Options for Social Security Reform (06-MAY-05, GAO-05-649R).
This report provides a list of the various options available to
reform the Social Security program. It includes a table that
lists a wide range of provisions that various proposals have used
in some form. In addition, there is a list of such proposals, all
of which have been scored by the Social Security Administration's
Office of the Chief Actuary (SSA/OCACT). Our list of provisions
is intended to be generic and conceptual in nature. The list
attempts to reflect, in general terms, all provisions that have
appeared in SSA-scored proposals in the past few years. For each
generic provision, a variety of approaches and parameters could
be applied and have been proposed. For example, provisions to
raise the retirement age take a variety of forms, including
simply speeding up the currently scheduled increase from age 65
to 67, increasing the full retirement age to 68 or 70, indexing
the retirement age to improvements in longevity, and even
combinations of these. All of these variations have been
consolidated into one general provision for increasing the
retirement age. The table also briefly discusses each reform
option in general terms according to GAO's framework for
evaluating Social Security reform proposals, which is described
below. Our observations draw on GAO's extensive body of work
evaluating various aspects of Social Security reform.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-649R
ACCNO: A23598
TITLE: Options for Social Security Reform
DATE: 05/06/2005
SUBJECT: Federal social security programs
Retirement
Retirement age
Retirement benefits
Social security benefits
Financial analysis
Program management
Social Security Program
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GAO-05-649R
United States Government Accountability Office Washington, DC 20548
May 6, 2005
The Honorable Bill Thomas
Chairman
Committee on Ways and Means
House of Representatives
Subject: Options for Social Security Reform
Dear Mr. Chairman:
As you requested during my testimony before your committee on March 9,
2005,1 this report provides a list of the various options available to
reform the Social Security program. Following this introduction is a table
that lists a wide range of provisions that various proposals have used in
some form. Following the table is a list of such proposals, all of which
have been scored by the Social Security Administration's Office of the
Chief Actuary (SSA/OCACT).2
Our list of provisions is intended to be generic and conceptual in nature.
The list attempts to reflect, in general terms, all provisions that have
appeared in SSA-scored proposals in the past few years. For each generic
provision, a variety of approaches and parameters could be applied and
have been proposed. For example, provisions to raise the retirement age
take a variety of forms, including simply speeding up the currently
scheduled increase from age 65 to 67, increasing the full retirement age
to 68 or 70, indexing the retirement age to improvements in longevity, and
even combinations of these. All of these variations have been consolidated
into one general provision for increasing the retirement age.
The table also briefly discusses each reform option in general terms
according to GAO's framework for evaluating Social Security reform
proposals, which is described below. Our observations draw on GAO's
1GAO, Social Security Reform: Early Action Would Be Prudent. GAO-05-397T.
Washington, D.C.: March 9, 2005.
2These actuarial scorings can be found at
http://www.ssa.gov/OACT/solvency/index.html.
extensive body of work evaluating various aspects of Social Security
3
reform.
The Social Security program is so deeply woven into the fabric of our
nation that any proposed reform should be considered as a package and with
respect to all of the major elements of the Social Security program (e.g.,
retirement, disability, and survivors). The provisions of any particular
reform proposal can interact with one another. In addition, every proposal
will have pluses and minuses, and no plan will satisfy everyone on all
dimensions. As a result, Social Security reform proposals should be
evaluated as a package of reform options designed to meet certain stated
objectives.
Furthermore, any analyses of reform proposals should reflect the fact that
the program faces a long-term actuarial deficit and that benefit
reductions and/or revenue increases will be necessary to restore solvency.
Therefore, it is important to establish the appropriate comparisons or
benchmarks against which reforms should be measured. This requires looking
at proposed reforms from at least two benchmarks-one that raises revenue
to fund currently scheduled benefits (promised benefits) and one that
adjusts benefits to a level supported by current tax financing (funded
benefits).
GAO's framework for evaluating reform proposals considers not only
solvency but other aspects of the program as well. Specifically, the
framework uses three basic criteria:
o the extent to which a proposal achieves sustainable solvency and how
it would affect the economy, including overall savings rates, and the
federal budget;
o the relative balance struck between the goals of individual equity
(rates of return on individual contributions) and income adequacy (level
and certainty of benefits); and
o how readily a proposal could be implemented, administered, and
explained to the public.
3A list of GAO reports on Social Security is included at the end of this
report. In these reports, you can find more detailed discussions about
more specific proposals than the generic options listed in this report.
All of the reports are available at http://www.gao.gov/.
Financing Sustainable Solvency
Balancing Adequacy and Equity
The weight that different policy makers may place on different criteria
will vary, depending on how they value different attributes. For example,
if policy makers determine that offering individual choice and control is
a primary concern, then a reform proposal emphasizing individual equity
considerations might be preferred. Alternatively, if policy makers
determine that benefit certainty and security are of primary concern, then
reform proposals that stress adequacy and sustainable solvency might be
preferred. As the Congress fashions a comprehensive proposal, however, it
will ultimately have to consider the relative importance it places on each
of these criteria.
Our sustainable solvency standard encompasses several ways of looking at
the Social Security program's financing needs. While 75-year actuarial
balance is generally used in evaluating the long-term financial outlook of
the Social Security program and reform proposals, it is not sufficient in
gauging the program's solvency after the 75th year. For example, under the
trustees' intermediate assumptions, each year the 75-year actuarial period
changes, and a year with a surplus is replaced by a new 75th year that has
an increasingly significant deficit. As a result, changes made to restore
trust fund solvency only for the 75-year period can result in future
actuarial imbalances almost immediately. Reform plans that lead to
sustainable solvency would be those that consider the broader issues of
fiscal sustainability and affordability over the long term. Specifically,
a standard of sustainable solvency also involves looking at (1) the
balance between program income and costs beyond the 75th year and (2) the
share of the budget and economy consumed by Social Security spending.
The current Social Security system's benefit structure attempts to strike
a balance between the goals of retirement income adequacy and individual
equity. From the beginning, benefits were set in a way that focused
especially on replacing some portion of workers' pre-retirement earnings.
Over time other changes were made that were intended to enhance the
program's role in helping ensure adequate incomes. Income adequacy,
therefore, is addressed in part through the program's progressive benefit
structure, providing proportionately larger benefits to lower earners and
certain household types, such as those with dependents. Income adequacy
may pose special concerns for Social Security's disability and survivor
beneficiaries. Such beneficiaries generally have lower benefits than
oldage beneficiaries; shorter work histories may contribute to those lower
benefit levels. In addition, since they generally start collecting
benefits earlier in their lives than old-age beneficiaries, they may
collect benefits
Implementing and Administering Proposed Reforms
over longer periods of time, so benefit reductions may affect them more,
especially if the reductions have a compounding effect.
In contrast to income adequacy, individual equity refers to the
relationship between contributions made and benefits received. This can be
thought of as the rate of return on individual contributions. Individual
equity concerns can also include equity effects between generations and
how much choice and control individuals have over their program
contributions.
Balancing the seemingly conflicting objectives of adequacy and equity
through the political process has resulted in the design of the current
Social Security program and should still be taken into account in any
proposed reforms. Moreover, proposals can have a range of effects that
vary by income level and other characteristics, and this variation may
reflect interactions among various provisions. For example, some proposals
reduce promised benefits overall while simultaneously enhancing benefits
for low earners or widows, who face greater risks of poverty.4
Any reforms will require time and resources to implement, and those
demands will depend on the complexity of the changes. Moreover, greater
program complexity makes implementation and administration more costly and
harder to explain to the public. Continued public acceptance of and
confidence in the Social Security program requires that any reforms and
their implications for benefits be clearly communicated and well
understood. This means that the American people must understand why change
is necessary, what the reforms are, how they are to be implemented and
administered, and how they will affect workers' own retirement,
disability, or survivors' income. All reform proposals will require some
additional outreach and assistance to the public so that future
beneficiaries can adjust their retirement and other financial planning
accordingly. The more transparent the implementation and administration of
reform, and the more carefully such reform is phased in, the more likely
it will be understood and accepted by the American people.
4GAO, Social Security: Distribution of Benefits and Taxes Relative to
Earnings Level. GAO-04-747. Washington, D.C.: June 15, 2004.
As you know, the Social Security system faces serious solvency and
sustainability challenges in the longer term. While the Social Security
program does not face an immediate crisis, it does have a $4 trillion gap
between promised and funded benefits in current dollar terms over the next
75 years. This gap is growing as time passes, and given this and other
major fiscal challenges, including expected growth in federal health
spending, it would be prudent to act sooner rather than later to reform
the Social Security program.
Furthermore, Social Security's finances have important implications for
the overall federal budget. The current Social Security surpluses will
begin to decline in 2009, thereby putting additional pressure on the
balance of the federal budget. In addition, Social Security will start
running a cash flow deficit in 2017, which will require the federal
government to either increase federal taxes, cut other federal spending,
or borrow additional funds from the public in order to redeem bonds in the
Social Security trust funds.
Social Security is not the only challenge we face in addressing the
economic security needs of our elderly and disabled populations. Any
changes to Social Security should be considered in the context of the
problems currently facing our nation's private pension system. These
include the chronically low levels of pension coverage of the private
sector workforce; the continued decline in the number of defined benefit
plans, coupled with the termination of large underfunded plans by bankrupt
firms; and the shift by employers to defined contribution plans, where
workers face the potential for greater return but also assume greater
financial risk. Health care and long-term care needs will also place
growing demands on the government, employers, beneficiaries, and their
families. At the same time, our nation's personal savings rate is low by
international standards.
Failure to take steps to address our large and structural long-range
fiscal imbalance, which is driven in large part by projected increases in
Medicare, Medicaid, and Social Security spending, will ultimately have
significant adverse consequences for our future economy and the quality of
life of our children, grandchildren, and future generations of Americans.
As a result, the federal government needs to engage in a fundamental
review, reassessment, and reprioritization that will ultimately have to
span all major spending programs and tax policies.
We look forward to continuing to work with your committee and the Congress
to address Social Security and other important issues.
David M. Walker Comptroller General of the United States
Table 1: Options for Social Security Reform and Examples of Potential
Implications
Balancing adequacy and Implementation and Additional Options Sustainable
solvency equity administration considerations
Changing benefits o Effects can vary by earnings and other
characteristics
o Some proposals reduce benefits overall while enhancing benefits for
low earners and/or widows
o Choosing benefit reductions instead of increases to payroll tax
revenues implies a societal choice that workers will have less income
during retirement and more during working years
o Changing the formula for initial benefits
5
o Adjusting formula factors
e.g., reducing 15% factor to 10%, or, alternatively, reducing all factors
proportionally by x percent
o Can range from small to very large reductions in Social Security's
actuarial deficit
o Sustainability might require further reductions, for example, as
longevity continues to improve
o Reductions can be either proportional or nonproportional
o Nonproportional reductions could be targeted toward benefit adequacy
for lower earners but might raise equity concerns
-Progressive benefits not the same as
6
adequate benefits
- To avoid unintended benefit effects, disability and survivor benefits
might require other changes
o Relies on existing administrative framework
o Disability applications might increase because annual formula
reductions create incentive to qualify for benefits in earliest possible
year o Provides flexibility
o Can be used, in effect, to implement other types of reductions for
some or all covered workers, e.g., indexing benefits to prices instead of
wages.
5When workers retire, become disabled, or die, Social Security uses their
lifetime earnings records to determine their Primary Insurance Amount
(PIA), on which initial monthly benefits are based. The PIA is determined
by applying the Social Security benefit formula to a worker's Average
Indexed Monthly Earnings (AIME). The AIME is determined by taking the
lifetime earnings record, indexing it to average wage growth, and taking
the average. For workers who become eligible for benefits in 2005, PIA
equals 90 percent of the first $627 dollars of AIME plus 32 percent of
AIME over $627 through $3,779 dollars of AIME plus 15 percent of AIME
above $3,779.
6Under some reform scenarios, Social Security could distribute benefits
more progressively than current law yet provide lower, less adequate
benefits.
Balancing adequacy and Implementation and Additional Options Sustainable
solvency equity administration considerations
o Indexing formula to prices o Could largely or
instead of wages completely eliminate actuarial deficit by itself,
depending on specifics
o Ongoing indexing could result in benefit reductions greater than
needed to achieve sustainable solvency
o If applied across the board, would be a type of proportional reduction
o Results in gradually and perpetually declining replacement rates; that
is, benefits would replace smaller and smaller percentage of
pre-retirement earnings
o In effect, fixes benefit levels relative to the standard of living of
a particular year (e.g., 2005)7
o Effect may be smaller on disabled and young survivor beneficiaries,
given shorter work histories
o Could be applied differently according to earnings level to minimize
adequacy effects (e.g. progressive indexing)
o Could be implemented with changes to existing benefit formula, using
existing administrative framework8
o Disability applications might increase because annual formula
reductions create incentive to qualify for benefits in earliest possible
year
o Indexing formula to longevity o Small to moderate o A type of
proportional o Could be reduction in actuarial reduction implemented
with deficit, depending on o Benefits would replace proportional
specifics smaller and smaller reduction to
percentage of pre-formula factors, retirement earnings using existing
administrative
o To avoid unintended framework9 benefit effects, disability
o Disability
7When wages grow faster than prices, workers can afford to consume more
goods and services, their purchasing power increases, and the standard of
living improves. Historically, wages have grown faster than prices, on
average. Since Social Security's current benefit formula is indexed to
wages, increases in initial benefits keep pace with improvements in the
standard of living. Indexing benefits to prices instead of wages would
make the purchasing power of benefits remain constant even if wage growth
were improving purchasing power for the rest of society.
8In its scorings, SSA/OCACT implements this provision using changes to the
PIA benefit formula.
9In its scorings, SSA/OCACT implements this provision using a proportional
reduction to the benefit formula factors.
Balancing adequacy and Implementation and Additional Options Sustainable
solvency equity administration considerations
and survivor benefits applications might might require other increase
because changes annual formula
reductions create incentive to qualify for benefits in earliest possible
year
o Increasing benefit computation o Relatively small o period, e.g.,
from 35 to 38 or reduction in actuarial 40 years. deficit
o
o
o
Would parallel existing o Relies on existing increase in Full
administrative Retirement Age framework
Might create additional incentive to work longer
Increase to 38 years would reduce benefits by roughly 3%-6% depending on
earnings pattern
Largest reductions for those groups more likely to have intermittent work
histories, e.g., women with children
o Increasing benefits for o Very small increase in o Enhances
benefit o Relies on existing widow(er)s, e.g., pay 75% of actuarial
deficit adequacy for widows administrative couples' benefit framework
o Enhancing benefits for lower o Small increase in o income workers,
e.g., actuarial deficit, minimum benefit amounts as depending on
percentage of poverty for proposal o qualifying workers
o
Enhances benefit adequacy for low-wage full-career workers
Qualifications for years of work could be scaled for workers who become
disabled or die before retirement.
Proposals so far generally do not provide enhanced benefit for
o Proposed provisions have involved fairly complicated formulas those
groups more likely to have intermittent work histories, e.g., women with
children
o Increasing actuarial o On balance, small o Currently, earnings
after o Relies on existing o Would increase adjustment factors for
early or reduction in actuarial retirement have small administrative
incentives to work delayed retirement deficit effect on benefit framework
longer, which
o Increasing delayed amounts could help reduce
retirement credit o Increasing reductions overall fiscal would slightly
for early retirement may pressures on increase actuarial affect adequacy
federal budget deficit
Balancing adequacy and Implementation and Additional Options Sustainable
solvency equity administration considerations
o Modifying annual cost-of-living o Moderate to large o Would have
increasing o Relies on existing o Adjustment could adjustments (COLAs)
to reduction in actuarial cumulative effect over administrative more
accurately benefits, e.g., reducing by 0.5 deficit additional years
benefits framework reflect inflation or 1.0 percentage points are received
o Greatest potential adverse effect on oldest, disabled, and survivors,
who are at higher risk of poverty
o Increasing full retirement age, o Depending on e.g., eliminating
hiatus in provision, small to current increase, increase to moderate
reduction in age 68 or 70 actuarial deficit
o Largely the same, in effect, as proportional benefit reduction,
especially if early retirement age remains at 62
o Workers in certain occupations (e.g., construction) may not be able to
work longer
o Relies on existing administrative framework
o Increasing full retirement age could increase disability applications
o Would reflect increasing longevity, which is a contributor to
insolvency
o Raises question of whether to also increase early retirement age (now
62), which would encourage individuals to work longer and have to take
benefit reductions, though other program changes could address this
concern
Changing revenues o May have adverse o Distributional effects labor
supply and depend on approach to growth effects, increase depending on
amount and design
o Choosing increases to payroll tax revenues instead of benefit
reductions implies a societal choice that workers will have less income
during working years and more during retirement
o Raising payroll tax revenues
o Increasing payroll tax rate o Effect on actuarial o The sooner it
applies, o Relies on existing deficit depends on the greater the
administrative size of increase intergenerational equity, framework
o Increase of 1.92 since earlier birth percentage points groups enjoy
higher would achieve implicit returns
75-year solvency, but o Would help avoid 76th year would lead benefit
reductions
10The payroll tax is regressive due to the cap on taxable earnings even
though the tax rate is itself proportional.
Balancing adequacy and Implementation and Additional Options Sustainable
solvency equity administration considerations
back to an actuarial o - Regressive nature of
deficit tax10 falls more heavily on low wage workers and their employers
o Raising cap on taxable o Effects range from earnings (with or
without small to more than retaining cap for benefit eliminating actuarial
calculation) deficit
o If higher earnings would also be used in benefit computations, would
also increase long-term benefit payouts, but at lowest replacement rate
(15 percent)
o Increase could make percentage of earnings covered more comparable to
historical levels
o Diminishes equity because earnings above the cap are replaced at lower
rate than lower earnings levels
o Burden falls on those 6 percent of covered workers with earnings above
present cap, especially those who are self-employed or small business
owners, who effectively pay both employer and employee share.
o Relies on existing o Would increase administrative incentives for
framework higher earners to structure more of their compensation as
nonwage income, (e.g., other benefits, stock options)
o Expanding coverage to all state and local government workers
o Small reduction in actuarial deficit
o Would also increase long-term benefit levels as newly covered earnings
would entitle affected workers to associated benefits
o Would improve equity in the sense that all workers would be treated
the same
o Social Security may offer employees additional protections compared
with their current benefit packages, depending on how those packages
change
o Would simplify administration and, in long run, address equity
concerns arising from GPO and WEP11
o Affected state and local governments and employees would need time to
adjust and to implement complementary changes
o May impose additional costs on state and local governments
11The Government Pension Offset (GPO) and the Windfall Elimination
Provision (WEP) are existing Social Security provisions that reduce Social
Security benefits for those who also receive pensions from employment that
is not covered by Social Security. Noncovered workers do not pay Social
Security taxes on their noncovered earnings. These provisions are intended
to treat such beneficiaries in a manner that parallels treatment of
beneficiaries who paid Social Security taxes on all their lifetime
earnings. See GAO, Social Security: Issues Relating to Noncoverage of
Public Employees. GAO-03-710T. Washington, D.C.: May 1, 2003.
Balancing adequacy and Implementation and Additional Options Sustainable
solvency equity administration considerations
o Other revenue options
o Tapping other revenue o Effect on actuarial sources, e.g., general
fund balance depends transfers, dedicated revenue upon the size and use
sources of transfers
o General fund transfers raise government's need for cash, which must be
raised with spending cuts, tax increases or borrowing from the public.
o Would compete with other programs or tax reductions in the general
budget
o Could worsen longrange fiscal imbalance
o Could change equity of program significantly but in ways that are hard
to quantify
o Given current and projected budget deficits, transfers likely to
result in additional tax burdens in future years
o Difficult to determine who bears burden of transfers
o Dilutes principle that program is self-financed, which
- imposes discipline that benefits cannot expand beyond what dedicated
revenues can pay for
- since benefits are "paid for," avoids stigma that they are welfare
o Introduction of general fund transfers could lead to incremental
enhancement of benefits
o Could increase political risk of future benefit reductions
Change taxation of Small Would parallel Administration
o Social o reduction o treatment o may
in
Security benefits, actuarial of other be manageable
e.g., tax deficit retirement
them in a manner income with phase-in
similar to
private pension Given other
income, that is, tax existing tax
benefits that exceed o provisions,
contributions roughly a third of
Social Security
beneficiaries
would still
not pay income tax
on
their benefits
o Increasing investment returns, o Potential effect o Increasing
returns o Administration is o Could be done either by government
investing depends on size of improves equity likely manageable, either by
trust or through individual accounts trust funds, extent of o Effect on
adequacy depending on funds or through
advanced funding, depends on how risk is approach individual
portfolio, and fees distributed accounts
o Investing trust fund o Trust fund surplus would investment raises
increase government concern about role borrowing needs and of government
in debt held by the investment public markets, though
some approaches
may mitigate that
Balancing adequacy and Implementation and Additional Options Sustainable
solvency equity administration considerations
concern
Changing the program structure with individual accounts
o Would not achieve solvency unless coupled with other changes
o Would move system toward more advance funding
o Effect on national saving depends on a variety of factors, including
how the accounts are funded; increases in personal saving may be offset by
increases in government or personal borrowing or reductions in other
personal savings
o Would generally improve equity
o With higher returns, might help make up for benefit reductions used to
achieve solvency
o Shifts system from social insurance to individual responsibility for
saving
o Shifts program from an exclusively definedbenefit structure
o Redistributes risk
o If market returns are poor, would raise adequacy risks
o By adding new system, involves more complexity and cost, including
services for
- collection of deposits
- account administration
- investment management
- distribution in retirement
- educational efforts
relating to all phases
o Posting contributions to individuals' accounts in real time might be
expected but much more difficult than current record keeping
o Depending on approach, government, employers, financial institutions,
and individuals could play various roles in contribution, accumulation,
and distribution phases
o Could provide additional saving vehicle for those without a pension
o Contribution phase
A voluntary Raise question Give greater
o approach would (in of o choice o Require greater
o
comparison to a whether level of
mandatory incentives educational
one) are desired effort
o Possibly pose o Require additional
adverse administrative
selection
issues complexity and
cost
o Account contribution rate o Contribution rates o Size of
can
be proportional or contribution rate
progressive determines
relative role of DC
vs. DB portion of
program
Balancing adequacy and Implementation and Additional Options Sustainable
solvency equity administration considerations
o Add-on vs. carve-out12 o Carve-outs pose transition costs, which are
typically financed with general revenue transfers (see above)
o Either option, if using general revenues, would raise government's
need for cash, and without compensating elements, compound fiscal
challenges
o Carve-outs divert o Add-ons or carverevenues from current outs could
build on system, involve existing IRA, commensurate offsets 401(k),
403(b), 457, to Social Security Thrift Savings Plan, defined benefit,
while and other defined offering ownership of contribution new account
systems
o Carve-outs require additional, potentially complicated, calculations
for benefit offsets
o Accumulation phase
o Investment options o For workers who become disabled or die, less
time to accumulate compound earnings; also, some proposals limit their
access to accounts before retirement age
o Limiting investment alternatives may minimize administrative costs,
promote diversification (by limiting ability to concentrate), and simplify
individual decision making while also reducing individual choice and
control
12In GAO's work to date, we have used the term "add-on" accounts to refer
to accounts that would have no effect on Social Security benefits, would
supplement those benefits, and would draw contributions from new revenue
streams. In contrast, we have used the term "carve-out" accounts to refer
to accounts that would result in some reduction or offset to Social
Security benefits because contributions to those accounts would draw on
existing Social Security revenues. Others have used these terms in
different manners. For example, some have used "add-ons" in connection
with new individual accounts funded from new revenue sources that result
in a reduction or offset to some or all Social Security benefits. In the
final analysis, there are two key dimensions: first, whether individual
accounts are funded from existing or new revenue sources; second, whether
individual accounts result in some reduction or offset to Social Security
benefits.
Balancing adequacy and Implementation and Additional Options Sustainable
solvency equity administration considerations
o Distribution phase
o Draw down alternatives, e.g., o Increased annuities vs. phased
government role in withdrawal annuitization or other distributions could
potentially affect its cash position
o Mandatory annuity effectively transfers income from the shorter-lived
to the longer-lived
o Mandatory annuity might be limited to amount necessary to avoid
poverty
o For workers who become disabled, if allowed access to accounts before
retirement, may need to stretch assets over more years
o Concern is preserving assets to meet adequacy needs for rest-of-life
and avoid leakages
o Mandatory annuitization could minimize adverse selection 13
o Phased withdrawal could mirror minimum distribution requirements for
IRAs while adding maximum distributions
o Would require new rules to handle cases of survivors, divorced
beneficiaries, and other situations
o Annuities involve risk shifting to insurers with an associated cost
o Guarantees o Could create risk to o Help ensure provision of o
Offer incentive to taxpayers through specified benefit level participate
contingent liability and moral hazard issues 14
o Pre-retirement o Risks leakage that o Would involve o Greater
access incentive
diminishes adequacy additional to
in participate
retirement administrative
o Enhances individual services
sense of ownership
and
control
o Administration
o Centralized vs. decentralized o Decentralized offers o Centralized
would greater choice and be much less costly control to individuals
Source: GAO.
13Adverse selection occurs, for example, when only healthy people buy
annuities and on average live longer than nonbuyers, driving up the cost
of annuities.
14Moral hazard would occur if account holders faced an incentive to take
more investment risk than they would otherwise as a result of having
guarantee to fall back on.
Proposals That Include the Various Options Listed in Table 1
The following proposals include one or more of the options listed in table
1. All of these proposals have been scored by the Social Security
Administration's Office of the Chief Actuary:15
o Ball
o Commission to Strengthen Social Security (CSSS)
o DeFazio
o DeMint
o Diamond-Orszag
o Ferrara
o Graham
o Hagel
o Johnson
o Kolbe-Stenholm
o Pozen
o Ryan-Sununu
o Shaw
o Smith
In addition, many of the options listed in table 1 appear in the proposals
of the 1994-1996 Advisory Council on Social Security, the Center for
Strategic and International Studies, and the Committee for Economic
Development. Also, the Social Security Advisory Board recently asked the
Social Security actuaries to score a number of provisions, all of which
are included in the list in table 1.
15These actuarial scorings can be found at
http://www.ssa.gov/OACT/solvency/index.html.
Related GAO Products
Social Security Reform: Early Action Would Be Prudent. GAO-05-397T.
Washington, D.C.: March 9, 2005.
Social Security: Distribution of Benefits and Taxes Relative to Earnings
Level. GAO-04-747. Washington, D.C.: June 15, 2004.
Social Security Reform: Analysis of a Trust Fund Exhaustion Scenario.
GAO-03-907. Washington, D.C.: July 29, 2003.
Social Security: Issues Relating to Noncoverage of Public Employees.
GAO-03-710T. Washington, D.C.: May 1, 2003.
Social Security and Minorities: Earnings, Disability Incidence, and
Mortality Are Key Factors That Influence Taxes Paid and Benefits Received.
GAO-03-387. Washington, D.C.: April 23, 2003.
Social Security Reform: Analysis of Reform Models Developed by the
President's Commission to Strengthen Social Security. GAO-03-310.
Washington, D.C.: January 15, 2003.
Social Security Reform: Information on Using a Voluntary Approach to
Individual Accounts. GAO-03-309. Washington, D.C.: March 10, 2003.
Social Security: Program's Role in Helping Ensure Income Adequacy.
GAO-02-62. Washington, D.C.: November 30, 2001.
Social Security Reform: Potential Effects on SSA's Disability Programs and
Beneficiaries. GAO-01-35. Washington, D.C.: January 24, 2001.
Social Security Reform: Information on the Archer-Shaw Proposal.
GAO/AIMD/HEHS-00-56. Washington, D.C.: January 18, 2000.
Social Security: Evaluating Reform Proposals. GAO/AIMD/HEHS-00-29.
Washington, D.C.: November 4, 1999.
Social Security Reform: Implications of Raising the Retirement Age.
GAO/HEHS-99-112. Washington, D.C.: August 27, 1999.
Social Security: Issues in Comparing Rates of Return With Market
Investments. GAO/HEHS-99-110. Washington, D.C.: August 5, 1999.
Social Security: Criteria for Evaluating Social Security Reform Proposals.
GAO/T-HEHS-99-94. Washington, D.C.: March 25, 1999.
Related GAO Products
Social Security: Implications of Extending Mandatory Coverage to State and
Local Employees. GAO/HEHS-98-196. Washington, D.C.: August 18, 1998.
Social Security: Different Approaches for Addressing Program Solvency.
GAO/HEHS-98-33. Washington, D.C.: July 22, 1998.
Social Security Financing: Implications of Government Stock Investing for
the Trust Fund, the Federal Budget, and the Economy. GAO/AIMD/HEHS-98-74.
Washington, D.C.: April 22, 1998.
Social Security: Restoring Long-Term Solvency Will Require Difficult
Choices. GAO/T-HEHS-98-95. Washington, D.C.: February 10, 1998.
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