Social Security: Providing Useful Information to the Public (Testimony,
04/11/2000, GAO/T-HEHS-00-101).

Pursuant to a congressional request, GAO discussed information the
public should have about Social Security and strategies for providing
that information, focusing on: (1) basic information about program
benefits; (2) the current and projected financial status of the Social
Security program; and (3) proposed changes to the program.

GAO noted that: (1) the individualized Social Security Statement plays a
specific and important role in providing some, but not all, of the
information the public needs; (2) individuals should have clear and easy
to understand information about what benefits they can reasonably expect
to receive; (3) this is the specific and primary purpose of the Social
Security Statement, which is now sent annually to nearly all working
participants; (4) in addition, the statement helps individuals and the
Social Security Administration (SSA) ensure that individual earnings
records are accurate, which in turn is crucial to providing accurate
benefit payments; (5) SSA has recently revised this statement so that it
more effectively conveys this important information; (6) the public
should understand the current and projected financial status of the
Social Security program; (7) the Social Security Statement now contains
a brief disclosure about this, but technical and detailed information
about it is more appropriately conveyed through other vehicles, such as
the annual Trustees' Report and the federal government's consolidated
financial statements; (8) the public should have information to help it
evaluate different proposals to restore solvency and make other program
changes; (9) however, such information is complex and must be presented
in a fair, consistent, and comprehensive way that helps the public weigh
and balance the various difficult choices that must be made; (10) this
type of information goes beyond estimating benefits and verifying
earnings, which is the Social Security Statement's central purpose; (11)
given the difficulties SSA has had in making just this information clear
in the statement, adding information on reform proposals would likely
make the statement lengthy, more complex, and even more difficult to
understand; and (12) doing so could undermine the basic purpose of the
statement.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-HEHS-00-101
     TITLE:  Social Security: Providing Useful Information to the
	     Public
      DATE:  04/11/2000
   SUBJECT:  Future budget projections
	     Social security benefits
	     Public relations
	     Financial management
	     Federal social security programs
	     Retirement benefits
	     Financial analysis
	     Reporting requirements
IDENTIFIER:  Social Security Program
	     SSA Individualized Social Security Statement

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   * For Release on Delivery
     Expected at 3:00 p.m.

Tuesday, April 11, 2000

GAO/T-HEHS-00-101

SOCIAL SECURITY

Providing Useful Information to the Public

        Statement of Barbara D. Bovbjerg, Associate Director

Education, Workforce, and Income Security Issues

Health, Education, and Human Services Division

Testimony

Before the Subcommittee on Social Security, Committee on Ways and Means,
House of Representatives

United States General Accounting Office

GAO

Social Security: Providing Useful Information to the Public

Mr. Chairman and Members of the Subcommittee:

Thank you for inviting me here today to discuss information the public
should have about Social Security and strategies for providing that
information. Social Security touches the lives of virtually all our nation's
citizens. Last year, it paid $386 billion in benefits to over 44 million
beneficiaries, including aged and disabled workers and their dependents and
survivors. Ninety percent of elderly households received Social Security
benefits, and 17 percent of such households received no income other than
Social Security. Moreover, Social Security collected $460 billion in payroll
taxes from over 150 million workers, or 96 percent of the nation's
workforce. Currently, 12.4 percent of workers' covered earnings are paid in
payroll taxes, divided equally between workers and their employers. Clearly,
to help in their personal financial planning, our citizens should know where
their Social Security payroll taxes go and what benefits they can expect to
receive. In addition, Social Security faces a significant long-term
financing shortfall because of the aging of our population and other
demographic and economic trends. The public should also have the information
it needs to participate in the debate about Social Security's future.

Today I would like to discuss the three broad types of information the
public should have about the Social Security program-basic information about
program benefits, the current and projected financial status of the Social
Security program, and information about proposed changes to the program. For
each type of information, I would like to focus on what role the
individualized Social Security Statement might play in providing it. My
testimony is based on work we have done over the past few years and an
assessment of the most recent statement.

In summary, the individualized Social Security Statement currently plays a
specific and important role in providing some, but not all, of the
information the public needs. First, individuals should have clear and easy
to understand information about what benefits they can reasonably expect to
receive. This is the specific and primary purpose of the Social Security
Statement, which is now sent annually to nearly all working participants. In
addition, the statement helps individuals and the Social Security
Administration (SSA) ensure that individual earnings records are accurate,
which in turn is crucial to providing accurate benefit payments. SSA has
recently revised this statement so that it more effectively conveys this
important information. Second, the public should understand the current and
projected financial status of the Social Security program. The Social
Security Statement now contains a brief disclosure about this, but technical
and detailed information about it is more appropriately conveyed through
other vehicles, such as the annual Trustees' Report and the federal
government's consolidated financial statements. Third, the public should
have information to help it evaluate different proposals to restore solvency
and make other program changes. However, such information is complex and
must be presented in a fair, consistent, and comprehensive way that helps
the public weigh and balance the various difficult choices that must be
made. This type of information goes beyond estimating benefits and verifying
earnings, which is the Social Security Statement's central purpose. Given
the difficulties SSA has had in making just this information clear in the
statement, adding information on reform proposals would likely make the
statement lengthy, more complex, and even more difficult to understand.
Doing so could undermine the basic purpose of the statement.

Background

Restoring Social Security's long-term solvency will require some combination
of increased revenues and reduced expenditures. Various options are
available within the current structure of the program including raising the
retirement age, reducing inflation adjustments, increasing payroll tax
rates, and investing trust fund reserves in higher-yielding securities. In
addition, some proposals would go beyond restoring long-term solvency and
would fundamentally alter the program structure by setting up individual
retirement savings accounts and requiring workers to contribute to them.

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

Individuals need basic information on the Social Security program for their
personal financial planning. This information includes what benefits workers
can expect for themselves, their dependents, and their survivors when they
retire, become disabled, or die. In addition, workers should understand that
their benefits depend on their average lifetime earnings. Finally, they
should also understand that Social Security is meant to be only a foundation
of retirement income. Social Security does not guarantee a benefit that
meets the poverty threshold. Therefore, if workers know what benefit levels
they can expect given their earnings history so far, they can better
understand how much to save to meet their retirement income goals.

SSA's individualized Social Security Statement is one of the key vehicles
for providing the public with this basic information about Social Security.
It provides workers with an important tool for personal financial planning
because it provides estimates of potential retirement, disability, and
survivor benefits. It also asks statement recipients to check SSA's records
of their past earnings. In this way, the statement can help SSA correct
errors in agency records and help ensure that benefit payments are correct
when workers retire, become disabled, or die. It also explains that Social
Security benefits were not intended to be the only source of retirement
income and encourages workers to supplement their benefits with a pension,
savings, or investments. This statement reaches a very wide audience;
starting in this fiscal year, SSA is sending the individualized Social
Security Statement annually to almost every U.S. worker aged 25 and older-an
estimated 126 million people each year. (The statement can be found on SSA's
website at HYPERLINK http://www.ssa.gov http://www.ssa.gov, where workers
can also request personalized statements.)

Because it reaches such a wide audience and is the only direct communication
many workers will have with SSA until they retire or become disabled, the
statement must communicate simply and clearly. It has not always done this.
SSA offered benefit statements to some workers long before this fiscal year,
and we reviewed the agency's 1996 version. At that time, we raised concerns
about its usefulness. We reported that although the public felt the
statement could be a valuable tool for retirement planning, the statement
provided too much information and failed to communicate clearly the
information its readers needed to understand SSA's current programs and
benefits. We found that the six-page statement was too long for many
readers, the purpose was unclear, and the design and organization were not
user-friendly. The statement was disorganized-it contained a patchwork of
explanations scattered throughout, requiring the reader to flip from one
page to another to find needed information. Finally, feedback from the
public and SSA staff indicated that readers were confused by several
important explanations, such as those describing family benefits and credits
needed to be eligible for benefits. We recommended that SSA revise the 1996
version of the statement to improve its layout and design and to simplify
explanations. We also recommended that SSA evaluate and test alternative
formats for the statement.

Consistent with our recommendations, SSA embarked on a multi-year effort to
revise its statement. The agency developed four different prototypes and
conducted focus groups to assess layout and presentation preferences and how
well the material presented was understood. SSA then conducted a public
opinion survey of the four prototypes. Based on this information, SSA chose
for its fiscal year 2000 mailing a new four-page layout.

We believe this new statement is much improved. It is shorter, better
organized, easier to read, employs good design principles, and in a number
of cases, provides simpler explanations. The revised statement more
effectively achieves its intended purpose of providing important basic
information on the Social Security program as well as individualized
information on earnings on record at SSA and estimated benefits. In fact,
SSA reports that in a recent survey to measure public understanding of its
programs, workers who received the statement have a significantly greater
knowledge of the Social Security program than those who did not receive a
statement.

Naturally, further improvement is always possible. Working with our
communications consultants, we have identified some remaining rough spots.
These include:

   * Clarity of purpose: We believe that SSA could more clearly and quickly
     spell out the statement's purpose and inform readers that the agency
     wants them to take some action-that is, check their earnings as listed
     on the statement and inform SSA of missing or incorrect information.
   * Explaining inflation-adjustment of benefit estimates: The statement
     explains that the estimates are provided in "current dollars." However,
     readers may not understand what this means for their financial
     planning. It means that the estimates reflect today's price level, not
     the price level that will exist when they actually start to receive
     benefits.
   * Some explanations still unclear: Other explanations, such as the one
     regarding the credits required for benefit eligibility may still leave
     the reader confused. Also, the revised statement no longer cautions
     recipients that the estimates are based on their own individual
     earnings records and may also depend on their spouses' earnings if they
     have spouses.

SSA's programs are complex, and it is challenging to explain them in simple,
straightforward language without providing so much information that it
overwhelms the reader. SSA will need to continue to revise and streamline
the statement to make it more clear and easy to understand.

Public Should Have Information on Social Security's Current and Projected
Financial Status

Some recent proposals to provide information to the public call for the
Social Security Statement to more fully disclose Social Security's long-term
financial outlook, the status of the trust funds over time, and the effect
on SSA's ability to pay future benefits in the absence of changes to the
program. In its most recent version of the statement, SSA has added
information on this topic. On the first page, as part of the message from
the Commissioner, the statement now provides basic information on the
demographic reasons for the financing problems and on the future status of
the trust funds, including the date that the trust funds will be exhausted.
On the page where the benefit estimates are provided, the statement explains
that when this date arrives, absent a change in the law, payroll taxes
collected will be enough to pay only a portion of the benefits owed.

However, according to our communications experts, the information is
somewhat confusing and contradictory, though it could be fixed. The
Commissioner's message first reassures readers that "of course" Social
Security will "be there" when they retire and then provides the information
about the future financing problems and the resulting percentage reduction
in benefits. The statement explains that SSA is "working to resolve these
issues" and offers a booklet with more information upon request. Overall,
the explanation may leave readers wondering how SSA can be sure the program
will be there to pay the benefits they are expecting in the future. The
status of the trust funds and the need for change can be clarified with
minor adjustments in wording. However, the statement does not need to go
into excessive or technical detail; not every reader of the statement will
need or be interested in this additional detail. If statement recipients
want more information, they can request the booklet listed in the statement.
This booklet, which is written in simple, straightforward terms for a wide
audience, provides additional information on the reasons for the financing
shortfall and the difficult choices needed to ensure long-term program
stability.

More technical and detailed information on the status of the trust funds is
available, however, in a number of vehicles that are used extensively and
studied by a more narrow audience of experts and specialists. These include
the annual Trustees' Report and the annual Financial Report of the United
States Government. To be most effective and useful to the broadest audience,
the information in these reports needs to be reliable, consistent,
accessible, timely, verifiable, and complete. We have recently noted a
problem related to their timing and consistency. The Financial Report uses
data from the previous year's Trustees' Report although a new Trustees'
report with sometimes significantly different numbers is issued at nearly
the same time. The discrepancies between the two reports may cause
confusion, which can serve to reduce confidence in and the credibility of
the government's annual financial report. Steps should be taken in future
years to ensure that the government's Financial Report contains up-to-date
information. In addition, given the importance and materiality of this
information, the Comptroller General has stated that the time may have come
for this information to be subject to audit.

In addition, information on the magnitude of the trust funds' financial gap
should focus not only on the next 75 years but also beyond that to help
focus on sustainability. The conventional 75-year measure of solvency is
highly transient because the 75-year period changes by one year in each
successive year's projections. Currently, the years early in the 75-year
period have surpluses while the years at the end of the period have large
deficits. As a result, changes made to restore solvency only for the current
75-year period will result in future actuarial imbalances almost
immediately. Therefore, in addition to examining the 75-year actuarial
balance, examining Social Security's percentage of the federal budget, the
size of the imbalance in the 75th year, and the trend in the annual balance
at that time would help focus attention on the issue of sustainability.

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

Some participants in the reform debate focus especially on individual equity
and on one particular measure of equity-the implicit rate of return workers
can expect on their Social Security contributions. Accordingly, some recent
proposals call for the Social Security Statement to include estimates of the
implicit rate of return. However, substantial controversy surrounds applying
the concept of rates of return to Social Security. Some analysts argue that
rates of return on contributions would be much higher under a new system
with individual accounts, and they would like the public to compare its
return on Social Security to returns available on market investments. Other
analysts contend that the rate of return concept should not be applied to
Social Security because it is a social insurance program and is not designed
to provide returns on contributions.

In our work on this topic, we have observed that rate of return estimates
are inherently very uncertain, especially for specific individuals, because
of the many complex factors that affect rates of return. Such factors
include how long individuals will live, how much they will earn, and what
size families they will have. To be clearly understood, Social Security rate
of return estimates need an explanation of how they are calculated and how
uncertain the estimates are. Also, instead of making simple comparisons
between Social Security and historical market returns, one should make any
rate of return comparisons among comprehensive return estimates for specific
reform proposals that include all costs and benefits of any individual
accounts as well as the Social Security components of the resulting system.
In addition, such estimates would not help individuals plan their personal
finances because, under current law, they do not have the choice of putting
their contributions into alternative investments. Moreover, providing
estimates of the implicit rate of return on Social Security contributions
could mislead readers to think they have an interest-bearing account under
the program, which they do not. Adding rates of return to the Social
Security Statement-or for that matter any information that is not directly
relevant to the statement's purpose-would make the statement longer and more
complex and could undermine its important and specific purpose of providing
benefit estimates and verifying earnings records.

Concluding Observations

GAO Contact and Staff Acknowledgments

Related GAO Products

Auditing the Nation's Finances: Fiscal Year 1999 Results Continue to
Highlight Major Issues Needing Resolution (GAO/T-AIMD-00-137, Mar. 31,
2000).

Social Security Reform: Information on the Archer-Shaw Proposal
(GAO/AIMD/HEHS-00-56, Jan. 18, 2000).

Social Security: The President's Proposal (GAO/T-HEHS/AIMD-00-43,
Nov. 9, 1999).

Social Security: Evaluating Reform Proposals (GAO/AIMD/HEHS-00-29,
Nov. 4, 1999).

Social Security Reform: Implications of Raising the Retirement Age
(GAO/HEHS-99-112, Aug. 27, 1999).

Social Security: Issues in Comparing Rates of Return With Market Investments
(GAO/HEHS-99-110, Aug. 5, 1999).

Social Security: Implications of Private Annuities for Individual Accounts
(GAO/HEHS-99-160, July 30, 1999).

Social Security: Capital Markets and Educational Issues Associated with
Individual Accounts (GAO/GGD-99-115, June 28, 1999).

Social Security Reform: Administrative Costs for Individual Accounts Depend
on System Design (GAO/HEHS-99-131, June 18, 1999).

Social Security Reform: Implementation Issues for Individual Accounts
(GAO/HEHS-99-122, June 18, 1999).

Social Security: Criteria for Evaluating Social Security Reform Proposals
(GAO/T-HEHS-99-94, Mar. 25, 1999).

Social Security: Individual Accounts as an Element of Long-Term Financing
Reform (GAO/T-HEHS-99-86, Mar. 16, 1999).

SSA Benefit Estimate Statements: Adding Rate of Return Information May Not
Be Appropriate (GAO/HEHS-98-228, Sept. 2, 1998).

Social Security: Different Approaches for Addressing Program Solvency
(GAO/HEHS-98-33, July 22, 1998).

Social Security Financing: Implications of Government Stock Investing for
the Trust Fund, the Federal Budget, and the Economy (GAO/AIMD/HEHS-98-74,
Apr. 22, 1998).

Social Security: Restoring Long-Term Solvency Will Require Difficult Choices
(GAO/T-HEHS-98-95, Feb. 10, 1998).

SSA Benefit Statements: Well Received by the Public but Difficult to
Comprehend (GAO/HEHS-97-19, Dec. 5, 1996).

(207096)

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