Social Security Reform: Implications for the Financial Well-Being of
Women (Testimony, 04/10/97, GAO/T-HEHS-97-112).

GAO discussed the impacts of proposals to finance and restructure the
Social Security system, specifically the impacts on the financial
well-being of women.

GAO noted that: (1) its work shows that, despite the provisions of the
Social Security Act that do not differentiate between men and women,
women tend to receive lower benefits than men; (2) this is due primarily
to differences in lifetime earnings because women tend to have lower
wages and fewer years in the workforce; (3) women's experience under
pension plans also differs from men's not only because of earnings
differences but also because of differences in investment behavior and
longevity; (4) moreover, public and private pension plans do not offer
the same social insurance protections that Social Security does; (5)
furthermore, some of the provisions of the Social Security Advisory
Council's three proposals may exacerbate the differences in men and
women's benefits; (6) for example, proposals that call for individual
retirement accounts will pay benefits that are affected by investment
behavior and longevity; and (7) expected changes in women's labor force
participation rates and increasing earnings will reduce but probably not
eliminate these differences.

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

 REPORTNUM:  T-HEHS-97-112
     TITLE:  Social Security Reform: Implications for the Financial 
             Well-Being of Women
      DATE:  04/10/97
   SUBJECT:  Social security benefits
             Retirement benefits
             Women
             Elderly persons
             Widowed persons
             Retirement pensions
             Employee retirement plans
             Federal social security programs
IDENTIFIER:  Federal Thrift Savings Plan
             Social Security Program
             
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Cover
================================================================ COVER


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

For Release on Delivery
Expected at 10:00 a.m.
Thursday, April 10, 1997

SOCIAL SECURITY REFORM -
IMPLICATIONS FOR THE FINANCIAL
WELL-BEING OF WOMEN

Statement of Jane L.  Ross, Director
Income Security Issues
Health, Education, and Human Services Division

GAO/T-HEHS-97-112

GAO/HEHS-97-112T


(207004)


Abbreviations
=============================================================== ABBREV

  AIME - average indexed monthly earnings
  IA - Individual Accounts
  MB - Maintain Benefits
  NRA - normal retirement age
  PSA - Personal Security Accounts

SOCIAL SECURITY REFORM: 
IMPLICATIONS FOR THE FINANCIAL
WELL-BEING OF WOMEN
============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

I am pleased to be here to discuss the impacts of proposals to
finance and restructure the Social Security system, specifically the
impacts on the financial well-being of women.  As you know, the
Social Security trust funds are predicted to pay out more in annual
benefits than they collect in taxes beginning in 2012 and are
expected to be depleted by 2029.  Recently, the Social Security
Advisory Council offered three alternative reform proposals to
address this long-term financing problem.  Each of the alternative
proposals also affects the financial well-being of beneficiaries,
especially women.  One reason to be especially concerned about the
financial well-being of women is that elderly unmarried women are
much more likely to be living below the poverty line.  For example,
22 percent of unmarried elderly women have income below the poverty
threshold, compared with 15 percent of unmarried elderly men and only
5 percent of elderly married couples. 

Today, I would like to discuss how and why the benefits for women
differ from those for men under the current Social Security system
and how each of the three reform proposals of the Social Security
Advisory Council might particularly affect women.  The information I
am providing today is based on previous GAO work and contains
preliminary findings from a report being prepared at the request of
the Ranking Minority Member of the Subcommittee.\1

In summary, our work shows that, although the provisions of the
Social Security Act do not differentiate between men and women, women
tend to receive lower benefits than men.  This is due primarily to
differences in lifetime earnings because women tend to have lower
wages and fewer years in the workforce.  Women's experience under
pension plans differs from men's not only because of earnings
differences but also because of differences in investment behavior
and longevity.  Moreover, public and private pension plans do not
offer the same social insurance protections that Social Security
does. 

Furthermore, some of the provisions of the Social Security Advisory
Council's three proposals may exacerbate the differences in men and
women's benefits.  For example, proposals that call for individual
retirement accounts will pay benefits that are affected by investment
behavior and longevity.  Expected changes in women's labor force
participation rates and increasing earnings will reduce but probably
not eliminate these differences. 


--------------------
\1 Pension Plans:  Survivor Benefit Coverage for Wives Increased
After 1984 Pension Law (GAO/HRD-92-49, Feb.  28, 1992); Social
Security:  Issues Involving Benefit Equity for Working Women
(GAO/HEHS-96-55, Apr.  10, 1996); and 401(k) Pension Plans:  Many
Take Advantage of Opportunity to Ensure Adequate Retirement Income
(GAO/HEHS-96-176, Aug.  2, 1996). 


   DEMOGRAPHIC CHARACTERISTICS AND
   LABOR MARKET ATTACHMENT AFFECT
   RETIREMENT INCOME FOR MEN AND
   WOMEN DIFFERENTLY
---------------------------------------------------------- Chapter 0:1

Over their lifetimes, men and women differ in many ways that have
consequences for how much they will receive from Social Security and
pensions.  Women make up about 60 percent of the elderly population
and less than half of the Social Security beneficiaries who are
receiving retired worker benefits, but they account for 99 percent of
those beneficiaries who receive spouse or survivor benefits.  A
little less than half of working women between the ages of 18 and 64
are covered by a pension plan, while slightly over half of working
men are covered.  The differences between men and women in pension
coverage are magnified for those workers nearing retirement age--over
70 percent of men are covered compared with about 60 percent of
women. 


      LABOR FORCE PARTICIPATION
      AND EARNINGS DIFFER FOR MEN
      AND WOMEN
-------------------------------------------------------- Chapter 0:1.1

Labor force participation rates differ for men and women, with men
being more likely, at any point in time, to be employed or actively
seeking employment than women.\2 The gap in labor force participation
rates, however, has been narrowing over time as more women enter the
labor force, and the Bureau of Labor Statistics predicts it will
narrow further.  In 1948, for example, women's labor force
participation rate was about a third of that for men, but by 1996, it
was almost four-fifths of that for men.  The labor force
participation rate for the cohort of women currently nearing
retirement age (55 to 64 years of age) was 41 percent in 1967 when
they were 25 to 34 years of age.  The labor force participation rate
for women who are 25 to 34 years of age today is 75 percent--an
increase of over 30 percentage points. 

Earnings histories also affect retirement income, and women continue
to earn lower wages than men.  Some of this difference is due to
differences in the number of hours worked, since women are more
likely to work part-time and part-time workers earn lower wages. 
However, median earnings of women working year-round and full-time
are still only about 70 percent of men's.\3

The lower labor force participation of women leads to fewer years
with covered earnings\4 on which Social Security benefits are
based.\5 In 1993, the median number of years with covered earnings
for men reaching 62 was 36 but was only 25 for women.  Almost 60
percent of men had 35 years with covered earnings, compared with less
than 20 percent of women.  Lower annual earnings and fewer years with
covered earnings lead to women's receiving lower monthly retired
worker benefits from Social Security, since many years with low or
zero earnings are used in the calculation of Social Security
benefits.  On average, the retired worker benefits received by women
are about 75 percent of those received by men.  In many cases, a
woman's retired worker benefits are lower than the benefits she is
eligible to receive as the spouse or survivor of a retired worker.\6


--------------------
\2 The labor force participation rate is the proportion of the
population under consideration who are working or actively seeking
employment. 

\3 Even after accounting for differences in education, work effort,
age, and other characteristics that affect wages, women earn wages
that are about 15 to 20 percent lower than men's wages, on average. 

\4 Years of covered earnings are the years in which the individual
received earnings on which Social Security taxes were paid. 

\5 Social Security benefits are based on the 35 years of highest
covered earnings. 

\6 GAO/HEHS-96-55, Apr.  10, 1996. 


      LIFE EXPECTANCIES DIFFER FOR
      MEN AND WOMEN
-------------------------------------------------------- Chapter 0:1.2

Women tend to live longer than men and thus may spend many of their
later retirement years alone.  A woman who is 65 years old can expect
to live an additional 19 years (to 84 years of age), and a man of 65
can expect to live an additional 15 years (to 80 years of age).  By
2070, the Social Security Administration projects that a 65-year-old
woman will be able to expect to live another 22 years, and a
65-year-old-man, another 18 years.  Additionally, husbands tend to be
older than their wives and so are likely to die sooner.  Differences
in longevity do not currently affect the receipt of monthly Social
Security benefits but can affect income from pensions if annuities
are purchased individually. 


      WOMEN INVEST MORE
      CONSERVATIVELY THAN MEN
-------------------------------------------------------- Chapter 0:1.3

Many pension plans give participants responsibility for managing the
investment of their pension assets, and differences in how men and
women invest can lead to differences in pension benefits they
receive.  When making financial decisions, women tend to be more risk
averse than men.  One consequence of this is that women tend to
invest more of their pension funds in safer but lower yielding
assets, such as government bonds.  The results of a recent study\7 of
the federal Thrift Savings Plan indicate that men are much more
likely to invest in the stock fund than are women.  The authors
estimated that, after 35 years of participation in the plan at
historical yields and identical contributions, the difference in
investment behavior between men and women can lead to men having a
pension portfolio that is 16 percent larger. 


--------------------
\7 Richard P.  Hinz, David D.  McCarthy, and John A.  Turner, "Are
Women Conservative Investors?  Gender Differences in Participant
Directed Pension Investments," in Positioning Pensions for the Year
2000, Olivia Mitchell, ed.  (Philadelphia:  University of
Pennsylvania Press, 1996). 


   PENSION PLAN PROVISIONS OFFER
   DIFFERENT BENEFITS FROM SOCIAL
   SECURITY
---------------------------------------------------------- Chapter 0:2

Social Security provisions and pension plan provisions differ in
several ways (see app.  I for a summary).  Under Social Security, the
basic benefit a worker receives who retires at the normal retirement
age (NRA)\8 is based on the 35 years with the highest covered
earnings.\9 The formula is progressive in that it guarantees that
higher-income workers receive higher benefits, while the benefits of
lower-income workers are a higher percentage of their preretirement
earnings.  The benefit is guaranteed for the life of the retired
worker and increases annually with the cost of living. 

Private pensions are different.  They can be classified into two
basic types:  defined benefit and defined contribution plans. 
Pension benefits in defined benefit plans are generally based on a
formula that includes years with the firm, age at retirement, and
salary averaged over some number of years.\10 Employers offering
defined contribution plans generally promise to make guaranteed
periodic contributions to workers' accounts, but the amount of
retirement benefits is not specified.  The benefits from defined
contribution plans depend on the contributions plus investment
returns or losses.  Today, defined contribution plans are the most
prevalent type of pension plan, and 401(k) plans are one of the
fastest growing defined contribution plan types.\11 Typically, at
retirement, workers receive a joint and survivor annuity that
provides pension benefits to the surviving spouse after the worker's
death, unless both the worker and spouse elect, in writing, not to
take the joint and survivor annuity.  In this instance, the retiring
worker may elect, along with the spouse, to take a single life
annuity or a lump-sum distribution if allowed under the plan. 

When workers retire, they are uncertain how long they will live and
how quickly the purchasing power of a fixed payment will deteriorate. 
They run the risk of outliving their assets.  Annuities provide
insurance against outliving assets.  Some annuities provide, though
at a higher cost or reduced initial benefit, insurance against
inflation risk, although annuity benefits often do not keep pace with
inflation.  Many pension plans are managed under a group annuity
contract with an insurance company that can provide lifetime
benefits.  Individual annuities, however, tend to be costly. 


--------------------
\8 Currently, the normal retirement age is 65 years.  It is set to
gradually increase to 67 for those born in 1960 or after.  The early
retirement age (the earliest age at which a worker qualifies for
Social Security retirement benefits) will remain at 62. 

\9 The calculation of a worker's basic benefit amount first involves
calculating average indexed monthly earnings (AIME) on the basis of
the 35 years of highest earnings.  For workers becoming eligible for
Social Security benefits in 1997, benefits are equal to 90 percent of
the first $455 of AIME, plus 32 percent of the AIME from $455 to
$2,741, plus 15 percent of the AIME in excess of $2,741.  The dollar
amounts in the formula are called the bend points, and the
percentages are called the conversion factors. 

\10 In defined benefit plans that are integrated with Social
Security, pension benefits also depend on the size of an individual's
Social Security benefit. 

\11 401(k) pension plans are salary reduction plans that allow
participants to contribute, before taxes, a portion of their salary
to a retirement account.  Many employers match workers' contributions
to these accounts.  Also, many employers allow participants to direct
the investment of their account balances. 


      BENEFITS FOR DEPENDENTS
      DIFFER UNDER SOCIAL SECURITY
      AND PENSIONS
-------------------------------------------------------- Chapter 0:2.1

Under Social Security, the dependents of a retired worker may be
eligible to receive benefits.  For example, the spouse of a retired
worker is eligible to receive up to 50 percent of the worker's basic
benefit amount, while a dependent surviving spouse is eligible to
receive up to 100 percent of the deceased worker's basic benefit. 
Furthermore, divorced spouses and survivors are eligible to receive
benefits under a retired worker's Social Security record provided
they were married for at least 10 years.  If the retired worker has a
child under 18 years old, the child is eligible for Social Security
benefits, as is the dependent nonelderly parent of the child.  The
retired worker's Social Security benefit is not reduced to provide
benefits to dependents and former spouses. 

Pensions, both public and private, generally do not offer the same
protections to dependents as Social Security.  Private and public
pension benefits are based on a worker's employment experience and
not the size of the worker's family.  At retirement, a worker and
spouse normally receive a joint and survivor annuity so that the
surviving spouse will continue to receive a pension benefit after the
retired worker's death.  A worker, with the written consent of the
spouse, can elect to take retirement benefits in the form of a single
life annuity so that benefits are guaranteed only for the lifetime of
the retired worker. 

This wasn't always the case.  Under the Employee Retirement Income
Security Act of 1974, a married worker had the option to choose an
annuity that provided benefits only as long as the retiree lived. 
Recognizing marriage as an economic partnership, the Congress sought
through the Retirement Equity Act of 1984 to bring the retiring
worker's spouse directly into the decision-making process concerning
benefit payment options.  Under this act, a joint and survivor
annuity became the normal payout option and written spousal consent
is required to choose another option.  This requirement was prompted
partly by testimony before the Congress by widows who stated that
they were financially unprepared at their husbands' death because
they were unaware of their husbands' choice to not take a joint and
survivor annuity.  Through the spousal consent requirement, the
Congress envisioned that, among other things, a greater percentage of
married men would retain the joint and survivor annuity and give
their spouses the opportunity to receive survivor benefits. 

The monthly benefits under a joint and survivor annuity, however, are
lower than under a single life annuity.  Moreover, pension plans do
not generally contain provisions to increase benefits to the retired
worker for a dependent spouse or for children.  As under Social
Security, divorced spouses can also receive part of the retired
worker's pension benefit if a qualified domestic relations order is
in place.  However, the retired worker's pension benefit is reduced
in order to pay the former spouse. 


   SOME REFORM PROPOSALS WOULD
   MAKE SOCIAL SECURITY MORE LIKE
   PENSION PLANS
---------------------------------------------------------- Chapter 0:3

The three alternative proposals of the Social Security Advisory
Council would make changes of varying degrees to the structure of
Social Security.  The key features of the proposals are summarized in
appendix II. 


      THE MAINTAIN BENEFITS PLAN
      WOULD MAKE FEWEST CHANGES TO
      SOCIAL SECURITY
-------------------------------------------------------- Chapter 0:3.1

The Maintain Benefits (MB) plan would make only minor changes to the
structure of current Social Security benefits.  The major change that
would affect women's benefits is the extension of the computation
period for benefits from 35 years to 38 years of covered earnings.\12
Currently, earnings are averaged over the 35 years with the highest
earnings to compute a worker's Social Security benefits.  If the
worker has worked less than 35 years, then some of the years of
earnings used in the calculation are equal to zero.  Extending the
computation period for the lifetime average earnings to 38 years
would have a greater impact on women than on men.  Although women's
labor force participation is increasing, the Social Security
Administration forecasts that fewer than 30 percent of the women
retiring in 2020 will have 38 years of covered earnings, compared
with almost 60 percent of men. 


--------------------
\12 One supporter of the MB plan does not support this provision. 


      THE INDIVIDUAL ACCOUNTS PLAN
      WOULD ADD A DEFINED
      CONTRIBUTION COMPONENT
-------------------------------------------------------- Chapter 0:3.2

The Individual Accounts (IA) plan would keep many features of the
current Social Security system but add an individual account modeled
after the 401(k) pension plan.  Workers would be required to
contribute an additional 1.6 percent of taxable earnings to their
individual account, which would be held by the government.  Workers
would direct the investment of their account balances among a limited
number of investment options.  At retirement, the distribution from
this individual account would be converted by the government into an
indexed annuity. 

The IA plan, like the MB plan, would extend the computation period to
38 years; it would also change the basic benefit formula by lowering
the conversion factors at the higher earnings level.  This plan would
also accelerate the legislated increase in the normal retirement age
and then index it to future increases in longevity.  As a consequence
of these changes, basic Social Security benefits would be lower for
all workers, but workers would also receive a monthly payment from
the annuitized distribution from their individual account, which
proponents claim would offset the reduction in the basic benefit. 

In addition to extending the computation period, elements of the IA
plan that would disproportionately affect women are the changes in
benefits received by spouses and survivors, since women are much more
likely to receive spouse and survivor benefits.  The spouse benefit
would be reduced from 50 percent of the retired worker's basic
benefit amount to 33 percent.  The survivor benefit would increase
from 100 percent of the deceased worker's basic benefit to 75 percent
of the couple's combined benefit if the latter was higher.  These
changes would probably result in increased lifetime benefits for many
women.  Additionally, at retirement a worker and spouse would receive
a joint and survivor annuity for the distribution of their individual
account unless the couple decided on a single life annuity. 


      THE PERSONAL SECURITY
      ACCOUNTS PLAN WOULD REPLACE
      SOCIAL SECURITY WITH A FLAT
      BENEFIT AND A DEFINED
      CONTRIBUTION COMPONENT
-------------------------------------------------------- Chapter 0:3.3

The Personal Security Accounts (PSA) plan would make the most
dramatic changes to the structure of Social Security.  This plan
would replace the current system with a two-tier system.  The tier I
benefit would be a flat benefit based on years of covered earnings. 
The full tier I benefit, which would be equivalent to 65 percent of
the poverty threshold, would be received after 35 years of covered
earnings.  The tier II benefit would be the distribution from the
retired worker's personal security account.  The personal security
account is modeled after the 401(k) pension plan and would be funded
by diverting 5 percentage points of the worker's Social Security
payroll tax into the account,\13 which would not be held by the
government.  Proponents of the PSA plan claim that over a worker's
lifetime the tier I benefits plus the tier II distribution would be
larger than the lifetime Social Security benefits currently received
by retired workers.  The worker would direct the investment of his or
her account assets.  At retirement, workers would not be required to
annuitize the distribution from their personal security account but
could elect to receive a lump-sum payment.  This could potentially
affect women disproportionately, since the worker is not required to
consult with his or her spouse regarding the disposition of the
personal account distribution. 

Under the PSA plan, the tier I benefit for spouses would be equal to
the higher of their own tier I benefit or 50 percent of the full tier
I benefit.  Furthermore, spouses would receive their own tier II
accumulations, if any.  The tier I benefit for a survivor would be 75
percent of the benefit payable to the couple; in addition, the
survivor could inherit the balance of the deceased spouse's personal
security account assets. 


--------------------
\13 The payroll tax for Social Security is 12.4 percent of taxable
earnings.  The tax is split evenly between the employee and employer. 


   EFFECTS ON WOMEN'S BENEFITS OF
   CHANGING BASIC SOCIAL SECURITY
   LAW
---------------------------------------------------------- Chapter 0:4

Many of the proposed changes to Social Security would affect the
benefits received by men and by women differently.\14 The current
Social Security system is comparable to a defined benefit plan's
paying a guaranteed lifetime benefit that is increased with the cost
of living.  Each of the Advisory Council proposals would potentially
change the level of that benefit, and two of the proposals would
create an additional defined contribution component.  Not only would
retired worker benefits be changed by these proposals, but the level
of benefits for spouses and survivors would be affected. 


--------------------
\14 The proposed changes could also affect benefits received from
pension plans that are integrated with Social Security.  How the
changes in these benefits would affect men and women is beyond the
scope of our testimony. 


      CONSERVATIVE INVESTMENT
      BEHAVIOR MAY HAVE ADVERSE
      CONSEQUENCES FOR RETIREMENT
      INCOME
-------------------------------------------------------- Chapter 0:4.1

Two Advisory Councils plans--the IA and PSA plans--would create
defined contribution accounts for workers.  Both plans would also
lower basic Social Security benefits.  On the basis of calculations
by the National Academy of Social Insurance, the IA plan would lower
basic benefits by 17 percent for the average earner, while the PSA
plan would lower the basic or tier I benefit to about 47 percent of
the benefit paid to today's average earner.  The rest of a retired
worker's Social Security benefit would come from the distribution
from his or her private account.  Under both plans, the account
balances at retirement would depend on the contributions made to the
worker's account and investment returns or losses on the account
assets.  Since women tend to earn lower wages, they would be
contributing less, on average, than men to their accounts. 
Furthermore, even if contributions were equal, women tend to be more
conservative investors than men, which could lead to lower investment
returns.  Consequently, women would typically have smaller account
balances at retirement and would receive lower benefits than men. 
The difference in investment strategy could lead to a situation in
which men and women with exactly the same labor market experiences
receive substantially different Social Security benefits.  The extent
to which investor education can close the gap in investment behavior
between men and women is unknown. 


      HOW ACCOUNT DISTRIBUTIONS
      ARE HANDLED AFFECTS BENEFIT
      LEVELS
-------------------------------------------------------- Chapter 0:4.2

The two Advisory Council proposals with individual or personal
accounts differ in the handling of the distribution of the account
balances at retirement.  The IA plan would require annuitization of
the distribution at retirement, and choosing a single life annuity or
a joint and survivor annuity would be left to the worker and spouse. 
If the single life annuity option for individual account balances was
chosen, then the spouse would receive the survivor's basic benefit
after the death of the retired worker plus the annuitized benefit
based on the work records of both individuals. 

The PSA plan would not require that the private account distribution
be annuitized at retirement.  A worker and spouse could take the
distribution as a lump sum and attempt to manage their funds so that
they did not outlive their assets.  If the assets were exhausted, the
couple would have only their basic tier I benefits, plus any other
savings and pension benefits.  Furthermore, even if personal account
tier II assets were left after the death of the retired worker, the
balance of the PSA account would not necessarily have to be left to
the survivor.  If a worker and spouse chose to purchase an annuity at
retirement, then the couple would receive a lower monthly benefit
than would be available from a group annuity. 

Both the IA and the PSA plans could lead to situations where men and
women in identical circumstances received different Social Security
benefits.  Suppose a man and woman had the same labor market
experiences and the same amount in their private accounts and then
annuitized their distributions.  The monthly annuity payments would
reflect the differences in expected longevity (separate life tables
could be used for men and women in the calculation of annuitized
benefits) and, although the expected lifetime payments would be the
same, the monthly payments to the woman would be lower, since women
have longer life expectancies. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 0:5

Even though the current provisions of Social Security are gender
neutral, differences during the working and retirement years may lead
to different benefits for men and women.  For example, differences in
labor force attachment, earnings, and longevity lead to women's being
more likely than men to receive spouse or survivor benefits.  Women
who do receive retired worker benefits typically receive lower
benefits than men.  As a result of lower Social Security benefits and
the lower likelihood of receiving pension benefits, among other
causes, elderly single women experience much higher poverty rates
than elderly married couples and elderly single men. 

Social Security is a large and complex program that protects most
workers and their families from income loss because of a worker's
retirement.  Public and private pension plans do not offer the social
insurance protections that Social Security does.  Pension benefits
are neither increased for dependents nor generally indexed to the
cost of living as are Social Security benefits.  Typically, at
retirement a couple will receive a joint and survivor annuity that
initially pays monthly benefits that are 15 to 20 percent lower than
if they had chosen to forgo the survivor benefits with a single life
annuity.  Furthermore, under a qualified domestic relations order, a
divorced retired worker's pension benefits may be reduced to pay
benefits to a former spouse. 

While the three alternative proposals of the Social Security Advisory
Council are intended to address the long-term financing problem, they
would make changes that could affect the relative level of benefits
received by men and women.  Each of the proposals has the potential
to exacerbate the current differences in benefits between men and
women.  Narrowing the gap in labor force attachment, earnings, and
investment behavior may reduce the differences in benefits.  But as
long as these differences remain, men and women will continue to
experience different outcomes with regard to Social Security
benefits. 

This concludes my prepared statement.  I would be happy to answer any
questions you or other Members of the Subcommittee may have. 


   CONTRIBUTORS
---------------------------------------------------------- Chapter 0:6

For more information on this testimony, please call Jane Ross on
(202) 512-7230; Frank Mulvey, Assistant Director, on (202) 512-3592;
or Thomas Hungerford, Senior Economist, on (202) 512-7028. 


FEATURES OF SOCIAL SECURITY UNDER
CURRENT LAW AND THOSE OF PENSIONS
=========================================================== Appendix I

                                               Current pension plan provisions
                                     ----------------------------------------------------
                                     Federal
                                     Employees'
                   Provisions under  Retirement                          Defined
Type of            current Social    System/Thrift     Defined benefit   contribution
beneficiary\a      Security law      Savings Plan      plans             plans
-----------------  ----------------  ----------------  ----------------  ----------------
Retired worker     --Benefit         --FERS benefit    Benefit is based  Benefit is based
                   computation is    is based on       on formula under  on contributions
                   based on 35       statutory         plan documents    of employee,
                   years of highest  formula                             employer, or
                   covered           --TSP benefit is                    both plus
                   earnings          based on                            investment
                   --Progressive     employee and                        returns of
                   formula leads to  government                          individual
                   redistribution    contributions                       account balances
                   --Benefits        plus investment
                   reduced           returns of
                   actuarially if    individual
                   taken between 62  account balances
                   and normal
                   retirement age
                   (NRA); increased
                   if taken after
                   NRA
                   --NRA to
                   increase to 67
                   years for those
                   born after 1959

Spouse             --Benefit is 50%  \b                \b                \b
                   of the retired
                   worker's
                   benefit
                   --Benefit is
                   actuarially
                   reduced if taken
                   between 62 and
                   NRA

Survivor           --Benefit is      Joint and         Joint and         Joint and
                   equal to amount   survivor annuity  survivor annuity  survivor annuity
                   deceased spouse   is normal form    is normal form    is normal form
                   would be          of annuity, and   of annuity        of annuity
                   receiving but     survivor
                   not less than     receives 50% of
                   82-1/2% of        basic annuity
                   deceased
                   spouse's benefit
                   --Benefit is
                   actuarially
                   reduced if taken
                   between 62 and
                   NRA

Dually entitled    Receives own      \b                \b                \b
beneficiary\c      retired worker
                   benefit plus
                   difference (if
                   positive)
                   between spouse
                   or survivor
                   benefit and his/
                   her retired
                   worker benefit

Divorced and       --Must have been  Qualifying court  Qualified         Qualified
surviving          married for at    order             domestic          domestic
divorced spouse    least 10 years                      relations order   relations order
                   and currently be
                   unmarried
                   --Must be at
                   least 62 years
                   old for divorced
                   spouse, 60 years
                   old for divorced
                   survivor
                   --Benefit
                   actuarially
                   reduced if
                   younger than
                   NRA
                   --Divorced
                   spouse benefit
                   is 50% of
                   retired worker's
                   benefit
                   --Surviving
                   divorced spouse
                   benefit is 100%
                   of retired
                   worker's benefit

Mother or father   --Have eligible   \b                \b                \b
and widowed        child in care
mother or father   --Under 65 years
plus child         old
                   --50% of retired
                   worker's benefit
                   plus 50% of
                   child's benefit
                   --75% of
                   deceased
                   worker's benefit
                   plus 75% of
                   child's benefit
-----------------------------------------------------------------------------------------
\a Beneficiary categories are based on Social Security definitions. 

\b Not applicable. 

\c Entitled to benefit both as retired worker and as spouse or
survivor of retired worker. 


FEATURES OF SOCIAL SECURITY UNDER
CURRENT LAW AND THOSE OF THREE
REFORM PROPOSALS
========================================================== Appendix II

                                     Reform proposals of 1994-96 Social Security Advisory
                                                           Council
                                     ----------------------------------------------------
                   Provisions under                                      Personal
Type of            current Social    Maintain          Individual        security
beneficiary\a      Security law      benefits          accounts          accounts
-----------------  ----------------  ----------------  ----------------  ----------------
Retired worker     --Benefit         Extends           --Extends         --Creates two-
                   computation is    computation       computation       tier system with
                   based on 35       period from 35    period from 35    tier I a flat
                   years of highest  years to 38       years to 38       benefit based on
                   covered           years of covered  years of covered  years of covered
                   earnings          earnings          earnings          earnings and
                   --Progressive                       --Changes         tier II a
                   formula leads to                    benefit formula   personal
                   redistribution                      by lowering       security account
                   --Benefits                          conversion        (PSA) based on
                   reduced                             factors           defined
                   actuarially if                      --Accelerates     contribution
                   taken between 62                    increase of NRA   pension
                   and normal                          and indexes to    --Accelerates
                   retirement age                      longevity         increase of NRA
                   (NRA); increased                    --Creates         and indexes to
                   if taken after                      individual        longevity
                   NRA                                 account (IA)      --Increases
                   --NRA to                            based on defined  early retirement
                   increase to 67                      contribution      age to 65 years
                   years for those                     pension
                   born after 1959

Spouse             --Benefit is 50%  Same as current   --Benefits are    Benefits are
                   of the retired    law               lowered from 50%  tier II
                   worker's                            to 33% of         accumulations
                   benefit                             retired worker's  plus 50% of full
                   --Benefit is                        benefit           tier I benefit
                   actuarially                         --Joint and
                   reduced if taken                    survivor annuity
                   between 62 and                      with IA balance
                   NRA

Survivor           --Benefit is      Same as current   --75% of          75% of benefit
                   equal to amount   law               couple's          payable to
                   deceased spouse                     combined          couple plus
                   would be                            benefit           eligible to
                   receiving but                       --Joint and       inherit balance
                   not less than 82                    survivor annuity  of deceased
                   1/2% of deceased                    with IA balance   spouse's PSA
                   spouse's benefit
                   --Benefit is
                   actuarially
                   reduced if taken
                   between 62 and
                   NRA

Dually entitled    Receives own      Same as current   Higher of own     Tier II
beneficiary\b      retired worker    law               basic benefit or  accumulations
                   benefit plus                        33% of spouse's   plus higher of
                   difference (if                      benefit           own tier I
                   positive)                                             benefit or 50%
                   between spouse                                        of full tier I
                   or survivor                                           benefit
                   benefit and his/
                   her retired
                   worker benefit

Divorced and       --Must have been  Same as current   No mention        No mention
surviving          married for at    law
divorced spouse    least 10 years
                   and currently be
                   unmarried
                   --Must be at
                   least 62 years
                   old for divorced
                   spouse, 60 years
                   old for divorced
                   survivor
                   --Benefit
                   actuarially
                   reduced if
                   younger than
                   NRA
                   --Divorced
                   spouse benefit
                   is 50% of
                   retired worker's
                   benefit
                   --Surviving
                   divorced spouse
                   benefit is 100%
                   of retired
                   worker's benefit

Mother or father   --Have eligible   Same as current   Same as for       Same as for
and widowed        child in care     law               spouse or         spouse or
mother or father   --Under 65 years                    survivor plus     survivor plus
plus child         old                                 child's benefit,  child's benefit,
                   --50% of retired                    which is same as  which is same as
                   worker's benefit                    current law       current law
                   plus 50% of
                   child's benefit
                   --75% of
                   deceased
                   worker's benefit
                   plus 75% of
                   child's benefit
-----------------------------------------------------------------------------------------
\a Beneficiary categories are based on Social Security definitions. 

\b Entitled to benefits both as retired worker and as spouse or
survivor of retired worker. 


*** End of document. ***