    [Senate Hearing 113-490]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 113-490

                     STRENGTHENING SOCIAL SECURITY TO MEET
                        THE NEEDS OF TOMORROW'S RETIREES

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

                                    HEARING

                                   BEFORE THE

                       SUBCOMMITTEE ON SOCIAL SECURITY,
                          PENSIONS, AND FAMILY POLICY

                                     OF THE

                              COMMITTEE ON FINANCE
                              UNITED STATES SENATE

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  MAY 21, 2014

                                   __________

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                Printed for the use of the Committee on Finance

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                              COMMITTEE ON FINANCE

                          RON WYDEN, Oregon, Chairman

    JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
    Virginia                             CHUCK GRASSLEY, Iowa
    CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
    DEBBIE STABENOW, Michigan            PAT ROBERTS, Kansas
    MARIA CANTWELL, Washington           MICHAEL B. ENZI, Wyoming
    BILL NELSON, Florida                 JOHN CORNYN, Texas
    ROBERT MENENDEZ, New Jersey          JOHN THUNE, South Dakota
    THOMAS R. CARPER, Delaware           RICHARD BURR, North Carolina
    BENJAMIN L. CARDIN, Maryland         JOHNNY ISAKSON, Georgia
    SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
    MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
    ROBERT P. CASEY, Jr., Pennsylvania
    MARK R. WARNER, Virginia

                        Joshua Sheinkman, Staff Director

                   Chris Campbell, Republican Staff Director

                                     ______

          Subcommittee on Social Security, Pensions, and Family Policy

                         SHERROD BROWN, Ohio, Chairman

    JOHN D. ROCKEFELLER IV, West         PATRICK J. TOOMEY, Pennsylvania
    Virginia                             MIKE CRAPO, Idaho
    CHARLES E. SCHUMER, New York         JOHNNY ISAKSON, Georgia
    BILL NELSON, Florida                 ROB PORTMAN, Ohio
    BENJAMIN L. CARDIN, Maryland

                                      (ii)

                                C O N T E N T S

                                   __________

                               OPENING STATEMENTS

                                                                       Page
    Brown, Hon. Sherrod, a U.S. Senator from Ohio, chairman,
      Subcommittee on Social Security, Pensions, and Family Policy,
      Committee on Finance...........................................     1
    Toomey, Hon. Patrick J., a U.S. Senator from Pennsylvania........     4
    Isakson, Hon. Johnny, a U.S. Senator from Georgia................     5

                                   WITNESSES

    Goss, Stephen C., Chief Actuary, Social Security Administration,
      Baltimore, MD..................................................     7
    Ghilarducci, Teresa, Ph.D., chair of the economics department,
      The New School for Social Research, The New School, New York,
      NY.............................................................    10
    Fichtner, Jason J., Ph.D., senior research fellow, Mercatus
      Center, George Mason University, Arlington, VA.................    13
    Rockeymoore, Maya, Ph.D., president and CEO, Center for Global
      Policy Solutions, Washington, DC...............................    15

                   ALPHABETICAL LISTING AND APPENDIX MATERIAL

    Brown, Hon. Sherrod:
        Opening statement............................................     1
        Prepared statement...........................................    37
    Fichtner, Jason J., Ph.D.:
        Testimony....................................................    13
        Prepared statement with attachment...........................    40
        Responses to questions from subcommittee members.............    57
    Ghilarducci, Teresa, Ph.D.:
        Testimony....................................................    10
        Prepared statement...........................................    60
        Responses to questions from subcommittee members.............    74
    Goss, Stephen C.:
        Testimony....................................................     7
        Prepared statement...........................................    79
        Responses to questions from subcommittee members.............    89
    Isakson, Hon. Johnny:
        Opening statement............................................     5
    Rockeymoore, Maya, Ph.D.:
        Testimony....................................................    15
        Prepared statement...........................................    93
    Toomey, Hon. Patrick J.:
        Opening statement............................................     4
        Prepared statement...........................................   102

                                 Communications

    American Federation of Labor and Congress of Industrial
      Organizations (AFL-CIO)........................................   105
    Human Rights Campaign............................................   107
    IBM..............................................................   109

                                     (iii)

     STRENGTHENING SOCIAL SECURITY TO MEET THE NEEDS OF TOMORROW'S RETIREES

                                  ----------

                            WEDNESDAY, MAY 21, 2014

                               U.S. Senate,
                   Subcommittee on Social Security,
                           Pensions, and Family Policy,
                                          Committee on Finance,
                                                        Washington, DC.
        The hearing was convened, pursuant to notice, at 10:02
    a.m., in room SD-215, Dirksen Senate Office Building, Hon.
    Sherrod Brown (chairman of the subcommittee) presiding.
        Present: Senators Nelson, Isakson, and Toomey.
        Also present: Democratic Staff: Michael Evans, General
    Counsel; Tom Klouda, Senior Domestic Policy Advisor; and Kara
    Getz, Senior Tax Counsel. Republican Staff: Jeff Wrase, Chief
    Economist; and Preston Rutledge, Tax Counsel.

     OPENING STATEMENT OF HON. SHERROD BROWN, A U.S. SENATOR FROM
    OHIO, CHAIRMAN, SUBCOMMITTEE ON SOCIAL SECURITY, PENSIONS, AND
                  FAMILY POLICY, COMMITTEE ON FINANCE

        Senator Brown. The subcommittee will come to order. Thank
    you, Senator Toomey, for joining us--Senator Isakson. I know
    others will be here.
        Thank you very much for this very distinguished panel. All
    four of you have contributed a great deal to this public
    debate, and I look forward to expanding on all of these issues
    in questions and answers.
        I want to start by reading a letter. This letter is from my
    Assistant State Director back in Cleveland; she grew up in
    Pennsylvania. Her grandfather worked for Pennsylvania Gas and
    Electric, and her father came across this letter in his stack
    of papers. Her father is in his 80s. This was a letter to her
    grandfather from the Pennsylvania Gas and Electric Company, and
    I want to just share this letter.
        It is dated December 24, 1936, and it is signed by the vice
    president of this company in Senator Toomey's State. It says,
    ``Dear Fellow Employee: On August 14, 1935, Congress passed the
    Social Security Act. Under provision of this Act, the company
    is required to deduct 1 percent of your wage beginning this
    January, 1\1/2\ percent beginning January 1940, 2 percent
    January 1943, 2\1/2\ percent January 1946, and 3 percent
    January 1949. These deductions, matched by your company, are
    designed to provide for your retirement at age 65.'' The letter
    goes on.
        But think about that. You are a worker, getting by, not
    making a huge wage but doing all right, and you have this whole
    Social Security thing--it was an untested idea. You may not
    have even heard of it; if you had, you did not know much about
    it. Your employer says they are taking progressively up to 3
    percent of your wage.
        The employer is going to match it, and then you are going
    to get it sometime later when you are 65. And you look around
    at your family and you realize, nobody in my family has even
    lived to 65. And it makes you understand how difficult it is to
    launch any of these major social insurance programs, whether it
    is Social Security or Medicare or even now the Affordable Care
    Act.
        Today, obviously, we all know Social Security. It is woven
    into the fabric of our country. A few years ago the idea that
    we would expand Social Security seemed so unlikely; all the
    conventional wisdom in this town was that we would have to cut
    Social Security.
        Today, not only are cuts to Social Security deeply
    unpopular, but we are debating how much we need to expand the
    program. Today's hearing is to consider whether Social Security
    is adequate to meet the challenges facing today's workers and
    to discuss what policies we should consider to expand the
    program.
        Over the last few years, we have fallen into the bad habit
    of allowing the debate around Social Security to be conducted
    in the context of the budget. This is not serving seniors; this
    is not serving our country.
        First, discussing Social Security in the context of the
    Federal budget misleads the public. Social Security has its own
    dedicated source of funding.
        Second, most importantly, we should not be raising Social
    Security in the context of the Federal budget; instead, Social
    Security is about retirement security, about family budgets.
    Social Security is social insurance. Let me repeat that: Social
    Security is social insurance.
        It is a plan that offers working families a modest bundle
    of insurance products--retirement, life, disability insurance--
    at reasonable rates. For the bottom two quintiles of Americans
    over 65, Social Security benefits represent 84 percent of their
    retirement income. For the middle quintile of the five,
    households with an $18,000 maximum benefit, Social Security
    benefits represent some 65 percent of retirement income. Even
    in the fourth quintile, Social Security benefits represent 44
    percent of a senior's retirement income.
        Social Security is one of the three legs of the retirement
    stool we talk about. The other two legs of the stool--personal
    savings and pension plans--have, for many, many, many workers
    in this country, virtually been sawed off. Wages have
    stagnated. Folks are struggling to make ends meet, let alone
    put aside money for retirement. Defined pension benefits we
    know have declined. Only half of workers have access to an
    employer-sponsored retirement plan, making Social Security more
    important than ever. It lifts 22 million people out of poverty.
    In Ohio, there are 2 million Social Security beneficiaries. The
    program keeps more than 600,000 seniors out of poverty.
        I met a Youngstown woman at a town hall a couple of years
    ago. She said she worked two jobs; she was struggling, she was
    not making much money. She said, ``I am 63 years old. I just
    need to stay alive another year and a half so I can have health
    insurance.'' And that is what she was focused on--``I have just
    got to get to Medicare age.'' So we know how important these
    two social insurance programs are.
        To me, it is a moral issue and an economic issue. Last
    year, Social Security benefits fueled $1.4 trillion in economic
    output. They supported 9 million jobs and generated $200
    billion in payroll tax revenue. And keep in mind that Social
    Security's benefits are modest. Most checks are not much more
    than $300 a week.
        At the same time, the program is highly efficient. Less
    than 1 percent of revenue is used for administration. We know
    that bipartisan legislation in the Reagan years, in 1983, and
    then the Clinton years, in 1993, placed the program's finances
    on a predictable path.
        This tradition of common-sense, bipartisan actions should
    continue as we reallocate the Disability Trust Fund, a simple
    process that Congress has done bipartisanly 11 times since
    1957. Reallocation is not controversial. Twenty years ago, the
    Social Security Trustees predicted we would need to reallocate
    the Trust Fund in 2016. They were right; we will.
        Simple reallocation can be done without increasing taxes or
    decreasing benefits and will result in the program being
    solvent for the next 2 decades. We know the financing options
    that will make it solvent for decades to come and fund the
    kinds of expansions we know are necessary to confront the
    retirement crisis.
        We have to have the courage to act. Social Security is
    under duress today, despite its inherent strength. Current laws
    baked a series of cuts into Social Security that will slowly
    erode retirement benefits by 25 percent over the next few
    decades. But raising the retirement age, increasing taxes,
    delaying cost-of-living adjustments, or COLAs, are blunt
    instruments that only harm low-
    income workers.
        Americans who work construction, Americans who work in
    diners, Americans who work in steel mills, cannot work until
    they are 70; they cannot retire with dignity without the
    savings to do so. Americans who have worked hard all their
    lives are seeing prescription bills increase. They cannot
    afford a tax increase or an unreasonable cost-of-living
    adjustment.
        That is why we should consider proposals to expand Social
    Security, including a bill Chairman Harkin and I have
    introduced to change the benefit formula, particularly for low-
    income workers, and to update the cost-of-living adjustment to
    reflect the true cost of living for seniors.
        We will discuss proposals to increase survivors' benefits.
    We know that, for so many low-income families, it is the only
    life insurance available. We will discuss proposals to increase
    the benefits for the most vulnerable people. We can do this by
    updating the SSI program, which has not been updated or indexed
    in literally 40 years.
        We will examine proposals to provide caregiver tax credits
    to workers who support children or parents. When children leave
    the workforce to care for their aging parents, that is real
    work. Those caregivers deserve a modest but dignified
    retirement.
        Finally, we will talk about ways to use Social Security's
    proven track record to help working families by expanding the
    program to provide paid family leave and help the children of
    deceased beneficiaries attend college.
        [The prepared statement of Senator Brown appears in the
    appendix].
        Senator Brown. I will stop there and yield to my fellow, if
    I can say Eagle Scout, Ranking Member Toomey.

             OPENING STATEMENT OF HON. PATRICK J. TOOMEY,
                    A U.S. SENATOR FROM PENNSYLVANIA

        Senator Toomey. Thank you, Mr. Chairman, and thanks for
    calling this hearing. It is an extremely important topic.
        And I completely agree with the part of your analysis about
    the importance of the program, which is exactly why we have to
    take the measures necessary to ensure that Social Security will
    actually be there for future generations, so that it can play
    the vital role for them that it has played in recent decades
    and past decades.
        But part of that means acknowledging some of the
    fundamental problems. Number one, the program is insolvent. The
    present value of the promised benefits is much greater than the
    present value of the revenue that is meant to pay those
    benefits. And that is not a problem with some distant future
    implications. It is running a cash-flow deficit now. It has
    been since 2010--over $200 billion in deficits the last 4 years
    and $75 billion per year, on average, going forward. This is
    the amount by which payroll tax revenue, which is meant to fund
    the program, is less than outgoing benefits.
        Structural reform is necessary, and the sooner we do it,
    the better. Unfortunately, if we cannot agree that there is a
    problem, it is hard to make progress on the solution. The
    observation that this is a problem, by the way, is not a
    partisan matter. I think it is a matter of arithmetic.
        I want to quote briefly from the Social Security Trustees
    2013 Report. So this is the Social Security program describing
    itself; it says that, quote, ``Both the Social Security and
    Medicare programs face substantial financing shortfalls that
    require legislative corrections. It is important to grasp that
    the amount of time remaining to enact a financial solution is
    far less than the amount of time projected before final
    depletion of Social Security's combined trust funds. If
    lawmakers take action sooner rather than later, more options
    and more time will be available to phase in changes so that the
    public has adequate time to prepare. Earlier action will also
    help elected officials minimize adverse impacts on vulnerable
    populations, including lower-income workers and people already
    dependent on program benefits.''
        As the Social Security actuaries have noted, the
    fundamental problem is that spending in the program is
    increasing faster than the economy is growing. That is pretty
    much the definition of unsustainable. Over the next 10 years,
    the forecast is for nominal GDP to grow at 4.5 percent per
    annum, while Social Security will grow at 6.1 percent per
    annum.
        Tax increases are not the answer. Tax increases will not
    bring the spending growth in line with GDP growth, and will be
    economically destructive. Since President Obama has taken
    office, we have seen $1.8 trillion in tax hikes over a 10-year
    period, and economic growth is anemic--only one-tenth of 1
    percent last quarter, and we have the lowest labor force
    participation rate in 35 years. These are not coincidences.
        I should also point out that the math does not work very
    well. Even, for instance, if you completely eliminated the
    current existing $117,000 cap on the maximum earnings that are
    subject to the payroll tax, it would amount to a massive tax
    increase, and the program would return to a deficit position in
    11 years.
        The solution is that we have to change the rate of growth
    and bring it into line with GDP growth. No government program
    can grow faster than the economy indefinitely, so we have to
    make the decisions. And the sooner we do it, the better it will
    be for the people who depend on this essential program.
        So thanks again, Mr. Chairman. I look forward to the
    testimony of our witnesses.
        Senator Brown. Thank you, Senator.
        [The prepared statement of Senator Toomey appears in the
    appendix].
        Senator Brown. Senator Isakson?

               OPENING STATEMENT OF HON. JOHNNY ISAKSON,
                      A U.S. SENATOR FROM GEORGIA

        Senator Isakson. Well, thank you, Chairman Brown. I will be
    brief, but thank you for the time.
        I think there are two issues. I will tell a brief story. I
    was born in 1944. In 1983, Tip O'Neill and President Reagan got
    together with leaders of Congress, and they said, ``We have a
    problem. Social Security is not working. It is going negative.
    We have to fix it.'' And so they passed a law. No one lost at
    the polls in 1984 on this, by the way, not a single member of
    Congress.
        They passed a law and said that anybody born after 1943 is
    no longer eligible for Social Security at age 65. They have to
    wait till age 66. I was born in 1944, so I was the first of a
    group of Americans who were told, ``We are taking away 1 year
    of your benefit.''
        I was 39 years old. I did not think I was going to live to
    be 65, first of all. My father had always told me the
    government was going to screw it up anyway, so I did not really
    pay a whole lot of attention to it. Now I am 69 years old, and
    I realize I lost one of my years of Social Security. But I did
    not really miss it, because there was a long-range change in
    the fundamentals of the formula, but it was a change in the
    out-years. I never considered it a cut in benefits. I
    considered it a saving of the program.
        So it is only right for us to look at what Reagan and
    O'Neill did as a template for what we need to do. And we need
    to adjust the eligibility and the formula to fit the 21st
    century for my grandchildren and my children.
        There is a second thing we need to do. We need to take some
    of the pressure off the Social Security system by empowering
    retirees and people who will retire to save and invest more for
    their future. Now I understand, for the very lowest income
    earners, that sounds good, but it is just not possible, because
    they have to live within their means, and they do not have the
    money left over. But for most Americans, a vast majority, they
    are not saving for their retirement. They are not planning for
    their retirement.
        So it is important for us to take the tax incentives that
    we have in the code for IRAs and 401(k)s and Roths and empower
    people to save. Every time somebody has saved for their
    retirement, it takes pressure off the Social Security system
    for additional benefits.
        So, as we talk today about saving Social Security, part of
    that is the responsibility of the retiree to help save for
    themselves. Social Security may have been intended as that
    letter you read from 1935 portended. It may have been intended
    to be your retirement program, but we all know we cannot afford
    a program that would be a retirement program in the 21st
    century.
        It is a social insurance contract; it is not an
    entitlement. People have paid premiums for it; they deserve a
    benefit. But they deserve for us to make sure we are protecting
    that benefit in the out-years.
        So I welcome the opportunity to hear from our experts, and
    I welcome the opportunity to talk not only about saving Social
    Security, but about empowering retirees to save for themselves.
        Senator Brown. Thank you, Senator Isakson, for your always-
    wise comments.
        The first witness is Stephen Goss. Mr. Goss is Chief
    Actuary, Social Security Administration. He has been Chief
    Actuary since 2001. He has devoted his career to public
    service. He joined the Office in 1973 after graduating from UVA
    with a master's in mathematics. The Office of the Actuary is
    the scorekeeper for policy affecting the Social Security
    Administration. Mr. Goss and his team provide us with
    invaluable nonpartisan resources and insight. We appreciate his
    work.
        Next we have Dr. Teresa Ghilarducci. She is the chair of
    the economics department for The New School for Social Research
    in New York. Dr. Ghilarducci has been working on retirement
    security issues literally her entire working life. As a 21-
    year-old, we found out, she consulted with unionized workers at
    Stanford about their benefits and helped them choose pension
    plans. She is one of the Nation's foremost experts on
    retirement security. We appreciate her joining us.
        Next we have Jason Fichtner. Dr. Fichtner is a senior
    research fellow at George Mason. He was a former Deputy
    Commissioner in the Social Security Administration and served
    as the Social Security Administration's Chief Economist. He
    also will soon marry a former intern of mine, when I was in the
    House of Representatives. Congratulations on that--not that she
    was an intern of mine, but on the marriage. [Laughter.]
        Finally, we have Dr. Maya Rockeymoore, president and CEO of
    the Center for Global Policy Solutions. Dr. Rockeymoore is a
    Capitol Hill alum, where she staffed the Ways and Means
    Committee and was Chief of Staff to one of my favorite House
    members when I was over there, Congressman Rangel. She is a
    lead author of a plan to strengthen Social Security for
    communities of color and other vulnerable groups. Thank you for
    joining us.
        We will begin with Mr. Goss. Thank you.

             STATEMENT OF STEPHEN C. GOSS, CHIEF ACTUARY,
             SOCIAL SECURITY ADMINISTRATION, BALTIMORE, MD

        Mr. Goss. Chairman Brown, Ranking Member Toomey, and
    Senator Isakson, thank you very much for the opportunity to
    come and talk to you about this really important topic today.
    Actually, I think, among the three of you, you pretty much
    covered everything, so let me try to fill in a couple of
    details here.
        There are really three things that I would like to just
    very briefly mention to you today in these brief moments. One
    is really the global challenge of aging. It is not just the
    U.S.; it is everywhere, especially the OECD nations. The second
    item is Social Security benefit levels and the adequacy of
    those benefits. And third is a little bit about the options, of
    which there are so many, and we simply will not have time in
    this brief testimony to really get into that.
        The slide that we have here, I have a little graph of
    something that is referred to as the ``aged dependency ratio.''
    Most are familiar with this. This is just the ratio of the
    number of people 65 and older to the number of people who are
    of working age, 20 to 64. And this ratio, this line, if you
    look at it, the top line is what we are actually facing, going
    forward in our Nation. As Senator Toomey well pointed out, we
    are going to have a big increase in the number of people who
    are over 65 relative to those who are under 65 in our adult
    population. And we can just see how that is going.
        Now, what is really important in thinking about that is
    why, exactly, is that happening? People usually think, well,
    obviously, it is because everybody is living longer. Death
    rates are dropping like crazy. Actually, that is really not the
    case. If you look at the center and the bottom lines, these two
    lines indicate what would be happening to this ratio of folks
    over 65 to folks of the working-age population if the birth
    rate that we had had prior to the end of the baby boom
    generation had stayed at either 3 children per woman or 3.3
    children per woman. You can see that this aged dependency
    ratio, if it just continued growing at a very gradual and slow
    rate, as it has in the past, would not really be a big deal.
    The big jump we have is for another reason; it is because the
    birth rate dropped.
        Now, this is not to suggest for a moment that we should
    have kept the birth rate where it was. I am old enough to
    remember the mention of somebody named Malthus, way back when
    we were worried about the overpopulation of the world. But the
    bottom line is, this is the challenge we are facing. We are
    facing a level shift in the ratio of aged folks to working-age
    folks, because of the drop in the birth rate. And I am just
    suggesting we should keep that in mind when we talk about how
    we address this challenge.
        By the way, be glad we are not Japan, because they have a
    much bigger problem, and South Korea. Their birth rates are
    down at 1.2 children per woman. Ours are still at two children
    per woman.
        So on the next slide, we have an indication of what really
    this means, what it is doing for Social Security. As we all
    well understand, and as the Trustees have pointed out, over the
    next 20 years we will have a rise in the cost of Social
    Security as a percentage of gross domestic product that is not
    only predictable, but it is all but certain. The people who
    will be involved in generating this increase in cost over the
    next 20 years are already born. And this follows directly from
    that change in the number of people 65 and older compared to
    those of working age, because after all, benefits for Social
    Security are largely the result of people 65 and older, and the
    GDP and taxable payroll for the program are generated largely
    by people age 20 to 64.
        So it is no surprise at all that we have this level shift,
    and that is really a key point. It is a level shift up to a
    higher level. Social Security had been about 4.3 percent of GDP
    for decades. It is going to rise up over the next 20 years to
    about 6 percent of GDP and stabilize, under all reasonable
    projections that we could possibly make.
        On the next slide, we just have a little indication of
    really what the level of Social Security benefits is. I think,
    as Senator Brown mentioned, the level of Social Security
    benefits, $300 a week, that is about $1,270 per month in 2013.
    And that is actually about 35 percent of what the average
    amount of covered earnings is for workers in this country.
        If you peel that back a little bit and consider not just
    the average covered earnings, but leave out the earnings for
    those who earn over $117,000, we end up with a little bit lower
    average taxable earnings, and our average benefit is about 42
    percent of that.
        So it is probably not, by any measure, sufficient to cover
    all of people's retirements needs, but it is a good foundation.
    It is a good floor of protection. It is a good, solid one leg
    of the stool, and we wish we had more of the others.
        And the one comment that I would want to make on that is
    that the issue with the other legs of the stool is not that
    they have disappeared for everybody. They have certainly
    diminished. But one of the key points really is annuitization.
    What Social Security offers in its benefits is a life annuity.
    A lot of people are talking now about longevity insurance,
    longevity protection. A life annuity takes care of that for
    you. A lump-sum amount of money when you reach retirement that
    you then manage yourself does not give you assurance of having
    a lifetime income for the rest of your life. And more and more,
    our employer-provided pensions and savings that people have put
    together on their own are not going into annuities. So Social
    Security is the only thing that people have assurance of.
        Senator Isakson, we hope that you will make it way past 69,
    and when you get up to age 89, if you do not have life
    annuities, you could well be running out of resources, and many
    American citizens will be in that position.
        On the next slide, we have an indication of something that
    we actually have in the Trustees Report, which are benefit
    replacement rates. And you can see how these went up, and they
    reached a peak around 1980 and have been brought back. This is
    at age 65, and benefit replacement rates are just the amount of
    money that people receive as a benefit in the first year of
    benefits compared to some measure of what their earnings level
    was in their career.
        In this case, because people's earnings levels in our
    country do not follow any particular pattern, we look at what
    the average earnings level is on a wage index basis over their
    entire career. That also is the basis upon which we determine
    the benefit levels under Social Security currently. And we can
    see that this ranges anywhere from maybe 30 percent of the
    benefits that people receive, 25 to 30 percent for our highest
    earners, down to our lowest earners getting about 50 percent of
    a replacement rate. And, as mentioned on the earlier slide, it
    is about 40 percent on average.
        But we do have another way of looking at this, which we
    looked at much more carefully recently, on the next slide with
    this bar chart. And, if you look at what we call the median
    level--that is the place where half the people have higher
    replacement rates, half have lower replacement rates--what we
    typically looked at is on the black bar.
        And you can see where we have a dark gray bar, which is
    what we show in the Trustees Report, these are, for
    hypothetical workers, our benefit replacement rates--that is,
    benefits that you get in your first year of benefits, relative
    to what your earnings level has been. At the median level, we
    are at about 40 percent, and we are about 40 percent on this
    long career average.
        We are also at about 40 percent on another measure of
    earnings, which is not just the long career average, but if we
    look at the last 5 years of pretty solid, non-zero earnings.
    What we actually did here is something new we have developed
    really for this hearing. We looked at the last 5 years in which
    you actually had earnings and we ignored the most recent one,
    because that is probably the year of your last earnings. And on
    average, people worked only half a year in that year. So we
    left that one out and looked at the five preceding that, took
    the average of that, wage-indexed that, and, lo and behold, it
    turns out to give a very, very similar result on replacement
    rates to what we have in the Trustees Report. So we think this
    corroborates what we have in the Trustees Report.
        On the next slide, we did add one other measure that has
    been mentioned from time to time by some folks, in the black
    bars. The black bars are quite a bit higher, but the black
    bars, I think we would all agree, are probably not an
    appropriate thing to look at for a replacement rate, because
    the measure of earnings for individuals that is included in the
    black bars is the last 5 calendar years of earnings before you
    start Social Security benefits.
        Fifteen percent of our beneficiaries whom we looked at in
    the year 2011 had no earnings at all in the last 5 years, and
    about 25 percent of the last 5 calendar years before people
    start getting benefits are zero years. So, taking the average
    of your earnings in the last 5 years, including zeroes, really
    does not give us a solid foundational basis of what we would
    really want to be replacing for ourselves or for other American
    citizens.
        On the next chart, really this is just a look at what
    Senator Toomey addressed and what we are all well-aware of--the
    challenge we are facing. Senator Brown, you did mention the
    idea that we did have, back in 1994, our last major legislation
    on Social Security. We had a tax rate reallocation. You can see
    that on the bottom line here, how the DI program was pulled
    back up.
        We are now approaching a point by 2016 where we are going
    to have to do that or something like that very soon. And we are
    looking at 2033 for the Social Security program as a whole.
        So what are we doing to have to do? On the next slide, we
    just show we are going to have to, between now and 2033, do
    some combination of reducing the level of benefits, cutting
    them by 25 percent relative to what is scheduled in current
    law, or increasing the revenue by 33 percent, or some
    combination.
        We have a number of ways of approaching this. In fact, we
    have left some copies with you all of some of the provisions we
    have up on the Internet. We hope that you all look at those
    carefully, and we might have a chance to discuss some of those.
        In addition to the changes that we need to keep the
    solvency of the program intact, to adjust for that level shift
    that we have in the cost of the program from 4.3 to 6 percent
    of GDP, we have to either pull the revenue up to that level or
    pull the cost down, or something in between.
        In addition, there is the other question of the strength of
    Social Security--not just its financial strength, but also the
    strength of the level of benefits, which I think Senator Brown
    mentioned. And we have looked at a number of different
    provisions that we have documented on behalf of members of
    Congress and others, including restoring student benefits up to
    age 22, providing a restored minimum benefit, which has
    basically withered under Social Security, doing more for aged
    surviving spouses, and also possible adjustments to the cost-
    of-living adjustment.
        And with that, I will stop and pass the torch to Teresa,
    and I look forward to your questions and comments later.
        Thank you very much.
        Senator Brown. Thank you, Mr. Goss.
        [The prepared statement of Mr. Goss appears in the
    appendix].
        Senator Brown. Dr. Ghilarducci?

    STATEMENT OF TERESA GHILARDUCCI, Ph.D., CHAIR OF THE ECONOMICS
    DEPARTMENT, THE NEW SCHOOL FOR SOCIAL RESEARCH, THE NEW SCHOOL,
                              NEW YORK, NY

        Dr. Ghilarducci. I do not have any graphs, so I am sorry.
    [Laughter.]
        Thank you very much for inviting me, Chairman Brown,
    Ranking Member Toomey, and thank you for your comments, Senator
    Isakson.
        For the first time in U.S. history, working Americans will
    be worse off than their parents or grandparents in retirement.
    It is actually a shocking number. But since Social Security's
    passing, we saw every generation looking forward to living
    better when they retired than their great-uncle or their
    parents. And we are now seeing a reversal. The baby boomers
    expect to do worse.
        And much of that erosion in expectations is because of
    congressional action, and much of it is unintended. And I am
    going to talk today, and my testimony is about, the layer of
    income. It is not really a stool, but a pyramid. The base is
    Social Security, and that important second layer is employer-
    provided pension plans or pension plans you get at work. So I
    am going to include 401(k)s and their cousin, individual
    retirement accounts, IRAs.
        What we are finding is that that layer of income is eroding
    precipitously. We all know that there are fewer pensions,
    traditional pensions, that pay out an annuity. And that is
    eroding very, very quickly. Older workers are coming in to
    retirement with much more debt. It used to be 65-year-olds,
    about 35 percent of them had some mortgages. Now we are seeing
    that 65 percent of them have some mortgages and other kinds of
    debt.
        More seniors are going to have to work or, more likely in
    this labor market, just look for work. We have seen a huge rise
    in the unemployment of older people, over 55. And the jobs that
    they have--this is new data coming out of the University of
    Michigan--55-year-olds, 65-year-olds are worse off than they
    were in the 1980s and 1990s. Things are getting worse.
        There is more bending, stooping, requirements for intense
    concentration and keen eyesight. So the jobs that older people
    are having to take are actually retail work, service work, and
    warehousing work. There are lots of stories of workers in the
    Amazon warehouses who are over 55.
        The last reason why most Americans will not have enough in
    retirement, will do worse than their parents or grandparents,
    is because, even though there has been an increase of
    retirement assets under Congress's watch--we have seen the
    levels of income and assets in 401(k)s and IRAs increase over
    the past 30 years--those are increasingly skewed to the top
    earners, to the highest income,
    highest-earner retirees, and also in terms of wealth.
        So even though we see trillions piled up in these assets,
    they are more and more skewed to the top, and it is actually
    unintended consequences of some of Congress's decisions over
    the last 20 years. Congress continues to expand the tax
    deductions. You call it incentives, but the idea is that, if
    you have more incentives, more financial literacy, you will get
    more and more people accumulating assets. That plan, that
    scheme, is a failure.
        The system is also stacked against the average worker.
    These incentives are based on voluntary contributions, they are
    based on individual directed retirement accounts, they are
    based on commercial private-sector financial firms, and they
    are based on these deductions.
        So this means that middle-class workers--it is not just
    low-
    income workers, it is actually middle-class workers and upper-
    income workers who are more likely to take out loans from their
    401(k)s, these liquid assets. They withdraw money, just take
    out the money and pay the tax penalty during their working
    lives. They tend to pay higher fees because of the commercial
    account management. And because middle-class people and low-
    income people are advised to be more conservative, they get a
    much lower rate of return in their accounts.
        So, piling all those reasons together means that Federal
    policy treats differently people who do identically the same
    thing. You have a high-income worker and a middle-class worker
    saving the same amount in their retirement account, but the
    higher-income worker gets a higher net-of-fee, net-of-tax
    benefit rate of return.
        Take out an Excel spreadsheet. Look at those rate-of-return
    differences over just a few periods, and you get that higher-
    income worker getting, because of the structure of the system,
    a higher rate of return. And, even though they contributed
    equally, the
    higher-income worker has 15, 20 percent more in their
    retirement accounts.
        I know that is an unintended consequence of the way you
    built this system, but it does not add to any retirement income
    security, and you provide these lopsided benefits to people who
    need them the least. It is a very ineffective way of using the
    $150 billion in tax deductions.
        So I also have seen many polls over the last 30 years, and
    for the first time--this happened actually a couple of years
    ago--our researchers who look at polling data, political
    scientists, say this does not happen very often, but this is
    the first time that the American people are running ahead of
    Congress, that Americans, baby boomers in their 40s and 50s,
    have known that retirement security is a big problem.
        And it is likely voters who are likely to say this is my
    top concern. Increasingly, older women and higher-income
    individuals, and white voters, are saying that they are
    especially anxious about their retirement future, and they are
    more likely to say things are going to get worse for them as
    they get older. But all Americans, as Maya will talk about,
    working now should worry about their retirement security.
        Now the solution is, and we have known this for years, to
    restore some of the cuts in Social Security benefits, that
    minimum benefits should be increased to prevent poverty among
    our older people. But we also have to pay attention to that
    layer of income that has been eroding, that income you get when
    you save at work. We need--and Congress can help--an
    appropriate, safe, and secure savings vehicle. It is not that
    people are not saving; it is that they do not have a good place
    to save.
        So I propose universal retirement accounts for all
    Americans. Social Security is also very good at administering
    the premiums from workers and paying them out. We should use
    that infrastructure to collect money from all workers to add,
    on top of Social Security, universal savings accounts.
        And we should take the tax deduction and make it into a
    refundable tax credit. For no extra money, Congress could give
    every worker over $600 per year. If States with income taxes
    also made their deduction into a refundable tax credit, you
    could add even more. California workers with a refundable tax
    credit under both systems could save over $700, $750 per year.
        Like Social Security, there would be no withdrawals before
    retirement in these accounts. These accounts would be managed
    by institutional investment managers; they are the best
    managers available. The funds would be pooled, unlike they are
    now in 401(k)s and IRAs. You would have low fees, and I
    recommend that they be paid out in mostly annuities so no
    worker has to self-insure for the off chance they will live
    until 90.
        Because Congress has not acted, seven States--California in
    2012, Connecticut, Maryland, Minnesota, Oregon, Vermont, and
    West Virginia--are or will be in the process of studying the
    feasibility of establishing a system whereby private-sector
    workers will have money managed by their State funds or an
    exchange.
        And this is back to the future, because, before Social
    Security was passed, 26 States had on the books legislation for
    some kind of relief for older workers, some old-age assistance
    act. When Social Security was passed, these States stopped
    their initiative.
        So there is a crisis, and it is starting now as boomers are
    retiring. An action now, helping accumulate funds in people's
    retirement accounts, will help reduce costs and hardships in
    the near future.
        Thank you.
        Senator Brown. Thank you, Dr. Ghilarducci.
        [The prepared statement of Dr. Ghilarducci appears in the
    appendix].
        Senator Brown. Dr. Fichtner, welcome.

    STATEMENT OF JASON J. FICHTNER, Ph.D., SENIOR RESEARCH FELLOW,
        MERCATUS CENTER, GEORGE MASON UNIVERSITY, ARLINGTON, VA

        Dr. Fichtner. Thank you. Senators, thank you for inviting
    me here to testify this morning. And, Chairman Brown, thank you
    for that very wonderful, thoughtful introduction. I do
    appreciate it. Thank you.
        My testimony focuses on two key issues: first, the extent
    to which we are actually facing a perceived retirement crisis
    and, second, how the current structure of the Nation's largest
    retirement program, Social Security, is contributing to the
    problem by providing disincentives to work and save.
        From this discussion, I hope to leave you with the
    following take-aways. One, painting all Americans with a broad
    brush of a retirement crisis creates an incomplete picture of
    the true financial landscape faced by America's future
    retirees. Two, the narrative of a retirement crisis leads us to
    look toward greater dependence on, and the expansion of,
    government programs such as Social Security, which are already
    facing severe financial problems. And three, urgently needed
    Social Security reform should not exacerbate these existing
    problems.
        The national newspapers are full of stories claiming that
    Americans are woefully unprepared for retirement. A recent top
    story on The Wall Street Journal's MarketWatch was titled,
    ``Our Next Big Crisis will be a Retirement Crisis.'' Similarly,
    an often-cited index of retirement preparedness compiled by the
    Center for Retirement Research at Boston College claims that,
    quote, ``Fifty-three percent of households are at risk of not
    having enough to maintain their living standards in
    retirement.''
        But do these stories and statistics truly equate to a
    living retirement crisis? Syl Schieber and Andrew Biggs wrote
    in January of 2014 this year that, quote, ``The story about the
    declining income prospects of retirees is not true.'' Schieber
    and Biggs based their argument on the fact that the data most
    often cited to show there is a crisis is compiled by the Social
    Security Administration, based on the Current Population
    Survey, the CPS, from the U.S. Census Bureau.
        These data used by the Social Security Administration do
    not accurately reflect the total amount of income in retirement
    derived by individual retirement accounts. When instead
    Schieber and Biggs looked at tax return data from the Internal
    Revenue Service, the reported income was much higher. They
    quote, ``The CPS suggests that in 2008, households receiving
    Social Security benefits collected $222 billion in pension or
    annuity income.'' But Federal tax filings for that year of 2008
    show that these same households received $457 billion of
    pension or annuity income, so twice as much.
        This information is important because, in order to have a
    financially secure retirement, many financial planners suggest
    a replacement rate of 70 percent. The replacement rate is how
    much of your pre-retirement income a person will need in
    retirement.
        Social Security was designed to replace about 40 percent of
    a person's pre-retirement income, with high replacement rates
    for low-income workers, with the remaining amount to be covered
    by an employer pension and/or personal retirement savings. For
    example, a person who earns $50,000 in each of the final 5
    years leading up to retirement should plan to have enough
    retirement savings to generate $35,000 earned income; that is
    $50,000 times 70 percent. The 70-percent figure, though,
    includes income received from Social Security benefits.
        This is just a general rule of thumb, and everybody's
    retirement needs are different. And the replacement rates used
    by the Social Security Administration, as Mr. Goss showed in
    his testimony, for some people may be underestimating the
    actual replacement rates; for others they may be accurate.
        Please do not misunderstand me, though. I am not arguing
    that everybody has adequately saved for retirement. Obviously,
    that is not the case. Nor am I arguing policymakers should not
    focus their efforts on policy options that will help Americans
    save for their retirement. But I do want to stress that
    painting all Americans with the broad brush of a retirement
    crisis creates an incomplete picture of the true financial
    landscape faced by America's retirees.
        Further, I am concerned that the narrative being told of a
    retirement crisis is leading us to look toward greater
    dependence on--and, again, even expansion of--existing
    government programs, many of which, Social Security included,
    are already facing severe financial problems.
        This is simply not a sustainable plan. We must turn instead
    toward policy options that will encourage individuals to work,
    save, and invest so that they can build their own financially
    secure retirement. It is important that any reforms remove the
    negative effects on labor force participation, improve work
    incentives, and promote individual savings.
        As I have discussed in previous congressional testimony,
    Social Security reform, one, must begin immediately. And
    possible reforms include things like basing future cost-of-
    living increases on a different CPI, whether it be a chained
    CPI or a chained CPI-E; gradually raising the early and full
    retirement ages; increasing the delayed retirement credit;
    adjusting the benefit formula; constraining the non-working
    spousal benefit for high earners; providing payroll tax relief
    to seniors; increasing access to private accounts or private
    retirement arrangements through employers; and increasing
    financial literacy.
        Social Security faces real and increasingly urgent
    financial challenges. Reform is not only the wise thing to do,
    it is the critical thing to do to ensure that Social Security
    remains solvent and fiscally sustainable and continues to
    provide retirement security for generations to come.
        Senator, in my remaining few minutes, I would like to just
    highlight also something you brought up in your opening remarks
    about Social Security being an insurance program. I think that
    is the exact way to think about how we should look at reforms.
    What are we insuring against? Originally it was to insure
    against old age. We are all now growing older; in fact, we are
    living longer than the program was originally designed to have
    people live.
        How do we make sure that it really is an insurance program
    that is there for those who fundamentally need it, but does not
    provide a greater benefit for those who already have assets? We
    should consider things like a minimum benefit or consider
    things to help those in the lower-income range, but also look
    to what we are doing on the high-income range and make some
    adjustments there as well.
        I thank you for your time and this opportunity to testify
    today, and I look forward to your questions.
        Senator Brown. Thank you, Dr. Fichtner.
        [The prepared statement of Dr. Fichtner appears in the
    appendix].
        Senator Brown. Dr. Rockeymoore, thank you for joining us.

    STATEMENT OF MAYA ROCKEYMOORE, Ph.D., PRESIDENT AND CEO, CENTER
              FOR GLOBAL POLICY SOLUTIONS, WASHINGTON, DC

        Dr. Rockeymoore. Good morning, Chairman Brown, Ranking
    Member Toomey, and Senator Isakson. Thank you for inviting me
    to speak on a matter of critical importance for our children,
    our workforce, and our Nation.
        Mr. Chairman, there are four big reasons why strengthening
    Social Security is critical for tomorrow's retirees. The first
    is the well-documented retirement crisis that has gotten
    progressively worse over the past few decades now. Teresa
    Ghilarducci has already outlined that.
        But the fact that half of the Nation's population does not
    have access to retirement benefits through their jobs is a
    structural problem. There is also a critical concern that
    public-sector pensions are going to go by the way of the
    private sector with regards to defined contributions, and that
    is going to increase risk for individual retirees and also put
    more pressure on Social Security.
        Second are the additional structural factors in our labor
    market that shut out more than 38 million Americans from
    employer-
    provided retirement coverage and who suffer from downward
    pressures on wages that make it difficult to save.
        Third is the generational impact that the Great Recession
    has had on the retirement prospects and earnings potential for
    younger workers who have lost almost half of their already-low
    levels of wealth.
        And fourth, with the number of older Americans expected to
    increase to over 77 million by the year 2033, and with the
    dramatic growth of households of color who experience a racial
    wealth gap that leaves the typical African-American and Latino
    families with only 6 and 7 cents of wealth for every dollar
    owned by the typical white family, it is clear that a majority
    of the Nation will continue to rely on Social Security for much
    of their retirement income well into the future.
        For these reasons, it is imperative that our Nation's
    leaders focus on strengthening and expanding Social Security so
    that we can increase the adequacy and relevance of benefits to
    meet changing population needs.
        Decades of stagnating wages and the effects of the Great
    Recession have imposed financial hardship on all workers, but
    have had an especially detrimental impact on vulnerable workers
    who may never make up what they lost due to unemployment and
    underemployment. As a result, Social Security's modest benefits
    need to be increased across the board to meet the projected
    income needs of future retirees who have been harmed by
    macroeconomic factors beyond their control.
        We must also provide an extra boost in benefits for the
    very old, the very poor, and widowed spouses, all of whom are
    vulnerable to poverty in their retirement due to low wages,
    absent pensions, poor health, the inability to continue
    working, and/or the likelihood of outliving other resources.
        And at this point I would like to reference Dr. Fichtner's
    remark that everybody is living longer. The fact of the matter
    is that only half of the people in the income distribution, the
    upper half, the wealthier portion of our population, are living
    longer. For the bottom half of the income distribution, their
    life expectancies are stagnating and, in some cases, even
    reversing.
        We are seeing startling information coming out from
    population researchers showing that, for the very low-income,
    especially white women without a high school education, they
    have experienced a reversal in life expectancy, over a recent
    20-year period, of 5 years.
        That is a stunning outcome. A reduction in life expectancy
    is a stunning outcome for a nation that is supposed to be the
    richest in the world. And it is important to ensure that the
    value of Social Security benefits keeps pace with increases in
    inflation by calculating cost-of-living adjustments using the
    CPI-E, a more accurate measure that accounts for the higher
    medical expenses shouldered by seniors.
        It is also important to strengthen the program by extending
    or restoring benefits to new groups. Caregivers play a vital
    role in society, but are often forced to work part-time or take
    time out of the formal economy to tend to sick children or sick
    relatives or small children. The Social Security benefit
    formula should include a family service credit that allows
    caregivers to accumulate imputed earnings equal to one-half of
    the average annual wage for each year they have zero or minimal
    earnings, up to a total of 5 years.
        Comprehensive immigration reform should provide a pathway
    for hard-working immigrants to receive Social Security
    benefits, while improving the program's actuarial balance over
    time.
        Social Security should extend benefits to same-sex couples
    and their dependents, regardless of their State of residence or
    the location where their marriage ceremony occurred.
        And we must restore the benefit that once allowed young
    people to continue receiving Social Security through the age of
    22, as long as they remain enrolled in college or vocational
    school.
        Finally, the changing needs of the American public dictate
    that we also look for new and dynamic ways to meet their needs.
    Although the Family and Medical Leave Act was a revolutionary
    step forward by requiring covered employers to allow workers
    job-
    protected, unpaid time off for specific medical and family
    purposes, it remains a financial hardship for many workers to
    take unpaid leave.
        Establishing a national paid family and medical leave
    program as a part of Social Security would provide partial wage
    replacement for workers across the country who temporarily need
    to take time off from their jobs to tend to their own medical
    condition, to care for an ill family member, or to take care of
    and bond with newborns or newly adopted children.
        In conclusion, Social Security has helped provide economic
    security for American workers and their families for 79 years.
    Given the multiple factors undermining retirement security for
    future retirees, it is imperative that we adopt strategies that
    can strengthen and expand Social Security to meet the needs of
    an increasingly diverse and economically insecure 21st-century
    workforce.
        Mr. Chairman, thank you again for this opportunity to
    present this critical information.
        Senator Brown. Thank you, Dr. Rockeymoore.
        [The prepared statement of Dr. Rockeymoore appears in the
    appendix].
        Senator Brown. I have only one comment, then I want to turn
    to Senator Toomey, who needs to leave, and he can do his series
    of questions first.
        Your comment that one-half of the population is not living
    longer is so important in this debate. Dr. Fichtner talked
    about the media presentation of all these issues, and, while I
    do not fundamentally agree with all of that, I think he is
    generally right that people do not really understand this, are
    not getting the complete picture.
        But one major part of that incomplete picture is that it is
    not everybody in this society who is living longer. The woman
    working the diner, the guy working in the steel plant, the
    people working construction, especially if they are not union-
    protected, so often are not in fact living longer. So thank you
    for that.
        Senator Toomey?
        Senator Toomey. Thank you, Mr. Chairman. Thanks very much
    for allowing me to go first on the questions. I appreciate
    that.
        I just want to follow up on that very same point because,
    in my view, it underscores one of the flaws in the design of
    the Social Security program. Dr. Rockeymoore is exactly right
    that lower-income workers have not enjoyed the extension of
    life expectancy that others have.
        Lower-income workers also tend to enter the workforce at an
    earlier age. They tend not to have gone to college, so they are
    in the workforce earlier. So they work longer, and they pay
    into the system for a longer period of time.
        And, if they have the misfortune of dying in their early to
    mid-60s, which is not terribly uncommon, they collect nothing.
    They have nothing--nothing to pass on to their kids, and
    nothing to show for the decades they spent paying into the
    system, which is one of the reasons why a reform that includes
    accumulated savings has a huge advantage. It does not ensure
    that they are going to live longer, but it would at least give
    them something to pass on to their kids, and maybe help to lift
    the next generation out of poverty.
        I want to point out now that Mr. Goss, in his testimony,
    mentioned the fact that Social Security is by its nature an
    annuity. That is, of course, correct, and a lump sum of savings
    is not. But of course you would agree that a lump sum of
    savings could be used to purchase an annuity. These are readily
    available in the commercial market, correct?
        Mr. Goss. They could. But they, at this point, rarely are,
    unfortunately.
        Senator Toomey. That may be, but they are available. And it
    might well be that people ought to be more aware of it--that
    the purchase of an annuity is readily available to anyone at
    retirement age.
        I also had a question about--CBO, of course, has famously
    concluded, their estimate is that, as a result of the
    Affordable Care Act, we will have 2.5 million fewer people
    working within 10 years than we otherwise would. If they are
    right--if that analysis ends up to be true and the workforce is
    2.5 million people fewer than it otherwise would have been--is
    that helpful to the Social Security program, or is that, on
    balance, harmful to the Social Security program, Mr. Goss?
        Mr. Goss. Well surely, if we have fewer people working,
    that will not only result in less revenue coming in, but it
    will result in less benefits payable to those individuals in
    the----
        Senator Toomey. But if you factor that in, does that make
    the actuarial numbers look better or worse?
        Mr. Goss. That would not help. I would suggest, though,
    that our projections, our projections for the Trustees, have
    not incorporated that kind of reduction as a result of the
    Affordable Care Act.
        Senator Toomey. Right.
        Dr. Fichtner, I wonder if you could address the tax side of
    this. As you know, when Social Security was launched, the
    payroll tax was 2 percent on the first $3,000 a person earns.
    Now, of course, the value of a dollar has changed a lot. My
    understanding is that $3,000 back in that day is equivalent to
    about $52,000 today.
        But now we tax 12.4 percent on the first $117,000, so we
    have had huge, huge increases in taxes. Is it your view that we
    can continue to raise taxes and indefinitely postpone a day of
    reckoning here?
        Dr. Fichtner. Senator, that is an excellent question. And
    no, it is not my view. Unfortunately, I think what you get--
    there is an old saying in economics that, if you tax something,
    you get less of it. If you raise taxes on labor, you are going
    to get less labor.
        And it is a general statement. But I think we start seeing
    now, if you think about the 12.4 percent for Social Security,
    that does not include what we are paying for Medicare taxes as
    well and some additional taxes under the ACA for investment
    earnings that go to Medicare.
        You will get someone in the 28-percent tax bracket
    federally, who lives in the District of Columbia where I live,
    and you start adding in the payroll tax, which is now 15
    percent or more--we include Medicare--then add in the 10-
    percent State tax. If we start raising the payroll taxes, you
    start getting to the point where the marginal tax rate is over
    50 percent for some people. That means you are keeping, at the
    margin, less than half a dollar earned, and at that point
    people start reducing their labor supply.
        I actually teach at two universities besides George Mason,
    at Georgetown and Johns Hopkins, as an affiliate professor, and
    I get paid as an adjunct, so it is an additional class. And I
    am often asked by those schools, would you please teach one
    more class this semester? And they offer a wage.
        At this point now, I am keeping about 53 cents on the
    dollar. And it is to the point where I have said, I am a
    threshold earner. I do not think I really can--there is work
    and leisure, but when you raise the taxes on work, I start
    saying my leisure is worth more. And I think we would see that,
    in some ways, across the economy if we raise taxes too high.
        Senator Toomey. Thank you very much.
        Thank you, Mr. Chairman.
        Senator Brown. Thank you, Senator Toomey. Thanks for your
    insight and comments.
        After listening to the four of you, obviously, there are a
    number of things you say in common, and some are in consensus
    and some not.
        And, Dr. Fichtner, you made comments about the media, that
    this retirement crisis that our country faces is narrower than
    I think the other three witnesses--or at least the two flanking
    you directly--would opine, I guess.
        But I do think we can agree--I think it was Dr. Rockeymoore
    who said that half the people in this country do not have a
    retirement program of any significance. Seventy-five percent of
    Americans have less than $30,000 in their retirement accounts.
    The median 401(k) account balance in 2011 was $16,000. Every
    number you look at paints a picture that there are a huge
    number of people in this country who are not prepared for
    retirement in any significant way.
        I understand Dr. Fichtner's view that that does put
    pressure on the public pension system to do more. It puts
    political pressure. A number of us think that is the right way
    to do that, that there should be pressure there, I think. We
    heard that certainly in Dr. Rockeymoore's comments.
        So let me ask this question. Dr. Fichtner, Social Security
    gives workers an incentive to retire early, because only the
    first 35 years of your earnings are factored into benefit
    calculations.
        From the four of you, is there any evidence that Social
    Security discourages workforce participation?
        Do you want to start, Dr. Ghilarducci?
        Dr. Ghilarducci. Yes. There is no model that convinces me
    in economics that we are anywhere near the tax rates that would
    discourage labor force participation. There is a tax rate that
    can be too high on work, but we are nowhere near that.
        There are lots of suggestions that the Earned Income Tax
    Credit and the Social Security system encourage people to work
    legally, to work on the books, to be a part of the regular
    workforce. So there is lots of evidence that the Social
    Security system, with the Earned Income Tax Credits, puts
    people into the system. They do not work underground.
        Senator Brown. Mr. Goss?
        Mr. Goss. I guess I would just add that any time we offer a
    benefit under a particular circumstance, whether it is people
    reaching a particular age where they can retire or a benefit
    where they can receive a benefit should they become disabled,
    that on the margin, as economists would say, that might tend to
    cause fewer people to be working than would be the case if
    there were no such benefits available at all.
        If no such benefits are available at all in retirement,
    people really have no choice then but to depend upon friends
    and relatives or to continue working, and we would have some
    additional work happening.
        However, I would just add this. Where we have Social
    Security benefits, the structure of the system now is such that
    when people reach age 62--and I wish that Senator Isakson was
    still here, because the 1983 amendments to Social Security did
    not change the minimum eligibility age for retirement benefits
    from 62. So he could still start receiving benefits at 62,
    except that we do have a retirement earnings test that applies
    at age 62 up to age 66 now. If you earn well over $15,000, your
    benefit will be reduced and maybe even zeroed out, in effect,
    during the time in which you have those earnings.
        However, this is not a tax. This is not lost income,
    because, if you have your benefit reduced due to the earnings
    test, we simply recalculate at Social Security the level of
    your monthly benefit later. It is, in effect, that you are
    deferring the start of your benefit, and you will receive a
    higher monthly benefit for the rest of your life.
        So it is actually a good thing. It is, in fact, as many
    people pointed out--I am sure everybody on this panel has--one
    of the best ways that people can possibly avail themselves of a
    life annuity and perhaps about the only place where you can get
    a CPI-indexed life annuity, and that is to start your Social
    Security benefits at a later date. For people who are working
    at substantial earnings levels above 62, this happens
    automatically.
        So I would suggest, in that case, we should not think
    rationally that Social Security is a deterrent to people
    working. In fact, if anything, the fact that your benefit will
    be enhanced so greatly for the rest of your life if you work
    between 62 and 66, we should actually look at Social Security
    as potentially an encouragement to such work.
        Dr. Rockeymoore. I would like to add on to that
    qualitatively. In terms of our experience, we have found that
    individuals who perhaps work at the State and local level and
    do not have access to Social Security through their State and
    local coverage actually want to work an additional number of
    years and hours to make sure that they can actually qualify for
    Social Security benefits upon retirement.
        For low-wage workers who know that their jobs either do not
    provide retirement benefits or disability benefits, they are
    striving towards meeting Social Security credits, or quarters,
    so that they can make sure that they have access to retirement
    benefits or disability benefits, should they need them. And so
    it is important to note that.
        I want to also say to Mr. Toomey's point about people dying
    at a young age and then having no way to leave behind any
    benefits for their dependents or survivors, the fact of the
    matter is that Social Security actually does that.
        And, when you look at the difference between how whites use
    Social Security and how African-Americans use Social Security,
    you see the distinction. For whites, more than 70 percent of
    white people use Social Security for retirement benefits. But
    for African-Americans, it is just a little over half. The other
    half of their Social Security benefits are paid through
    disability, and a large chunk is through survivor benefits. So,
    when African-American men, who have the lowest life expectancy
    of most workers, die, and they die young, they are actually
    leaving young dependent children behind. And the benefit that
    those children then end up receiving in survivor benefits is
    significant. And you see that reflected in the racial
    differences in survivor benefit receipts.
        Dr. Fichtner. Senator, I would just sort of echo that,
    because Mr. Goss actually said the very important term, which
    is the economics are ``at the margin'' and how people respond
    to incentives or taxes at the margin.
        If you take a primary worker--if you raise, for example, my
    Social Security payroll taxes, I am not going to quit working.
    I have a mortgage to pay; I have a life to lead. I want to keep
    working, but maybe I cut back again on those teaching jobs
    which, at the margin, are extra income.
        You also see this having an effect on second earners,
    spouses. A lot of times it is actually women who find that they
    are trying to take care of a child at home, and all of a sudden
    the extra taxes they have to pay in payroll taxes, as well as
    the child care--now actually the child care cost exceeds what
    they are paying in and getting on a net tax basis, because they
    are paying payroll taxes, Federal taxes. There is sometimes a
    marriage penalty for some earners. So there is a disincentive
    in some ways, and this goes to the point where I think we need
    to think about it holistically.
        I think we would all agree here we want to help those who
    truly need assistance, and I think that is the underlying point
    about social insurance. There are people who, it may be no
    fault of their own--you know, they had hard jobs, they cannot
    work past 62, they have had low wages and could not save, and,
    as both my colleagues have shown on either side of me, they do
    not have access to a retirement plan.
        That in some ways is not trying to reform Social Security.
    That is not how we reform the tax code. So, as Dr. Ghilarducci
    pointed out, let's not give a deduction for a 401(k); let's
    change it to a credit so it actually helps low-wage workers.
        We should do that with our housing policy. We give a
    deduction for mortgage interest paid, which I will say I get a
    large benefit from. But I am not the person you need to
    encourage to buy a home. I am already going to buy one.
        We need to help lower-income people buy houses, because
    that is a large asset which helps them save for retirement in
    some ways. Let us change the mortgage interest deduction to a
    credit or a refundable credit so that they get the benefit of
    home ownership as well in that asset purchase.
        We need to think about retirement security as more than
    just Social Security as a program. We need to think more
    holistically about how we actually change our culture of debt,
    consumption, savings, housing policy, the tax code.
        This all comes together around what we think is now the
    retirement crisis and who it is actually affecting, whether it
    is low-
    income, high-income, middle-income people, minorities. This is
    very important. I think we should look at this as a holistic
    package.
        Senator Brown. Thank you.
        With that comment--I appreciate those thoughts.
        I want to talk about meeting the needs of workers with long
    careers and low wages. All of you have touched on that in a
    variety of different ways--all of you, really creatively.
        We know the replacement rates for low-income workers are
    relatively progressive, compared to the rates for wealthier
    taxpayers. The benefits for workers with average wages--the
    replacement rate is 42 percent. For low-income workers, the
    replacement rate is as high as 77 percent. But the cash benefit
    is still far too low for a long-time, low-income worker, and
    that is clearly a big part of the problem here.
        The benefit to low-income workers results in, far too
    often, still living below the poverty line. Modernizing the
    special minimum benefit would address this problem. The minimum
    benefit is ineffective because, indexed to price inflation, it
    has risen more slowly than regular Social Security benefits
    indexed to wage inflation.
        How do we modernize the benefit so that a $10-, $11-, $12-
    an-hour worker at a fast-food restaurant or working waiting
    tables at a diner or people who are in that wage category, how
    do we modernize, if you will, the benefit so it meets their
    needs?
        If you would, Mr. Goss, do you want to take that first and
    then go across the table?
        Mr. Goss. Wonderful. Yes, thanks very much, Senator Brown.
        The point you are making here, the point about differential
    lifespans and mortalities, differential earnings levels, all of
    these really sort of fit together. And I think what everybody
    has described so far about the nature of the Social Security
    benefit formula really does fit into this issue. The fact that
    we have the higher replacement rates, higher benefits relative
    to the earnings that people have had at the lower end of the
    earnings spectrum, speaks to, really, these needs in many, many
    ways.
        First of all, the obvious, is that people at the lower
    earnings levels generally are much less participating in saving
    towards retirement and much less likely to have a 401(k) or a
    defined benefit plan from their employer. Also, it is the
    lower-income people who tend to have had less progress in
    improvement in mortality. So, having a higher monthly benefit
    relative to the amount of earnings that people had in the past
    is a way, even beyond these sort of holistic points that Dr.
    Rockeymoore was describing for disability and survivor
    benefits, to more equalize the kinds of benefits people get
    over an entire lifetime.
        For people with lower earnings who live a shorter amount of
    time, the fact that they get a higher monthly benefit if they
    live a shorter amount of time will also more equalize what they
    are getting. And so, as to the minimum benefit, we have seen
    many, many proposals about the minimum benefit, because our
    special minimum benefit, as you described the CPI index, has
    fallen into being virtually not applicable at all now.
        So we have seen in many different proposals, both the
    Simpson-Bowles proposal and the Bipartisan Policy Center
    proposal as well as others, the idea of restoring perhaps the
    wage index to a level of minimum benefit.
        But to the notion of retirement age, let me just add one
    other thing that is in the Simpson-Bowles plan, and we worked
    very closely with that Commission. And one aspect that they
    were looking at was the possibility of raising the retirement
    age, but they wanted to find a way to raise the retirement age
    such that people with long careers at low income would not be
    as much affected and possibly not affected at all.
        And we worked with them on exactly that. People with 30 or
    more years, who are below 400 percent of poverty in their
    average earnings levels, would be affected less. And, if I
    recall, those below 250 percent of poverty in their average
    earnings, at least----
        Senator Brown. So, is it right----
        Mr. Goss [continuing]. Would not have the retirement age
    increased at all.
        Senator Brown. Is it the right public policy--and I am
    still very taken by a couple things Dr. Rockeymoore said. Is it
    the right public policy that to ultimately end up in this
    place, that low-wage, lifetime workers--and Dr. Fichtner said,
    I think it was he who said that a low-wage worker often gets
    into the workforce earlier than a higher-wage worker, for
    starters.
        But do we want to get to the place where the lower-wage
    worker whose life expectancy is less, we know that, that that
    lower-wage worker then--should we build more progressivity into
    the benefits structure, whether it is the minimum benefit or
    just more progressivity than we already have? I do not know
    that the public knows that Social Security is redistributive
    and the degree to which it is, and some would argue that it
    should be more so.
        Is there a way to get Social Security to predict sort of,
    actuarially, people's life expectancy? Demographically, someone
    who goes to college is likely going to live to be 82 versus
    somebody who worked at a fast-food restaurant much of their
    lives in low-wage jobs, who is more likely to live only to 62
    or 72.
        Is there a way to build a progressivity in there so that
    their benefits, if you will, are more front-loaded, knowing
    that the 82-year-old will draw fairly high benefits for a
    longer time? Is there a way of building that in?
        Dr. Ghilarducci, you are nodding.
        Dr. Ghilarducci. Yes. My research right now is on exactly
    that, that low-income workers start early, end earlier, and die
    earlier. And so, raising the retirement age blanketly is a bad
    idea. That is in my written testimony. It is a bad idea because
    of these retirement age differences and these longevity
    differences.
        But let us step back. We do wonderfully in equalizing
    retirement time for low- and high-income workers in our system.
    It is really quite brilliant. And the way we do it is, our
    disability insurance kicks in for workers who are depreciated,
    are worn out in their early 50s.
        With an administrative law judge in a disability hearing,
    the administrative law judge takes into account their work
    options. So it is their disability as well as their future in
    the labor market. And we have constructed a system where low-
    income workers are retiring earlier, getting disability until
    they reach retirement age and they get Medicare. And that is
    actually----
        Senator Brown. If I could interrupt, that is the importance
    of doing reallocation right, correct?
        Dr. Ghilarducci. That is, because reallocation is all of a
    system. Dr. Fichtner talked about that; the system works
    holistically as social insurance to take care of people in
    different life circumstances.
        The other clever idea----
        Senator Brown. Disability insurance has never kept up, in
    terms of payments, with Social Security benefits, correct?
        Dr. Ghilarducci. Right. There have been a lot of
    administrative and regulatory decisions that make it harder and
    harder for people to get on disability. And that can be changed
    with, actually, regulatory changes.
        So it has not kept up, but it used to. And so we see
    current retirees now having the same amount of retirement time,
    even if they earned low or high wages.
        There is also this idea of longevity insurance, so that
    people would get a kicker if they are at age 80 or if they are
    impoverished. There are proposals to add a new benefit. I am on
    the Bipartisan Policy Center's commission now, and we are going
    to be looking at minimum wage.
        But I still want to leave you with--there are lots of ways
    to prevent poverty. It is affordable for our older population,
    and it is not just for lifetime low-wage workers.
        Senator Brown, you know more than almost anybody here,
    because you are from Ohio, that the labor market has really
    jumped around. Industries that were supposed to live for a long
    time are now dying. And so middle-class workers, college-
    educated workers, can drop down into these low-wage jobs for a
    long time.
        The United States creates more low-wage jobs than any other
    country in the OECD. So it is not just people we do not know;
    it is actually people we do know who are----
        Senator Brown. Let me back up on that statement, we create
    more low-wage jobs. Is that because our minimum wage is set so
    low, or is it a function of a service economy versus
    manufacturing, or----
        Dr. Ghilarducci. It is all of that. It is also the erosion
    of unionized jobs and union protections. So jobs in those
    industries--service sector; manufacturing; fast food workers,
    if they were unionized; textile workers, from where I am from;
    rubber tire workers from where you are from--if they were
    unionized, those jobs earned a lower-income, middle-class wage.
    And with the erosion of unions and the minimum wage together,
    we lead the world in the creation of low-wage jobs.
        Senator Brown. Dr. Fichtner?
        Dr. Fichtner. Senator, I would like to just add to my two
    colleagues' comments, and keep in mind that a reform based on
    your concept in your opening statement is about insurance.
        Are we insuring against poverty and old age, or are we
    insuring against living too long? What are we insuring against?
    This program was not designed to be a retirement program for
    all; it was designed to be social insurance.
        And I think we need to keep that in mind and think about
    what we mean by ``minimum benefit.'' That is, if we are
    insuring against poverty in old age, consider both the low-end
    income near retirement and at retirement.
        But again, as Dr. Ghilarducci pointed out, those who might
    hit 80 or 85 would literally have found that they have now
    outlived their savings. That is the insurance on which Social
    Security originally started--again, old-age insurance. We
    should consider both angles.
        And I think if we look to reform, if we are going to make
    the system more progressive--which in general I am for--you
    have to give to some, but you have to take from some. And I
    would look to the higher-income earners in some ways who may
    not need Social Security as much, or depend on it as much as
    lower-income earners, to balance it out. And we should try to
    make it sort of revenue-
    neutral so that we do not exacerbate the current program
    finances. That is the Social Security side. But again, I want
    to focus on the holistic nature.
        President Obama has proposed the myRA accounts, or my-R-As.
    Senator Rubio, your colleague, last week proposed opening up
    the TSP plan, which government employees and members of
    Congress and Senators have access to, to the public.
        Again, to hit those 75 million Americans who do not have
    access to a retirement vehicle, we need to make sure they have
    access to a retirement account in some way, shape, or form,
    whether it is TSP or TSP-like or a myRA--something so that you
    start getting people to save and invest.
        When I was working at Social Security, Steve--and I give
    him a lot of credit for this--helped me out a lot in helping
    the agency move our financial literacy efforts and change the
    publications we were doing, the messaging we were working.
        And I found this in my drawer as I was preparing yesterday.
    Steve, I do not know if you remember this one, but Senator, I
    will give you a copy at the end. We created these little cards.
    One is wallet-size and one is larger, and they basically show
    the benefits of delaying Social Security, how much more you get
    per month past 62, if you delay from claiming. And it also
    shows the value of saving just $2 a day. And again, $2 a day
    comes up to about $600 a year, a little more than that, Dr.
    Ghilarducci was pointing out.
        And we started giving these to people at field offices and
    events we would do, and people would play with the slide rule.
    It was an old-fashioned slide rule many of you have seen
    before. And it is changing, again, how we look at financial
    literacy and trying again to promote savings.
        And I just wanted to encourage again a more holistic
    picture. Let us make sure we help those who really do need the
    help. And Steve mentioned the idea of even working with the
    Simpson-Bowles Commission on raising the retirement age.
        I am for that, but again, I want to make sure we protect
    those at the low-wage end who, again, have worked in blue-
    collar jobs their whole life, maybe cannot work past 62.
        I am 42 years old. I think I am fairly well-off, but there
    is still a very good chance I could become disabled at some
    point in my career. Social insurance disability, Social
    Security, is there for me as insurance if I get disabled. We
    need to make sure those insurance portions are protected as
    much as possible.
        Senator Brown. The fact that you are 42 years old means you
    can read the small print on those cards. [Laughter.]
        Dr. Fichtner. I will give you the big one, Senator.
        Senator Brown. Mr. Goss may be older than that. The other
    two, I think, are younger than 42, way younger.
        Do you want to say something? Because I want to ask him a
    question. But go ahead; then I want to ask Dr. Fichtner a
    question about what he just said.
        Mr. Goss. I would just like to respond, first of all, to
    your point about redistribution. We have voluminous proposals
    for having the Social Security benefit formula being further
    redistributed--in fact, one that was supported by President
    George W. Bush, something we call progressive indexing, which
    would, to the extent that benefits will be lowered in the
    future to right the financial balance for Social Security,
    would be done only for people at higher levels.
        But I would like to address one other thing that----
        Senator Brown. That does nothing to redistribute money to
    lower levels; it just, quote-unquote, ``fixes Social Security''
    by taking a little from the upper-income.
        Mr. Goss. Exactly right.
        But I would like to address a point that Dr. Fichtner has
    made here two or three times, which is about Social Security
    being a mechanism for providing benefits just to those who
    really need it. And I would like to draw a distinction here
    between social insurance and welfare programs.
        The Social Security Administration administers not only
    Social Security benefits, but also the SSI, Supplemental
    Security Income program. That is a means-tested program, as we
    all know. And Senator Brown, as you pointed out, that has not
    been well-indexed over time, in many, many respects.
        But Social Security, from its very foundational start, was
    designed to be an earned-right benefit for all Americans. It
    really is provided for virtually all Americans. Over 95 percent
    of Americans will expect at some time in their life to get some
    kind of benefit from Social Security.
        Now, it is differential. People get a higher rate of return
    who are lower-income, or at least a higher replacement rate,
    but its basis has been to provide benefits for all, even
    including people who might be extremely wealthy. We have no
    means test, at least currently, in Social Security. That is a
    possibility. That could be done in the future.
        But I would like to draw that distinction between social
    insurance and a welfare program which would provide benefits
    only for those who, as I think Dr. Fichtner was describing it,
    really need it.
        Benefits are provided for people of very good means. When
    Dr. Fichtner reaches 20 years hence, at age 62, he will be
    eligible for benefits, even if he has massive income and
    resources at the time.
        Dr. Fichtner. I will delay until----
        Mr. Goss. And when he reaches the so-called normal full
    retirement age, we no longer even have an earnings test. At the
    full retirement age now, you can earn as much as Bill Gates or
    as much as Dr. Fichtner and I hope to be making at that age,
    and still receive your full benefit.
        So I really just did want to----
        Senator Brown. And I appreciate your comment. I think all
    of us, regardless of politics--well, I think there are some
    number of people probably in this body or the House who do not
    really fundamentally appreciate social insurance.
        But I think surely the great majority of the public
    understands the concept of social insurance, whether they call
    it that or not, and understands the importance of it and does
    not want it fractured or violated.
        That always brings me to the cautionary note. While a
    number of us here want to see a more redistributive, a more
    progressive Social Security system, it does lead us to not want
    to means-test upper-income people, because it does fracture the
    universality of it, and it does speak to the caution of, you do
    not want to change Social Security to a welfare program. You
    did not use that term, but that is kind of what you are
    implying.
        So my question for Dr. Fichtner is, and then I have a
    couple of questions for Dr. Rockeymoore, is there a way to--you
    mentioned that you would support raising the retirement age.
    You did not get to particularly for whom you would raise it,
    but that is where I want to go.
        Would you support a way of raising the retirement age for
    the top fourth or third or half of high-income people? And I am
    not asking you to be too specific here, but might we be able
    to, in essence, as Dr. Rockeymoore suggested, in some sense
    lower the retirement age for low-income workers by filling it
    in with disability and other kinds of benefits, but making them
    actual above-the-poverty-line benefits?
        Is there a way for a more conservative, politically
    conservative, viewpoint here to get to that place?
        Dr. Fichtner. That is an excellent, nuanced question,
    Senator. Let me give you an excellent, nuanced answer, because
    the answer is ``yes.''
        And what I would do, though, is, instead of trying to focus
    on raising the retirement age for one group over another, you
    do raise the retirement age for all, but you focus on raising
    up the minimum benefit for those who are forced to retire or do
    retire at 62. And you might even encourage having a higher
    delayed retirement credit for those who work past 66 or 67, as
    they go towards age 70.
        That is one way to do it to make sure there is a minimum
    benefit that is higher, so that, for those people who actually,
    again, work physically demanding jobs and need to retire early,
    cannot work longer, that benefit level is above the poverty
    line or higher. But you still then have an incentive in some
    ways to work longer, if you can.
        And I would also throw in there an idea that has been
    floated, again by Senator Rubio and others, about whether or
    not, if you reach a certain age or a certain number of years of
    paid service, you would no longer pay payroll taxes. And this
    is something that would encourage work, as well as savings, in
    later life.
        So, picture a low-income worker who might start working--
    does not go to college, but starts working a blue-collar job at
    18 years old. They are going to pay payroll taxes every year in
    which they work. You could do something that says, after 45
    years of paid-up credit--which would put them about 61, 62
    years old--they will no longer have to pay Social Security
    payroll taxes. They could continue working at that point and
    actually keep all that money for savings.
        That would be an incentive, one, to continue working, so
    that would actually support labor incentives. But it also would
    help people, lower-income workers, as well as higher-income
    workers, to save.
        Senator Brown. Would you support--and I do not know if
    Senator Rubio has thought it through in this direction.
    Perhaps--is there a way, say, after 40 years, you no longer pay
    the Social Security tax, but you put it in an account that the
    government matches? Say it is sort of an enhanced Earned Income
    Tax Credit that can then begin to build savings.
        So that is something you could see, sort of across the
    political spectrum, there would be support for.
        Dr. Fichtner. Yes. I think, Senator, that is a good way of
    looking at it. And some have argued, in thinking about the
    enhanced Social Security--and Teresa has mentioned this too--
    there is a lot of opposition on one side to raising payroll
    taxes. The taxes are too high as it is; do not raise them too
    much.
        But some have argued, again, on the conservative side, do
    private accounts as the add-on. So, if you are currently doing
    12.4 percent for payroll taxes, make it 14.4.
        Senator Brown. But it would be private accounts.
        Dr. Fichtner. But the 2 percent would go into a private
    account. That is ownership that encourages savings, whether it
    is through a TSP plan, TSP-like, Fidelity, something. You are
    now encouraging savings.
        I think the big issue that all of us would agree with is
    that, in some way, shape, or form, regardless of how we do or
    do not reform Social Security--and it does need reform--we
    still need to focus on people's ability and access to savings.
    And they do need to save.
        Senator Brown. Thank you.
        I have a couple of questions for Dr. Rockeymoore, but
    Senator Nelson is here.
        Senator Nelson, take as much time as you need.
        Senator Nelson. Thank you, Mr. Chairman.
        I have the privilege of being the chairman of the Aging
    Committee. And we have had a number of hearings that have
    discussed Social Security. What makes Social Security great is
    that virtually every worker pays into it, but a worker has to
    hope that his employer offers a retirement plan. And for a
    variety of reasons, many do not.
        Senator Collins, my co-leader on the Aging Committee, and I
    have tried to make it easier for small businesses to pool
    together and offer plans. But we do not think that that, as a
    practical matter, is going to give every worker an at-work
    option.
        So I would like to ask Dr. Ghilarducci--you have been very
    vocal about creating a mandatory and universal retirement
    account that is professionally managed. Last week my colleague
    from Florida, Senator Rubio, shared his desire to allow
    Americans without a retirement savings plan at their work to
    sign up for our Federal Thrift Savings Plan.
        So can you talk a little about what the States are doing
    and what you think about Senator Rubio's idea?
        Dr. Ghilarducci. I think Senator Rubio has a good idea. I
    think this may be a truly bipartisan issue.
        We all know--and it is just math--that we have to save for
    our retirement. Twelve-point-four percent goes automatically;
    it is a mandatory system, Social Security. All of us who are in
    pension plans at work save the extra 8 percent, so we all need
    to save about 20 percent, all totaled.
        And half of Americans are not doing it, because their
    employers are not offering a plan. And there is no sign that
    that is ever going to get better, despite all the financial
    literacy and all the marketing by Fidelity and all the other
    plans. It is just not working. And Congress can pile on more
    tax deductions, but we are not going to get universal coverage.
        So I, and it looks like Senator Rubio, are recommending
    that we mandate extra coverage and make sure that people can
    use a professional pension system.
        The States are not waiting for Congress. Five States have
    already passed laws of some sort to get their private employees
    into a system that is managed professionally, based on pooled
    assets, with annuities that prevent them--because we are the
    only nation on Earth that allows people to withdraw retirement
    assets before retirement. What other nations call retirement
    assets, they treat like retirement assets, and people can only
    get at them at retirement, a thought we have not endorsed.
        So I approve of a mandatory tier. I think it is much better
    to do it at a Federal level, but, like lots of social policy,
    the States often move before the Federal Government does.
        Senator Nelson. This idea that if you are a small business,
    you really do not have enough wherewithal to provide a
    retirement plan, getting small businesses to pool together to
    do that, is that pie-in-the-sky?
        Dr. Ghilarducci. No. That is actually what drove the
    legislation in California. The small businesses realized that
    they did not want to deal with the 401(k) brokers and
    administrators, or the complexity. They did not trust that the
    401(k) system or IRAs gave the best deal to their employees.
    And, since it was voluntary, they just walked away from it. So
    they encouraged the legislation in California to provide an
    automatic enrollment into a private system.
        So this helps small employers that might become medium-size
    and large employers get a pension system to their employees and
    to themselves, because a lot of small businesses also want a
    plan. If you start early saving for retirement, you do much
    better, and it is a lot cheaper.
        Senator Nelson. Are there other States that have a similar
    kind of law like California?
        Dr. Ghilarducci. Four others, and I go testify in these
    State legislatures. There are a lot of them. Fifty, it turns
    out. Four other States besides California have passed
    legislation and five others are considering it.
        Nebraska and Washington State have a lot of legislation and
    a lot of commissions. So I would count 12 States that are
    seriously at some stage of creating these universal plans.
        Senator Nelson. Under the present system, if you delay in
    taking Social Security, you increase the lifetime benefit by 8
    percent for every year that you delay. Of course, a lot of
    seniors cannot wait, and that is a big decision.
        Dr. Fichtner, you have discussed this in your expositions
    and writings, and you have applauded Social Security for
    changing course and not encouraging people to take the benefits
    early. But the workers out in the field offices, they do not
    necessarily discuss the benefits of waiting. So what should we,
    as the committee of jurisdiction on Social Security, what
    should we be doing?
        Dr. Fichtner. Oh, Senator, that is an excellent question.
    And I am glad I no longer work for the agency, so I can speak
    completely freely.
        The agencies should promote what is basically an individual
    option for people when they come to talk about when to retire
    for Social Security benefits. There is not a one-size-fits-all
    model. For some people, 62 is the right age. They either cannot
    work longer, or they need the money today. Forcing them to work
    longer is not the right move. For others who have assets or can
    work longer, they may decide not to work. They still can delay
    claiming. Claiming and stopping work in some ways can be two
    different things.
        The agency needs to do a better job of telling people and
    showing people, here are your options, here is what it means
    for you, and making an individual decision.
        Steve Goss helped a lot when I was at the agency with
    language that we could use. We have a 2-pager--actually, I
    think the agency, hopefully, still uses it--on when to start
    receiving retirement benefits, which really goes through,
    consider your health, consider your history of your family,
    your genetics, your income, your lifestyle you want to have,
    your outside assets, and then make a determination.
        You can always walk into Social Security and say, ``I am
    thinking about taking retirement benefits.'' Talk to somebody.
    If you decide it is not the right time, you can leave. You can
    come back tomorrow or next week or next year, when you are 70.
    You have the individual choice.
        And I would love it if Congress would help push that
    message on the agency that that should be the focusing message.
    We have--I keep saying ``we'' because I worked there--the
    agency has moved away from the break-even analysis which,
    again, with the help of Steve Goss, we were able to change so
    that people were no longer being told if they took benefits
    today at 62 they would be ahead for 14 years. That is a
    problem, because, when you get to 76, you are then behind for
    the rest of your life. They were not getting that message. I
    think a lot of field offices now are getting that.
        But it is a culture change, and that takes time. So the
    longer we put pressure on and keep giving the right message,
    the more we will make that change, Senator. And I appreciate
    your bringing up that issue.
        Senator Nelson. Do I have time for one more? Do we have a
    vote in progress? All right.
        The special minimum benefit in Social Security--it is to
    help low-wage workers, but, come 2016, it is not going to be
    indexed to inflation anymore. So how do we in Congress revamp
    this benefit so that it actually works as intended?
        Dr. Rockeymoore. So, when it comes to low-wage workers,
    there are two things that I think need to be done.
        First of all, because of the effects of the Great Recession
    on the economy and the impact it has had on younger workers who
    will be tomorrow's future retirees, we need to boost benefits
    across the board for all Social Security recipients. And, when
    it comes to the special minimum benefit, we actually need to
    increase it to 125 percent of the poverty level. And we need to
    make sure that it is indexed also to the growth in wages, so
    that it is adequate.
        As an addition to that, I would add that the CPI-E is
    important to adopt as well for low-wage workers. Because, as
    you well know, the CPI-W, which is the current formula that
    determines the cost-of-living adjustment, does not actually
    account for the higher costs borne by the elderly, particularly
    the medical costs that they incur.
        And so, by also shifting Social Security COLA to use the
    CPI-E, this is another way that we can actually boost benefits
    for low-
    income workers.
        Senator Nelson. So the chained CPI would take it exactly
    the other way?
        Dr. Rockeymoore. It would take it in the exact opposite
    direction, something that we actually do not need. And it would
    imperil not just low-wage workers, but also middle-income
    workers.
        More than 38 million-plus members of the U.S. population
    who depend on Social Security for a significant portion, or all
    of their retirement benefits, would be harmed by that proposal.
    And we firmly reject it.
        Dr. Fichtner. Senator, can I add to that on the CPI?
        Senator Nelson. Please. Please.
        Dr. Fichtner. I caution, and Steve may also bring this up,
    that, again, he mentioned in his testimony that Social Security
    is not just the program for the elderly. There are children,
    there are the disabled. The CPI-E really is for the elderly.
    And one of the concerns we have in looking at trying to do
    inflation is, how do you accurately measure inflation?
        The reason that chained CPI has come up in the discussion
    is that it takes into account people's behavior. If oranges go
    up in price, they may buy more bananas, for example. So, if you
    are thinking about the CPI-E as a basket for looking at just
    the elderly, I would consider you look at a chained CPI-E,
    which then would take into account health care costs, but also
    how consumers, these beneficiaries, would respond to changes in
    the basket of goods they use.
        Mr. Goss. If I could just add to that.
        Senator Nelson. Please.
        Mr. Goss. There are two things that I think should really
    be thought about on the CPI options. Dr. Fichtner is exactly
    right.
        The CPI-E, which is sometimes referred to as for the
    elderly or as experimental, is based on the market basket
    choices of people 62 and over.
        Many of our beneficiaries are disabled, and they are under
    that age. However, it is likely--in fact, we believe that their
    lifestyle, their purchases, are probably more similar to the
    elderly than they are to other people of the same age who are
    at work. So it may well be that the CPI-E is reasonably
    applicable to them, perhaps more so than the CPI-W, which is
    just for urban wage earners and clerical workers.
        If I could mention one other thing, Senator Nelson. You
    mentioned the delayed retirement credit--just a small point on
    that.
        Actually, the 8-percent delayed-retirement credit for every
    year you defer after the normal retirement age, now 66, is
    actually intended to, in effect, equalize the amount of
    lifetime benefits you should expect to get. If you wait an
    extra year, you do not get benefits for that year between 66
    and 67, but you will get 8 percent higher benefits then
    thereafter, for the rest of your life.
        So it really does provide a very substantial encouragement
    to defer longer the start of their benefits and thereby to get
    a much higher benefit level for the rest of their life. And by
    the way, that delayed retirement credit also ports over to a
    surviving spouse, should you predecease your spouse.
        Dr. Fichtner. Good point.
        Dr. Ghilarducci. We all in this room will probably take the
    delayed retirement credit because we all probably expect to
    live longer than average. But it is not a good idea for a lot
    of people who do not expect to live the average, and that is
    half of the people, because that is what the averages are.
        So it is a very good deal; 8-percent return is exceedingly
    generous, and we are all thankful for it.
        I want to caution us. When we talk about raising the
    retirement age, it is just a form of cutting benefits. And so,
    it does not seem to encourage work.
        Work has its own merit. Wages--people work for wages, and
    people work because they are invited into the workforce by
    employers, or they choose to do it because it has other kinds
    of benefits. So just raising the retirement age is not a way to
    get this glorious increase in workforce. So we are spending a
    lot of time--a lot of us are talking about workability in
    conjunction with raising the retirement age.
        The chained CPI depends, I think, too much on what
    economists fetishize in terms of substitution and choice.
    Because, if we choose to take an inferior product, that is not
    keeping standard of living the same. That is why the chained
    CPI has often been called the cat-food CPI, and that refers to
    the substitution effect.
        If people substitute away from a good-quality meat to an
    inferior meat because of the price differential, we are still
    demanding a decrease in their standard of living. So chained
    CPI would reduce the standard of living for everybody who would
    have it.
        Mr. Goss. Could I just add, at the risk of perhaps making
    this far too technical, all of the CPI indices that we now
    have--CPI-W, the chained CPI, and the CPI-U without chaining--
    all work off of, I think it is 122 different strata of types of
    goods and services. Within each one of those individual strata,
    we already have substitution bias in effect taken care of.
        We have this geometric means which in effect takes care of
    substitution issues within each stratum. So what we are faced
    with then on the prospect of going to a chained CPI is
    substitution or, I would say, redistribution of people's
    purchases across broad categories of goods and services.
        It is not going from pork chops to hamburger; it is really
    more going for your big-screen TV versus the purchase of a car
    this year, not necessarily substitutable items. And that is
    where really the chained CPI gets to. People of our means do
    tend to make choices in those arenas, but not everybody does.
        Senator Brown. Thank you, Senator Nelson.
        Let me--we have until noon. I want to ask each of you
    individually, or the three of you anyway, a specific question
    and not, unless you have something really brilliant to add to
    it, the others who were not asked. Keep it to yourself, all
    right? [Laughter.]
        But I want to start with Dr. Rockeymoore.
        Same-sex couples are particularly vulnerable to retirement
    insecurities. Couples have been treated as individuals, are
    ineligible for private pension and Social Security survivor
    benefits. The Supreme Court obviously has spoken on these
    issues in terms of discrimination. What policy changes do we
    make with Social Security?
        Dr. Rockeymoore. We actually need to cover same-sex couples
    just like we do heterosexual couples, and their dependents.
    They need to be eligible for Social Security benefits like any
    couple, regardless of the place where they got married or where
    they currently reside.
        Senator Brown. And that takes congressional action?
        Dr. Rockeymoore. That takes congressional action. And so,
    basically, federalizing this will be required.
        Senator Brown. All right. Thank you.
        We also will send written questions. We have at least five
    more questions, probably, for each of you.
        Mr. Goss, this is for you. If there is one area on Social
    Security where every Senator on this committee should agree, it
    is in modernizing SSI. It is a modest supplemental benefit for
    the elderly, blind, disabled, people of little other income.
    Strict eligibility requirements were put in place at the
    inception a long time ago. This made sense, but now those
    requirements, because they have not been updated, certainly
    need better examination.
        Give us comments on proposals for this program, and what
    you think personally, what you think from your incredibly deep
    knowledge of these issues, what is necessary and prudent.
        Mr. Goss. I think that the most commonly discussed items
    for the SSI program are the fact that the $2,000 asset limit
    and the income disregards, of which there are a few, have been
    at fixed levels now for decades, and there has been no
    indexation whatever.
        And most people, I think, agree that there should have been
    some indexation. The question is, if we were to make a change
    in those, should there be a level jump? Should there be a
    change in the levels to start with and then indexation
    thereafter, or just indexing from the current levels?
        The other question really is the Federal benefit rate
    itself, which has been indexed. That is one aspect that has
    been indexed, but to the level of the CPI.
        And, within the structure of our economy, our society, we
    know that fewer and fewer people, as we project into the
    future--Dr. Fichtner will recall models from Social Security
    that projected the percentage of the elderly that will be in
    poverty would be dropping from 10 or 12 percent a few years ago
    down to 2 percent 50 years out.
        Why? Because we have a general, slow, and gradual increase
    in the standard of living in our economy, but, if you have
    something like the poverty threshold or SSI benefits rising
    only at just the cost of living, that will fall lower and lower
    in the income distribution.
        So serious thought probably ought to be given to whether
    the CPI indexing alone is sufficient for SSI.
        Senator Brown. Thank you.
        Dr. Ghilarducci, it is important, as really all of you have
    pointed out, in a sort of holistic way, as Dr. Fichtner said,
    that we think of Social Security as sort of a group of
    insurance products--the Old-Age, Survivors, and Disability
    Insurance program, an affordable insurance package for all
    Americans. Within that context, we can consider what expanding
    Social Security is all about, expanding social insurance to
    strengthen families.
        Women make up roughly half the workforce. The increase in
    women's work hours between 1979 and 2007 led to an additional
    $1.7 trillion of economic output, in 2012 dollars. The U.S. is
    the only advanced country and economy in the world that does
    not guarantee women the right to paid maternity leave, I
    believe.
        One proposal you spoke about was the Family and Medical
    Leave Act of 20 years ago, which was progress, but obviously
    did not pay for it. One proposal would create a national paid
    family and medical leave social insurance benefit.
        What would the effect of that be on workers and on the
    economy, if you would give us a fairly expansive answer there?
        Dr. Ghilarducci. Yes, sure. I really like your phrase, an
    affordable insurance product for all. I would add, an
    affordable insurance and savings product for all. That is what
    we can do here, because the Social Security system is so strong
    administratively.
        I think we overlook how powerfully----
        Senator Brown. Strong means low overhead and reliability?
    Those two?
        Dr. Ghilarducci. Thank you. And universality. Almost all
    Americans participate in the Social Security system. We do a
    lot better than Italy, for instance, where there is lots of
    avoidance of being in the formal economy.
        So we really do need to give ourselves a pat on the back
    and really celebrate the fact that we have a system that is
    universal and that people participate in. I really want to
    stress that, because the Earned Income Tax Credit, Dr.
    Fichtner, actually pays for the low-income workers' payroll
    tax.
        So it is a brilliant mosaic of social insurance that also
    comes from the tax code. Do not overlook that when you are
    celebrating our successes.
        So what you have asked me is whether or not this
    infrastructure--I call it a financial insurance
    infrastructure--that is available to all at a very low cost can
    be expanded to include the kind of modern insurance products
    that we need.
        And the answer is a definitive, absolute ``yes.'' And it
    should be; it is designed to do that.
        So, if we recognize that family needs are changing, then
    the Social Security system is an appropriate place to add on
    new insurance products. And family leave is an excellent
    insurance product.
        You know, it is an accident of history that the
    unemployment insurance systems were not administered on the
    Federal level. States, for their own reasons, wanted to have
    their own unemployment insurance system. Those reasons are
    really past, and we should consider federalizing the
    unemployment insurance system to a greater extent.
        So we should take advantage of--let me just summarize--the
    fact that most Americans participate in Social Security. That
    does not happen in other countries. They avoid paying a payroll
    tax in the black market, and take advantage of the very low
    cost and efficient----
        Senator Brown. Well, but you said ours is more universal,
    and now you are saying that others--that we avoid it more----
        Dr. Ghilarducci. That we should celebrate that ours is
    universal in theory and in fact, where other countries have a
    social insurance system that a lot of workers avoid by working
    in the black or gray markets.
        So let us take advantage of the fact that everybody pays a
    Social Security tax, and add in other insurance products.
        Senator Brown. Thank you.
        And my last question is for Dr. Fichtner. So, when is the
    wedding?
        Dr. Fichtner. May 31st, so I have to----
        Senator Brown. You have to get out of here. All right.
    [Laughter.]
        Thank you all. This was a very good discussion. I
    appreciate the openness and the candor from all of you and the
    good insight and the public service all of you bring to this.
    We will have some--and I think I could speak for some others--
    we will have some written questions. If you could answer them
    as quickly as possible.
        The subcommittee is adjourned.
        [Whereupon, at 11:56 a.m., the hearing was concluded.]
                                A P P E N D I X

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