Statement of Heidi Hartmann, Ph.D., Chair, National Council of Women’s Organizations Task Force on Women and Social Security, and President and Chief Executive Officer, Institute for Women's Policy Research
On behalf of the National Council of Women’s Organization’s (NCWO) Task Force on Women and Social Security, I welcome the opportunity to submit written comments on the subject of “Social Security Improvements for Women, Seniors, and Working Americans.”
For nearly two decades, NCWO has convened the leadership of more than 150 nonpartisan, nonprofit women’s organizations representing over six million women. In 1998, NCWO formed the Women & Social Security Task Force to highlight the program’s importance to women and families, and to urge policy makers to consider women’s needs as the debate unfolds. I am pleased to report that we have made considerable progress in activating the grassroots’ members of the participating NCWO organizations to become engaged in the discussion in communities across the nation.
The Task Force also highlights specific benefit improvements that can reduce older women’s poverty and correct gender inequities in the current system, and educates policy makers to include these proposals in reform packages. In addition, we are working to build consensus among women’s organizations and key stakeholders to preserve Social Security’s protections for women and other disadvantaged groups.
In addition to chairing the Task Force, I am an economist and the President & CEO of the Institute for Women’s Policy Research (IWPR), a public policy research organization focused on issues of concern to women and their families that I founded in 1987.
Social Security is vital for women.
Social Security is the heart of our nation’s social insurance program, providing universal coverage for workers and their families through pooling of resources that guarantees benefits to all. This program is very important to women. Sixty percent of Social Security beneficiaries are women and Social Security is the major source of retirement income for a majority of them.
Privatization & the Unique Life Pattern of Women
The current debate on Social Security reform is focusing on the creation of private Individual Accounts. Supporters of privatization have either inadequately or erroneously addressed the implications of their proposals for women. In part, this omission may stem from the perception that women’s situations will improve over time as more women are employed in the paid work force for longer periods of time. Certainly, the past three decades have seen a dramatic increase in the number of women working in the paid labor force. Most women, however, still have very different working lives than men. Women who work full-time, year-round earn only 75 percent as much as men. Moreover, women are much more likely than men to work part-time. For example, in 1996, only half of women aged 25-44 worked full time year round (compared with three quarters of men). If part-time workers are included, women earn only 60 percent as much as men. Women also remain much more likely to take time out of the labor force to care for children and elderly relatives. Shorter, less lucrative, careers result in lower incomes in retirement for women (Shaw, Hill, and Hartmann, 2000).
Nevertheless, despite women’s increased participation in the labor market, researchers predict that poverty among elderly women will be as high in the 2020s as it is today (Smeeding et. al. 1999). This is partly due to the fact that in the future more retired women will be divorced, separated, or never-married and, therefore, much more vulnerable to poverty. In other words, while future generations of women will be economically disadvantaged for different reasons, they are not likely to fare much better than their mothers and grandmothers. For the foreseeable future, women face a high likelihood of poverty and near-poverty in old age and have special reasons for wanting to protect and enhance Social Security.
Poverty among the Elderly
Women are more likely than men to be poor in old age. In 1998, about 13 percent of women age 65 and over had incomes below the poverty level compared with 7 percent of men of the same age. Women of color are particularly at risk for poverty in their old age. Older African American and Hispanic women are much more likely than white women to be poor. Almost 30 percent of black women aged 65 and over were poor in 1996, compared with 28 percent of Hispanic women and 12 percent of aged white women. Poverty at older ages also varies markedly by marital status and living arrangement. Married women are much less likely to be poor than non-married women, especially those who are living alone or with unrelated persons.
The risk of poverty increases with age. Of women aged 75 and older, 15 percent had incomes below the poverty line, while 11 percent of all women aged 65 and 74 are poor. In large part, poverty among women aged 75 and older can be explained by the increase in the number of women living alone, having survived their husbands. Widows lose part of the couple's Social Security benefits and, in many cases, part or all of their husbands' private pension benefits. Income tends to decline for other reasons, as well. Sometimes income falls when assets are spent down for health care or other expenses. Sometimes income falls when work is no longer possible. Women who supplement their Social Security benefits with part time employment when they first retire, may become poor as they age into their seventies or eighties and can no longer work (Shaw, Zuckerman and Hartmann 1998).
Poverty among the elderly, though still high for some groups of women (and men), has decreased markedly over the last 40 years. Much of the improvement in living standards of the elderly can be attributed to the increase in coverage and benefits made available through improvements in Social Security. Today, Social Security benefits account for slightly over half of the income of unmarried elderly women (compared with about 40 percent for unmarried men) and 36 percent of couples’ incomes.
Women depend more on Social Security because they enter retirement with fewer resources than men. The greatest disparity lies in accumulated pension wealth and savings, with Social Security credits partially compensating for this gap (Mitchell, Levine and Phillips 1999). For example, of women age 65 and older in 1995, only 26 percent received income from an employer-provided pension plan compared with 46 percent of the men age 65 and older. At the same time, women’s pensions were worth 58 percent of the value of men’s pensions (Employee Benefit Research Institute 1997). These figures not only reflect women's lower earnings and fewer years of work, but also that the survivor benefits widows receive from their husbands' pensions typically pay 50-60 percent of the amount their husbands received.
The percentage of women receiving income from employer-based pensions is likely to increase in the future. Because of their different work patterns, however, the gap between men and women’s pension coverage and benefit levels is likely to remain large. While coverage rates for men and women who currently work full-time are nearly the same (about 50 percent), only 15 percent of women working part time were covered by pension plans (National Economic Council Interagency Working Group on Social Security 1998). Because of the pay gap, women’s pensions will also continue to be smaller than men’s pensions.
Social Security’s Guaranteed Benefits
Without Social Security, more than half of women aged 65 or older would be poor. For 25 percent of unmarried elderly women (widowed, divorced, separated, or never married), Social Security is their only source of income.
The Social Security system provides protections that are likely to remain particularly important to women. First, Social Security replaces a higher proportion of the earnings of lower-earners. As women tend to earn less than men, this provision benefits women. Second, Social Security provides benefits for wives (or husbands) or widows (or widowers) who earned significantly less than their spouses. Spouses divorced after ten years of marriage can claim these benefits, even if their former partner remarries. Third, because women tend to live longer than men, the fact that Social Security provides an inflation-adjusted lifetime income is particularly important to them. Finally, the life and disability insurance provided by Social Security is extremely important to women, especially the provision giving benefits to spouses caring for children under 16 if the worker retires, becomes disabled, or dies. Women represent 98 percent of the beneficiaries of this provision. Benefits to the children are also important to the family's economic security, whether the mother takes the caretaking benefit or works in the labor market.
Problems with Private Accounts
Much has changed since President Bush appointed his Social Security commission last year and since Members of Congress first devised plans to create Individual Accounts. New priorities as a result of the horrible events on September 11th and the ensuing War on Terrorism have sidelined the public policy debate on issues like Social Security reform in the short-term. Perhaps most significantly, the current economic conditions facing the nation and the return of federal budget deficits put into question both the viability and wisdom of partially replacing Social Security’s current guaranteed benefits with a combination of lower benefits and Individual Accounts subject to the uncertainties of the stock markets and requiring massive transfers of general revenues that are no longer available.
Diverting revenue from Social Security to create individual accounts will not address the long-term fiscal health of the program. For example, a 2 percent carve out will double the size of the shortfall, require deep cuts in guaranteed benefits, and further increase elderly poverty.
For this reason, NCWO opposes individual accounts carved out of Social Security because the trade-off of potentially higher returns from the stock market simply does not outweigh the benefits of current Social Security system: the full faith and credit of U.S. Government guaranteed, lifetime, inflation-adjusted, benefits for retirees, spouses, dependents, survivors, and the disabled (and their spouses and dependents) based on a progressive benefit formula.
While supporters of private accounts are not advocating replacing Social Security “wholly,” and it appears that they would annually adjust the remaining benefits for inflation, the guaranteed benefits provided by the reformed Social Security system would be significantly less than those promised under current law.
More importantly, however, are proposals to recalculate the initial benefit an individual receives by adjusting the benefit formula each year according to the growth in prices, called Price-Indexing. This would substantiallyreduce guaranteed benefits, by as much as 50 percent. Under current law, the initial benefit a person receives is tied to the growth in wages, which usually rise more rapidly than prices, and, therefore, helps the Social Security recipient maintain a standard of living similar to when they were in the labor force. Price-Indexing initial benefits would mean a significant cut in current law benefits and put future generations of Social Security recipients at risk for poverty.
Other cuts in benefits also would harm women, as well as men. Increasing the retirement age would force women to wait to receive their full benefit. Moreover, changing the benefit formula by increasing the number of years used to calculate benefits would disproportionately harm women relative to men because women spend more time out of the workforce raising children and caring for elderly relatives.
With lower guaranteed benefits, wives, widows, and divorced women may be further impoverished, depending on the timing of their retirement. For example, if the account balance is converted into an annuity during an economic downturn (rather than in a period of stock market growth), the retiree and survivor will be stuck with smaller monthly benefits for the remainder of their lives. Also of concern are provisions that would allow the worker to “cash-out” a portion or all of the account balance and the impact this would have on the spouse’s, widow’s or divorced spouse’s future benefits.
Supporters of Individual Accounts also make much of the added advantage to a divorced spouse of being able to receive an equal share of accumulated account assets and interest at the time of divorce. While this provision would benefit those with marriages lasting fewer than ten years, more data is needed to determine whether this would represent an actual increase in retirement income for women at the bottom of the economic ladder. It is also important to note that women have not generally fared well in divorce proceedings in gaining access to their husbands' pensions. It is unlikely they will do well with individual accounts, unless the division is completely automatic, as the draft report suggests.
The claim of “increased benefits through higher rates of return” made by supporters of private accounts include optimistic assumptions about the stock market, the administrative costs of managing the accounts, and the availability of low-cost inflation-adjusted annuities that are gender neutral (i.e., do not cost women more because they live longer).
Investment performance, individual investment decisions, and the timing of retirement would impact the amount of money an individual would receive in retirement. In contrast, under the current Social Security system, women do not face these risks, enabling them to count on a guaranteed benefit, adjusted for inflation, for the remainder of their lives. This is especially important for those who live longer, earn less, and see their retirement savings eroded by inflation.
The value of individual accounts will be smaller for most women because women have less money to contribute into the accounts in the first place. This is the direct result of lower lifetime earnings and years spent out of the workforce for care giving responsibilities. Smaller account balances also will have to be stretched over more years to account for the longer life expectancies of women. In contrast, the current Social Security system includes a progressive benefit formula that helps women and other low earners by replacing a higher percentage of earnings for those with lower lifetime earnings.
Private accounts will also fail to “preserve” benefits for the disabled and survivors without further benefit cuts for other workers, especially younger workers. It is likely that under private accounts, the value of disability and survivor benefits would fall.
If current Social Security disability and survivor benefits were preserved in a reformed private account system, much larger cuts in retirement benefits would be needed to pay for these benefits. Individual accounts also would jeopardize the disability and survivor benefits women depend on because the account balances would be subject to the number of years the worker was able to make contributions before he or she died or became disabled. Smaller accounts would provide much less income for the spouse and children of the disabled or deceased worker than Social Security now provides.
The benefits for spouses and surviving spouses would also be in question under individual accounts. Currently, women who have spent years out of the workforce or have worked in jobs paying less than their husband’s jobs, have the opportunity to get a higher Social Security benefit than they would receive based on their own work record (and vice versa for men). Under individual accounts, it is not certain whether protections for spouses would be required. For instance, a worker’s account divided at divorce would mean less money would be available for spouses in subsequent marriages.
Supporters of Individual Accounts have proposed establishing a new higher minimum benefit, thus arguing that low-earners would benefit from privatization. They are not proposing an increase in current law benefits. Rather, they are comparing the benefits that would be higher than the benefits available if absolutely nothingis done to improve the program’s long-term solvency. Moreover, under some proposals, eligibility for the new minimum benefit would require an individual to work 30 years, a criterion which most women would fail to meet. Meanwhile, guaranteed benefits would be cut from the levels promised under current law.
It is important to assess both the efficiency and costs of providing proposed benefits for low earners in comparison with those offered by the National Council of Women’s Organizations in the 1999 report, Strengthening Social Security for Women (as well as other proposals). Benefits can be raised for low earners much more cost effectively without incurring the unnecessary cost of setting up individual private accounts.
Other Options to Address Solvency
Even without any changes to the current system, the Social Security program will pay current law benefits in full for nearly forty more years. In 2038, Social Security will be able to meet 73 percent of current law benefits. This is not a crisis. Nevertheless, prudent action to address the program’s long-term solvency, as well as to improve benefits and equity, is appropriate at this time. The current Social Security system’s long-term financing could be improved with prudent minor changes enacted in the near future.
The National Council of Women’s Organizations (NCWO) is considering several proposals to enhance revenue for the current system, including adjusting the maximum wage base subject to the payroll tax and collectively investing a portion of the Trust Fund in equities. These modest changes, coupled with economic growth comparable to what the nation’s has experienced in the past, should go a long way to extending the life of the Social Security program decades into the future.
Strengthening Social Security for Women
NCWO believes that improvements to the system are necessary and can be achieved at a modest cost and within the framework of ensuring solvency.
The NCWO Task Force recommends that the benefits payable to survivors of married couples be raised to 75 percent of the couple's combined benefits, limiting the benefit (to that received by one steady, maximum earner) so that it does not disproportionately benefit the highest income spouses. This would benefit the largest group of elderly women who are poor –widows. This increase should be higher than 67 percent to help survivors of one-earner and two-earner couples, and the current spousal benefit of 50 percent should not be reduced to pay for the increase in benefits. Such a benefit increase could be enacted at any time, without reference to privatization. In its report, Strengthening Social Security for Women, NCWO explored several different ways of more adequately compensating women, whether married or not, for their unpaid care giving work.
The NCWO Task Force also recommends raising Social Security benefits for the lowest earners. This would help elderly single and divorced women, who have a higher poverty rate than do widows. The numbers in this category are increasing, especially among African-American women. The Task Force endorses the approach suggested by Dean Baker, of the Center for Economic Policy Research. He suggests raising the replacement rate for those with the lowest earnings (below the first bendpoint) from 90 percent to 100 percent, and phasing out the benefit so that increases would be limited to those with low average indexed monthly earnings.
The NCWO Task Force also recommends that benefits for divorced spouses be raised to75 percent of the former spouse’s benefit (while he is still living), rather than the current 50 percent. Upon the death of the former spouse, the divorced spouse receives the full widow’s benefit of 100 percent of the deceased’s benefit and this should continue.
The NCWO Task Force also recommends that any proposed changes to Social Security include amendments to Supplemental Security Income (SSI), to help the poorest recipients and ensure that the package leaves SSI recipients better, not worse, off than they are today. We support raising the SSI income disregards. All proposals to reform Social Security should also ensure that Medicaid eligibility is not affected by the increase in Social Security benefits.
Conclusion
In short, Social Security privatization would weaken the safety net for the nation’s women and families rather than strengthen the program.
We urge you to abandon an individual account carve out approach and to address the modest financing gap with the prudent changes outlined above.
Thank you again for this opportunity to share our concerns. Should you have any questions, please don’t hesitate to contact me at 202/785-5100.
References
Shaw, Lois, Catherine Hill, and Heidi Hartmann, 2000. "Trends in Social Security Policy: Implications for Women." Washington, DC: Institute for Women's Policy Research, February 3.
Shaw, Lois, Diana Zuckerman, and Heidi Hartmann, 1998. Social Security Reform and Women. Washington, DC: Institute for Women's Policy Research.
Smeeding, Timothy, Carroll Estes, and Lou Glasse, 1999. Social Security and Older Women: Improving the System. Washington, DC: Gerontological Society of America.
NCWO’s Task Force on Women and Social Security developed a “Social Security Checklist” to evaluate Social Security reform proposals.
Does the proposal:
Address the Long-term Solvency of the Social Security system? Social Security is, perhaps, the most successful government program ever. Millions of Americans receive monthly benefit checks. This social insurance safety net is critical to ensuring that the most vulnerable can depend on receiving a basic level of guaranteed income in times of need. It also provides an inflation-adjusted supplement to those with other retirement income.
Continue to help those with lower lifetime earnings, who are disproportionately women? Social Security’s benefit formula is currently structured so that the lowest paid workers receive benefits that replace a higher proportion of their pre-retirement earnings than higher-wage workers. Many of the lowest paid workers have no pension from their jobs. Any reform must retain this feature benefiting lower-paid workers.
Maintain full cost-of-living adjustments? Social Security’s annual cost-of-living increase (COLA), which is indexed to inflation, is a crucial protection against the erosion of benefits. Because women live longer than men, on average, and rely more on Social Security since they often have no other source of retirement income, this provision is particularly important to women. Even when employment-based pension income is available, it is rarely inflation protected.
Protect and strengthen benefits for wives, widows, and divorced women? Social Security’s family protection provisions help women the most. Social Security provides guaranteed, inflation protected, life-time benefits for the wives of retired workers, widows, and divorced women, many of whom did not work enough at high enough wages to earn adequate benefits of their own.
Preserve disability and survivor benefits? Social Security provides benefits to 3 million children and the remaining care-taking parent in the event of the premature death or disability of a working parent. Spouses of disabled workers and the widows (or widowers) of workers who died prematurely also receive guaranteed lifetime retirement benefits. Two out of every five 20-year-old today faces premature death or disability before reaching retirement age.
Ensure that women’s guaranteed benefits are not subject to the uncertainties of the stock market? Proposals to divert current payments from the Social Security system into individually-held private accounts, whose returns would be dependent on volatile investment markets and would not be guaranteed to keep pace with inflation, would reduce the retirement income of many women. Without the guarantees of a shared insurance pool, cost-of-living increases, and lifetime benefits, many women could easily outlive their assets.
Address the care giving and labor force experience of women? In the current Social Security system, women are "compensated" for their care giving through the existence of spousal benefits. Although marriage and work patterns have changed since Social Security was established, many women continue to benefit from these provisions. The benefit formula for workers, which generally helps those with low lifetime earnings, also favors those with 35 years of labor force participation years, which many women lack because of family care giving. Moreover, the effects of sex-based wage discrimination during their working years are not fully offset by the more generous treatment lower earners receive. Such issues as divorce, taking time out of the workforce for care giving, the difference in current benefits between one- and two-earner couples, and the inadequacies in benefits for surviving spouses must be considered at the same time that solutions to strengthening the financial soundness of Social Security are being sought.
Further reduce the number of elderly women living in poverty? Social Security has helped reduce poverty rates for the elderly, from 35 percent in 1959 to less than 11 percent in 1996. In 1995, the poverty rate for all women over the age of 65 was 13.6 percent while the poverty rate among older women who lived alone was 23.6 percent. Without Social Security, the poverty rate for women over 65 would have been an astonishing 52.9 percent. Nevertheless, unmarried women still suffer disproportionately; single, divorced, and widowed women aged 65 or older have a poverty rate of 22 percent, compared with 15 percent for unmarried men and 5 percent for women and men in married couples.
Member
Organizations of the Task Force on Women and Social Security,
National Council
of Women’s Organizations:
American
Association of University Women
Business and
Professional Women, USA
Center for
Advancement of Public Policy
The Feminist
Majority Foundation
Institute for
Women’s Policy Research
MANA, A National
Latina Organization
National Committee
on Pay Equity
National Council of
Negro Women
National
Organization for Women
National Women’s
Law Center
Older Women’s
League
Wider Opportunities
for Women
Women’s Action
for New Directions
Women’s Institute
for a Secure Retirement