of the decision to pay early 
beneficiaries larger benefits than their contributions merited. 
Each of these factors should be taken into account in computing 
rates of return. Yet no currently available analysis has done 
so.
    Past policy. The extremely generous benefits that Social 
Security paid to early beneficiaries were financed by payroll 
taxes collected from active workers. As a result, reserves 
accumulated for these younger workers were tiny. Benefits 
subsequently paid to those younger workers have had to be 
financed by later workers. The reserves that were not 
accumulated on behalf of today's workers are the unfunded 
liability of the current system. Unless Congress reneges on 
these benefits--which is inconceivable--it will be necessary to 
collect taxes to pay those benefits. This obligation is 
inescapable, whether Social Security continues in its current 
form or is replaced. No mutual fund or asset group carries such 
an unfunded liability. Should some system of individual 
accounts replace Social Security, taxpayers would not escape 
this unfunded liability.
    For this reason, it would be misleading, at best--
meaningless, at worst--to compare rates of return on Social 
Security with returns on individual accounts that omit the cost 
of paying this unfunded liability. No such individual accounts 
plan could exist, unless Congress was prepared to renege on 
promises to current workers. Yet, such comparisons would be 
natural and would even be encouraged by the ignorant.
    The benefit package. Several analysts have presented 
estimates of the rate of return on Old-Age Insurance--that is, 
of retirement benefits. Unfortunately, the estimates of returns 
on Old-Age Insurance are incomplete and misleading. In 
contrast, no one has ever presented estimates of the rate of 
return on Social Security as a whole. The reason is that 
reliable data and defensible methods for estimating the rate of 
return on Social Security as a whole are currently unavailable.
    Let me make clear that I am not throwing stones simply at 
others. More than a quarter century ago, I prepared the first 
empirical estimates of the rate of return on Old-Age 
Insurance.\2\ They were the best I could do at the time, but 
they weren't good enough, as the discussant of my paper pointed 
out. The problem was that, like many later analysts, I was 
forced to make a crude and highly distorting assumption. 
Because Social Security consists not only of Old-Age Insurance 
but also of Survivors Insurance and Disability Insurance, one 
cannot attribute the entire payroll tax to support of Old-Age 
Insurance. On the average about two-thirds of the payroll tax 
goes to support Old-Age Insurance.
---------------------------------------------------------------------------
    \2\ Henry J. Aaron, ``Demographic Effects on the Equity of Social 
Security Benefits,'' in The Economics of Public Services, Martin 
Feldstein, editor, 1976.
---------------------------------------------------------------------------
    I and, subsequently, others have assumed that each worker 
bears the burden of about two-thirds of the payroll tax. We 
have compared the present discounted value of that tax with the 
present discounted value of the expected retirement benefits 
that workers receive. The interest rate that equilibrates these 
present expected values was the rate of return.\3\
---------------------------------------------------------------------------
    \3\ I actually computed ratios of present discounted values rather 
than internal rates of return, but the conceptual error described in 
the text is the same.
---------------------------------------------------------------------------
    The purpose of my study was to test an hypothesis 
originally presented by Milton Friedman, that blacks do less 
well than whites under Social Security. The problem, Friedman 
noted, was that blacks have briefer life expectancies and 
collect retirement benefits for a briefer period than do 
whites. This condition, he suggested, more than offset the 
disproportionately generous benefits paid to low earners, among 
whom blacks were--and are--over-represented. I found that 
blacks' shorter life expectancies about offset the effects of 
the benefit formula and that rates of return for blacks and 
whites were rather similar.
    My discussant pointed out that I had not found what I had 
thought I had found. The problem, he pointed out, is that 
Social Security is an integrated package of retirement, 
survivors, and disability insurance benefits. The shorter life-
expectancies of blacks mean that they receive proportionately 
more survivors benefits than do whites. In addition, the 
shorter black life-expectancies are correlated with higher 
disability rates, so that blacks receive proportionately more 
disability benefits than do whites. For this reason, he pointed 
out, I was wrong to assume that the same fraction of the 
payroll tax supports retirement pensions for blacks and whites. 
To compute the rate of return for blacks as a group or for 
whites as a group, one would have to take into account the 
differential value of disability and survivors benefits. I 
hadn't done that. So, my computations may have been 
interesting, but they did not mean what I thought they meant.
    Data to solve this problem were lacking a quarter century 
ago, and they are lacking still. This fact has not prevented 
analysts from repeating the same mistake I made and, 
unfortunately, adding new ones of their own. The Heritage 
Foundation, for example, compared rates of return to blacks and 
whites using life-expectancies at birth, rather than examining 
when labor force entrants died and how long those who reached 
retirement age actually received benefits.\4\ The result was a 
gross distortion in the relative lengths of benefit payments. 
For example, Heritage estimated that the average duration of 
benefit receipt for black men aged 20 in 1997 would be 2.2 
years. The true expectation was 8.1 years. This distortion 
severed any connection between the calculations and reality. 
Both former chief actuary Robert Myers and current deputy chief 
actuary, Stephan Goss have written devastating critiques of 
this egregious study.\5\
---------------------------------------------------------------------------
    \4\ William W. Beach and Gareth G. Davis, ``Social Security's Rate 
of Return,'' Heritage Foundation, January 1998
    \5\ Robert J. Myers, ``A Glaring Error: Why one study of Social 
Security misstates returns,'' The Actuary, September 1998, p. 5; 
Stephen Goss, ``Memorandum: Problems with 'Social Security's Rate of 
Return,' A Report of the Heritage Center for Data Analysis,'' February 
4, 1998.
---------------------------------------------------------------------------
    If one should not present bad estimates of returns on Old-
Age Insurance as estimates of returns on Old-Age Insurance and 
certainly not as returns on Social Security, the question 
remains as to whether it is possible to prepare good estimates 
of returns on Social Security. I imagine that one day such 
studies will be done. But they haven't been done yet, and a 
number of very difficult problems will have to be solved before 
such studies merit inclusion either in the Trustees Reports or 
in annual statements to workers. Among these questions are the 
following:
     What is full protection against inflation risk 
worth? No private asset provides this protection. Hence, it is 
necessary to value this protection if fair comparisons are to 
be possible between Social Security and other assets.
     What is full protection against financial market 
risk worth? All private assets analogous to individual accounts 
carry financial market risk, which the account holder must 
bear. Social Security spreads such risks over all workers and 
through time. How much is such risk diversification worth?
     How should one value political risk? Social 
Security is subject to political risks that benefits or tax 
rates may be changed. Individual account holders are subject to 
the risk that income or estate tax rules may be changed in ways 
that affect the value of their accumulations. How should one 
value each kind of risk?
     How much is the insurance protection in Disability 
and Survivors Insurance worth? People regularly pay premiums 
that exceed than the expected pay-out for property and 
casualty, disability, life, and health insurance. They do so 
because such insurance spares them risks they feel ill-equipped 
to bear. This fact means that the value of such insurance 
exceeds its cost although the payments are less than the cost. 
How should one estimate this extra value in the case of the 
insurance protection provided by Social Security against loss 
of income from disability or premature death of a breadwinner.
     How much is the ``earnings'' insurance provided by 
Social Security worth? When workers enter the labor force, it 
is usually unclear whether they will be high or low earners. 
Social Security's benefit formula provides higher replacement 
rates if earnings turn out to have been low than if they turn 
out to have been high, a form of earnings insurance. How much 
is this insurance worth?
    None of these questions has been answered well with respect 
to Social Security. Many more equally difficult questions could 
be listed. Of course, any good analyst can come up with answers 
to almost any question. Unfortunately, the answers will differ 
enormously. This fact means that responsible people will make 
radically different estimates. To mandate reporting of rates of 
return would therefore be to mandate highly uncertain, even 
arbitrary, estimates.
    Perspective for Measuring Rates of Return. When workers 
enter the labor force, they typically do not know anything more 
than their race and sex. They do not know what they will earn. 
They do not know when or whether they will marry. Or get 
divorced. Or remarry. Or have children, and, if so, how many. 
They do not know how often or how long they will be unemployed. 
They do not know if they will become disabled or how long they 
will live and, if married, how long their spouse will live. 
They do not know future asset yields or rates of inflation. 
They do not know how averse they will be to risk and how much 
they will pay to avoid these risks.
    Not only do workers not know these things, neither does any 
actuary or economist. Yet without knowing these things it is 
impossible--not just difficult, but completely impossible--to 
construct meaningful estimates of the rates of return on a 
complex set of contingent payments such as Social Security. Let 
me be clear. Some analyst can make assumptions about each of 
these variables, plug them into a computer and come up with a 
numerical answer. I am simply asserting that this numerical 
answer would not be worth the powder to blow it to hell.
    Of course, as workers age, they will learn answers to many 
of these questions. They will still not know how long they will 
live or whether they will become disabled or what rate of 
inflation will prevail when they become beneficiaries. But they 
will know if they are rich or poor; married, divorced, or 
single; parents or childless; well or ill; and so on. Once they 
know these things, however, they will--by definition--no longer 
be benefitting from the protections that are an essential part 
of Social Security--the insurance against these risks.
    For that reason, it makes no sense to measure the value of 
Social Security to, say, a fifty-five year old by the taxes 
that worker has paid and will pay and the benefits that worker 
will receive. To see why, consider a fifty-five year old 
homeowner who has had fire insurance since buying the home at, 
say, age twenty-five. This homeowner has paid premiums for 
thirty years and will continue to pay premiums. It would surely 
be complete nonsense to value that insurance by comparing the 
present value of all premiums the homeowner has paid and will 
pay against the expected pay-outs in the event of a fire. Most 
of the value of the insurance has already been achieved, in the 
form of peace of mind over three decades. The best outcome 
would be one in which the homeowner looks back at a lifetime of 
premium payments and no cash benefits. The financial rate of 
return in that case would be--. The economic return is presumed 
to be positive; otherwise people would not have bought the 
insurance.
    In the same sense, most of us would like to look back at a 
lifetime of payroll tax payments and to find that we never 
collected disability insurance, our children never collected 
survivors benefits, and we did not benefit from the high 
replacement rates paid to low earners.
    What this means is that the only potentially meaningful 
calculations of rates of return would have to be made for new 
labor force entrants. At that point, workers know their race 
and sex, but not much else. If one thought one could answer the 
questions I listed in the preceding section--as well as many 
others that I could have included--then one might prepare 
estimates of rates of return for race/sex groups. But I don't 
think that these questions can be answered with satisfactory 
confidence. And so I come to my conclusion--mandating estimates 
of rates of return would be ill considered. Analysts can make 
such estimates, but they would not be meaningful.

Conclusion

    I have focused on two issues: legislative mandates 
regarding particular assumptions and legislative mandates 
regarding estimates of rates of return as part of annual 
reports to workers or of the Trustees Reports. Each issue 
illustrates a larger class of issues. My major purpose is to 
warn about the dangers of legislative micro-management of the 
contents of statistical reports, such as that of the Social 
Security Trustees, or annual reports to workers. The Trustees 
Reports are subject to annual review by outside experts. The 
methods used in making these reports have changed. Statistical 
capabilities change over time as new analytical methods arise, 
as data sources expand, or, as has been increasingly the case 
in some areas of late, as data sources vanish because of penny-
wise cuts in budgets of statistical agencies.
    In addition, I hope that the Trustees will continue the 
work now under way to construct representative life-time 
earnings profiles. I would urge them to reconsider the linkage 
of various assumptions now grouped in the high-or low-cost 
projections. But these and other problems are best addressed by 
the Trustees with the aid of outside professional consultants. 
Congress has mandated, and will mandate, one-time studies of 
particular questions. Where these questions are sensitive--and 
virtually everything seems to be sensitive to someone--it often 
mandates a responsible organization whose objectivity is not in 
question, such as the National Academy of Sciences or the 
Institute of Medicine to carry out such a study. If Congress 
wishes to explore in greater depth the issues raised in these 
hearings, it might consider a similar approach, mandating a 
study by the National Academy of Sciences or the National 
Academy of Social Insurance.
      

                                


    Chairman Shaw. Thank you. I guess you tried.
    Mr. Aaron. Oh, no, I could continue, Mr. Shaw. Are you 
inviting me to do so? [Laughter.]
    Chairman Shaw. Ms. Entmacher.

   STATEMENT OF JOAN ENTMACHER, VICE PRESIDENT AND DIRECTOR, 
     FAMILY ECONOMIC SECURITY, NATIONAL WOMEN'S LAW CENTER

    Ms. Entmacher. Chairman Shaw, Mr. Matsui, and Members of 
the Subcommittee, I appreciate the opportunity to testify on 
behalf of the National Women's Law Center.
    The new Social Security statement provides in a short and 
clear format the essential information women need to plan for 
retirement, check their earnings records, and understand the 
program. This information is especially important to women, who 
depend more than men on Social Security income and on the full 
range of benefits that Social Security provides in addition to 
worker retirement benefits.
    Some have suggested that the statement also should include 
information about Social Security's rate of return, as they 
would define it. Some proponents have acknowledged that the 
purpose of this is to encourage workers to compare Social 
Security's rate of return with what they could get if they 
invested those dollars privately.
    We are concerned that information would be highly 
misleading, as several other witnesses have already indicated. 
First, as others have stressed, most of the Social Security 
taxes paid by current workers are used to pay benefits to those 
who are currently eligible. Once the cost of continuing to meet 
those obligations is factored in, the rates of return under 
Social Security and privatized systems is similar.
    To emphasize how large a factor this is, last year about 85 
cents of every dollar Social Security collected in taxes went 
to pay benefits to current beneficiaries. About 15 cents went 
into the Social Security Trust Fund, where by law it may be 
invested only in U.S. Treasury securities.
    If current workers could contribute their tax dollar not to 
Social Security, but to save it for only themselves, they would 
have a dollar to invest, not 15 cents. It would hardly be 
surprising if their returns were higher. But if current workers 
stop paying Social Security taxes, Social Security would not be 
able to pay benefits to those who are eligible. Over half of 
all women 65 and over would be plunged into poverty.
    I am sure that this Subcommittee, that this chairman, that 
these members, that this Congress and indeed any Congress, 
would not allow that scenario to unfold.
    And once the cost of paying those promised benefits is 
factored into any reform plan, the rates of return under Social 
Security and a privatized system would be essentially equal, as 
many economists have concluded.
    Second, any estimate of Social Security's rate of return 
must include the value of protection against risk provided by 
its secure lifetime inflation-adjusted retirement benefits.
    As Mr. Aaron just said, Social Security allows people to 
get a secure basic benefit that they can count on through 
retirement without worrying about the state of the stock 
market, the rate of inflation, or--and this is a particularly 
well-grounded fear for women, given their life expectancies and 
smaller other resources--the risk that they will outlive their 
other assets. If women had to obtain comparable protection 
privately, it would be extremely expensive, if possible at all.
    Third, Social Security provides disability and life 
insurance benefits that are not reflected in the investment 
concept of rate of return. I think most people, if they get 
through a year without experiencing a fire, flood, earthquake 
or burglary, do not figure that they have gotten a bad rate of 
return on their homeowner's insurance.
    The protection that Social Security provides by way of 
disability and life insurance would be far more expensive, or 
impossible, to obtain for many people, especially older 
Americans, those with preexisting conditions, and those in 
dangerous occupations.
    Finally, focusing on the rate of return to individual 
workers ignores the social insurance values of Social Security. 
Fortunately for women and millions of other Americans, Social 
Security does not pay benefits in strict proportion to an 
individual's contribution. Women in particular benefit from 
Social Security's progressive benefit formula that provides 
workers with low lifetime earnings with retirement benefits 
that are a larger percentage of their average earnings, and 
Social Security's protections for spouses whose lifetime 
earnings have been reduced because of homemaking and caretaking 
responsibility.
    In conclusion, it would appear that the purpose of some of 
those who talk about Social Security's rate of return is not to 
better inform the public, but to undermine support for a system 
that is vital to the economic security of millions of American 
women and their families.
    To be sure, it is important to consider ways to reform 
Social Security to strengthen its financing and improve its 
benefits. Social Security has been adjusted many times since it 
was created to better achieve its social insurance goals. But 
that, and not a debate focused on rate of return, is the 
discussion that we need to have.
    Thank you.
    [The prepared statement follows:]

Statement of Joan Entmacher, Vice President and Director, Family 
Economic Security, National Women's Law Center

    Chairman Shaw and members of the Subcommittee on Social 
Security, I am Joan Entmacher, Vice President and Director of 
Family Economic Security of the National Women's Law Center. I 
appreciate the opportunity to appear before you again to 
testify about efforts to inform the public about Social 
Security.
    The National Women's Law Center is a non-profit 
organization that has been working since 1972 to advance and 
protect women's legal rights. The Center focuses on major 
policy areas of importance to women and their families 
including employment, education, women's health, and family 
economic security, with special attention given to the concerns 
of low-income women and their families. Most relevant to this 
hearing, the Center has worked for more than two decades on 
issues of Social Security and women. It has presented testimony 
on Social Security issues affecting women to Congress over a 
dozen times, as well as to the Advisory Council on Social 
Security and several task forces of the Department of Health 
and Human Services. The Center served on the Technical 
Committee on Earnings Sharing in Social Security and co-
authored its report, and served on the Congressional Study 
Group on Women and Retirement for the Select Committee on Aging 
of the House of Representatives, and co-authored and presented 
its Social Security recommendations. This January, the Center 
presented a paper which I co-authored on ``Increasing Economic 
Security for Elderly Women by Improving Social Security 
Survivor Benefits,'' to the National Academy of Social 
Insurance.
    In October 1999, the Social Security Administration (SSA) 
began mailing personalized benefit statements to workers who 
are ages 25 and older and not receiving Social Security 
benefits. The purpose of these statements is three-fold: 1) to 
provide workers with an estimate of their Social Security 
retirement benefits to help them plan for retirement; 2) to 
ensure that SSA has complete and accurate earnings information; 
and 3) to provide information about the range of benefits 
available through Social Security.
    In designing the statement, SSA faced a significant 
challenge. There was a great deal of information to convey. 
But, as the GAO warned in its comments on SSA's earlier version 
of the Personal Earnings and Benefit Estimate Statements 
(PEBES),
    in general, people find forms, notices and statements 
difficult to use and understand. For this reason, many people 
may approach a PEBES-like statement ``with fear, frustration, 
insecurity, and hesitation.''
    People appreciated the information in the earlier 
statement, but the public also indicated that the dense, six-
page statement ``contains too much information and is too 
complex.'' \1\
---------------------------------------------------------------------------
    \1\ U.S. General Accounting Office (1996), SSA Benefit Statements: 
Well Received by the Public but Difficult to Comprehend, GAO/HEHS-97-
19, p. 6.
---------------------------------------------------------------------------
    The current statement has been completely redesigned. It is 
short (four pages) and clear, but contains the essential 
information people need to plan for retirement, check their 
earnings records, and understand the program. A Gallup survey 
found that people who have received the statement are 
significantly more likely to understand that: 1) the amount of 
Social Security benefits depends on how much they earned; 2) 
Social Security pays benefits to workers who become disabled; 
3) Social Security provides benefits to dependents of workers 
who die; and 4) Social Security was designed only to provide 
part of total retirement income.\2\
---------------------------------------------------------------------------
    \2\ Social Security Administration (1999), News Release, ``Social 
Security Begins Issuing Annual Statements to125 Million Workers,'' 
September 30, 1999.
---------------------------------------------------------------------------
    The statement also includes a message from the Commissioner 
concerning the future of Social Security. It identifies the 
factors that give rise to the concern about the future of 
Social Security, and acknowledges the need to address long-
range financial issues. But the statement also, and 
appropriately, addresses fears that Social Security won't be 
there when future generations retire:
    The program has changed in the past to meet the demands of 
the times and must do so again. We are working to resolve long-
term financial issues to make sure Social Security will provide 
a foundation of protection for future generations as it has 
done in the past.
    The latest report of the Social Security Trustees confirms 
that the statement conveys the right message. The Trustees 
project that for the next 37 years, Social Security will be 
able to pay all promised benefits. And after that, Social 
Security tax revenues will be sufficient to cover over 70 
percent of promised benefits.\3\ There is a projected long-term 
shortfall; but the size of the deficit has been declining for 
three years, and the issues are manageable. In the early 1980s, 
Social Security faced a far more serious and imminent financial 
challenge. Congress met that challenge, and the changes adopted 
in 1983 have allowed the Trust Fund to grow for decades. The 
projected long-term shortfall needs to be addressed, but modest 
adjustments would secure the program for even more generations 
to come.
---------------------------------------------------------------------------
    \3\ Board of Trustees of the Federal Old-Age and Survivors 
Insurance and Disability Insurance Trust Funds (2000), 2000 Annual 
Report [Social Security Trustees 2000 Annual Report].
---------------------------------------------------------------------------
    The information provided by the new Social Security 
statement is important for all Americans, but it is especially 
important for women. Women depend more on Social Security 
income in retirement than men. Social Security provides half or 
more of the income of nearly two-thirds of all women 65 and 
over, and 90% or more of the income of nearly one-third of such 
women.\4\ To plan for a more secure future, women need to know 
what their Social Security benefits are likely to be. 
Information about the range of benefits available under Social 
Security is also of particular use to women, who depend far 
more than men on Social Security benefits other than ``retired 
worker'' benefits. In 1998, 82% of adult male recipients of 
Social Security benefits were retired workers. Only 18% of 
adult male beneficiaries were disabled workers, spouses, 
surviving spouses, or disabled adult children. In contrast, 
nearly half of adult female beneficiaries, 44%, were receiving 
benefits as disabled workers, spouses, surviving spouses, or 
disabled adult children.\5\
---------------------------------------------------------------------------
    \4\ Kathryn Porter, Kathy Larin and Wendell Primus (1999), Social 
Security and Poverty Among the Elderly (Center on Budget and Policy 
Priorities) [Porter, Laren and Primus (1999)].
    \5\ Social Security Administration (1999), Annual Statistical 
Supplement to the Social Security Bulletin: 1999.
---------------------------------------------------------------------------
    Some may suggest that the statement also should include 
information about Social Security's ``rate of return.'' The 
Heritage Foundation, for example, has published a number of 
reports that purport to provide such information, which it 
defines as a comparison between the amount that workers pay 
into Social Security with the benefits they expect to receive 
in retirement. Its purpose is to encourage individuals to 
reject Social Security in favor of private investment.
    Knowing Social Security's rates of return will allow 
families to compare Social Security benefits to other 
investment vehicles. If the rate of return from Social Security 
is lower than what the family would receive from another 
investment, then allowing workers to place their Social 
Security payroll tax dollars into alternative, private 
investments would allow their money to grow more quickly (and 
provide them with a higher retirement income in the future). 
\6\
---------------------------------------------------------------------------
    \6\ Gareth G. Davis and Philippe J. Lacoude (2000), What Social 
Security Will Pay: Rates of Return by Congressional District 7 (The 
Heritage Foundation) [Heritage Foundation Report (2000)]
---------------------------------------------------------------------------
    However, comparing the ``rate of return'' from Social 
Security to that available from individual private investment 
(assuming either could be calculated for individuals in a 
meaningful way) would be highly misleading for several reasons.

1. Most of the Social Security taxes paid by current workers 
are used to pay benefits to those who are eligible. Once the 
cost of continuing to meet obligations to current beneficiaries 
and those nearing retirement is factored in, the ``rate of 
return'' under Social Security and privatized systems is 
similar.

    Last year, about 85 cents out of every dollar Social 
Security collected in taxes went to pay benefits to current 
beneficiaries.\7\ About 15 cents went into the Social Security 
Trust Fund, where by law it may be invested only in U.S. 
Treasury securities.
---------------------------------------------------------------------------
    \7\ Social Security Trustees 2000 Annual Report, Table I.C1.
---------------------------------------------------------------------------
    If current workers could, as the Heritage Foundation 
suggests, not give their tax dollar to Social Security but keep 
and invest it only for themselves, they would have $1 to 
invest, not 15 cents. They also would have a range of 
investment choices. With six-and-a-half times as much money to 
invest, it would be extremely surprising if returns were not 
higher.
    But if current workers stopped paying Social Security 
taxes, SSA would not be able to pay benefits to those who are 
eligible. Under one hypothetical scenario, SSA would have to 
stop paying benefits. Over half of all women 65 and over would 
be plunged into poverty; two-thirds of Americans 65 and older 
would see half of their income disappear.\8\ If current workers 
stopped contributing to Social Security, any increase in the 
rate of return for young, high earning workers with successful 
investment strategies would be offset by catastrophic declines 
in the rates of return of those just entering or nearing 
retirement. It is unimaginable that this Subcommittee--indeed, 
that this or any other Congress--would allow that scenario to 
unfold.
---------------------------------------------------------------------------
    \8\ Porter, Laren and Primus (1999).
---------------------------------------------------------------------------
    The ``rate of return'' comparison urged by Heritage is 
fallacious because it includes the cost of paying promised 
benefits when computing the rate of return for Social Security, 
but argues that this cost should be ignored when estimating the 
rate of return for private accounts.\9\ Once the cost of paying 
those promised benefits is factored in (or if the extra funding 
needed to cover those costs of transition to a private system 
were credited to Social Security, especially if Social Security 
were free to make a range of prudent investment choices), the 
rates of return under Social Security and a privatized system 
would be essentially equal.\10\
---------------------------------------------------------------------------
    \9\ Heritage acknowledges that it has not included the costs of 
paying benefits to those who are currently retired or close to 
retirement in its calculation. Heritage Foundation Report (2000) 156. 
It defends this choice by saying that it wants to provide a comparison 
between what workers receive under Social Security today with ``the 
returns they would have received had Congress created a Social Security 
system based on private accounts in 1935'' (ibid., at 3). But Congress 
did not create such a system; instead, it decided to allow workers who 
had fought in World War I, and lived through the Depression, to begin 
receiving Social Security benefits even though they had only paid into 
the system for a few years. The pay-as-you system of financing that was 
adopted dramatically reduced poverty among the elderly. But it also 
created a large unfunded liability for future generations. Honoring 
that obligation necessarily lowers the ``rate of return'' for current 
generations. Transition costs also have been underestimated by the Cato 
Institute in its comparisons of privatized retirement systems and 
Social Security. Catherine Hill, Lois Shaw and Heidi Hartmann (2000), 
Why Privatizing Social Security Would Hurt Women: A Response to the 
Cato Institute's Proposal for Individual Accounts (Institute for 
Women's Policy Research) [Hill, Shaw and Hartmann (2000)]
    \10\ See, for example, Alicia H. Munnell (1999), Reforming Social 
Security: The Case Against Individual Accounts (Center for Retirement 
Research at Boston College) [Munnell (1999)]; Peter R. Orszag (1999), 
Individual Accounts and Social Security: Does Social Security Really 
Provide a Lower Rate of Return? (Center on Budget and Policy 
Priorities); Peter A. Diamond (1999), Issues in Privatizing Social 
Security (MIT Press for the National Academy of Social Insurance); John 
Geanakoplos, Olivia S. Mitchell and Stephen P. Zeldes (1998), ``Would a 
Privatized Social Security System Really Pay a Higher Return?'' in 
Framing the Social Security Debate: Values, Politics and Economics, 
edited by A. Douglas Arnold, Michael J. Graetz and Alicia H. Munnell 
(Brookings Institution Press for the National Academy of Social 
Insurance)

2. Any estimate of Social Security's ``rate of return'' must 
include the value of the protection against risk provided by 
---------------------------------------------------------------------------
its secure, lifetime, inflation-adjusted retirement benefits.

    Social Security is designed to provide workers and their 
families with a secure, basic benefit throughout 
retirement.\11\ As the new Social Security statement 
acknowledges, Social Security is not designed to be the only 
source of income in retirement. But it is a benefit that people 
can count on, without worrying about the state of the stock 
market, the rate of inflation, or -and this is a particular, 
and well-founded fear for women--the risk that they will 
outlive their other assets.
---------------------------------------------------------------------------
    \11\ Munnell (1999).
---------------------------------------------------------------------------
    Women would find it difficult, if not impossible, to obtain 
equivalent protection privately. If they tried to use their 
savings to purchase a lifetime annuity with inflation 
protection, they would see their rate of return on those 
investments plummet. Most private annuities--unlike Social 
Security--base monthly payments on gender, providing women with 
lower lifetime benefits even when their investment is equal to 
men's. Converting to an annuity--which is done all at once--
makes a woman's lifetime retirement benefits extremely 
sensitive to the state of the stock market at the time of the 
conversion. In addition, the costs of converting savings to a 
private annuity are high; buyers give up an estimated 10-20 
percent of the value of the assets they convert to an annuity. 
Full protection against inflation, not currently available, 
would further reduce the monthly payments from the annuity.\12\ 
Finally, under Social Security, lifetime protection for 
surviving widows and widowers does not come at the price of 
reduced worker retirement benefits. \13\
---------------------------------------------------------------------------
    \12\ For a discussion of the extra cost and other difficulties 
associated with annuities, see Henry J. Aaron and Robert D. Reischauer 
(1998), Countdown to Reform: The Great Social Security Debate, p. 38-
41; Munnell (1999); Hill, Shaw and Hartmann (2000); GAO (1999), Social 
Security Reform: Implications of Private Annuities for Individual 
Accounts, GAO/HEHS-99-160.
    \13\ Christina Smith FitzPatrick and Joan Entmacher (2000), 
Increasing Economic Security for Elderly Women by Improving Social 
Security Survivor Benefits 3 (National Women's Law Center).

3. Social Security provides disability and life insurance 
benefits that are not reflected in the investment concept of 
---------------------------------------------------------------------------
``rate of return.''

    In addition to retirement benefits, Social Security 
provides insurance to both the worker and the worker's family 
against the risk of disability and early death. ``Rate of 
return'' is not an appropriate concept for evaluating the 
purchase of insurance. For example, many people buy homeowners' 
insurance, paying premiums every year. If they got through the 
year without experiencing a fire, flood, or burglary, most 
people would not think that they made a bad investment. They 
didn't buy insurance to get a good rate of return; they were 
purchasing protection against risk.
    Some analyses comparing Social Security's rate of return to 
that from private accounts, however, would ignore survivor and 
disability benefits. That omission significantly undervalues 
the benefits provided by Social Security. Because Social 
Security creates a huge insurance pool, all working Americans 
receive low-cost disability and life insurance protection for 
themselves and their families. The protection that Social 
Security provides against these risks would be far more 
expensive, if not impossible, for many people--especially older 
Americans, those with pre-existing conditions, and those in 
dangerous occupations--to obtain.\14\
---------------------------------------------------------------------------
    \14\ The Heritage Foundation Report (2000) ignores disability 
insurance and survivor insurance benefits in its rate of return 
calculations, casually assuming that these benefits would be retained 
``exactly as they exist under current law'' even if the retirement 
system were privatized (pp. 151-152). However, the Social Security 
retirement, survivor, and disability benefit programs are closely 
interrelated; maintaining disability and survivor benefits independent 
of retirement benefits cannot be done without creating severe 
inequities and perverse incentives. Kathy Larin and Robert Greenstein 
(1998), Social Security Plans that Reduce Social Security Retirement 
Benefits Substantially are Likely to Cut Disability and Survivor 
Benefits as Well (Center on Budget and Policy Priorities). The Cato 
Institute's proposals to privatize Social Security also exclude 
consideration of disability and life insurance benefits, on the 
mistaken assumption that these benefits could be obtained at similar 
cost privately. Hill, Shaw and Hartmann (2000). For additional 
information on the higher cost of disability and life insurance 
protection in privatized systems, see Barbara Kritzer (1996), 
``Privatizing Social Security: The Chilean Experience,'' Social 
Security Bullletin (59:3), 45-55; GAO (1999), Social Security Reform: 
Experience of Alternative Plans in Texas, GAO/HEHS-99-31.

4. Focusing on the ``rate of return'' to individual workers 
---------------------------------------------------------------------------
ignores the social insurance values of Social Security.

    Fortunately for women and millions of other Americans, 
Social Security does not pay benefits only to workers, nor does 
it base benefits strictly on the level of contributions. Social 
Security's progressive benefit formula provides individuals 
with low lifetime earnings, who are disproportionately women, 
with retirement benefits that are a larger percentage of 
average lifetime earnings. Social Security also provides 
protection to spouses (and ex-spouses married for ten years) 
whose lifetime earnings have been reduced because of homemaking 
and caretaking responsibilities. Over 98 percent of the 
recipients of spouse and surviving spouse benefits are women. 
Social Security also allows individuals who are entitled to 
worker benefits on their own, and to benefits as a spouse or 
survivor, to receive the higher benefit. Finally, as discussed 
above, Social Security offers lifetime, inflation-adjusted 
benefits; neither workers nor their survivors need worry that 
their benefits will stop once they have a certain percentage of 
contributions back.\15\
---------------------------------------------------------------------------
    \15\ Joan Entmacher (1999), Testimony at the Hearing on Social 
Security and Women, Subcommittee on Social Security, Committee on Ways 
and Means, U.S. House of Representatives (February 3, 1999); Munnell 
(1999); Hill, Shaw and Hartmann (2000).
---------------------------------------------------------------------------

                               CONCLUSION

    It would appear that the purpose of some of those who talk 
about Social Security's ``rate of return'' is not to inform, 
but to undermine support for a system that is vital to the 
economic security of millions of American women and their 
families. To be sure, it is important to consider ways to 
reform Social Security, to strengthen its financing and improve 
its benefits.\16\ Social Security has been adjusted many times 
since it was created to better achieve its social insurance 
goals. But that, and not a debate focused on rate of return, is 
the discussion we need to have.
---------------------------------------------------------------------------
    \16\ For some suggestions on ways to improve benefits for women, 
see FitzPatrick and Entmacher (2000) and Heidi Hartmann and Catherine 
Hill (2000), Strengthening Social Security for Women: A Report from the 
Working Conference on Women and Social Security (Task Force on Women 
and Social Security, National Council of Women's Organizations).
---------------------------------------------------------------------------
      

                                


    Chairman Shaw. Thank you.
    Mr. John.

    STATEMENT OF DAVID JOHN, SENIOR POLICY ANALYST, SOCIAL 
                 SECURITY, HERITAGE FOUNDATION

    Mr. John. Thank you for the opportunity to testify in this 
hearing. This is a subject that we at the Heritage Foundation 
find to be extremely important. Although my written testimony 
concentrates also on the need to release the continuous work 
history sample that Social Security puts together to qualified 
researchers, and to make some changes to the Trustees' Report, 
I am also going to concentrate on ``Your Social Security 
Statement'' and some changes we recommend to that.
    Let me in passing say, however, that when the Trustees' 
Report was released recently, the press reports all reported 
the good news that Social Security was safe for an additional 
couple of years. They did not bother to mention, or could not 
mention, that the unfunded liability increased by 7 percent, 
and that our children and our grandchildren are now going to 
face $21.6 trillion in unfunded benefit payments. And that is 
in today's dollars.
    The changes in the ``Your Social Security Statement'' are 
contained in two versions of the Social Security Right To Know 
Act, the Sununu-Weller bill, and the Santorum-Gregg bill in the 
Senate; and also, in Senator John McCain's Straight Talk About 
Social Security Act, which was introduced last Friday.
    Essentially, all three recommend three changes to ``Your 
Social Security Statement.'' Now, we at the Heritage Foundation 
do salute the Social Security Administration on vastly 
improving the old PEBE statement; not the least of which, most 
of us can understand now what SSA is trying to say.
    At the same time, we would say that there are some 
improvements. Looking for instance, Mr. Chairman, at your point 
that it is difficult to tell the boundary between personal 
information and general information, we would recommend an 
explicit, in bold statement at the time of the benefits 
estimates saying, ``You will be eligible to receive full 
retirement benefits in 20-whatever. In that year, Social 
Security will only receive enough taxes to pay for `X'-
percentage of those benefits. Through 2037, the difference will 
be made up by the Social Security OASDI Trust Fund, but after 
that date changes may be required.'' This makes it personal, 
and it lets them know that this is not something that is just 
abstract.
    We also strongly support the inclusion of President 
Clinton's OMB statement about the nature of the Social Security 
Trust Fund. This is similar to what the private sector is 
required to report on the trust funds that deal with private 
pension plans.
    Last but not least is the ever-popular rate of return 
discussion--which has been mentioned on rare occasions. This is 
the chart that the legislation--the McCain bill and the Sununu 
bill--would include, except for the red lines.
    Now, what does this information tell me here? This red line 
tells me that my grandmother, who was born in 1896, received a 
rate of return on her Social Security taxes of about 15 percent 
in real terms. That is twice what the stock market does on an 
average year.
    My father, who was born in 1919, receives about 8 percent, 
which is about equal to what the stock market does in real 
terms. In 1950, when I was born, the rate of return declined to 
about 3 percent. And my 13-year-old daughter, who was born in 
1986, will get below 2 percent.
    Now, what this tells me is that this is not a deal that is 
improving the lifetime benefits of my child. It tells me that 
if I compared this with some other things--for instance, if I 
look at the U.S. Treasury series ``I'' U.S. savings bonds, 
which pay 3.4 percent plus inflation--that sending her money to 
the government for this program is not necessarily the best use 
of her funds.
    Now, I am not here to criticize Social Security or the 
Social Security program. It did wonderful things for my 
grandmother; it is doing wonderful things for my father. I look 
forward to visiting my parents again, and anything that I did 
to endanger their benefits would probably mean that I would be 
on the wrong side of the door.
    But at the same time, my real concern is what happens to my 
children, and what happens to my coming grandchildren, or 
future grandchildren--At 13 I hope they are going to be delayed 
for a while. But the question is, is this getting better for my 
children? And the short answer is, ``No.''
    Now, in the short run, there are only three ways that you 
can deal with Social Security's problems: You can raise taxes; 
you can cut benefits; or you can make that money work harder. 
Making that money work harder through a personal retirement 
account is, obviously, our eventual goal at the Heritage 
Foundation.
    But in the short run, it is important for Americans to have 
the information that they need to understand the nature of the 
Social Security system and where it is going in the future.
    Again, now, it has been suggested that this might be 
confusing. Well, last weekend I spent a fair portion of my time 
trying to do my taxes. And I would say that any government that 
expects me to understand the 1040 form and the instructions for 
the 1040 form probably can explain additional information on 
the Social Security statement in a way that is understandable. 
I hope they do a slightly better job than they did on the 1040 
form.
    Thank you.
    [The prepared statement follows:]

Statement of David John, Senior Policy Analyst, Social Security, 
Heritage Foundation

    I appreciate the opportunity to appear before you today to 
discuss ways to increase the information that the public can 
receive about Social Security programs. This is an extremely 
important subject, and I would like to thank the Chairman for 
scheduling this hearing. Let me begin by noting that while I am 
the Senior Policy Analyst for Social Security at the Heritage 
Foundation, the views that I express in this testimony are my 
own, and should not be construed as representing any official 
position of the Heritage Foundation. In addition, the Heritage 
Foundation does not endorse or oppose any legislation.
    Congress could begin the process of Social Security reform 
this year by passing legislation to provide more information to 
workers and analysts about the current program and the options 
for reform. Taking such steps would help to prepare Americans 
for a more informed debate on the future of Social Security, 
and it would make it easier to develop a national consensus on 
real reform. Moreover, these steps would cost very little, both 
politically and financially. Congress need not wait for a 
complete Social Security reform plan to be agreed on by all 
sides before taking these important steps.
    Although Social Security is the government's most popular 
program, many Americans know very little about how it operates 
and how its benefits compare with alternative retirement 
investments. For example, millions of Americans remain 
convinced that Social Security maintains a savings account in 
each of their names, despite the fact that there is no direct 
connection between the amount of taxes one pays and the 
retirement benefits that one eventually receives.\1\ Even 
academic researchers are denied access to information that 
would allow them to evaluate plans that could increase the 
retirement security of future generations. Moreover, few 
Americans realize that the rate of return on their Social 
Security taxes is averaging a mere 1.2 percent,\2\ or that the 
program will reach insolvency by the year 2015 without 
reform.\3\
---------------------------------------------------------------------------
    \1\ The formula used to determine Social Security benefits is based 
on an individual's inflation-adjusted earnings history, not on the 
taxes he or she paid. Since 1940, retirement taxes have increased from 
a combined employer-employee rate of 2 percent on the first $3,000 of 
earnings to 10.6 percent of the first $76,200 of earnings. Meanwhile, 
the benefit formula has been based on earnings throughout that period.
    \2\ William W. Beach and Gareth G. Davis, ``Social Security's Rate 
of Return,'' Heritage Foundation Center for Data Analysis Report No. 
98-01, January 15, 1998.
    \3\ 2000 Annual Report of the Board of Trustees of the Federal Old-
Age and Survivors Insurance and Disability Insurance Trust Funds 
(Washington, D.C.: U.S. Government Printing Office, 2000), p. 3.
---------------------------------------------------------------------------
    Doing nothing with the current Social Security program 
makes little sense and will serve only to make matters worse. 
Testimony by U.S. Comptroller General David Walker indicates 
once again that the overall cost of not enacting reform 
increases every year.\4\ If serious reform is not feasible this 
year, then Congress should pass three simple but extremely 
important changes that would make real reform more likely in 
the near future.
---------------------------------------------------------------------------
    \4\ David Walker, Testimony before the Social Security Subcommittee 
of the Ways and Means Committee, U.S. House of Representatives, 106th 
Cong., 1st Sess., March 25, 1999.
---------------------------------------------------------------------------
1. Congress should simplify and improve Social Security's Your 
Social Security Statement (YSSS).

     A more accurate account of Social Security's 
future financial difficulties also should be added to the YSSS. 
In specific, individual's should be informed how Social 
Security's cash flow deficits could affect their retirement 
benefits.
     Each YSSS should include information about the 
actual nature of the Social Security trust funds.
     Data should be included on each YSSS explaining 
the recipient's estimated rate of return from his or her Social 
Security retirement taxes.
    Starting in October 1999, the Social Security 
Administration began mailing annual YSSS statements to an 
estimated 123 million workers.\5\ These statements include an 
accounting of Social Security taxes the individual worker has 
paid to date, the worker's eligibility status for benefits, and 
an estimate of the various types of benefits the worker and/or 
the family could receive under different circumstances.
---------------------------------------------------------------------------
    \5\ In order to receive a YSSS statement, a worker must be at least 
25 years old and have annual earnings, a Social Security number, and a 
valid current address. The worker also cannot be receiving Social 
Security benefits.
---------------------------------------------------------------------------
    For most Americans, the YSSS statements will be their sole 
source of official information on how they personally will fare 
in retirement under the current system. While the new 
statements are much easier to understand than the earlier 
Personal Earnings and Benefit Estimate Statements (PEBES), 
which they replaced, additional change are necessary. 
Unfortunately, even with the improvements, much of the 
information contained in the YSSS statements is both flawed and 
misleading. As a result, millions of Americans may be 
misinformed about how the current system works and confused 
about how much retirement income they will receive. Moreover, 
as the debate over preserving and improving Social Security 
continues, these workers will not have the necessary 
information to make an informed decision.
    The worst flaws are contained in the methodology that 
Social Security uses to estimate future benefits. While Social 
Security uses actual salary information to the extent that it 
is both available and accurate for past earnings, it then 
assumes that the individual will continue to earn exactly the 
same amount through retirement. This results in misleading 
numbers in a number of instances. For instance, a younger 
worker's benefits will be grossly understated, as the SSA model 
does not allow for salary increases. Similarly, anyone with 
fluctuating income, such as farmers or salespeople, could find 
that their annual statements include widely differing benefit 
estimates depending on whether the last year of actual earnings 
information was a year of prosperity or of difficulty. Finally, 
women who expect to leave the workforce temporarily to care for 
children will also receive inaccurate estimates. In order to 
deal with this weakness, The Heritage Foundation will shortly 
unveil a website that will allow workers to develop more 
accurate benefit estimates.
    Equally serious is that the YSSS statements fail to 
adequately inform people how the program's projected financial 
difficulties could affect the payment of their benefits. While 
the most recent statements include a footnote hinting at these 
problems, this warning should be more explicit. The estimated 
benefits section of the YSSS statement should begin with a 
statement such as:

``You will be eligible to receive full retirement benefits in 
20XX. In that year, Social Security will only receive enough 
taxes to pay for xx% of these benefits. Through 20XX, the 
difference will be made up from the Social Security OASDI trust 
fund, but after that date changes may be required.''

    These disclosures are similar to those required of under-
funded private pension plans by the US Department of Labor. It 
is only fair to also require Social Security to meet these 
standards.
    Second, Congress should require the Social Security 
Administration to include information on the actual nature of 
the Social Security trust funds and how they differ from 
private-sector trust funds. President Clinton's budget for 
fiscal year 2000 accurately portrayed this distinction. Chapter 
15 of the Analytical Perspectives volume for that year stated 
that

``These balances are available to finance future benefit 
payments. . .only in a bookkeeping sense. They do not consist 
of real economic assets that can be drawn down in the future to 
fund benefits. Instead, they are claims on the Treasury that, 
when redeemed, will have to be financed by raising taxes, 
borrowing from the public, or reducing benefits, or other 
expenditures.'' \6\
---------------------------------------------------------------------------
    \6\ Analytical Perspectives, Budget of the United States 
Government, Fiscal Year 2000 (Washington, D.C.: U.S. Government 
Printing Office, 1999), p. 337.

    This statement should also be included in the YSSS 
statements. Both workers and the media should understand that, 
in discussing Social Security, the term ``trust fund'' has a 
different meaning than it does in normal financial dealings. 
Although private-sector trust funds contain stocks, bonds, or 
other assets that can be sold for cash, Social Security's trust 
funds contain only IOUs that will have to be paid with future 
taxes.
    Finally, the Social Security Administration should be 
required to include data on the worker's estimated rate of 
return on Social Security retirement taxes. One way to do this 
would be to include the chart found on page 23 of GAO's August 
1999 report on Social Security's rate of return.\7\
---------------------------------------------------------------------------
    \7\ ``Social Security: Issues in Comparing Rates of Return wit 
Market Investments,'' GAO/HEHS-99-110 (Washington, DC: U.S. Government 
Printing Office, 1999).
---------------------------------------------------------------------------
    Because YSSS statements already are included in the federal 
budget, the cost of making these modest improvements would be 
minimal. By making such incremental changes to the information 
Social Security provides on YSSS statements, Congress could 
ensure that millions of workers and their families have better 
information on the Social Security program, which would enable 
them to plan more appropriately for their retirement. It also 
would enhance the Social Security debate.

2. Congress should improve the annual report of the Social 
Security trustees to reflect the program's long-term outlook 
more accurately.

     Information should be provided in the initial 
summary of the Trustees' Report on any changes in Social 
Security's aggregate dollar liability that have taken place 
since the last report.
     Information on the actual nature of the Social 
Security trust funds and how they differ from private-sector 
trust funds should be provided, too.
     Estimates of the tax increases or benefit 
reductions that would be necessary to avoid cash flow deficits 
also should be included, as well as information on how delaying 
action would change those estimates.
    Every spring, the Social Security trustees issue an annual 
report about the trust fund's financial condition. The 2000 
report for the Old-Age and Survivors Insurance trust fund, 
which includes the Social Security retirement program, includes 
over 200 pages of charts, tables, and other very detailed 
information. Unfortunately, some of the most important facts 
are buried in the report, and others are missing entirely. When 
the 2000 report was issued earlier this year, for example, news 
stories concentrated on findings that there would be an 
additional year before Social Security begins to run cash 
shortfalls, and three more years before its trust fund is 
exhausted. Most of the stories did not include the fact that, 
in the past year, the gap between benefits that have been 
promised over the next 75 years and the taxes that will be 
available to pay them actually increased by 4 percent to $20.6 
trillion, after adjusting for inflation.\8\
---------------------------------------------------------------------------
    \8\ This calculation assumes that, as occurs under current law, the 
federal government spends any future surpluses produced by the Social 
Security system.
---------------------------------------------------------------------------
    The unduly optimistic picture would have been closer to 
reality if Congress had required the Social Security 
Administration to include in the initial summary information on 
changes in Social Security's aggregate dollar liability over 
the past year. Currently, that information is included only 
among the flood of charts and tables in the back.
    As earlier discussed, Congress should also require the 
Social Security Administration to include information on the 
actual nature of the Social Security trust funds and how they 
differ from private-sector trust funds. In addition to the 
statement from President Clinton's budget for fiscal year 2000 
that was noted in the YSSS statement section of this testimony, 
the annual report should also include another quote from 
Chapter 15 of the Analytical Perspectives volume:

``The Federal budget meaning of the term ``trust'' differs 
significantly from the private sector usage. . .the Federal 
Government owns the assets and earnings of most Federal trust 
funds, and it can unilaterally raise or lower future trust fund 
collections and payments, or change the purpose for which the 
collections are used.'' \9\
---------------------------------------------------------------------------
    \9\ Analytical Perspectives, Budget of the United States 
Government, Fiscal Year 2000 (Washington, D.C.: U.S. Government 
Printing Office, 1999), p. 335.

    The annual Trustees' Report also should include estimates 
of the tax increases or benefit reductions that would be 
necessary to avoid a cash flow deficit, and how delaying 
actions would change those estimates. In this way, workers 
would understand that, although cash flow deficits will not 
appear for another 15 years, the eventual cost of reforming 
Social Security increases with each passing year. Adding this 
type of information to the Trustees' Report would allow 
Americans to see the real state of Social Security's finances. 
They would know that the crisis has been delayed, but it still 
is getting worse and will cost more to resolve. Although this 
realistic picture would not be popular with politicians who 
would prefer avoiding difficult choices, it would be more 
---------------------------------------------------------------------------
honest.

3. Congress should allow all researchers access to Social 
Security's Continuous Work History Sample (CWHS).

     Access to the CWHS would allow private researchers 
and government agencies to analyze how Social Security reforms 
would affect the budget and the distribution of benefits among 
various income groups. The Social Security Administration would 
retain the ability to edit and format these data to protect the 
privacy of individuals.
     Support for the release of this information comes 
from both proponents and opponents of Social Security reform.
    The CWHS is a random sample of the earnings and benefit 
histories of about 1 percent of all Social Security 
participants. To ensure confidentiality, information that can 
be used to link data to specific individuals, such as names, 
addresses, and Social Security numbers, is removed from the 
sample.\10\
---------------------------------------------------------------------------
    \10\ For additional information on the CWHS, see Gareth G. Davis, 
``Empowering an Informed Debate on Social Security: Why Congress Must 
Act to Ensure Access to the Continuous Work History Sample,'' 
unpublished memorandum available from the author on request, 1998.
---------------------------------------------------------------------------
    In order to make sure that Americans have the best possible 
information about Social Security and any proposed reforms, 
Congress should require the Social Security Administration to 
release CWHS data to bona fide non-federal researchers. 
Currently, access to the CWHS is restricted to a small group of 
government researchers, most of whom are in the Social Security 
Administration or the Department of the Treasury. The Social 
Security Administration would retain the ability to edit or 
format any data being released to provide additional 
confidentiality protections.
    Without wide access to these data, many of the central 
questions of Social Security reform cannot be explored properly 
by independent analysts. Because it contains real wage and 
benefit histories, the CWHS could be used to carry out detailed 
analysis of the effects of both the current system and any 
reform proposal on key demographic groups--such as women, 
minorities, and low-income workers. Without this information, 
the impact of some of these plans only can be estimated.
    Before access to these data was restricted in 1974, they 
were used widely by private industry, state and local 
governments, and academic researchers for purposes ranging from 
forecasting the demand for government services to studying 
changes in income distribution. Today, there is widespread 
support within government and among researchers for release of 
the CWHS data. Both Social Security Commissioner Kenneth Apfel 
and Secretary of the Treasury Lawrence Summers endorsed the 
release of the data during Senate Budget Committee hearings on 
February 24, 1998. In addition, two panels of leading social 
scientists from the National Research Council (a branch of the 
National Academy of Sciences) have called for the release of 
the CWHS data and suggested a number of ways in which the 
confidentiality of the information could be preserved.\11\ And 
a group of top Social Security scholars from across the 
political spectrum soon will issue a letter calling for release 
of the data.
---------------------------------------------------------------------------
    \11\ National Research Council, ``The Aging Population in the 
Twenty First Century,'' Washington, D.C., 1988. National Academy Press 
and National Research Council, Private Lives and Public Policies: 
Confidentiality and Accessibility of Government Statistics (Washington, 
D.C.: National Academy Press, 1993).
---------------------------------------------------------------------------

                              LEGISLATION

    There are currently three bills that include one or more of 
these recommendations. In the House, all three are contained in 
H.R. 3578, the Social Security Right to Know Act, which was 
introduced by Rep. John Sununu. Currently, there are 9 co-
sponsors to the Sununu bill. The additional information 
contained in this legislation would allow workers of all income 
levels to have a better understanding of Social Security's 
future and how it will affect them. This is extremely important 
legislation.
    In the Senate, S. 2364, also known as the Social Security 
Right to Know Act, by Senator Rick Santorum would make similar 
changes to the YSSS statements and the annual trustee's report. 
Finally, the newest bill, S. 2381, the Straight Talk on Social 
Security Act, was introduced last Friday by Senator John 
McCain. It includes the same provisions on the YSSS statement 
as the Sununu bill.

                               CONCLUSION

    If Congress were to pass legislation that made all three of 
the small changes recommended in this paper, the debate over 
Social Security reform would be greatly enhanced. Providing 
more information to average Americans through their annual YSSS 
statements and in the Social Security trustees' annual report 
would make it easier for workers to understand how reforms 
could affect their retirement. And releasing Social Security's 
Continuous Work History Sample to all researchers would ensure 
that Americans can determine how different reforms would affect 
the economy and various socioeconomic groups. Regardless of 
whether Congress acts this year to deal with Social Security's 
impending insolvency, these small but important measures are 
long overdue.
    Members of The Heritage Foundation staff testify as 
individuals discussing their own independent research. The 
views expressed are their own, and do not reflect an 
institutional position for The Heritage Foundation or its board 
of trustees.
      

                                


    Chairman Shaw. Thank you. And I thank all of the witnesses.
    I think it is important that I read a paragraph into the 
record. And this is taken from the Social Security statement. 
And this is the Commissioner's statement on the front. It reads 
as if it is a part of a letter. It says:
    ``Will Social Security be there when you retire? Of course 
it will. But changes will be needed to meet the demands of the 
time. We are living longer, healthier lives; 76 million `Baby 
Boomers' will start retiring in about 2010; and in about 30 
years there will be nearly twice as many older Americans are 
there are today.''
    ``Social Security now takes in more in taxes than it pays 
out in benefits. The excess funds are credited to Social 
Security Trust Funds, which are expected to grow to over $4 
trillion before we need to use them to pay benefits. In 2014--
'' that is now 2015 ``--we will begin to pay out more in 
benefits than we collect in taxes. By 2034, the trust funds 
will be exhausted, and the payroll taxes collected will be 
enough to pay only about 71 percent of benefits owed.''
    ``We are working to resolve these issues. For more 
information about the present and what may lie ahead, call us 
or get a copy of the booklet, 'The Future of Social 
Security'.''This is something that I think is very admirable, 
that they put that right on the front. Because it does, in a 
very fair way, state what the problem is. The only thing that I 
am concerned about is that people reading this might really 
think that, well, they have got until 2034, now 2037.
    The Congress needs to act on this. Also, is there someone 
still here from the Social Security Administration? I want to 
be sure they change and correct this about the earnings limit. 
You explain the earnings limit in here, and you are going to 
have to change that age, I am glad to say.
    Ms. Entmacher. Mr. Chairman, I was speaking with a 
representative of the administration before the hearing 
started, and they are working on it already.
    Chairman Shaw. I would think that they would. They 
certainly had a big celebration on that point.
    Mr. Salisbury. Mr. Chairman, if I might, if I could ask 
your indulgence?
    Chairman Shaw. Yes.
    Mr. Salisbury. I was at a supermarket this weekend, and 
could not help seeing The Sun with the headline, ``Social 
Security Benefits To Double in New government Program.'' This 
was The Sun's interpretation of the change in the earnings 
limit.
    Mr. Portman. He is covering up that portion. [Laughter.]
    Mr. Salisbury. It was covered in the stand. In the interest 
of full disclosure, ``Found Dead Sea Scroll Written by Jesus 
Reveals Exact Date of My Return.'' [Laughter.]
    Mr. Aaron. Mr. Shaw?
    Chairman Shaw. Yes.
    Mr. Aaron. Could I mention one point which I think 
underscores the importance of your comment about the need to 
act early, rather than stall? This is the first year in which 
the age at which unreduced benefits are paid has begun to be 
increased. Looking at the calendar of this piece of legislation 
is revealing.
    It was enacted in 1983. The first people affected by it are 
affected in the year 2000. It will not be fully in effect until 
the year 2022. That is a 39-year period, a 39-year phase-in.
    When it comes to Social Security, gradualism has always 
been the order when it comes to benefit reductions, for good 
and sufficient reasons. And I am convinced it will be, because 
Congress would act prudently in the future. But that means, if 
you want to get ready for the fact that costs are going to 
outrun currently projected revenues, it is better to act soon 
than late, because you are going to want to phase in gradually.
    Chairman Shaw. I think you are absolutely right on that. 
But there are programs out there now that can be enacted. And 
if we act now, we will in no way diminish the benefits.
    Mr. Matsui?
    Mr. Matsui. Well, thank you, Mr. Chairman. I actually came 
into this hearing with a great deal of trepidation, with four 
panels and all these witnesses. And I just want to thank you. I 
think the hearing was very good. I learned a lot from it, and I 
appreciated all the testimony from all of the witnesses. Thank 
you.
    Chairman Shaw. We appreciate the thought all of the 
witnesses have put into their testimony.
    Mr. Portman?
    Mr. Portman. Thank you, Mr. Chairman. I do not want to hold 
people up. I may be the last questioner here, including my 
friend, Mr. Matsui. But I did have a few questions; starting by 
thanking folks for being here. I wish I could have gotten here 
earlier. We are always doing three things at once--and today it 
was four. But I did learn a lot.
    I want to start by thanking Dallas Salisbury for EBRI's 
work. Again they came out with a good product, just last month, 
on savings, that I used on the floor today, about the paucity 
of savings in our country and the fact that in the last 5 years 
alone we have a 50-percent reduction in private savings in this 
country.
    And all the more reason to talk about Social Security, 
because we have a general issue with regard to retirement 
savings. And only half of the people now are covered by any 
kind of pension plan, and so on. And we need to do more on 
that. But it puts more pressure on the system that everybody 
talked about today.
    I have to say one thing in response to Ms. Entmacher. 
Because if you have looked at the Archer-Shaw proposal or other 
proposals, I think your analysis misses the point in terms of 
comparing the current system with any kind of a system that has 
personal accounts; by saying that when you average out the 
difference between benefits that would be going to the 
individual, as compared to those that would go to people who 
are currently beneficiaries while that person is paying taxes, 
then the rates of return are comparable.
    The whole idea here is to get people in a situation where 
they have, because of the higher rate of return--and you can 
use 5.2 percent, or you can use a higher or a lower rate--over 
time, less need for the public moneys.
    So that you have to look at a generation, granted. And then 
you look at two and three generations. And you end up having a 
system based on projections--that, again, SSA has provided us; 
and you could use other actuaries--that would indeed not 
require the Social Security benefits that your grandchild would 
be paying for your retirement, or my great-grandchildren for my 
retirement, or grandchildren. So that is why that comparison 
just troubles me a little.
    And maybe you are talking about different systems than the 
one that I am referring to. But if you compare apples to apples 
in terms of the rate of return and in terms of the impact on 
the beneficiary, I think there will be a difference. Do you 
have a comment on that?
    Ms. Entmacher. Yes. And I am very pleased you brought that 
up. I want to give a lot of credit to Chairman Shaw for trying 
to develop a proposal that protected individual benefits while 
creating individual accounts; rather than simply cutting back 
on guaranteed benefits. And I think that is an important 
feature of what the Chairman was trying to do with his 
proposal.
    But I think the point I made holds up. Because in order to 
create the private accounts that would be called for by the 
Chairman's proposal, it would require a substantial amount of 
funding that would come out of the Federal budget elsewhere; 
not Social Security taxes, but revenue that could be used 
either for increasing spending on programs that are important 
to women, including education and Medicare, or through tax cuts 
that the Chairman might be interested in.
    But the point is that the money that is needed to fund the 
individual accounts that are part of the Archer-Shaw proposal 
needs to come from somewhere, needs to be funded somehow.
    Mr. Portman. As do all benefits after the year 2014.
    Ms. Entmacher. Right.
    Mr. Portman. And my only point is you are looking at the 
short-term, rather than the mid-term or long-term, depending on 
your perspective.
    Ms. Entmacher. My point is that if the money that would be 
spent to fund the private accounts--which would exceed the 
amount of the projected surplus within a couple of decades--if 
that money were put into Social Security, and if Social 
Security were allowed to invest that money, instead of the 
private accounts, we could save on the costs of administering 
all those private accounts. If Social Security could invest 
that money in something other than T-bills, they might get a 
higher rate of return. And in the end, the total returns would 
be quite similar.
    That is the point, that whether you look at it from the 
point of view of proposals for private accounts that would 
increase the money in retirement savings and thought, ``Well, 
what if we put that pre-funding into Social Security--'' I 
entirely agree. We have to compare apples and apples.
    Mr. Portman. We have made great progress on it. But what 
you said was that there is a similar rate of return to the 
existing system, which you termed as privatization. And if you 
are talking about a third system, which was not the system you 
talked about, which would be taking general revenues and 
investing them in the trust fund into some sort of a market 
higher rate of return, that is a whole other debate we can 
have. And we have had that debate on the Committee, as you 
know, numerous times. And Alan Greenspan and others have spoken 
on that.
    But I think that is a different analysis. And I would just 
not want to leave the impression that this is not a different 
type of proposal for the mid- and long-term. All the proposals 
require a transition cost. I know you all have addressed the 
transition cost, and it is different depending on the proposal.
    But I do think there is a creative third way here. And I 
think there is agreement among the panelists here that more 
information needs to be provided to people, so that at least 
people have the information to be able to make an informed 
decision.
    I do not want to hold people, again, but let me just 
suggest that Mr. John's idea of having an objective analysis 
that goes beyond even what Mr. Shaw just said about the 
solvency issue, I think would be very helpful.
    The nature of the trust fund, I know, again, OMB has done 
some of that. And I think that would be very helpful, putting 
it in as plain English as possible. And having worked a lot 
with the IRS, I know that is sometimes a challenge, but we have 
made some progress even with the IRS in that regard.
    And finally is the rate of return, on which I take Henry 
Aaron's comments to heart, and I appreciate what he said about 
the need to act quickly, and what you said in response to the 
President's proposals recently. But I do think that there has 
got to be a way to provide some unbiased information to people.
    I mean, you know, Social Security is not risk-free, either. 
There are risks built into the Social Security system. And the 
obvious risk is, in a period of great insolvency, which after 
the 2034 period spirals to the point that it is impossible for 
me to imagine us being able to fund that because the taxes 
would have to, after 2050, 2060, be so high that I think people 
would----
    Mr. Aaron. Actually not, Mr. Congressman. But that is a 
different issue.
    Mr. Portman. But that is a risk, in terms of analysis of 
the risk.
    Mr. Aaron. The force of my testimony--and we could go into 
it later on, if you would like--is that your hope and desire--
which I think is a legitimate one, and one that I share; I 
would like to be able to do straight-up comparisons of rates of 
return--is not possible.
    And the reason it is not possible in a way that would 
command a reasonable consensus, and avoid destructive 
controversy is the nature of the protections. We do not know 
how to value them in an unambiguous fashion. I wish we did. I 
would like to have those comparisons. We just do not know how 
to do it.
    And I want to distinguish what I am saying from the view 
that it is too complicated for people to understand. That is 
emphatically not the point I am making. Written clearly, people 
can understand any of these complicated concepts that we are 
talking about.
    It is not that bureaucrats cannot write plain English that 
ordinary folk can understand. They can; and they do. The 
problem is, we analysts could not come to a consensus agreement 
on how to do the numbers in a way that would avoid what I have 
called destructive controversy.
    And if I could say just a word about that: I live with 
numbers; academics love to argue about them. If that becomes 
the focus of the public debate--and I believe it would, if you 
mandate the estimation of concepts about which there is not a 
good consensus, that provoke a lot of controversy--people will 
get confused, because they will be hearing different 
information from different people. They will get frustrated and 
annoyed, because they are hearing different information. And 
they will focus on the wrong issues. They will focus on these 
number issues.
    The right issues, I think, are the ones that you and Mr. 
Shaw have been trying to draw attention to. I may not agree 
with your position on policy about them, but the question of 
how best to structure a retirement system for Americans in the 
21st century, whether it should be through a defined benefit 
system with risks diffused, or a defined contribution system 
with individual control and risks borne by the workers----
    Mr. Portman. Or a third way.
    Mr. Aaron [continuing]. Or by some combination of the two--
--
    Mr. Portman. I mean, I would hardly call Archer-Shaw a 
defined contribution system where the risk is borne by the 
individual, and no risk.
    Mr. Aaron. No, I would not. I would, frankly, call it a 
very elaborate way of putting general revenues into the current 
Social Security system.
    Mr. Portman. As is the President's proposal.
    Mr. Aaron. That is correct.
    Mr. Portman. And you have commented on that, and I 
appreciated your commentary.
    But that is the sort of information that if people are 
provided the right information, I think they can make an 
informed decision, and people are smarter than we give them 
credit for.
    I also understand your point about a final number. But I 
cannot believe that in the statement, which I agree is much 
improved--And I enjoy reading mine now and again, wondering 
what my kids' statements are going to look like in terms of 
their amount that they will contribute, and what they will 
expect back. But I think there can be more information as to 
the solvency issue, as to the nature of the trust fund, and 
then finally, something on the rate of return in general terms, 
not in terms of a specific number, as you say.
    And I was not here for your testimony, but I know, Mr. 
Thau, you have some thoughts on that as well.
    Mr. Thau. One thought, which is that the statement 
implicitly gives you a rate of return. It tells me what I have 
paid in taxes for this program over the course of my life. It 
estimates what I am going to pay in taxes over the course of 
the rest of my working life, and tells me what I am likely to 
get in benefits at certain retirement ages.
    You can calculate out a rate of return based upon what is 
already in the statement. It seems to me, it would be possible 
to make that clearer to the ordinary taxpayer, what the total 
amount is that they are going to pay over a lifetime, and what 
they are likely to get back.
    And what the statement is missing, and what I mentioned in 
my testimony, is that it does not say what you are going to pay 
from now until the time you retire. It tells you what you have 
paid so far, but does not add in the time between now and 
retirement age. But I think that gives you some sort of 
calculation of what you are going to get.
    It seems to me you have an algebraic equation where you 
have ``A'' plus ``Blank'' equals ``C.''
    Mr. Portman. Right.
    Mr. Thau. And the taxpayer does not know what ``B'' is. And 
based upon that, you should be able to calculate out, you know, 
what the value of this program is to you.
    Mr. Portman. Since he does not have the mike, I will speak 
for Dr. Aaron, and say that rate of return would be something 
that somebody might compare to a rate of return they would get 
on a 401(k) or even a private investment or an IRA investment; 
and that there are, according to Dr. Aaron, different kinds of 
risks involved in that. And I agree, there are different kinds 
of risks. But I will not agree that it is risk free.
    Mr. Aaron. Oh, I did not suggest that it was.
    Mr. Portman. Yes.
    Ms. Entmacher. If I could respond to that--And it kind of 
picks up on the points that Dr. Aaron was making, but it puts 
them in the context of the women that I meet with when I go out 
and talk about Social Security. They are afraid of growing old 
and having nothing to live on.
    It is very sad to see people who are afraid that they will 
live too long. And this is one of their fears. And this is 
something--I mean, many of these women, particularly the older 
women I meet with, they did not work much in the paid labor 
force during their lives, so they are getting spousal benefits. 
They are relying on the benefits that their husbands earned. 
Many of them are widows; their husbands are deceased. It would 
never show up on their Social Security benefits statement, if 
they got one at all, because they did not have 10 years in.
    And you know, this is something that is adjusted for 
inflation; it comes every month; they can count on it. It is 
not enough to live on. And that is one of the issues that I 
think needs to be addressed: How do we improve these social 
insurance goals?
    But talking about improving the rate of return does not get 
to the concerns. And I know a lot of those women live in your 
district, Mr. Chairman. And I am sure you know and you have 
heard how much these other kinds of protections--women who have 
been homemakers; women who took that chance, that risk of not 
looking out just for themselves, but looking out for their 
families--what all those insurance protections that Dr. Aaron 
enumerated mean for people. And I do not think it is that easy 
to measure it. I do not think it is possible.
    Chairman Shaw. I think one of the things that we have to 
remember is, the purpose of the hearing was to simply get 
comment on the statement and the information that is going out. 
I think we will leave reform to a different day.
    But to comment on some of the points that you made, I think 
Mr. John has exercised a great deal of restraint, that he did 
not jump out of his chair when you started talking about direct 
investment by the Social Security Administration.
    But I mean, you have the Heritage Foundation on 1 day that 
wants to go to a privatized system. On the other side, you have 
your situation, where you would like to see the Social Security 
Administration do direct investment.
    Ms. Entmacher. That is not exactly it.
    Chairman Shaw. I think the Archer-Shaw bill is somewhat in 
the middle. We preserve the Social Security system exactly the 
way it is, and we do not change it. And the Heritage Foundation 
does not like our plan, because we do not change it.
    We leave it totally alone. And the reason we leave it 
totally alone and do not change the system one iota is because 
of a lot of the things that you are talking about: The 
uncertainty and the fear, and the ability to be able to plan. 
That is what Dr. Aaron is talking about. He talks about the 
certain amount of guarantees because of the investment 
structure and the commitment set forth in the language.
    Unfortunately--and I think Rob has made this point pretty 
clear--there are no guarantees, if Congress does not act. And 
we need to act, to do something. And I think the middle-of-the-
road approach, somewhere where Chairman Archer and I are, is 
about where we are going to end up.
    The problem that you have, and the reason this legislation 
is not moving today, is that there are so many people that do 
not want to get in any type of investment in private accounts, 
are against it; and the Heritage Foundation on the other side, 
that does not go to a privatized system, they do not like it. 
So the problem that you have, when those two gang up on you it 
is tough to pass something.
    Whatever we pass is not going to be the final say. Future 
Congresses will look at it. If there is any fine-tuning that is 
necessary, they will make that fine-tuning.
    But I guess I should get back to the purpose of this 
hearing, myself. But I do hope that we can move together. And 
it is going to be very, very important that this be done in a 
bipartisan way. Neither party is going to do a good job if they 
go it alone. And the American people will not have faith in it.
    And we do know that our seniors are very easily frightened 
when they see that this Social Security is a lifeline that they 
have and they have lost their ability to work. And it is very 
important that we do not frighten them at all.
    So that is the job that we have mapped out for us. I am 
still hopeful that we can work with the President in getting 
something done before the end of this Congress. It is becoming 
a long shot. We will have to just settle for the little bit of 
reform we had in doing away with the earnings penalty, and look 
to the next Administration to try to get something done.
    If we control the Congress and I am back, I am confident 
that my name will remain on this legislation. If we do not come 
back, it may be the Rangel-Matsui bill----[Laughter.]
    Chairman Shaw. With our thought in it. Who knows?
    But in any event, this has been a very, very good hearing, 
and I appreciate all of you being here. Thank you. We are 
adjourned.
    [Whereupon, at 5:42 p.m., the hearing was adjourned.]
    [A submission for the record follows.]

Statement of Hon. Judd Gregg, a United States Senator from the State of 
New Hampshire

    Thank you, Mr. Chairman, for the opportunity to submit 
testimony for your Committee's hearing regarding Social 
Security right-to-know legislation.
    I would like to begin by commending you for your initiative 
in holding this hearing. I believe the subject of the hearing 
to be critical to our efforts to safeguard Social Security for 
America's seniors in a responsible and bipartisan way.
    I have joined many others--including several whose policy 
preferences diverge from my own--in lamenting the lack of 
constructive, substantive action this year to reform the Social 
Security program. While too often we yield to the temptation to 
blame others for that lack of action, I believe that a step 
back reveals that much of our inability to achieve consensus 
derives from incomplete public and Congressional understanding 
of the information flow about Social Security. I believe that 
these information gaps induce us to talk past one another, to 
focus only on selective information, and to overlook important 
facts when they are inconvenient to one's own predispositions.
    I would like to begin first by detailing what I believe to 
be the most damaging gaps in the methods used to present 
information about the financial operations of the Social 
Security system.
    Secondly, I would like to discuss the manner in which we 
distribute information to wage-earners and to beneficiaries 
about the taxes that they pay, and the benefits that they can 
expect to receive. Here, too, I believe there is evidence that 
selective presentation of information leads inadvertently to a 
confusing picture.
    Thirdly, I would like to present what may be the most 
important part of my testimony, focusing on the way that the 
gaps in the first two types of information bias and distort our 
legislative deliberations.
    And fourth, I would like to close by giving my subjective 
view of where we are in efforts to address these concerns, 
including my legislative efforts, and the responses to them.
    Before I begin to describe my concerns, I think it is 
appropriate to begin by commending the professional, 
nonpartisan work of the Social Security Administration (SSA) to 
provide accurate information about the future of the Social 
Security system. There is much that is right and good about the 
work that they do, and indeed much of the information that I 
believe that we should emphasize to the public is gleaned 
either directly or indirectly from the comprehensive report of 
the Social Security Trustees, from numbers generated by the 
Office of the Chief Actuary of SSA. In my dealings with SSA, 
especially the office of the Chief Actuary, I have found them 
to be exemplary public servants who never fail to respond to 
our requests in a timely and helpful way. If Congress as a 
whole routinely received a report on Social Security's 
financial operations that was as clear, understandable, and 
transparent as the information that individual staff are able 
to receive through separate requests to SSA, then the 
understanding by Congress and the public of the realities of 
the Social Security program would be immeasurably improved.
    It is unfortunate indeed that when one notes the need for 
improved and more explicit reporting on certain aspects of the 
Social Security program, that this is sometimes construed as 
undermining the objective, independent work that SSA currently 
does. I have been concerned by some reactions to what I 
consider to be straightforward, inarguable reporting 
requirements as signaling that any attempt by Congress to 
insist upon additional information will be regarded as an 
infringement upon the independence of the Social Security 
Administration. But there is a significant difference between 
telling SSA how they must do their technical work, and 
requiring that certain information be put clearly before 
Congress when it is done. To characterize the latter as the 
former undermines confidence that all share the goals of 
maximizing public information about the Social Security 
program.
    It bears mentioning that the Social Security Administration 
was granted independent status in recent years, as much to 
safeguard their independence from administration policies as 
from the Congress. Accordingly, Congress has as great a right 
as does the administration to require SSA to provide the 
information that it believes to be appropriate to its needs to 
budget for the program. You can be certain that if the 
President said to SSA that he wanted placed on his desk, every 
year on March 31, a table of the program's projected annual 
cash deficits, in dollars, that it would be there in exactly 
the form requested. We might look askance at a directive by the 
President that SSA change their technical assumptions, but not 
at the demand for the information itself. Congress's rights in 
such matters are equally great, and deserve exactly the same 
response.

Reporting on the Financial Operations of the Social Security 
Program

    Mr. Chairman, in order to better illuminate the 
inadequacies of current Social Security reporting, I would ask 
you to consider the following anecdotal illustration.
    Imagine that in some future year your position as Chair of 
this Committee is held by a less responsible individual, who in 
an election year such as this one, pushes through this 
committee a proposal to double all current-law Social Security 
benefits. Imagine, too, that though this Committee took no 
action to fund these new benefits, it arbitrarily reallocated 
$1 trillion in credits from on-budget revenues to the Social 
Security Trust Fund annually for each of the next few decades.
    What would be the result of this precipitous and 
irresponsible action? One result, obviously, would be a vastly 
worsened problem of funding these now doubly large benefits. 
But another perverse result would be that the following year's 
Trustees report would contain a finding that Social Security 
system had been made solvent throughout the 75-year valuation 
window--in other words, that's financial problems had been 
fixed. According to the Trustees' report, the system would 
never be insolvent.
    Now, no rational person could believe that this Chairman 
had resolved Social Security's problems by simply doubling 
current benefit promises and rearranging the debts between 
government accounts. But this is exactly what the current 
measure of actuarial solvency would oblige us to report.
    The remarkable thing about the current Social Security 
debate is that the argument that the system is somehow 
``sound'' through 2037 under current law is exactly the same 
argument that would be employed to claim that this new Chairman 
had fixed the Social Security system. There is absolutely no 
difference between the two, and the obvious shortcomings of 
this analysis have much to do with our current legislative 
impasse. Anyone who accepts the argument that we face no 
difficulties before 2037 must also accept the argument that we 
can promise additional benefits cost-free, simply by issuing 
additional credits to the Social Security Trust Fund. They are 
indeed premised on the same measurement.
    Each year, Congress's information on the health of the 
Social Security system comes chiefly from the annual report of 
the Social Security Trustees. And each year, news articles 
hasten to highlight the latest projected date through which the 
program is ``solvent'' according to that report. This year, 
that date is 2037. One is hard-pressed to find an article about 
the report that doesn't emphasize this date.
    The Trustees' work is excellent and professional, but it 
emphasizes information of lesser relevance to the task of 
financing Social Security benefits. By highlighting the distant 
insolvency date of 2037, the annual Trustees' report gives the 
impression to the public that as this date moves further out or 
closer in, the long-term picture has either improved or 
worsened to that extent.
    What Congress needs to know about the Social Security 
program is not its projected insolvency date, as my 
introductory anecdote shows. What it needs to know above all is 
what the program will bring in, and what it will cost. What are 
the projected gaps between those two, and thus what are the 
sizes of general revenue commitments that must be made in 
addition to collected payroll taxes, in order to pay benefits?
    And because this is a long-term program that will require 
considerable advance planning to reform properly, Congress 
needs this information to be projected over the long haul, not 
merely within the 5 or 10 year windows used by CBO and OMB 
during budget consideration, for refusal to look at the bigger 
picture until after this time has gone by will destroy our 
ability to construct a solution to Social Security's financial 
problems that is fair to all generations.
    A simple summary report to Congress should simply state:
    --The projected revenues that Social Security taxes will 
bring in annually
    --The projected annual cost of paying benefits
    --And any projected gaps between those two figures that 
will oblige Congress to allocate additional revenues from the 
federal budget
    These could be expressed either as an effective tax rate 
upon national wages, as a percentage of overall federal 
spending, or in dollar terms, whichever is deemed to be more 
useful. In my opinion, more than one of these methods of 
presentation should be used.
    There is information about cash-flow balances in the 
Trustees' report and on the SSA website, but the most important 
such information is buried in the appendices. The appearance 
given by the report is that the annual cost growth in the 
Social Security system is a rather incidental bit of trivia, in 
comparison with the somehow more meaningful measure of program 
solvency. That is not an appropriate distribution of emphasis. 
From the point of view of the federal budget, of taxpayers, and 
the economy as a whole, the only thing that matters are the 
program's annual revenues and its outlays, whereas 
intragovernmental transfers and debt do not alter the overall 
picture.
    One very great problem with the focus on the insolvency 
date is that the date of projected insolvency tells one next to 
nothing with respect to the question of whether and how the 
government will be able to pay Social Security benefits. It 
doesn't tell you whether at some date in the future, the Social 
Security system will have enough in payroll taxes to pay 
benefits, or whether a huge allocation from general revenues 
must also be raised, nor how large that would be. It doesn't 
tell you whether the government has generated any savings 
whatsoever, or whether it sits on top of massive debt. In fact, 
when the Social Security program enters into cash deficits in 
the year 2015, from the standpoint of the economy and the 
taxpayer, the exact same thing happens when there is a large 
and positive Trust Fund as would happen if there were no Trust 
Fund at all--the government must turn to the private economy 
for additional money. All that the Trust Fund balance reveals 
is how much of a legal claim that one part of the government 
has upon resources to be provided by another part. Assuming 
that we intend to keep paying Social Security benefits 
regardless of the existence of such a legal claim, the 
insolvency date therefore provides little meaningful 
information.
    Moreover, as the Congressional Budget Office points out in 
their latest analysis of the President's budget, the Trust Fund 
balance can simply be changed by fiat, without doing anything 
that would actually create new means to finance benefits. We 
could pass a law changing the interest rate paid on debt issued 
to the Social Security system, making it larger or smaller, and 
thereby moving the projected ``insolvency date'' further away 
or closer in. Or we could simply declare that additional 
credits from the general treasury will be transferred to the 
Social Security Trust Fund--as some in the current 
administration and out on the campaign trail have suggested--
above and beyond whatever surplus revenues that Social Security 
has actually brought in. To sum it up, we can simply decide 
what the Trust Fund balance is going to be, and thus we can 
simply decide what the projected ``insolvency date'' is, 
without fixing anything.
    For many years, the Social Security Trust Fund grew, even 
though none of that money was being saved in any sense 
whatsoever. The government was running on-budget deficits, 
unified budget deficits, indeed deficits by any measure. Yet we 
continued to account as though this were all adding to our 
ability to pay Social Security benefits. Today we are starting 
to make good on pledges to run a surplus both in Social 
Security accounts in on-budget accounts. Yet long before the 
government has generated any real net saving to back up the 
huge credits made to the Social Security Trust Fund, we hear 
proposals to make still more such credits, and to inflate the 
Trust Fund balance still further. This does a disservice to the 
principle of honest accounting, and to the taxpayers of this 
country. It is a consequence of our focusing narrowly on Trust 
Fund balances.
    This is highly misleading. It is imperative that current 
law as well as all alternative reform proposals be evaluated 
for their impact on the overall federal budget, not simply the 
Social Security Trust Fund. Currently, CBO and OMB reports 
require Congress to look over the next 5 or 10 years at the 
operations of the federal government at a whole, and we plan 
for this accordingly. With Social Security, however, we look 
only at the Trust Fund balance over 75 years. We see the 
consequences of this in proposals to inflate the Trust Fund 
balance--the part of the equation we do see--at the expense of 
the part of the equation that we neglect--the on-budget 
accounts. This is not responsible budgeting. And we will not 
budget responsibly so long as the information that Congress 
receives is focused principally on one side of the ledger only.
    Selective information and inadequate emphasis is never a 
good basis upon which to make policy. In the third part of my 
testimony, I will show specifically how the selective emphasis 
of information has distorted the Social Security reform 
discussion, and has in many ways paralyzed us out of meeting 
our responsibilities to the Social Security program.

Reporting to Program Participants On Contributions and Benefits

    One of the more damaging misrepresentations about reform 
proposals is that they compare unfavorably to ``current law.'' 
``Current law'' promises benefits but does not provide the 
revenues to fund them long-term. Accordingly, any proposal to 
place the system on a stable course must, to a first 
approximation, relative to this unrealistic baseline, either 
cut benefits or raise revenues. Because every reform proposal 
is thus misdescribed as either raising taxes or cutting 
benefits, nothing, therefore, gets done, and the system inches 
closer to its day of reckoning.
    One great frustration I have is that this is not even a 
factually accurate representation of ``current law.'' The 
Social Security Administration does not have the authority to 
send out checks without financing. Thus, regardless of what 
current law promises in terms of benefits, the literal 
application of current law is that, once the date of insolvency 
is reached, the Social Security administration would delay 
sending out benefit checks, effectively reducing benefits on 
average to about 72% of current promises. Literally, ``current 
law'' means that we would begin to collect vastly increased 
general revenues from 2015 through 2037, and then that a sudden 
and precipitous series of effective benefit cuts would occur in 
2037.
    However, we continue to publicly describe ``current law'' 
as though, first, that the additional general revenue tax 
collections between 2015 and 2037 will not be required, and 
then that after 2037 the benefit checks would continue to be 
sent out without financing. Although none of us believe that 
Congress would actually permit a scenario of rapid tax hikes 
followed by drastic benefit cuts to take place, it is the 
literal application of what current law would require. 
Proposals to shore up the system should be evaluated on whether 
they promise a better future than these massive general revenue 
tax collections from 2015 through 2037, and better than the 
benefit cuts that would be required after 2037, rather than in 
comparison to a fantasy scenario that cannot occur in any 
event--the magic materialization of benefits without the 
collection of tax revenues to pay for them.
    This is why the 1999 Technical Panel of the Social Security 
Advisory Board recommended that all representations of current 
law represent one of two possibilities--one that presumes 
either that we pay the benefits that current law can actually 
fund--which right now is only 72% of all promises after 2037--
or that we raise taxes as is necessary to pay for all promised 
benefits. Somewhere in between those two endpoints is where 
reality might take us, but nowhere in that stream of 
possibilities is there any scenario that corresponds to what we 
currently tell the public will happen. Instead, they are sent 
misleading statements that tell them the benefits that they are 
promised, minus the information that the legal authority to pay 
them does not exist beyond 2037, and the funding does not exist 
beyond 2015. SSA's website makes the same mistake.
    At all times and in all places, Mr. Chairman, statements of 
benefit and tax projections should be provided in a self-
consistent manner. If, on Personal Earnings and Benefit 
Statements, we tell individuals that certain benefits will be 
paid, then we should also identify the changes in current 
revenue streams that will be required to pay those benefits, 
starting in 2015. If, on the other hand, we wish to assert that 
tax collections will not be increased, then we should inform 
people of the changes in their benefits that would occur 
consequent to that decisions. But at all times, in fairness to 
all approaches, every possible scenario should be credited for 
the retirement income that it can actually fund and provide--
whether these are benefits provided from defined-contribution 
personal accounts or through a defined-benefit system --and 
only to the extent that it offers the financing to pay for it.
    So, too, as with the first part of my statement, I believe 
that information sent out to Social Security beneficiaries 
should frankly acknowledge the literal application of current 
law, and explain to recipients what the Trust Fund does and 
does not mean, and its role as a debt owed by the US taxpayer, 
not an asset of the federal government. If we continue to 
wrongly imply to individual beneficiaries that benefits can 
rain out of the sky without additional revenues being committed 
in 2015, then we are committing an egregious public deception 
that will hamstring our ability to find fair solutions.

Implications of the Information Gaps Upon Legislative Proposals

    As I indicated previously, this may be the most important 
section of my testimony because I intend here to show that 
these matters are not mere esoterica of concern only to policy 
experts, but have larger consequences for the political dynamic 
that in turn are damaging to the interests of wage-earners and 
beneficiaries alike.
    It is my view that the shortcomings of our current 
information flow are proved by the way that the current Social 
Security debate has been distorted.
    A first example: We know from current projections that 
projected payroll tax revenues will be insufficient to pay for 
Social Security benefits. But no one wants to raise the payroll 
tax. On the other hand, no one wishes to be seen as cutting 
Social Security benefits. In order to meet full current-law 
benefits, if we do not provide a portion of those benefits 
through personal accounts, then taxes would have to be raised. 
But since no one wants to admit to raising taxes, proposals to 
increase revenues to the system are made through the back 
door--through transfers from on-budget revenues. By 
transferring credits from general revenues, one requires that 
taxes must be increased in the future--in many such proposals, 
by tens of trillions of dollars--but one doesn't 
straightforwardly admit that this is what is being done.
    It is easy to see how our current scoring creates this 
temptation. If we looked squarely at the entire effects of 
Social Security on the federal budget as a whole, it could 
clearly be seen that transfers from on-budget revenues have no 
positive economic effect. The analyses of GAO, CBO and others 
show this clearly. Future revenues, outlays, debt, and 
everything else looks exactly the same even after one assumes 
the implementation of such transfers.
    But because we report annually on Social Security's 
finances by looking only at the Trust Fund balance, this 
creates the illusion that transfers would actually do some 
good. The Trust Fund balance is higher, the insolvency date is 
more distant, and the added costs on the general revenue side--
burdens on future taxpayers--go unmeasured.
    I am certain that these comments will be taken as 
implicitly critical of the President's proposal, and I admit 
that they are. However, it should in fairness be noted that his 
is not the only proposal that exploits this gap in our 
information flow; many others do. Every time that a proposal 
funds Social Security benefits from general revenues without 
taking an action to increase those general revenues by that 
amount (such as, for example, reforming the Consumer Price 
Index), it is playing this shell game. This is true whether 
general revenues are committed directly to fund a new benefit 
or whether they are simply used to reimburse the Trust Fund. 
And I think it is just as vital to say that every time an 
alleged expert says to the public that ``there is no problem in 
Social Security before 2037,'' they too are exploiting this gap 
in the information flow.
    Mr. Chairman, I believe it is absolutely critical that 
Congress begin to insist that all reporting concerning Social 
Security focus on all of the revenues that the program brings 
to the government, as well as all of the costs that it imposes 
on it. To look only at one side of the ledger, the Social 
Security Trust Fund balance, has clearly induced gamesmanship 
and will continue to do so. This does not serve the public 
well. It advantages only those who wish to gradually turn 
Social Security into a welfare program funded largely through 
income taxes, and works against the interest of those who wish 
to ensure, as Franklin Roosevelt wished, that there remains a 
defined relationship between every generation's tax 
contributions to the program, and the benefits that they 
receive from it.
    This leads to my second example of how selective 
information has biased our evaluation process. From its 
inception, Social Security was designed to be a contributory 
system, distinct from welfare programs in that it was to be 
funded by dedicated taxes. If we bias our discussions in favor 
of proposals that funnel income taxes into the Social Security 
system, we would have no record of each person's presumed 
contributions to their Social Security benefits. Accordingly, 
in the future, Social Security would depart increasingly from 
any notion that benefits were related to contributions, and it 
would be nearly impossible to tell whether various generations 
and cohort groups were being treated fairly.
    Currently, when we measure the fairness of the Social 
Security system, we track the rate of return that each birth 
cohort receives on their payroll taxes. But this becomes a 
meaningless exercise once the program begins to be funded 
significantly from income taxes, as on its current course it 
would. If we purported to solve this problem simply by 
transferring general revenues as was necessary to fund all 
future benefits, it would look as though everyone was getting a 
great deal from the system, even though they might be paying a 
tremendous amount in income taxes to support it. The reason for 
this is that we would continue to keep track of the benefits 
they receive, but only a portion--the payroll tax portion--of 
the tax burden that they were carrying.
    So, Mr. Chairman, I believe it is vitally important, 
especially as we look outward at 2015, that we begin to tell 
the American public very frankly what is their individual share 
of the tax burden required to support the program, from income 
taxes as well as from payroll taxes. Under current projections, 
the average worker in the year 2030 would need to pay not only 
their 12.4% payroll tax, but also on average an additional 
4.26% of their pay in income taxes, in order to pay full 
benefits to seniors in that year. That is a real burden on 
taxpayers at that time, and it is absolutely misleading to 
pretend that it does not exist.
    Last year when this Committee held hearings on Social 
Security reform, an analysis was provided to the Committee on 
the eve of the hearing, that purported to show that reform 
proposals that contained personal accounts would produce an 
inferior ``payback'' on payroll taxes, relative to current law.
    In reality, each of the proposals analyzed would have 
eliminated the majority of the mounting income tax burden that 
is now projected to occur in the year 2015-2037. However, by 
ignoring that $11.3 trillion in cost obligations, it can be 
made to appear as though current law has provided something for 
free that the other plans haven't, and thus its ``payback'' 
ratio is superior.
    Everyone should remember, Mr. Chairman, that in order to 
understand this problem correctly, we have to recognize that 
different generations experience the Trust Fund in different 
ways. A worker paying a 12.4% payroll tax in 1990 didn't have 
to support a number of seniors whose benefits absorbed all of 
that 12.4%, so the balance of that money could be used to 
provide other government services to that taxpayer, or to 
reduce other federal borrowing and/or his income tax burden. 
But a worker paying a 12.4% payroll tax in 2025 will be 
responsible for supporting more seniors than that 12.4% can 
provide for, so he or she will have to make additional income 
tax payments to pay interest and principal to the Trust Fund 
from the general budget. Consequently, that wage-earner will 
either get less in government services, or face higher tax or 
debt service burdens. Unless one counts the costs to that 
taxpayer of paying off the Trust Fund, one receives a very 
misleading picture of how the system is working.
    If we continue down the current road of pretending that the 
Trust Fund can magically finance benefits without anyone having 
to pay for those benefits, then the only result that we will 
reach, analytically, is that the only responsible course is 
simply to inflate the Trust Fund and to pretend that it 
produces those benefits for free. Economically and 
mathematically, of course, this is nonsense, but it is an 
inevitable result of the practice of looking only at Trust Fund 
transactions when analyzing the Social Security system.
    We will never be able to make this system work fairly for 
all generations so long as we succumb to a view of things that 
looks only at part of the picture. It is therefore absolutely 
essential that all government materials frankly note the recent 
CBO and OMB findings that the Trust Fund in and of itself 
cannot finance benefits, and properly account for the payroll 
and income tax burdens borne by different generations as they 
move through different stages of the Social Security system.
    Again, we see the results of this in the proposals that 
have begun to circulate this year. We see proposals to maintain 
or even expand upon existing benefit promises, and to ``pay for 
them'' simply by trying to make the projected cost increases 
appear as invisibly as possible. This is not a responsible way 
to make public policy, and future generations will rightly 
scorn these activities if we do not improve upon our 
information flow and thereby make our decisions with our eyes 
open.
    Another, third example of how misunderstandings of Social 
Security's finances distort the public debate lies in the 
persistent notion that if the economy grows a little bit 
faster, if the Trustees' abandon ``conservative'' economic 
growth estimates, then our perceived problems will all vanish. 
Mr. Chairman, there is no basis for this view unless one simply 
chooses to look, again, selectively and narrowly at the Trust 
Fund balance.
    In the first place, the Trustees are projecting a slow-down 
in workforce growth, not in per-capita productivity, reflecting 
a demographic reality, so it's open to question whether their 
estimates are ``conservative'' at all. But the real point is 
that no person who understands the inter-relationship between 
Social Security and the rest of the budget can take refuge in 
the idea that faster economic growth will solve Social 
Security's cost-problems. While it is possible in theory that 
economic growth could grow fast enough to eliminate the 
actuarial deficit over 75 years, the real-world problem of 
budgeting for increased Social Security costs is only affected 
at the margins by economic growth. For example, under the 
latest estimates, the cost of the program as a tax rate is 
projected to grow by 68% over the next thirty years, from 10.3% 
of the nation's taxable pay to 17.4%. Under the ``good 
economy'' estimate, this cost growth would be less by less than 
1% of the nation's taxable pay, meaning that projected costs 
would still be well more than 50% greater than what they are 
now. Looking at the whole picture is essential if we are not to 
be seduced and deceived by false hopes that inaction can meet 
our responsibilities.
    In sum, most ``do nothing'' proposals rely significantly on 
the presentation of only selective information. Only if there 
is full and accurate disclosure of all costs, revenues and 
benefits can the shortcomings of these prescriptions be seen.

Current Efforts to Improve Public Education

    During consideration of the earnings limit legislation, I 
sought to offer a simple amendment to implement the 
recommendations of the 1999 Technical Panel on Assumptions and 
Methods with respect to the presentation of information about 
Social Security. It was not my intent, Mr. Chairman, to 
interfere with your desire, or the President's desire, to have 
a clean earnings limit bill. However, given that this was 
likely the only substantive action to be taken by the Congress 
this year in the Social Security area, I thought it important 
to highlight at least the existence of the problems that 
remained unsolved, by directing additional ``sunshine'' upon 
Social Security's financial operations.
    We received a wide range of our responses to our amendment. 
Among watchdog groups whose main concern is long-range fiscal 
responsibility, we received tremendous support. The Concord 
Coalition, for example, supported our efforts helpfully. We 
also enjoyed the support of many who are committed to a 
fiscally responsible long-term solution for Social Security, 
including some who have not yet cosponsored reform plans.
    To the extent that there were criticisms, as is often the 
case, these ranged from the constructive and valid to many 
based on mischaracterizations and misunderstandings. I will 
presume that you are already familiar with the language of our 
amendment, Mr. Chairman, and know that it would have obliged 
the Social Security Trustees to implement only the Technical 
Panel's recommendations regarding the presentation of clear and 
relevant information, and only to the extent that the Trustees 
found advisable to do so. Since the amendment was withdrawn, 
and the Trustees' report has been released, many have noted 
that the Trustees' report does implicitly evaluate the Tech 
Panel's recommendations regarding economic and demographic 
estimates, and incorporates small pieces of them. However, the 
technical assumptions were not the focus of our amendment, and 
although I have my own views about the technical issues, the 
extent of their incorporation into the Trustees' report does 
not speak to our concerns. My chief aim is to see that the 
relevant information is provided to Congress within the 
framework of the Trustees' assumptions--not with the 
assumptions themselves.
    Many who supported our objectives sought to pass a clean 
earnings limit bill, including you, Mr. Chairman, and we 
withdrew our amendment in deference to that desire, upon 
receiving a commitment that our concerns would continue to be 
pursued in this Congress. I still believe that Congress would 
do well to pass legislation this year to improve reporting to 
both the public and to Congress regarding the true finances of 
the Social Security program. Doing so would be immeasurably 
helpful to the prospects for bipartisan cooperation in future 
years.
    Mr. Chairman, despite the fact that you and I and many 
others have put forward Social Security reform proposals in 
this year of surpluses, it looks as though the likelihood of 
meaningful action is small prior to this November's election. 
But I believe that we can still provide a useful service if we 
at least assure that Congress and the public receive the whole 
story, not just part of the story, of Social Security's 
finances.
    That means a frank accounting of the system's entire costs 
and revenues--not just as seen through the narrow window of the 
Trust Fund. That means leveling with the public about what 
current law can actually fund. It means reconfiguring our 
public materials to honestly express what the Trust Fund is and 
what it isn't. It means evaluating all proposals on a level 
playing field, one that recognizes all benefits and costs 
delivered under each scenario. If we continue to present only 
selective information to the public and to Congress, then we 
cannot expect that we will make the best decisions. We will 
benefit only those who seek to obscure the realities of the 
choices before us, and future taxpayers will be left with the 
costs that would arise as a consequence of our inattention.
    I applaud your leadership in holding this hearing, Mr. 
Chairman, and I thank you again for the opportunity to submit 
this testimony.

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