[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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                          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.]
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