[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
SOCIAL SECURITY AND PUBLIC SERVANTS ENSURING EQUAL TREATMENT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON SOCIAL SECURITY
OF THE
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
March 22, 2016
Serial No. 114-SS03
__________
Printed for the use of the Committee on Ways and Means
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__________
U.S. GOVERNMENT PUBLISHING OFFICE
21-290 PDF WASHINGTON : 2017
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COMMITTEE ON WAYS AND MEANS
KEVIN BRADY, Texas, Chairman
SAM JOHNSON, Texas SANDER M. LEVIN, Michigan
DEVIN NUNES, California CHARLES B. RANGEL, New York
PATRICK J. TIBERI, Ohio JIM MCDERMOTT, Washington
DAVID G. REICHERT, Washington JOHN LEWIS, Georgia
CHARLES W. BOUSTANY, JR., Louisiana RICHARD E. NEAL, Massachusetts
PETER J. ROSKEM, Illinois XAVIER BECERRA, California
TOM PRICE, Georgia LLOYD DOGGETT, Texas
VERN BUCHANAN, Florida MIKE THOMPSON, California
ADRIAN SMITH, Nebraska JOHN B. LARSON, Connecticut
LYNN JENKINS, Kansas EARL BLUMENAUER, Oregon
ERIK PAULSEN, Minnesota RON KIND, Wisconsin
KENNY MARCHANT, Texas BILL PASCRELL, JR., New Jersey
DIANE BLACK, Tennessee JOSEPH CROWLEY, New York
TOM REED, New York DANNY DAVIS, Illinois
TODD YOUNG, Indiana LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
ROBERT J. DOLD, Illinois
TOM RICE, South Carolina
David Stewart, Staff Director
Janice Mays, Minority Chief Counsel and Staff Director
______
SUBCOMMITTEE ON SOCIAL SECURITY
SAM JOHNSON, Texas, Chairman
ROBERT J. DOLD, Illinois XAVIER BECERRA, California
VERN BUCHANAN, Florida JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska EARL BLUMENAUER, Oregon
MIKE KELLY, Pennsylvania JIM MCDERMOTT, Washington
JIM RENACCI, Ohio
TOM REED, New York
C O N T E N T S
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Page
Advisory of March 22, 2016 announcing the hearing................ 2
WITNESSES
Jeannine English President, AARP................................. 79
Jason Fichtner Ph.D. Senior Research Fellow, Mercatus Center,
George Mason University........................................ 61
Stephen C. Goss Chief Actuary, Office of the Chief Actuary,
Social Security Administration................................. 47
Tim Lee Executive Director, Texas Retired Teachers Association... 71
Samara Richardson Acting Associate Commissioner, Office of Income
Security Programs.............................................. 30
HEARING ON SOCIAL SECURITY AND PUBLIC SERVANTS: ENSURING EQUAL
TREATMENT
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TUESDAY, MARCH 22, 2016
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Social Security,
Washington, DC.
The subcommittee met, pursuant to call, at 10:06 a.m., in
Room 1100, Longworth House Office Building, the Honorable Kevin
Brady [chairman of the subcommittee] presiding. Advisory
[The advisory announcing the hearing follows:]
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON SOCIAL SECURITY
CONTACT: (202) 225-3625
FOR IMMEDIATE RELEASE
Tuesday, March 22, 2016
No. No. SS-03
Chairman Johnson Announces Hearing on
Status of the Social Security and Public Servants: Ensuring Equal
Treatment
House Ways and Means Social Security Subcommittee Chairman Sam
Johnson (R-TX) announced today that the Subcommittee will hold a
hearing on ``Social Security and Public Servants: Ensuring Equal
Treatment.'' The hearing will focus on Social Security provisions that
affect certain public employees, as well as proposals for calculating
public employees' benefits in a proportional manner. The hearing will
take place on Tuesday, March 22, 2016 in B-318 Rayburn House Building,
beginning at 10:00 AM.
In view of the limited time to hear witnesses, oral testimony at
this hearing will be from invited witnesses only. However, any
individual or organization may submit a written statement for
consideration by the Committee and for inclusion in the printed record
of the hearing.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Any person(s) and/or organization(s) wishing to
submit written comments for the hearing record must follow the
appropriate link on the hearing page of the Committee website and
complete the informational forms. From the Committee homepage, http://
waysandmeans.house.gov, select ``Hearings.'' Select the hearing for
which you would like to make a submission, and click on the link
entitled, ``Click here to provide a submission for the record.'' Once
you have followed the online instructions, submit all requested
information. ATTACH your submission as a Word document, in compliance
with the formatting requirements listed below, by the close of business
on Tuesday, April 5, 2016. For questions, or if you encounter technical
problems, please call (202) 225-3625.
FORMATTING REQUIREMENTS:
The Committee relies on electronic submissions for printing the
official hearing record. As always, submissions will be included in the
record according to the discretion of the Committee. The Committee will
not alter the content of your submission, but we reserve the right to
format it according to our guidelines. Any submission provided to the
Committee by a witness, any materials submitted for the printed record,
and any written comments in response to a request for written comments
must conform to the guidelines listed below. Any submission not in
compliance with these guidelines will not be printed, but will be
maintained in the Committee files for review and use by the Committee.
1. All submissions and supplementary materials must be submitted in
a single document via email, provided in Word format and must not
exceed a total of 10 pages. Witnesses and submitters are advised that
the Committee relies on electronic submissions for printing the
official hearing record.
2. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. The name,
company, address, telephone, and fax numbers of each witness must be
included in the body of the email. Please exclude any personal
identifiable information in the attached submission.
3. Failure to follow the formatting requirements may result in the
exclusion of a submission. All submissions for the record are final.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Note: All Committee advisories and news releases are available at
http://www.waysandmeans.house.gov/.
--------
The subcommittee met, pursuant to notice, at 10:00 a.m., in
Room 1100, Longworth House Office Building, the Honorable Sam
Johnson, [chairman of the subcommittee] presiding.
Chairman JOHNSON. Good morning, and welcome to today's
hearing on ensuring equal treatment for all workers who receive
Social Security benefits.
I would like to welcome to the subcommittee Mr. Smith of
Nebraska, Mr. Buchanan of Florida, both join us again after
working on the subcommittee previously, as well as Mr. Rice
from South Carolina. We are glad to have you all onboard.
Without objection, I would like to at this time recognize
the chairman of the Ways and Means Committee, Chairman Brady,
to make a few remarks.
Chairman BRADY. Thank you, Mr. Chairman.
I am so grateful to have the opportunity to talk today
about how we are working to help America's teachers, police and
firefighters and other public servants.
As you know, Social Security benefits are based on the
workers' earnings. The benefit formula is designed so that the
lower lifetime earners receive a higher replacement rate than
higher lifetime earners.
However, for some workers Social Security's formula does
not work well. Some teachers, firefighters, police officers and
others work in jobs where they do not pay Social Security
taxes. They pay into a Social Security substitute, and so this
causes their average lifetime earnings to appear lower to
Social Security than they actually are because all of those
years they did not pay Social Security tax but into a
substitute count as zeros.
The Windfall Elimination Provision, or WEP, created in the
1980s addresses this problem, but unfortunately its one size
fits all approach is just unfair. This is not just a Texas
problem. It affects people in Massachusetts, California, Ohio,
Illinois, Louisiana, frankly, all over the country.
We all hear often from constituents whose benefits are
reduced substantially by the WEP, asking when Congress is going
to address this problem.
Since 2004, I have worked to repeal the WEP and replace it
with a formula that treats our firefighters, police officers,
teachers and other affected workers fairly. One that looks at
all earnings and bases Social Security benefits on proportions
of earnings that were subject to Social Security taxes, in
other words, providing equal treatment.
Most recently I have partnered with Representative Neal to
introduce H.R. 711, ``The Equal Treatment of Public Servants
Act of 2015.'' We worked with many organizations representing
teachers, firefighters, police officers and other retirees who
have had their benefits unfairly reduced by the WEP.
Many of them are in the audience today, and specifically I
would like to thank the Association of Texas Professional
Educators, Texas Retired Teachers Association, Mass Retirees,
and the Ohio Public Employees Retirement System for all of
their work on this issue. Representative Neal and I have
received overwhelming support from the non-covered worker
community, including groups such as the Fraternal Order of
Police, the California Public Employees Retirement System,
National Active and Retired Federal Employees Association, and
many others.
And I ask unanimous consent to place these letters into the
record.
Chairman JOHNSON. Without objection.
[The information follows: The Honorable Kevin Brady
Submission]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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Chairman BRADY. For new retirees, our bill repeals the WEP
and replaces it with a formula that is fair. Our solution takes
into account all earnings and reflects how much of a person's
earnings were subject to Social Security payroll taxes. Under
our approach, two workers with the same lifetime earnings, one
who has spent an entire career in Social Security covered
employment and another who has worked in both covered and
Social Security substitute work, will receive a Social Security
benefit that is calculated the same way. No more unfair formula
for teachers, firefighters and police officers. Instead we use
the same benefit formula for everyone, looking at all earnings.
Now, some of those earnings are not from Social Security
covered employment. We adjust benefits to reflect the
proportion that are.
But it is not enough to fix the WEP for future
beneficiaries. We have to provide relief to current seniors
already affected by the WEP, and these individuals will have
their monthly benefits increased using the savings from this
bill.
Finally, this bill makes sure that everyone is treated
equally by requiring Social Security make sure that those
current retirees who should be subject to the WEP have their
benefits adjusted correctly.
At this time I would like to yield, and I am pleased to
yield, to the gentleman who has worked with me so hard on this,
the gentleman from Massachusetts, Mr. Neal.
Mr. NEAL. Thank you, Mr. Chairman.
I am happy to be here this morning at this hearing of the
Ways and Means Social Security Subcommittee. I no longer serve
on this Subcommittee, but I have had a longstanding interest in
the WEP issue and am an original cosponsor of this bill with
Chairman Brady.
I am pleased that the subcommittee is holding this hearing
today, and it is also nice to see representatives from the Mass
Retirees who are with us as well.
Our bill, H.R. 711, permanently repeals the current
Windfall Elimination Provision and replaces it with a fair
formula that treats public servants like all other American
workers. Public servants who earn both a Social Security
benefit and a pension from Social Security's substitute will
finally receive treatment equal to other workers.
This legislation was developed in close consultation with
teacher and public servant organizations, particularly those in
Massachusetts, Texas and Ohio. It provides relief to current
retirees already affected by WEP, and it guarantees public
servants receive the benefits they earned while they paid into
Social Security.
In addition, H.R. 711 is budget neutral in the short run
and improves Social Security solvency over the long run.
The Equal Treatment of Public Servants Act guarantees
public servants will receive Social Security benefits that
reflect their actual work history. Social Security benefits
will no longer be figured by the arbitrary WEP formula
established in 1983, but will be based on each worker's Social
Security contributions just like everybody else.
Under the Public Servant Fairness Formula, the worker's
benefit amount will be calculated using total lifetime earnings
and then adjusted for the proportion of earnings that came from
the job that was covered by Social Security. Public servants
who turn 62 on or after January 1st, 2017, will benefit from
the new Public Servant Fairness Formula. Social Security
benefits will increase for teachers, firefighters, police
officers, and other public servants currently subject to WEP.
Retired public servants currently subject to the WEP and
those who turn 62 before December 31st, 2016, will see a
reduction in the WEP offset leading to an increase in Social
Security benefits.
Repealing the WEP has been a priority of mine for many,
many years, and I want to thank Chairman Brady for the
attention he has paid to this issue, and I look forward to
working with him and the others who are panelists today, as
well as the expert testimony we are about to receive, in
passing this legislation in this session of the Congress.
Chairman BRADY. Reclaiming my time, I thank my colleague
from Massachusetts for his work on this important issue through
the years and all of my committee colleagues as well as those
who have interest in it.
It seems to me the police, teachers, firefighters I know
never worked just one job. They have a second and a third. They
have first careers. They have last careers, and creating equal
treatment for them just seems like the right thing to do.
So today's hearing is critically important. As Speaker Paul
Ryan has said, we are returning to regular order. So today is
an important step in that process, having a hearing to talk
about this problem and some good solutions to fix it.
I have had a chance to review the excellent testimony from
our witnesses that they have submitted, and I look forward to
advancing this bill in the weeks ahead.
And, again, Chairman Johnson, thank you for your leadership
on this issue and, Ranking Member Larson, thank you for helping
lead this hearing today.
I yield back.
Chairman JOHNSON. Thank you, Mr. Chairman, for your
leadership on this issue.
You know, hard-working Americans who have paid into Social
Security ought to have their benefits calculated fairly, and
they deserve to know how much they can expect to receive from
Social Security.
Unfortunately for many of our teachers, firefighters,
police officers and others, that is not the case. When Social
Security was created in 1935, some State and local governments
already had a retirement program in place, and the law allowed
those governments and workers to keep their separate program
and not participate in Social Security.
In fact, in Texas many firefighters, police officers and
teachers do not participate in Social Security because they
have an alternative retirement program. However, many of these
good folks have had other jobs either in the summer when school
is out or working for a different employer where they paid into
Social Security.
So if there is an issue I regularly hear about when it
comes to Social Security, it is the Windfall Elimination
Provision, or WEP. Take, for example, Janice from Plano, who
recently wrote to me. She has worked for 31 years as a teacher.
In the summers she also worked in the private sector paying
Social Security taxes on those earnings. Because Janice has
some earnings that were not subject to payroll tax and others
that were, she is subject to the Windfall Elimination
Provisions, or WEP, and she very much wants us to address this.
So now what is WEP exactly? And when did it come about? And
what can we do about it?
Simply put, WEP uses a slightly different benefit formula
than the regular Social Security formula, but this slight
difference can have a meaningful impact on benefits. WEP came
about as part of the Social Security reform effort in 1983. The
idea was to ensure that workers who pay into a separate
retirement system are treated similarly to other workers with
respect to Social Security benefits.
Both the House and Senate wanted to modify the benefit
formula for those workers who spent part of their careers not
paying Social Security taxes. I guess it should come as no
surprise that the House and Senate did not agree on the
numbers. The Senate took a more aggressive approach than the
House. As tends to happen here, they ended up somewhere in the
middle.
Ever since the WEP was put into place, those public
servants have pointed out just how arbitrary it is, and they
are right.
On top of that, right now the WEP and Government Pension
Offset, or GPO, make it really hard for our firefighters,
police officers and teachers to plan for retirement. As we will
hear today, the Social Security statement, that is required by
law, shows them the wrong number. Their statement gives them
the amount of Social Security benefits they would receive if
the WEP and GPO did not exist.
These workers, just like every other American, have a right
to know what their Social Security benefit is going to be so
they can prepare for their retirement.
Bottom line, it is time to replace the WEP and GPO with an
approach that treats all workers fairly, and so that is what
Chairman Brady and Representative Neal are trying to do. They
have introduced a bill that does just that for the WEP. I am a
proud cosponsor of their bill. The President included a similar
proposal for WEP and GPO in his budget this year.
Some folks may call for a full repeal of the WEP and GPO.
While these provisions are not fair, getting rid of them would
not be fair either. Public employees who are eligible for
Social Security should be treated just like everyone else, no
better and no worse. And just as important, at a time when
Social Security is already in trouble, doing so would only
worsen the financial standing.
Today we are going to hear from one panel of witnesses. Our
witnesses will provide background on the WEP and GPO, discuss
the problems with the current approach, including their own
frontline experiences, and talk about ways we can finally fix
it.
I want to thank each of our witnesses for being here today
and look forward to hearing your testimony.
Chairman JOHNSON. I now recognize Mr. Larson for his
opening statement if he wishes to make one.
Mr. LARSON. Well, thank you, Mr. Chairman.
And I want to thank our panelists as well for being here,
but I especially want to give kudos to our chairman for his
continued work and Chairman Brady and Representative Neal, and
primarily something beyond this particular hearing today, but
something this Committee has distinguished itself in doing, and
that is working in a collaborative manner across the aisle to
come to compromise and move the Nation forward.
This is just one of several examples of how this Committee
has stepped forward to do it, and while there may be
differences, et cetera, the end goal here, which is to move the
country forward and in this case, as has already been well
stated by Chairman Brady and by Mr. Neal and Chairman Johnson,
is that so many people have been adversely affected who have
worked other jobs.
As a former school teacher myself and having a daughter who
is a school teacher in the State of Connecticut, as Mr. Johnson
does in Plano, I hear back in my district from those
individuals impacted all the time, and frankly, it is unfair.
In Connecticut, more than 75,000 people, mostly teachers,
work in non-covered employment and face the prospect of having
their future Social Security reduced by the WEP. And while it
was the intent of the WEP to equalize the benefit formula for
workers with similar earnings, the WEP takes a one size fits
all approach that has the effect of unfairly penalizing public
servants, as you have heard here today, as well.
I have long been a proponent of reducing and eliminating
the WEP and the GOP [sic] altogether. This bill works towards
that goal, although I think there are winners and losers in
this provision.
Chairman BRADY. Would the gentleman yield?
Mr. LARSON. I would yield.
Chairman BRADY. Please do not eliminated the GOP.
[Laughter.]
Chairman BRADY. Please do not do that. We have just got to
be around.
Mr. LARSON. I think Donald Trump is doing a pretty good job
of that, Mr. Chairman.
Mr. NEAL. Would the gentleman yield?
That was the most important thing you said.
[Laughter.]
Mr. BRADY. So much for the bipartisanship.
I yield back.
Mr. LARSON. A Freudian slip there. I apologize, but
Shakespeare would say more truth is said in jest than not, but
thank you for correcting me.
But I would also point out that as someone who has long
felt that these were unfair, and I concur with Mr. Johnson that
we have to work on this to bring about the fairness, I am
anxious to hear from our panelists because I do think this is a
great compromise. This is a great step forward, but I do think
it may have some uneven results.
And I want to submit for the record a letter from the NEA
with the unanimous consent of the chair.
Chairman JOHNSON. Without objection.
[The information follows: The Honorable John Larson
Submission]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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Mr. LARSON. And I look forward to the consideration. The
long-term goal here is that we have to focus on Social
Security, and I am so pleased that Stephen Goss is here today
because I think the one thing that we ought to make sure with
respect to Social Security is its actuarial soundness, and not
only its actuarial soundness, but that it is sustainably
solvent for its required 75 years.
I look forward to future hearings. We have legislation that
we think will accomplish that goal that I hope we can approach
bipartisanly. Certainly the discussion needs to be put on the
table because increasingly as we saw after 2008 when people's
401(k)s became 101(k)s that they are more and more and more
reliant on Social Security. That makes this legislation have an
added sense of urgency for people already in the system who
have been treated unfairly.
But the long-term goal that was neglected in 1983, or shall
I say as we dealt with what is an insurance issue, that we did
not look to adjust or index the concerns that would be created
by a growing number of Baby Boomers into the future. This is a
responsibility of this Committee. I know we have the talent on
both sides of the issue to address this.
I look forward and welcome the hearing today and what we
are going to hear from our value added witnesses and look
forward as well to discussing Social Security 2100 in the
future.
Thank you, Mr. Chairman, and I yield back my time.
Chairman JOHNSON. Thank you, sir.
As is customary, any member is welcome to submit a
statement for the hearing record.
Before we move on to our testimony today, I want to remind
our witnesses to please limit their oral statement to five
minutes. However, without objection, all of the written
testimony will be made a part of the hearing record.
We have one witness panel today. Seated at the table are
Samara Richardson, Acting Associate Commissioner, Office of
Income Security Programs, Social Security Administration. That
is a mouthful, is it not?
Stephen Goss, Chief Actuary, Office of the Chief Actuary,
Social Security Administration.
Jason Fichtner, Senior Research Fellow, Mercatus Center,
George Mason University.
Tim Lee, Executive Director, Texas Retired Teachers
Association.
Jeannine English, President, AARP.
Welcome, and thanks for being here.
Ms. Richardson, you are recognized. Please go ahead.
STATEMENT OF SAMARA RICHARDSON, ACTING ASSOCIATE COMMISSIONER,
OFFICE OF INCOME SECURITY PROGRAMS, SOCIAL SECURITY
ADMINISTRATION
Ms. RICHARDSON. Thanks. Chairman Johnson, Representative
Larson, and Members of the Subcommittee, thank you for inviting
me to discuss Social Security coverage and treatment of
individuals who receive pensions based on work not covered by
Social Security.
My name is Sam Richardson, and I am the Acting Associate
Commissioner in the Office of Income Security Programs at SSA.
Social Security is rooted in principles of equity. Workers
earn benefits based on contributions to Social Security that
accumulate throughout a worker's career. In jobs covered by
Social Security, workers and employers each contribute 6.2
percent of earnings. Workers earn credits through covered work,
which allows them to qualify for benefits.
In addition to the worker benefit, Social Security provides
benefits for spouses of covered workers whether or not the
spouse had earnings covered by Social Security.
My written testimony details how we calculate Social
Security benefits. I want to highlight two key points about
Social Security benefits and the WEP and GPO provisions that
affect non-covered workers.
First, Social Security is progressive. Covered workers with
low career earnings receive a benefit that replaces a greater
portion of earnings than those with high career earnings.
My second point concerns spousal benefits. A spouse's
benefit is generally reduced dollar for dollar by the amount of
any Social Security benefit he or she earned as a worker in
covered employment.
Although most jobs today are covered by Social Security,
some exceptions remain. These non-covered jobs tend to be in
State and local government. In non-covered jobs, neither the
employee nor the employer pays any Social Security
contribution. Instead these employees may have retirement
arrangements other than Social Security, such as pensions.
When Social Security was enacted, the benefit formulas did
not account for these scenarios, which resulted in two types of
inequities. The first inequity affected individuals who had
both covered and non-covered work. Because not all of their
lifetime earnings were counted in the benefit formula, people
with considerable non-covered earnings appeared to have spent
their careers in low paying jobs. These beneficiaries received
combined Social Security and pension benefits that exceeded
those of individuals who worked solely in either covered or
non-covered work.
Congress addressed this inequity with the enactment of the
WEP in 1983. The WEP requires us to reduce a worker's Social
Security benefit if he or she also receives a pension based on
non-covered work.
Second, spousal benefits were originally intended to
benefit a financially dependent spouse. As both spouses began
entering the workforce and one member of a couple worked in
employment covered by Social Security while the other worked in
primarily non-covered work, a second inequity resulted. In this
scenario, the spouse in non-covered work could receive both a
retirement benefit from a pension and an unreduced Social
Security spousal benefit.
Congress recognized this inequity and enacted the GPO in
1977. The GPO requires us to reduce a person's spousal benefit
by two-thirds of the amount of his or her non-covered pension.
With both WEP and GPO, a non-covered pension is seen as a
substitute for a person's non-covered earnings. Congress chose
to use the pension for this purpose because at that time we did
not have the non-covered earnings data in our records.
To preserve Social Security's fairness, benefits should
continue to be adjusted if a person has covered and non-covered
work, but the WEP and GPO can be improved. Both provisions are
complicated. Often non-covered workers realize late in their
retirement planning that their Social Security benefit will be
offset. These provisions are also very challenging to
administer because we rely on beneficiaries to report when they
receive a non-covered pension.
The President's Budget for Fiscal Year 2017 includes a
legislative proposal that would improve how we offset benefits
for non-covered work. First, it would require State and local
government pension payers to provide us with data concerning
non-covered pensions. This would reduce our reliance on
beneficiary's self-reporting to administer the WEP and GPO.
Second, it would modify the WEP and GPO for individuals who
become eligible for benefits in 2027 and later. We would no
longer reduce benefits based on an individual's receipt of a
pension. We would simply use the information on non-covered
earnings in our records to adjust benefits.
Until now we have not had sufficient information on non-
covered earnings to consider a more equitable benefit formula.
Now we do, and with each year our records become more complete.
Before concluding, I would like to acknowledge Chairman
Brady's leadership on this issue. The chairman's bill has much
in common with the Administration's proposal, and we look
forward to working with the Congress on this issue.
I appreciate the opportunity to appear before you today and
would be happy to answer any questions you may have.
Chairman JOHNSON. Thank you, ma'am. We appreciate that.
[The prepared statement of Ms. Richardson follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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Mr. Goss, welcome. Please go ahead.
STATEMENT OF STEPHEN C. GOSS, CHIEF ACTUARY, OFFICE OF THE
CHIEF ACTUARY, SOCIAL SECURITY ADMINISTRATION
Mr. GOSS. Thank you very much, Chairman Johnson, Mr.
Larson, and other Members of the Committee. It is really a
pleasure to be here with you today to talk about this important
subject.
I do want to say what an incredible pleasure it is working
with people like Amy Shuart and the rest of your folks on this
and other issues, and I much look forward to what Mr. Larson is
talking about, talking about broader issues for Social Security
maintaining its good actuarial status in the future.
What we are here to talk about today really is principally
the Windfall Elimination Provision, and what I want to focus on
in the very brief time we have is this proposed change to the
way that it has been functioning.
As Samara and others have mentioned, we have the approach
we have got now because that was put in the law back in 1983,
and really there was no choice back then because of the nature
of data that were available.
The current approach really, if we think about this
philosophically what these two approaches do, the current
approach is basically a matter of a benefit offset. For people
we know are receiving a pension based on non-covered
employment, there is an offset applied to their worker benefit,
retired worker or disabled worker benefit, up to one-half of
the amount of that non-covered pension.
But to apply this, it requires that we know and we have
knowledge of this non-covered pension, and there are lots of
complications in that.
The proposal would take a very different approach. The
proposal would take the approach as has been mentioned a few
different ways here in basically saying: what if we looked at
all of the earnings that a person had, covered and non-covered,
and looked at the level of benefit that they would be getting
if all had been covered, but then importantly, look at the
replacement rate that would be provided for that person, that
is, the ratio of the amount of benefit they would get versus
their average earnings when they had been working, with all of
their earnings, covered and non-covered.
Now, because it is a progressive formula, people with
higher overall career earnings get a lower replacement rate
than people with lower career earnings.
In a little example that I provided on page 2 of the
written testimony, you can see we show that for a person who in
their lifetime career earnings had an average earnings of about
$48,000, which we call sort of our medium earner throughout
their career of covered and non-covered earnings, if it was
covered earnings only, they would get a benefit replacement
rate of about 40 percent of the level of earnings they had been
getting. That would be their benefit, about 40 percent at age
65.
But if a little bit over half of those earnings were in
non-covered employment, the way our formulas are working now,
the person would get a benefit replacement rate of 53 percent,
where 40 percent would seem to be more appropriate for a person
with that kind of a lifetime career earnings level.
So what the proposals do basically is say for that portion
of the earnings that were in covered employment, rather than
providing the 53 percent replacement rate, provide the 40
percent replacement rate, which by our formula is deemed to be
appropriate for that level of lifetime career earnings.
So it is in that sense that it would be argued, I think,
that the proposed formula by both Chairman Brady, Mr. Neal, and
the President would be a more appropriate approach.
And, by the way, they are really exactly the same formula
for looking forward. The only difference is that the Brady-Neal
proposal would start with people newly eligible for benefits in
2017, where the President's would wait until newly eligible in
2027.
Now, let me just share with you a couple of numbers related
to this. Currently we have about 1.5 million retired worker and
disabled worker beneficiaries subject to the Windfall
Elimination Provision. About 84 percent, or one and a quarter
million of those, if we were to be able to magically change to
the new formula today, just to give you a sense of what the
impact would be, 84 percent of them would have actually less
reduction, that is, an increase in benefit, of about $77 per
month. That would be about a 19 percent increase in benefits
for about 84 percent of the people currently subject to the
WEP.
About one-quarter of a million of the people, or about 16
percent, would have about a $13 per month reduction or about an
eight percent reduction in benefits. These are people who are
currently reduced, but they are not reduced by very much under
the current formula.
Now, importantly, there is another group of folks. There
are about 15 million people that we estimate in our retired
worker and disabled worker population who are in receipt of
benefits that are not being reduced by the Windfall Elimination
Provision even though they do have some years of non-covered
earnings.
If we were to apply the new formula to them, about one
million, or seven percent of those folks, would not receive any
reduction at all. Why? Because their earnings even including
all of the covered and non-covered earnings, are still well
enough below our first bend point, and they have a 90 percent
replacement ratio with or without consideration of the
provision.
The other 14 million, or 93 percent of this 15 million
people, would receive a small reduction. It would average about
$27 per month, which is about two percent, on average, of the
benefits that they are currently receiving. These folks are
relatively high level beneficiaries under current law.
Chairman JOHNSON. The gentleman's time has expired. Can you
close it?
Mr. GOSS. The one further little item on this is that about
one-half of these 15 million people who would be affected with
a reduction, one-half of them would receive the least affected,
only $3 on average.
Chairman JOHNSON. I do not think you are listening to me.
Your time has expired, sir.
Mr. GOSS. Apologies, Chairman Johnson. Okay. I will stop at
this point and look forward and hopefully you will have an
opportunity for some questions.
[The prepared statement of Mr. Goss follows:]
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Chairman JOHNSON. Thank you.
Dr. Fichtner, you are recognized.
STATEMENT OF JASON FICHTNER, Ph.D., SENIOR RESEARCH FELLOW,
MERCATUS CENTER, GEORGE MASON UNIVERSITY
Mr. FICHTNER. Thank you, sir.
Chairman JOHNSON. Thank you.
Mr. FICHTNER. Good morning, Chairman Johnson,
Representative Larson, Members of the Committee. Thank you for
inviting me to testify today. It is good to be back before you
again.
From my testimony I hope to leave you with the following
take-aways: first, a full repeal of the Windfall Elimination
Provision, WEP, or Government Pension Offset, GPO, would
violate the principles of fairness and equity. These provisions
were originally intended to protect.
The original public policy intent of the WEP and GPO is to
ensure fair treatment between workers with earnings covered by
Social Security and workers with earnings that are not covered
by Social Security. It is important that disparate treatment
between covered and non-covered workers remain.
Two, the current WEP and GPO provisions create an overly
complex structure. This can sometimes result in higher
replacement rates for some people with high lifetime combined
earnings and those with low lifetime earnings.
Further, the complexity and lack of transparency in the
current WEP and GPO provisions can hinder people's ability to
accurately plan for retirement and potentially cause undue
hardship for retirees.
Third, a proportional or prorated formula would improve
fairness of the WEP while maintaining fairness overall. This
change would allow for the use of one benefit formula for all
Social Security beneficiaries. It would be simple to understand
and would be fairer than the current system, while still
maintaining the original intent of fairness and equity of the
WEP and GPO provisions.
Social Security retirement disability benefits are funded
via payroll tax on covered earnings. The system is designed as
a progressive benefit formula that provides a higher
replacement rate for low income earners than for higher income
earners.
The result is that monthly Social Security benefits
represent a larger share of lifetime earnings for low income
workers than high income workers. This does not mean that a low
income worker's monthly benefit amount is higher in nominal
dollars than a higher income worker, but rather that the
replacement rate is higher.
For workers with entire careers in covered employment,
lower lifetime wage earners receive a higher replacement rate
than higher lifetime wage earners. But problems arise when
workers have earnings from non-covered employment, such as
earnings received through State and local governments and
careers such as public school teachers, police officers or
firefighters. If these workers have an entire career in State
and local government that is not covered by Social Security,
there is no problem with the WEP.
However, many of these State and local government employees
still qualify for some Social Security benefits either because
they have employment history in both covered and non-covered
employment or because they work simultaneously in two or more
jobs that include covered and non-covered employment.
While the WEP is intended to ensure that Social Security
beneficiaries are treated fairly and that benefits are provided
only for years in which people paid into the Social Security
system, the result is that the replacement rate for some with
high lifetime combined earnings is higher than those with low
lifetime earnings.
The WEP mistakenly treats some high income earners as if
they were low income earners. That is unfair. The WEP formula
is complicated and hard to explain to beneficiaries.
Further, the current Social Security statement provides
estimated monthly benefit amounts that are not adjusted for the
WEP. For people relying on the Social Security statement as a
retirement planning tool, the current non-WEP adjusted
information in the statement could cause people to overestimate
their financial readiness for retirement.
Completely eliminating the WEP will only return Social
Security to its pre-WEP state and reinstate a windfall for
those with both covered and non-covered employment. Hence,
repeal is not advised.
However, a proportional or prorated form would improve
fairness of the WEP while maintaining fairness and equal
treatment.
As of January 2017, SSA will have 35 years of employment
history, including both covered and non-covered employment.
Thus, we now have both the information and tools necessary to
reform the WEP and move to a prorated formula.
President Obama's budget contains such a proposal and so
does a similar bill introduced by Chairman Brady and
Representative Neal. They are very, very similar. For workers
whose entire careers are in covered earnings, the resulting
Social Security benefit amount is the same. However, for those
with non-covered earnings but with similar combined average
annual lifetime earnings, now their covered earnings are
receiving the same replacement rate as those whose entire
careers are spent in covered employment.
In other words, their replacement rate on covered earnings
is now the same and treats both workers with identical lifetime
earnings history equally, thus restoring some fairness to the
system while still maintaining the original intent of WEP to
avoid a, quote, unquote, windfall to those with non-covered
earnings.
The simplicity and fairness of the proposed new formula is
that it would apply to all workers, those with both covered
earnings only and those with both covered and non-covered
earnings, making it easy for Social Security to administer and
for beneficiaries to better plan for retirement.
Additionally, the Social Security statement could provide
accurate monthly benefit amounts to better enable people to
plan their financial security in retirement.
It is not often that a Social Security reform proposal
comes forward that has bipartisan support and support from both
Congress and the President. The original intent of the WEP and
GPO still applies today. However, we now have the opportunity
to get the formula right for the improvement of the Social
Security program and its beneficiaries.
Thank you again for your time and this opportunity to
testify. I look forward to your questions.
[The prepared statement of Mr. Fichtner follows:]
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Chairman JOHNSON. Thank you, sir.
Before I recognize Mr. Lee, I would like to recognize Dr.
Boustany so he can enter a statement for the record.
Mr. BOUSTANY. Thank you, Mr. Chairman. I appreciate it.
I ask unanimous consent to enter into the record a
statement regarding this very important issue from my home
State of Louisiana.
Chairman JOHNSON. Without objection.
[The information follows: The Honorable Charles Boustany
Submission]
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Mr. BOUSTANY. Thank you.
Chairman JOHNSON. Okay. Mr. Lee, I believe you are next in
line. You are recognized for five minutes.
STATEMENT OF TIM LEE, EXECUTIVE DIRECTOR, TEXAS RETIRED
TEACHERS ASSOCIATION
Mr. LEE. Thank you, Chairman Johnson, Mr. Larson, Mr. Neal,
Members of the Subcommittee.
I am Tim Lee. I am the Executive Director of the Texas
Retired Teachers Association. I appreciate the opportunity to
be here today to testify on behalf of TRTA's over 80,000
members on the Windfall Elimination Provision and the
Government Pension Offset.
TRTA is the largest association for retired public school
and higher education employees and now ranks number one in
membership in the Nation. TRTA is part of a growing ad hoc
coalition of public employee retiree associations, public
employee organizations, and some of the nation's largest public
employee retirement systems who are working together to support
the passage of fair and equitable WEP reform legislation.
Some of TRTA's closest partners, such as the Retired State
and County Municipal Employees Association of Massachusetts and
the Association of Texas Professional Educators, are here today
in support of your efforts to pass WEP reform this session.
I have spoken with many of the leaders of other
organizations that could not be here today, and they also
extend their appreciation to each of you for this hearing.
We have already listened to testimony today about the
origins of the WEP and the GPO, and this is good background
information, but it does not really capture the sense of
hardship these two provisions create for both retired and
active workers.
For private sector employee contemplating a career shift in
public education, the impact is the future benefit loss felt
after years in another field, and for those contemplating
education as a career, from the beginning the provisions
provide arguments against entering the profession at all.
As a parent with four children in public schools, this is
very concerning to me as I want education and other vital
public service roles to be highly sought and rewarding for the
best and most talented job seekers.
And for our retirees, the consequences are very severe in
that they lose dollars for their benefits every month.
Setting aside our views regarding underlying arguments for
both the WEP and the GPO, TRTA has always believed the
congressional response to these arguments have been arbitrary
and based on incomplete data and faulty reasoning. Like many
organizations with similarly affected membership, TRTA has long
supported legislation to fully repeal the WEP and the GPO.
However, despite large numbers of bipartisan cosponsors,
little has changed in almost 30 years these provisions have
impacted public workers. We acknowledge that a full repeal is
costly and denies any merit that may support the initial basis
for their enactment.
Over the years congressman Brady has graciously worked with
our organization and others to find a fair and reasonable
solution to this growing problem. As early as 2004, Congressman
Brady wrote, in part, ``A teacher's Social Security should be
based on the same thing every American's Social Security is
based on: work history and contributions, not more and
certainly nothing less.''
Today H.R. 711, the Equal Treatment of Public Servants Act,
is before you for your consideration. Replacing the current WEP
calculation with a formula that takes into consideration the
individual's entire working career is an important step towards
greater fairness in the system. While the increased benefit
that will become available to those impacted does not fully
restore the Social Security earnings lost under the current
formula, the additional income will be significant for the
poorest retirees in our ranks.
In Texas, the vast majority of TRTA pensioners earn in very
modest retirement benefits, and replacing and reforming the WEP
is a need. Our retirees are in desperate need for fairness and
for the maximum possible increase in Social Security benefits.
In October of last year, the Social Security Advisory Board
published a position paper on the WEP, acknowledging that when
Congress established the WEP formula and the Social Security
Administration lacked data on earnings in jobs not covered by
Social Security that are necessary to make an exact benefit
adjustment.
Beginning in 2017, the Social Security Administration will
have 35 years of data on earnings from both covered and non-
covered employment. According to the SSAB's paper, the
availability of this complete and complex data means that
Congress can now apply the more accurate approach. This greater
accuracy should implore Congress to repeal the arbitrary WEP
formula and provide fairness to government workers by adopting
H.R. 711.
Even more recently, it is important to note the President's
fiscal year 2017 budget proposes to adjust Social Security
benefits based on the extent to which workers have non-covered
earnings. While we do appreciate the President's proposal, we
do not see a need to delay this important transition for ten
years as his proposal suggests.
It is critically important to note and acknowledge the need
for the alternative approach based on actual earnings. I can
assure members of this Committee that the thousands of retired
public workers impacted by the current WEP formula would
appreciate action now instead of waiting another decade in the
future.
After years of failed attempts to find a solution and
underlining the inadequacies associated with the WEP, TRTA
appreciates the support which we now find from Members of
Congress, the SSAB, and the Obama Administration. We believe it
is time for Congress to enact H.R. 711, The Equal Treatment for
Public Servants Act. H.R. 711 will permanently repeal the
current WEP and it will provide public servants, teachers,
firefighters, police officers and other State and local
employees equal treatment under the law on the benefits they
have provided and reduce the WEP for current retirees as much
as 33 percent.
[The prepared statement of Mr. Lee follows:]
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Chairman JOHNSON. Thank you, sir.
Mr. LEE. Thank you.
Chairman JOHNSON. Ms. English, Please proceed.
STATEMENT OF JEANNINE ENGLISH, PRESIDENT, AARP
Ms. ENGLISH. Thank you. On behalf of our 38 million members
throughout 50 States, the District of Columbia, Puerto Rico,
and the U.S. Virgin Islands, including our National Retired
Teachers Association members, and all Americans 50 and over,
AARP thanks Chairman Johnson, Ranking Member Becerra, and
members of the Social Security Subcommittee for the opportunity
to testify today in support of The Equal Treatment of Public
Servants Act.
We are happy to join numerous other organizations
representing retired educators, firefighters, law enforcement
officers, Federal workers who support this bipartisan effort.
Both H.R. 711 and a similar proposal included in President
Obama's fiscal year 2017 budget request offer a resolution to
the longstanding issue of calculating a fair Social Security
benefit for workers employed by both the private sector and for
employers who do not participate in Social Security.
The Windfall Elimination Provision, or WEP, was intended to
recover an unfair advantage that Social Security benefit
formula provided to workers in dual careers. Without the WEP,
some public sector employees who do not pay Social Security
taxes would receive a higher replacement rate of their earnings
than workers who paid Social Security taxes on all of their
equivalent earnings.
The one size fits all approach of the current system has
several drawbacks. It cannot address the great diversity in the
earnings of State and local workers.
In addition, research has shown that the WEP can be
regressive and disproportionately affects lower earners. For
decades, efforts to design a fair and accurate method to
calculate Social Security benefits of these workers with dual
careers was hampered because there was no effective method for
Social Security to accurately track all earnings for State or
local government employment.
Fortunately, more recent data records are making it
possible to do more to easily track earnings from all
employers. As a result, it is now possible to adopt and
administer a fair solution.
Under The Equal Treatment for Public Servants Act, the
current WEP will be replaced by the Public Servants Fairness
Formula, PSFF. The PSFF will first calculate Social Security
benefits of a worker with public and private sector earnings as
if all of those earnings were subject to Social Security taxes,
using the same formula that applies to all workers.
To ensure there is no windfall, the benefit will then be
multiplied by the fraction of earnings on which the worker paid
Social Security taxes. This new calculation will allow for
benefits that accurately reflect the individual's lifetime
earnings of dual career workers, while recognizing that not all
of those earnings were subject to Social Security taxes.
President Obama has recently proposed a similar process to
replace the WEP. We are encouraged by the President's support
for an approach that is generally consistent with H.R. 711.
Millions of retired State and local workers, including many
teachers, have received a Social Security benefit that is
excessively reduced because the current WEP formula fails to
consider an individual's specific work history.
AARP's founder, Dr. Ethel Percy Andrus, established the
National Retired Teachers Association to serve the needs of
retired educators. Today the NRTA is an important part of
AARP's history and our organization. We have listened to our
members throughout the country and others affected by the WEP,
and we believe that H.R. 711 is an opportunity to treat more
fairly the 1.6 million workers affected by the WEP, including
many teachers who belong to the NRTA.
We applaud the committee members for working to advance a
bipartisan solution to this issue. We are pleased that this
effort builds on Congress' work last year to achieve bipartisan
solution to fund the Social Security Disability Insurance
Program with reasonable anti-fraud protections.
We are encouraged that the committee and this Congress can
likewise reach agreement with the Administration to address the
WEP this year. AARP stands ready to help on this and other
proposals to strengthen and improve Social Security and protect
the income security needs of America's families.
[The prepared statement of Ms. English follows:]
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Thank you.
Chairman JOHNSON. Thank you. I appreciate that testimony.
And as is customary for each round of questions, I will
limit my time to five minutes and ask my colleagues to also
limit their time to five minutes.
Dr. Fichtner, welcome again.
Mr. FICHTNER. Thank you, sir.
Chairman JOHNSON. It is not every day the President and the
chairman of the Ways and Means Committee agree on something.
Mr. FICHTNER. It sure is not.
Chairman JOHNSON. And so when it comes to WEP, we are on
the same page but with a few differences. So when does H.R. 711
take effect?
Mr. FICHTNER. H.R. 711 would take place starting in 2017,
sir, where the President's proposal would start ten years later
in 2027.
Chairman JOHNSON. Does the bill help only new beneficiaries
or does it help current seniors as well?
Mr. FICHTNER. The current bill offered by Mr. Brady and Mr.
Neal helps current beneficiaries as well as future
beneficiaries. It is equal treatment for equal beneficiaries.
Chairman JOHNSON. You are saying both.
Mr. FICHTNER. Both, yes, sir.
Chairman JOHNSON. And what about the President's proposal?
When does the new benefit formula take effect?
Mr. FICHTNER. Not until 2027. So it would delay it for ten
years, and as my old boss, Commissioner Astrue said, justice
delayed is justice denied.
Chairman JOHNSON. Does the President's proposal provide any
relief for current retirees affected by the WEP?
Mr. FICHTNER. Not for current retirees, no; just for future
ones, sir.
Chairman JOHNSON. Mr. Lee, it is good to see you again.
In my opening statement I talked about Janice from Plano
and her experience with the WEP. Her story is like that of so
many Texans, and under Chairman Brady and Representative Neal's
bill, Janice's benefits would increase.
Unfortunately, the President has proposed to take his time
when addressing WEP. Can you tell us why you feel it is
important to provide relief to those currently affected by the
WEP and not just new retirees?
Mr. LEE. Mr. Johnson, it is also good to see you again,
sir, and thank you for the invitation to come and present
today.
Chairman JOHNSON. We are glad to have you.
Mr. LEE. Thank you so much.
We have thousands of our retirees that are in desperate
need for additional dollars in their monthly annuities and
their Social Security benefits. I have so many retirees that
have very modest retirement benefits, and so the work that can
be done today to advance proposal that does not delay it for
ten years and puts a little extra money in our retiree's
pockets will go a long way to help make ends meet for those
folks.
Chairman JOHNSON. Is there any reason why using the same
benefit formula for everyone is not the fairest way to go?
Mr. LEE. Mr. Chairman, we believe in fairness. We think
this has been the best proposal that has been brought forward
in a number of years, and fairness is the right way to go.
Chairman JOHNSON. Dr. Fichtner, some argue that since the
WEP and GPO are unfair, the only fair thing to do is repeal
them. What do you think?
Mr. FICHTNER. I think that would actually be the opposite
method. Repealing them would actually make things more unfair,
sir than making things fair.
Chairman JOHNSON. And, Mr. Goss, can you tell us how you
think about repeal? How would that affect Social Security's
finances?
Mr. GOSS. Well, I would agree with Dr. Fichtner to the
extent that repealing the WEP and the GPO would then not take
into account whatever the non-covered earnings that people have
had in the past. So some approach does certainly make sense.
Chairman JOHNSON. You know, this is a popular subject, and
we have had a number of non-subcommittee members, non-committee
members join us today, and we welcome you.
Without objection we will follow our custom of allowing
members of the Ways and Means Committee who are not Members of
the Subcommittee to ask questions after the Members of the
Subcommittee have completed their questioning.
Other members may make submissions for the record which
will remain open for two weeks.
I recognize Mr. Larson.
Mr. LARSON. Well, thank you again, Mr. Chairman, and I want
to thank our witnesses as well.
Mr. Goss, I would like to go back to your testimony, and I
think it is important as well for the record, and I understand
the philosophical notion and the fairness of making these
adjustments with respect to both the WEP and the GPO, and I
wonder though if you can explain to us as you were going
through your diagrams who would be the losers in this.
What happens here? That seems to be some of the concern
that is raised by the NEA and others, and I was just trying for
the record to better understand this.
Mr. GOSS. Well, it is true, as several have mentioned, that
there would be a lot of dare we say winners, that is, people
who would be less strongly affected by the new proposal than
what we have now.
But there would, as in almost any change, there would be
some people who would be affected somewhat more. Of the roughly
1.5 million worker beneficiaries now affected if we were to be
able to apply the new formula to them, about 16 percent or
about a quarter million of those folks would be reduced by
about $13 per month.
That is not a strong change. This would be about an eight
percent reduction in their benefit level. These are people who
are currently affected, but because of the size of the pension
that we know of, they are being affected relatively little.
They would be affected only slightly more under the new formula
approach.
The much larger group that would be affected you might say
negatively would be out of the 15 million people who are worker
beneficiaries today, if we were to apply the new formula to
them, who have some non-covered earnings but are not reduced
currently for the Windfall Elimination Provision, a large
majority of them, 93 percent, would have some very small
reduction under the new formula. We estimate that that
reduction would be on the order of $27 per month, on average,
which is only a two percent reduction ion the benefits for
those individuals.
Breaking that down into the people most affected versus
least affected by applying the new formula to those who
currently are not being reduced by the WEP, the group that
would be the least affected would be affected by only $3 per
month on average reduction, and the percentage reduction would
round to zero percent. It would be less than half a percent
reduction.
The group of that 14 million that would be most affected
would be affected by a reduction in their benefit of about $46
per month, which is only a $3 per month reduction for those
individuals.
So there would be some individuals obviously who are not
affected by the WEP at all now with this broader application of
the under the new proposal would be affected to the smaller
extent.
Mr. LARSON. But as Ms. Richardson pointed out, because of
the progressivity within this that is why it is getting the
favorable review from the panelists.
What does an average Social Security recipient receive
today?
Mr. GOSS. On average Social Security recipients are getting
on the order of $1,300. This is retired worker beneficiaries,
around $1,300 per month.
Mr. LARSON. And as I said earlier, we have not made an
adjustment really to Social Security since 1983 when it was, I
think, unwisely not indexed at the time, which places us in
this horrible actuarial situation that we find ourselves in
wondering about the solvency of the program.
I think one of the mistakes that we make is to refer to
this as a tax instead of an insurance premium. This is, after
all, an insurance premium that is paid by both the employer and
by the employee, but it is insurance nonetheless that the
employee has paid for.
And I hear this everywhere I go in my district, that this
is the insurance I paid for, and I do not know of any insurance
premium that has not risen since 1983 in any major category. So
that when we look at these things, if we look at it going out,
looking at a premium perspective and to make sure as they do in
all insurances that they are actuarially sound, your advice on
this is going to be tantamount.
And I thank you for your testimony.
Chairman JOHNSON. Thank you.
Mr. Dold, you are recognized.
Mr. DOLD. Thank you, Mr. Chairman.
And I certainly want to thank all of you for coming today
and for your testimony.
And just to pick up where my good friend Mr. Larson was
leaving off in terms of an insurance policy, one of the keys to
an insurance policy is certainty. So, again, having that
certainty is extremely important.
And we hear it each and every day. We hear it from
businesses. We hear it from individuals. Planning and having
certainty is absolutely critical.
And so individuals who are planning for retirement rely on
the statements that they receive from Social Security to have a
sense of what the benefit is that they can expect going
forward. However, those statements do not take into account the
Windfall Elimination Provision or the Government Pension
Offset.
So people who are subject to the WEP or the GPO may not
know how they will be affected until they actually come into
retirement and they apply for their benefits, and it is not
until then that they learn how much less they will receive on
Social Security, whether it be that benefit that they were
expecting.
Not only is this unfair; it interferes with the ability of
retirees who have worked in public service jobs, including
educating our children, from being able to enjoy the retirement
that I believe they so richly deserve.
Now, some of the things that I have heard, and again, I am
sure you can imagine we have heard a lot from constituents. One
wrote in to me, Lucile, who is a teacher from Vernon Hills, and
she taught in a Catholic school for many years and switched to
the public school system after her husband passed away. She
worked in the public school system for 17 years, and she wrote
to let me know that she was trying to do her retirement
planning when she learned that because of WEP, she will not
receive any of her late husband's Social Security benefits and
hers will be reduced by two-thirds.
In addition, because she has only worked for 17 years in
the public school system, she will not qualify for a full
pension benefit.
Robert, who is a former postal worker from Wheeling,
learned that he would not receive his Social Security benefits
for his covered employment because he received a pension from
the Federal Government for his non-covered employment.
Nick, a retired educator from Deerfield, wrote in to
express the unfairness of the Windfall Elimination Provision,
and he notes that he has paid into Social Security and deserves
the benefits that he has earned, and that only Illinois and
about 15 other States reduce Social Security benefits along
those same lines.
Each of these people, and again, there are thousands and
thousands of others that have been negatively impacted, and I
do believe that this is a bipartisan effort for us to be able
to try to solve this problem.
So, Mr. Lee, let me just first direct this. When teachers
receive their Social Security statements or their statements if
it is not Social Security, are their estimated benefits
accurate?
Mr. LEE. Congressman, I think you are exactly right in
saying that the amount of monthly benefit they may receive may
be accurate, but it does not reflect the impact of the
Government Pension Offset or the Windfall Elimination
Provision.
In your first example, it sounded like that individual was
going to be hit with a double whammy, both with Government
Pension Offset and the Windfall Elimination Provision.
So to the extent that they are accurate, yes, but they do
not provide good financial accounting for the fact that the WEP
will affect them, and when they go to retire to collect the
benefit, it is a very big surprise, and it does impact how they
are able to make ends meet.
Mr. DOLD. Dr. Fichtner, Ms. English, how important is it
that those statements, regardless of where they are, are
accurate?
Mr. FICHTNER. Congressman, it is very important. For many
people the Social Security statement that they get in the
pension plan is the one time a year they sit down and try to
figure out their adequacy for retirement planning. If those
statements and the benefits estimate in those statements are
wrong, we could be doing a lot of harm to people as they try to
plan for a secure retirement.
Mr. DOLD. Mr. Goss.
I do not mean to cut you off, Ms. English, if you wanted to
add in.
Ms. ENGLISH. The only thing I wanted to add is that is
absolutely right. We talk to our members all the time, and if
they cannot plan for their Social Security, their pension, and
their savings, they cannot plan for their future, and so
knowing what they are going to have in Social Security is
crucial.
Mr. DOLD. Mr. Goss, let me just say, I understand you
cannot be a clairvoyant, and I recognize that situations are
happening you do not know that they may have had a different
work time somewhere else. How can we try to avoid this?
Mr. GOSS. Well, you make an extremely good point. Due to
the complexity of the current approach where one would have to
know the size of the pension and when a person was going to
receive a pension based on non-covered employment, we simply do
not have that information available.
We do have more detail benefit calculators available on the
WEP principally used by financial planners, not by citizens
because of the complexity.
There is no question but that this new approach would
afford us in the Social Security statements the ability to take
into account those years of non-covered earnings and give a
much better estimate for individuals, especially if they
indicate during the remainder of their career where they think
they will be working. We can give a very good assessment.
Mr. DOLD. And in my last one second, the legislation that
we are proposing today would rectify this problem; is that
correct?
A nod I am seeing, Dr. Fichtner.
Mr. FICHTNER. Yes, sir.
Mr. DOLD. Okay. Thank you so much.
Mr. Chairman, my time has expired.
Chairman JOHNSON. Thank you.
Mr. Kelly, you are recognized.
Mr. KELLY. Thank you, Chairman.
And thank you all for being here,
My wife is a teacher back home in Pennsylvania and my
daughter is a teacher. My wife taught elementary; my daughter
in secondary. So we have approximately 35,000 Social Security
beneficiaries that are all adversely affected by the WEP
Program.
Mr. Lee, you talked about this pretty clearly. The bulk of
my life has been in the private sector, and one of the things
is if you are going to attract the best people, you have got to
have the best ways of attracting them. Most of that is through
a compensation package that makes sense, that allows them to
get through their everyday life, and then allows them to get
ready for the time that they retire.
So looking at what we have today, and this is really one of
those days where we all agree on the same thing, but to attract
the best people, and I really do believe teachers are the key
and education is the key for anybody getting from what level
they are to the next level higher, and they can do it by
themselves by preparing for a job that they want in the future
that actually does allow them to sustain their lifestyle,
family and children and take care of everybody.
So if you can just talk a little bit more about when it
comes to what we have to do to attract more teachers, to
attract more people to go into that profession to make it seem
to them, and I would just share this. My daughter was at Notre
Dame, and she was in pre-profession of science, and she was
having trouble from the standpoint of it was not exactly what
she wanted. She was a track girl. She ran cross-country in
track.
And I said to her--her name is Charlotte but I call her
Charlie--I said, ``Charlie, you know what? You love kids. You
love competing. Why do you not go into education?''
And she said, ``I cannot make any money doing that, Dad.
Why would I ever do that?''
And I said, ``It is not always going to be about money. It
is going to be at the end of your life not how much you have in
the bank but how many people you have actually touched and how
many people you have helped.''
And she said, ``well, that is easy for you to say, but it
is not going to be that way for me.''
So, by the way, she did become a teacher, and she is also
coaching cross-country and track, and she started a program
called Girls in the Run, which really helped a lot of little
girls who did not feel really good about themselves for
whatever reason and started them off by walking around the
track and talking about what do you have to do to fit in and
how you have to compensate for people who say things about you
that are not real nice, but at that age that kind of goes with
the territory.
But my point is to get people like my daughter Charlotte,
to get Charlie to say, ``Do you know what? I do not need to
be--but I do have to have something that is sustainable.''
That is a huge problem right now, is it not? Attracting the
really top people to work with our kids, the most valuable
asset we have going forward where our future is secured?
How hard is it right now to bring those folks into the
fold?
Mr. LEE. Congressman, I appreciate that story and
appreciate your wife's services as a teacher, and certainly I
can tell you are a proud father.
I have a picture recently from one of my retirees who is
109 years old, and he is receiving a benefit from the Teacher
Retirement System in Texas. So is his son and so is his son's
son, and so it is a generational teaching family.
And I think that we have to support our educators.
Obviously teaching is one of the most difficult positions that
you can go into as a career. My own daughter also, who is going
to be 13 next month, wants to be a teacher, and so I think
immediately about the obstacles that she will face.
I think one of the major obstacles that we can remove from
that situation is creating a greater sense of transparency and
helping somebody understand the value of not only the dollars
they are receiving in their payroll today, but also the dollars
they are putting away for their future retirement benefits
through the State Teacher Retirement System, as well as into
the Social Security system. That transparency will help them
understand that the career of public education is not only
helping the children today, but it will help those teachers
when they retire in the future.
So I would say greater transparency, and of course
everything that we can do to encourage our teachers, good
teachers, to stay in the profession, and looking at the other
professions where people are coming into schools. In Texas we
have Troops to Teachers, obviously lots of military folks
coming into teaching, and I know if they look at provisions
like the Windfall Elimination Provision and say, ``Look. If
there is no reason, no benefit for me to go into teaching
because I am going to be hurt because I do that financially in
the future,'' I think that is the wrong message that we need to
be sending.
So it is a big step forward today in looking at how can we
treat people fairly and transparently in the future.
Mr. KELLY. And, Chairman, thank you again for this hearing
because it is about fairness, and I think that we champion
these people. We want them to touch our children's lives and we
want to be part of that whole process, but then they look at it
and say, ``But at the end of my time, when I retire, I am not
being treated fairly. So you want me to come in and do all of
that, you want me to give you my life, and you want me to give
all of my talents and my passion, but I am not going to be
treated fairly.''
And I think that is the problem. You all touched on that,
and I think that is the answer.
So, Chairman, thank you so much for having this hearing
today.
Chairman JOHNSON. Thank you.
Are you ready to question? You are recognized, Mr.
McDermott.
Mr. MCDERMOTT. Thank you, Mr. Chairman.
I have been on this Committee long enough to remember the
Notch Babies. So I sort of look at these questions where you
are making decisions here that are ten years out before they
take effect, and I am asking myself: what are we setting up
here?
If I understand, Mr. Goss, one and a half million people or
one and a quarter million will get an increase of something
like 77 bucks on average, and then there is the 15 million that
are going to get cut. And it looks to me like this bill is one
where nobody wanted to raise any money. They do not want to do
anything about the money situation in Social Security. They
just wanted to shift it from one bunch to another.
So we have got the public employees, and I think this is a
benefit for them they should have, but we are doing it at the
expense of 15 million people who do not know it is coming. They
do not belong to an organization that lets them know; is that
correct?
Mr. GOSS. The numbers that I was speaking about are really
in reference to sort of what in the long run the implications
would be. The 14 million people who are not currently receiving
any reduction for WEP, if we were to be able to apply the new
approach to them, there would be 14 million who would be
affected somewhat by that, but to a very small extent.
Mr. MCDERMOTT. What is the logic for that except for saving
money, just cutting benefits from them?
Mr. GOSS. Well, the logic would be really just the basic
logic of the notion of reflecting the replacement rate or the
level of benefit people should get from their Social Security
covered earnings to have that be commensurate with the level of
their overall earnings on the basis of our progressive formula.
Really, I think the best way I could express the logic on
that is for that portion of a person's career when they were
working in State and local or Federal Government employment and
not paying them or their employers the 12.4 percent combined
payroll tax rate, that they would not, in effect, be getting
credit towards Social Security benefits and having a higher
replacement rate on the basis of not counting those earnings.
This new formula would look at those earnings in addition
to their covered earnings and determine their overall level of
earnings and their overall level of benefit replacement that
would be deemed to be appropriate under our current formulas,
and give them on their Social Security covered earnings no
higher replacement than people would get who had had their
whole career covered.
Mr. MCDERMOTT. When the bill passed here in 1983 and they
advanced the retirement age from 65 to 67, I am sure there were
thousands, millions of people in this country who never thought
that was going to ever affect them, and they did not even hear
about it. They were not paying any attention to it.
What kind of educational effort is there going to be for
people to understand what their future benefits are? How do
they sit down and plan their future?
If they are 55 today, they are going to be 65 when this
kicks in ten years from now or whatever. How are they going to
know what is going to happen to them then?
I mean, how will the ordinary citizen find out about this?
Mr. GOSS. I would imagine that Mr. Lee would be in really a
very, very positive position under this new formula for future
beneficiaries to indicate to them that you can simply look, and
we have in your Social Security statement. We do identify not
only your covered earnings, but also your earnings that are not
covered through the Social Security statement.
Through a modification of that we could indicate to people
on the basis of their covered and non-covered earnings what the
implications of this new formula would be in a way that we
really cannot with----
Mr. MCDERMOTT. I do not remember that.
Mr. GOSS. That education would be very possible.
Mr. MCDERMOTT. I do not remember the point at which I
started getting announcements from Social Security about what
my benefit was going to be. When does that start?
Does that start when you are 65? I got mine at 65. Does it
start at 65 or 67 or whatever, or does it start ten years
before where they tell you, ``This is what your benefit is
going to be''?
Mr. GOSS. The good news is even before that. We first start
sending statements to people when they attain age 25, and I
think our current practice now is to do it every five years
thereafter until they reach something like 60, and then we do
it even more often, perhaps every year at that point. So the
notices are available for people either online or if they are
not signed up, they receive those through the mail.
Mr. MCDERMOTT. And it will tell them what their benefit cut
would be from what they presently have or it will just tell
them what the benefit is going to be?
Mr. GOSS. Well, if we enact H.R. 711 or the equivalent
through the President's budget proposal, once that goes into
effect for people who will be affected by the new formula, we
will be in a position to modify the calculation shown in the
Social Security statement and indicate to people what their
benefit would be without and with, probably just with, the
implications of this new formula change.
Mr. MCDERMOTT. I will not be here in 2027. So I will not
meet the next crop of Notch Babies, but I will bet you there is
going to be somebody organizing these people and telling them.
Thank you. I yield back the balance of my time.
Chairman JOHNSON. Thank you for your question.
Mr. Renacci, you are recognized.
Mr. RENACCI. Thank you, Mr. Chairman, for holding this
hearing. I want to thank the members of the panel for their
testimony.
I would also like to thank Chairman Brady and Mr. Neal for
their hard work on this issue and for working towards really a
common sense solution to address the outdated and arbitrary
formula.
While WEP may impact every State, my State of Ohio has more
than 120,000 people who will be subject to the Windfall
Elimination Provision, trailing only behind the significantly
larger States of California and Texas. This is due to the State
having multiple pension funds that predate Social Security and
whose members do not have income that contributes to Social
Security.
Mr. Chairman, I ask unanimous consent that a letter from
the Ohio Public Employees Retirement System in support of H.R.
711 be included in the record.
Chairman JOHNSON. Without objection.
[The information follows: The Honorable Jim Renacci
Submission]
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Mr. RENACCI. In my five years representing Northeast Ohio I
have heard from countless constituents who have spent part of
their career serving their community as public school teachers
and police officers, firefighters or State employees who have
been impacted by the Windfall Elimination Provision. Like many
of my colleagues, the stories I hear from constituents have
real impact on their lives and their planned retirement.
While efforts have been made both by the State and Federal
level to better educate individuals impacted by WEP, still many
retirees do not realize that they will lose benefits due to WEP
until their first benefit check.
This was the unfortunate case of a constituent of mine
named Thomas, who is currently retired in Medina, Ohio. Thomas
worked many years starting as a teenager in a variety of jobs
that paid into Social Security prior to joining the City of
Cleveland Police Force where he served the community for 27
years.
Throughout his time working in public law enforcement, he
also worked as a private contractor paying into Social Security
only to be told that he would receive reduced benefits due to
WEP.
I have also heard from Tina who lives in Brunswick, Ohio,
who spent more than 20 years working in the private sector
before being hired by the Brunswick City School District in
2008. She is planning to retire in the next five to seven years
and is already preparing for an impact that the current WEP
formula will have on her retirement.
Under the President's proposal, we have heard the Windfall
Elimination Provision will not be fixed for ten years. That is
an awful long time when we have the data to fix it starting
next year in order to provide a solution for individuals like
Tina and Thomas.
Mr. Lee, can you give me any reason why we should wait ten
years?
Mr. LEE. No, sir. I think that you set that up very well.
Those are problems that need to be addressed now. We have
recognize the arbitrary nature of the current Windfall
Elimination Provision formula.
We know how to fix it today. We have had excellent
testimony and the work that you have done and many members of
this Committee have done and have made it available to present
a reasonable solution. I think now is the time to do it.
Mr. RENACCI. Thank you.
Mr. Fichtner, often one of the reasons to wait would be
implement a change, is to give people, you know, time to plan.
However, since we know the Social Security statements are not
accurate for those affected by WEP and GPO, how does this delay
really help them?
Mr. FICHTNER. The delay actually would not really help
them. It is just giving them proper information to make the
proper planning they need to do.
And the other point, to follow on Mr. lee's point and yours
as well, is that if we delay making this change until 2027
instead of doing it in 2017, there are beneficiaries now who
are being affected by the WEP that are getting a lower benefit
than they would in a proportionate amount.
So we are basically delaying giving them the benefit that
they deserve, and again, justice delayed is justice denied.
Mr. RENACCI. Thank you.
You know, this is a great opportunity where we can work
together as a bipartisan group to get things accomplished. So I
agree that we need to work together. As a cosponsor of H.R.
711, I again want to thank you, Mr. Chairman, for holding this
hearing and for working towards this common sense solution.
I yield back.
Chairman JOHNSON. Thank you, sir.
Mr. Smith, do you care to question?
Mr. SMITH. Yes, just briefly. Thank you, Mr. Chairman.
I am happy to be back on the Social Security Subcommittee.
I know changes have been made along the way. We have got some
work to do, and we have had young people filing in and out of
the room. I hope that this might spark some interest in their
financial futures, and as we work hopefully together to address
the solvency of Social Security, this issue is one that I hope
we can resolve here fairly quickly.
I believe it is appropriate that we work to improve Social
Security so we can ensure benefits are paid out accurately and
reflect the need of beneficiaries as well.
So I thank the Chairman for calling today's hearing.
One question, Ms. Richardson. Whether or not the WEP and
GPO apply is based on if a person is also receiving a pension.
What information does the Social Security Administration use to
actually make the determination?
And are you relying on beneficiaries to provide this
information when they claim the benefit?
Ms. RICHARDSON. Under the current law, yes, we are. We rely
on self-reporting, and that is part of the challenge of
administering the current law.
Mr. SMITH. Okay. By fixing the WEP and GPO in the way the
President proposes, would you need pension information for new
beneficiaries once the policy goes into effect?
Ms. RICHARDSON. We would need pension information for those
current beneficiaries, but at the point in 2027, when the
Administration's proposal would take effect, we would use just
the non-covered earnings data for newly eligible beneficiaries.
So for any of those beneficiaries up to that point who will
continue to receive benefits after that point in 2027, yes, we
would continue to need their pension information. We need the
details about when the pension starts, when it stops, and when
the amount changes.
Mr. SMITH. Okay. Thank you.
Does anyone else wish to comment?
[No response.]
Mr. SMITH. If not, I yield back. Thank you.
Chairman JOHNSON. Thank you.
Mr. Rice, do you care to question?
Ms. RICE. I yield, Mr. Chairman.
Chairman JOHNSON. Thank you.
Mr. Tiberi.
Mr. TIBERI. Thank you, Mr. Chairman.
I appreciate you holding this hearing today, and I want to
thank Mr. Brady and Mr. Neal for their leadership.
I am going to associate myself with Mr. Renacci's comments.
Being from Ohio, I, too, know the perils that many of my
constituents face and have heard from many of them over the
years that I have been in Congress, including my mother-in-law
who is impacted by this Windfall Elimination Provision.
Last fall I was contacted by a woman by the name of Liz
Mackey. Ms. Mackey worked as a nurse for 18 years before an
injury forced her out of that very noble profession, Mr.
Chairman, and rather than retire on disability, she decided to
pursue another career, put herself through school, became an
employee in Franklin County Government in Columbus, and worked
in a job that paid much lower than she did get paid as a nurse
for 18 years.
So as a result of that decision, Mr. Chairman, that
decision to keep working instead of giving up, she will see her
Social Security benefit greatly reduced by this WEP provision
unless we fix it.
And so she cannot wait another ten years. She needs this
fixed now.
Dr. Fichtner, in your testimony you discussed how using the
proportional formula devised in this bill instead of WEP allows
that same benefit formula to be used for all workers. Can you
explain how that would be impacting someone like Ms. Mackey who
had a job in the private sector at a higher scale and then went
to public service work working for government in a Public
Employee Retirement System at a lower scale?
And now Ms. Mackey who may be choosing between taking a
non-covered job in the future or retiring simply to keep a
higher retirement benefit, the perverse incentive, if you will.
Mr. FICHTNER. So, Congressman, there is a perverse
incentive sometimes to try to seek additional employment and
just for the sole purpose of getting years of coverage under
Social Security when you have also non-covered employment.
The benefit of going to a proportional formula is it is one
formula that applies to everybody. So it is transparent. Under
the current formula, the first bend point, as Chief Actuary
Goss mentioned, changes. Instead of being 90 percent it could
be lowered to as much as 40, but it scales down depending on
years of coverage.
So it is very confusing. It is not very transparent, and
people cannot plan accurately. Going under the plan by
Congressman Brady and Congressman Neal, that would make it one
formula that would apply to everybody, and it would be
proportional for those years that are non-covered earnings,
which means you could have one formula for Social Security that
could do a better job in the statement of telling people what
their benefit would be, and it would no longer give a perverse
incentive to game the system.
Mr. TIBERI. Mr. Renacci brought this up with respect to
police officers, but I know it was brought up that teachers and
others face the same impact they have supplemental jobs, second
jobs throughout their career paying into Social Security in
their supplemental jobs that are paying into the Public
Employee Retirement System in the primary job.
Mr. Lee, you brought up in your testimony how WEP can be
particularly harmful to teachers in our State of Ohio. So does
the approach taken in the new formula effectively stop that?
Mr. LEE. Yes, sir. And, first of all, I want to say that
many of my friends in Ohio speak very highly of the gentleman
on this Committee and they appreciate your service. I know
quite a few retired teachers from your State that are watching
today and are very interested, and they have sent email
expressing appreciation for your participation today.
We look at this situation as a very unfair formula, a very
arbitrary formula and confusing and needs to end with the work
done for the folks here today and Mr. Brady and others, this
formula has become fair, and if you ask educators what they
value more than maybe anything else, it is fairness. They just
want to be treated fairly under the law.
In this current situation we do not believe it is fair. A
person who is a high wage earner and perhaps administrator
level position is going to be hit one way, and a person who is
in a low wage position is going to be hit exactly the same, and
so a person earning lower income needs to be treated
differently based on their earnings than somebody who is maybe
in a higher paid position.
And so that is what the current formula is trying to fix,
get rid of the arbitrary nature of the existing WEP and replace
it with something that is fair based on their earnings over
their career.
Mr. TIBERI. Thank you. My time has expired.
Mr. Chairman, I'm a proud sponsor of this legislation, and
I want to thank you for your leadership.
Chairman JOHNSON. God bless you. Thank you.
Mr. Larson, you are recognized.
Mr. LARSON. Thank you, Mr. Chairman.
And what a great hearing this has been, and I want to thank
the members that have joined us as well.
And I want to go back to something that both you and Mr.
Renacci said with respect of the ten-year gap and why this
legislation that takes effect in 2017 comes under what Martin
Luther King would call the fierce urgency of now.
And so I commend this Committee that has been in a
nonpartisan way grappling with this issue, and I think this
bodes well for the overhaul and the work that still needs to be
done on Social Security.
Mr. Chairman, I commend you for always being fair and
thoughtful and I hope that we in the not too distant future can
have a hearing that focuses on the actuary soundness of this
and bring our actuaries here and talk about in a nonpartisan
way how we can come up with constructive solutions that make
it, I think as Mr. Goss said, sustainably solvent for the whole
program.
I think that is what we are all interested in as members
here who understand how vital a program that Social Security is
to all Americans.
Again, kudos to Mr. Brady and Mr. Neal, and thank you
again, Mr. Chairman, for having this hearing.
Chairman JOHNSON. Thank you.
And I want to thank all our witnesses for their testimonies
today. Thank you also, the members that are still here. I
appreciate your presence.
It is clear that current law is not working, and we need to
fix the WEP and GPO so that all workers are treated fairly, and
the time to act is now.
I look forward to working with all my colleagues on this
important legislation. And with that, this Subcommittee stands
adjourned.
[Whereupon, at 11:30 a.m., the subcommittee was adjourned.]
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