Committee on Ways and Means, Subcommittee on Social Security, 2-28-02 and 3-6-02, Statement for the Record

Statement of Yung-Ping Chen, Frank J. Manning Scholar’s Chair in Gerontology, University of Massachusetts Boston

Mr. Chairman: I appreciate the opportunity to submit this statement on improving the benefit structure of Social Security. For the record, my name is Yung-Ping Chen. I am the Frank J. Manning Scholar’s Chair in Gerontology at the University of Massachusetts Boston. My academic and professional background in the field of Social Security and economics of aging includes the following: member of the technical panel of actuaries and economists of the 1979 Advisory Council on Social Security; delegate or consultant or both to the 1971, 1981, 1995 White House Conferences on Aging and the 1998 White House Conference on Social Security; and faculty appointments at several colleges and research organizations. I am a member of the American Economic Association, a founding member of the National Academy of Social Insurance, and a fellow in the Gerontological Society of America. I currently serve on the board of directors of the National Council on the Aging. The views I express here, however, are those of my own and do not necessarily represent the positions of any organization with which I am affiliated.

Let me begin, Mr. Chairman, by commending you for holding this hearing. Although changing family structure and the changing role of women in the workplace will affect the scope and value of Social Security protection, there has been relatively little discussion of the issues involved. This hearing, I am certain, will spark more public interest and discourse on the subject. It will be very important that there be an extensive discussion. It is my thesis that if Congress does not update its eligibility rules, Social Security could become a less effective policy instrument of income protection for many potentially at-risk individuals.

This statement calls attention to several issues brought about by the effects of changing family patterns on the benefits structure of Social Security: (1) Fewer people may be eligible for Social Security benefits. (2) More blacks and Hispanics may be ineligible for Social Security benefits. (3) Problems with some proposals for aiding older women. (4) Necessary caveats in policy development.

Social Security provides income not only to retired and disabled workers but also to their eligible dependents and survivors (auxiliary beneficiaries). Survivors of victims of the terrorist attacks of September 11, 2001 received their first Social Security checks only three weeks afterwards. By year end, the Social Security Administration had processed 94 percent of some 5,000 claims filed by victims’ families, paying about $2.8 million monthly to these survivors. No deed speaks more eloquently for the protection Social Security offers to dependents and survivors of covered workers.

However, eligibility precedes assistance. Family structure changes during the past 30 years or so may have already resulted, in percentage terms, in fewer people being eligible for auxiliary beneficiaries in recent years. For example, the proportion of new awards for auxiliary beneficiaries in the total number of new beneficiaries has declined. In 1970, 54.3% of new awards went to dependents and survivors. That percentage has steadily declined—to 52.3% in 1980, 42.6% in 1990, and 40.4% in 1997 (see Table 1).

Future relative decline in auxiliary beneficiaries may be expected to be much greater because family pattern changes will affect Social Security benefit eligibility with a time lag of decades. The share of new awards for dependents and survivors in the total new awards is now estimated to decline—to 35.7%, continuing the trend cited in the previous paragraph. (see Table 1).

Problems of ineligibility for Social Security benefits may impact blacks and Hispanics more severely because some of the changes in family patterns have been more pronounced among these minorities than among whites.

Compared to whites, these blacks and Hispanics have much smaller percentages of married persons, much larger proportion of never-married persons, much higher rates of poverty, and much greater shares of their children living with a single mother.

Concerning the declining percentage of married persons from 1970 to 1999, the drop was 15% for whites, 36% for blacks and 18% for Hispanics. More specifically, the trends from 1970 to 1999 (U.S. Census Bureau, 2000) were as follows:

Regarding the rise in the proportion of never-married persons from 1970 to 1999, the increase was 31% among whites, 86% among blacks, and 53% among Hispanics. More specifically, the trends from 1970 to 1999 (U.S. Census Bureau, 2000) were:

These trends appeared to have resulted in relatively fewer Social Security beneficiaries as dependents and survivors for blacks. While about 62% of new awards were for dependents and survivors in 1970 and 1980, that proportion declined to about 52% in 1990 and 44% in 2000, according to our calculations of the latest statistics (Social Security Administration, 2002) . The racial/ethnicity dimension is therefore highly significant.[1]

How older women fare under Social Security has become a major issue, with widows and divorcees in poverty as the predominant concern. The poverty rate for women 65 and over as a group was 11.8% in 1999, and the differing rates by marital status were (Anzick & Weaver, 2000) :

Several proposals have been suggested to deal with the poverty problem among widowed and divorced people:

· Raise the survivor benefit and lower the spousal benefit (e.g., Iams & Sandell, 1998; Smeeding, 1999)

Raise the survivor benefit and lower the spousal benefit. Over the years, there have been proposals for Social Security to offer a better survivor benefit by reducing the spousal benefit and raising the survivor benefit: for example, lowering the spousal benefit to 33% from the current 50% of the higher earner’s benefit, and raising the benefit to the surviving spouses to 75% of the combined benefit of the couple before death occurred.

This type of proposal raises a number of questions.[2] Would a cut in the spousal benefit drive into poverty those couples living not far above the poverty line? What about couples who are already poor when they retire?

Moreover, what is meant by a spousal benefit? Under Social Security, a woman can receive benefits based, in essence, on the larger of the two, her own earnings record or her husband’s earnings record. Today, more than one in four (26% of all female beneficiaries) receive their own retired worker benefit plus an amount that raises it to what they would be entitled to as spouses. In this case, to what part of her benefit does a spousal benefit reduction apply?

This proposal has been suggested on the supposition that, with more and more married women staying in the labor force longer and earning higher pay, they would be receiving Social Security benefits on their own earnings records (Butrica & Iams, 2000) . However, another study (Levine, Mitchell, & Phillips, 2000) has pointed out that many more married women would qualify for retired worker’s benefits because of longer work histories, but many of them still would receive higher benefits in spousal benefits. To reduce the spousal benefit from 50% to 33% (the most commonly suggested reduction) would therefore impose a financial cost that may not be easily dismissed or ignored.

Finally, what of the divorced women who receive a spousal benefit based on their former husband’s earnings records? They will receive higher benefits only when their former spouses have died.

Lower the length-of-marriage requirement. Another suggestion to deal with the divorced spouse’s benefit problem is to lower the number of years of marriage required for benefits. Now the requirement is at least 10 years (since the 1977 law). The requirement was at least 20 years when the benefit was first instituted under the 1965 law.

Lowering the required length of marriage to 7 years or 5 years has been proposed. However, it begs the question: For what was the spousal or survivor benefit intended. If it was designed to protect a marriage partner for the sake of the family over the long term, then it may be questionable to lower it further.

At a practical level, unless the current law provision allowing several ex-spouses (e.g., wives) to receive benefits based on one ex-spouse (e.g., husband) is changed, lowering the length of marriage would increase the likelihood of the number of multiple recipients of benefits as ex-spouses.

Provide minimum benefit. One of the plans proposed in the last advisory body (Advisory Council on Social Security, 1996) as well as several bills introduced in Congress would create a new system of minimum Social Security benefits. For example, an individual who has worked for 40 years and thus is qualified for 40 years of coverage will be guaranteed a Social Security benefit equal to 100% of the poverty income level. This minimum benefit would apply to retired workers with at least 20 years of coverage, but the minimum benefit for them would equal only 60% of the poverty level of income.

Those who have worked between 20 and 40 years of coverage would receive prorated minimum benefits, based on their number of quarters of coverage. Widows or widowers would be covered by the minimum benefit guarantee based on their spouse’s earnings records.

Under this proposal, the full antipoverty impact of the minimum benefit will be felt only by those who have worked for 40 years. What about those with fewer years of work? Because it begins to apply for people with 20 years of work, this minimum benefit provision eludes altogether those with less than 20 years of eligible work.

In thinking about how best to protect financially at-risk people, one needs to be mindful of the nature and purpose of the Social Security program. If Social Security is an employment-based income-replacement system financed exclusively or largely by the payroll tax, then there is a limit to what types of benefit and what levels of benefits should be considered appropriate.

Another consideration to keep in mind is that there are reasons for the low-income status of many elderly widows, widowers, and divorced persons that lie outside the Social Security system. Analyzing the causes of widow poverty, for example, one study suggests the following rough breakdown of several factors:

Is Social Security an appropriate instrument for compensating for the prewidowhood differences in economic status or income declines from other assets at widowhood, or for the deficiencies in employer pension programs? Should we not explore improvements with other policy vehicles?

The first two proposals (raising survivor benefit and lowering spousal benefit; shortening the length of marriage requirement) may help reduce poverty among widowed and divorced people, but they would not help the never married. While it is directly targeted at removing poverty, the third proposal, as outlined, is limited in its effectiveness.

While I would like to see a different formulation for Social Security, here is not the place for expounding it. For your possible interest, however, I submit in Attachment I a very short article that briefly explains my preference.

Finally, let me once again express my appreciation for this opportunity to express my views.

Table 1
Proportions of New Beneficiaries^a as Retired Workers, Disabled Workers,
and Dependents and Survivors,^b in Selected Years (1970–2010)

Year^c	Retired Workers	Disabled Workers	Dependents and Survivors	Total
1970	36.2%	9.5%	54.3%	100%
1980	38.3	9.4	52.3	100
1990	44.8	12.6	42.6	100
1997	44.5	15.2	40.4	100
2010	48.8	15.5	35.7	100

^b Dependents and survivors include wives/husbands, children, widow(er)s, widowed mothers/fathers, and parents.

Sources: For 1970–97, calculations based on data in Table 6.A (OASDI Benefits Awarded: Summary), 1998 Annual Statistical Supplement to the Social Security Bulletin, Social Security Administration, SSA Publication No. 13-11700, p. 254. For 2010, calculations based on unpublished estimates supplied by the Office of the Chief Actuary, Social Security Administration, February 1 and February 13, 2002.

Advisory Council on Social Security. (1996). Report of the 1994-96 Advisory Council on Social Security. Vol. I: Findings and Recommendations. Washington, D.C.

Anzick, M. A., & Weaver, D. A. (2000). The Impact of Repealing the Retirement Earnings Test on Rates of Poverty. Social Security Bulletin, 63(2).

Butrica, B. A., & Iams, H. M. (2000). Divorced Women at Retirement: Projections of Economic Well-Being in the Near Future. Social Security Bulletin, 63(3), 3.

Iams, H. M., & Sandell, S. H. (1998). Cost Neutral Policies to Increase Social Security Benefits for Widows: A Simulation for 1992. Social Security Bulletin, 61(1), 34-43.

Levine, P. B., Mitchell, O. S., & Phillips, J. W. R. (2000). A Benefit of On'e Own: Older Women's Entitlement to Social Security Retirement. Social Security Bulletin, 63(3), 47.

Schoeni, B. (2001). Old Age Poverty. Economics of Aging Interest Group Newsletter(Spring), Gerontological Society of America, Washington, D.C.

Smeeding, T. M. (1999). Social Security reform: Improving benefit adequacy and economic security for women: Aging Studies Program Policy Brief No. 16, Center for Policy Research, Maxwell School of Citizenship and Public Affairs. Syracuse, New York.

Social Security Administration. (2002). Annual Statistical Supplement to the Social Security Bulletin: SSA Publication No. 13-11700.

U.S. Census Bureau. (2000). Statistical Abstract of the United States: 2000. Washington, D.C.

[1] Changing family patterns may also adversely affect child benefits. Owing mainly to births to unmarried mothers and high divorce rates, nearly one in four children now lives with a mother only. In 1998, 51 percent of black children and 27 percent of Hispanic children lived with their mothers only, compared to 18 percent of white children who did. Since women generally earn less than men, child benefits will be lower when they are based on mothers’ earnings rather than on fathers’.

Attachment I: “A ‘30s mechanism, ripe for retooling” by Yung-Ping Chen, Boston Sunday Globe, March 10, 2002.

Boston Sunday Globe March 10, 2002

The Social Security debate targets future insolvency, but problem now is benefits framework from the past

Most of the national debate about overhauling Social Security focuses - sometimes seemingly endlessly - on ensuring its long-term solvency. But there is an important area of the governmental safety net that is not getting the attention it deserves: the outdated benefits structure.

Since Social Security not only provides income to retired and disabled workers but also to their eligible dependents and survivors, any shifts resulting from the debate should include analyzing and updating benefits. If Congress restores solvency without simultaneously modernizing its eligibility rules, Social Security could become a less effective way to protect people's incomes.

Simply put, Social Security's family benefit provisions have not changed in concert with evolving social trends in decades, leaving more and more vulnerable people - most of them women, minorities, and children - with less or no protection. As the federal government overhauls the program, it should ensure that it eventually covers more, not fewer, people.

Today's benefit provisions were promulgated for family norms of the distant past. Enacted in 1935, Social Security began paying benefits in 1940. At that time, the typical family consisted of a wage-earning father, stay-at-home mother, and children. Most people married; they did so at younger ages; they had more children; and most marriages lasted a lifetime.

During the last 30 years or more, many social conventions have changed dramatically. More women work for pay. Fewer people marry; they marry later; they divorce more often and sooner; and some never remarry. Increasingly, many people are not marrying, and unmarried-couple households have multiplied.

Consequently, increasing numbers of people do not qualify for spousal or survivor benefits. Divorced people who were not married for at least 10 years or people not legally married are ineligible for benefits as spouses, ex-spouses, or survivors.

Even for those who are legally married, the problem of lower benefits arises for some widows and widowers. Under current law, a surviving elderly spouse may receive his or her own ''retired worker'' benefit or a ''survivor benefit,'' based on the deceased spouse's earnings, whichever is higher. Suppose the husband's retired worker benefit is $1,000 a month. If his wife has not worked at all or if her earnings entitle her to a retired worker benefit of less than $500, then she receives a spousal benefit of $500, half her husband's. Together they receive $1,500. When he dies, she receives $1,000, two-thirds their combined benefit.

In fact, a survivor may get only half, instead of two-thirds, their combined benefit if husband and wife are each entitled to the same retired worker benefit, say $750. Between them, they receive $1,500, the same total as for the couple above. When he dies, her benefit stays at $750, only half their combined total. As two-earner families become more prevalent and their respective earnings approximate each other's, it is becoming more common that the survivor gets less than two-thirds of the combined benefit.

These reduced benefits may drive some widows or widowers into poverty, since the official poverty threshold for one elderly person is nearly 80 percent of that for an elderly two-person household. Together with ineligibility, lowered benefits for survivors may help explain why the poverty rate among non-married older women (widowed, divorced, and never married) is about 20 percent, four times the rate for older married women.

Changing family patterns may also adversely affect child benefits. Owing mainly to births to unmarried mothers and high divorce rates, nearly one in four children now lives with a mother only. Since women generally earn less than men, child benefits will be lower when they are based on mothers' earnings.

Further, problems caused by ineligibility and lower benefits affect blacks and Hispanics more severely. Compared with whites, a much smaller proportion of blacks and Hispanics are legally married, a much greater percentage of them never married, a much larger share of them are poor, and a much larger portion of their children live with single mothers (respective percentages for such black, Hispanic, and white children were 51, 27, and 18 percent in 1998).

The preceding demonstrates the necessity of updating family benefit rules. One way to solve the problem some widows, widowers, and the divorced face is to allow a married couple to share their earnings. Under earnings sharing, half the total earnings of the couple would be credited to each spouse's earnings records. When one spouse dies, the survivor would inherit all or most of the earnings credits of the deceased. At divorce, each spouse's separate earnings records would be the basis for calculating Social Security benefits, regardless of the length of marriage.

But earnings sharing will not help the nevermarried. Nor will it help alleviate poverty generally. A good overhaul method would be to combine earnings sharing with a two-tier benefit structure. The first tier would provide a flat-rate benefit, payable to eligible people for age or disability, regardless of earnings. The second tier would be based on earnings - an individual's earnings when single, plus half the couple's combined earnings while married.

The first-tier benefit should be integrated with the Supplemental Security Income Program. Like that program, this first-tier should be paid out of general revenue, not the payroll tax, because this basic benefit is designed to redistribute income and prevent poverty. The second-tier benefit should be funded by payroll taxes because it is earnings-related.

Doubtless there are other methods. But any overhaul must ensure that Social Security will protect as many potentially at-risk individuals as possible.

Yung-Ping Chen holds the Frank J. Manning Eminent Scholar’s Chair in gerontology at the University of Massachusetts Boston.