Copyright 1999 Federal News Service, Inc.
Federal News Service
FEBRUARY 3, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
4578 words
HEADLINE: PREPARED TESTIMONY BY
JOAN
ENTMACHER
VICE PRESIDENT AND DIRECTOR, FAMILY ECONOMIC SECURITY
NATIONAL
WOMEN'S LAW CENTER
BEFORE THE HOUSE WAYS AND MEANS
COMMITTEE
SOCIAL SECURITY SUBCOMMITTEE
SUBJECT - SOCIAL SECURITY AND
WOMEN
BODY:
Chairman Shaw and members of the
Subcommittee on Social Security, I am Joan Entmacher, Vice President and
Director of Family Economic Security of the National Women's Law Center. I thank
the Chairman for calling this hearing, and for highlighting the importance of
Social Security to women at the very beginning of the debate in this Congress. I
appreciate the opportunity to testify before you today.
The National Women's
Law Center is a non-profit organization that has been working since 1972 to
advance and protect women's legal rights. The Center focuses on major policy
areas of importance to women and their families including employment, education,
women's health, and family economic security, with special attention given to
the concerns of low-income women and their families. Most relevant to this
hearing, the Center has worked for more than two decades on issues of Social
Security and women. It has presented testimony on Social Security issues
affecting women to Congress, the Advisory Council on Social Security, and
several task forces of the Department of Health and Human Services. The Center
served on the Technical Committee on Earnings Sharing in Social Security and
co-authored its report, and served on the Congressional Study Group on Women and
Retirement for the Select Committee on Aging of the House of Representatives,
and co- authored and presented its Social Security recommendations.
SOCIAL
SECURITY'S GUARANTEED, LIFETIME RETIREMENT BENEFITS AND FAMILY PROTECTIONS ARE
ESPECIALLY IMPORTANT TO WOMEN.
Social Security is important to the economic
security of all Americans, but it is especially important for women. Women are
not only a large majority of Social Security recipients 65 and older -- 60
percent -- but also depend more on Social Security income for their basic
economic security. Social Security accounts for more than half of the total
income of widows and other women living alone, and is the only source of income
for 25 percent of such women. Even with Social Security, elderly women still
have a poverty rate nearly twice that of elderly men (13.1 percent v. 7 percent
in 1997). But without Social Security, over half of all elderly women and over
60 percent of elderly single women would be living in poverty.
As Congress
considers the future of Social Security, and proposals for alternative
retirement programs, it is critical to remember that, especially for women,
Social Security is not just a retirement program. In 1997, two-thirds of adult
recipients of Social Security benefits were retired workers. The remaining third
were disabled workers, spouses, surviving spouses, or disabled adult children.
But the distribution of men and women between those two categories is very
different. The overwhelming majority of male adult beneficiaries -- 82 percent
-- were in the retired worker category. In contrast, only 56 percent of adult
female beneficiaries received benefits as retired workers. (This 56 percent
includes "dually entitled" women who were eligible for retired worker benefits
themselves, but received higher benefits as spouses.) Nearly half of adult
female beneficiaries, 44 percent, relied on Social Security's disability and
family protections. And these figures are just for adult beneficiaries -- they
do not include the nearly 4 million children who received benefits because a
parent died or became disabled.
The announcement of this hearing correctly
notes that several features of Social Security are particularly important to
women. I'll briefly discuss why and how these protections are important to
women; why they will continue to be important for younger women, despite their
different work histories; why proposals to transform Social Security, in whole
or part, to a system of individual accounts -- including the Feldstein proposal
-- pose inherent risks for women; and finally, I will offer some proposals for
strengthening and improving the current system for women.
THE CURRENT SOCIAL
SECURITY SYSTEM INCLUDES SEVERAL FEATURES OF SPECIAL IMPORTANCE TO WOMEN.
-
Social Security provides guaranteed, lifetime retirement benefits with a cost of
living adjustment. This provides women, who on average have less pension income,
lower savings, and a longer life expectancy than men, with a secure, basic
retirement income, protected against inflation, for as long as they live.
-
Social Security's progressive benefit formula provides women, and others who
have worked for low wages, with retirement benefits that are a larger percentage
of average lifetime earnings. For the median female retiree, Social Security
replaces 54% of average lifetime earnings compared with 41% for the median male.
- Spousal and survivor protections are available on a gender-neutral basis
-- but it is overwhelmingly women who rely on these family protections. Social
Security provides benefits to surviving spouses, and to the spouses of retired
and disabled workers: over 98 percent of the recipients in these categories are
women. In addition, Social Security allows individuals who are entitled to
worker benefits on their own, and to benefits as a spouse or survivor, to
receive the higher benefit. Currently, 63 percent of female Social Security
beneficiaries receive benefits based on their husband's earning record; only 1.2
percent of male beneficiaries receive benefits based on their wife's earning
record.
SOCIAL SECURITY'S PROTECTIONS WILL CONTINUE TO BE IMPORTANT TO
FUTURE GENERATIONS OF WOMEN.
Women today are working more and earning more
than past generations of women. But their lifetime earnings, access to pensions,
and ability to save, will continue to be less than men's for the forseeable
future. In the past 25 years, some subgroups of women -- especially those with a
college education and beyond -- have made significant gains in real wages. But
many women still work in the same kinds of jobs their mothers did, and their
real wages have been declining or stagnant until very recently.
The wage gap
between men and women has narrowed over time, but it persists. In 1997, the
median annual income for women in the labor force full-time, year round was
$26,029 -- just 74 percent of men's.
While women's -- and especially
mothers' -- participation in the labor force has increased dramatically over the
last 50 years, mothers -- especially of young children -- are still more likely
than fathers to work part-time, or be out of the labor force. In 1997, 60
percent of mothers with children under 6 were employed: 42 percent full-time, 18
percent part-time. In contrast, 93 percent of fathers of children under 6 were
employed: 90 percent full-time, 3 percent part-time. Mothers of older children
are more likely to be in the workforce, and to work full-time, than mothers of
younger children: in 1997, 74 percent of mothers of children between 6 and 17
were in the labor force, 56 percent full-time, 18 percent part-time. But 91
percent of fathers of children 6 to 17 were in the labor force: 88 percent full-
time, three percent part-time.
In addition, women today are much more likely
than men, or than women of previous generations, to bear the extra economic
burdens of caring for children alone.
Between 1970 and 1997, the number
of mothers raising children without a spouse in the home increased by 175
percent. And the economic problems faced by single mothers are great. In 1997,
over 80 percent of single parent families were headed by women. Their median
income, $17,256, was 40 percent less than the median income of single parent
families headed by a man ($28,668). According to the latest figures available
from the Census Bureau (for 1991), over 60 percent of custodial mothers, and
over three-fourths of poor custodial mothers, received no child support. In
1997, collections were made in only 22 percent of the cases in the child support
enforcement program.
Women's caregiving responsibilities -- and the impact
of caregiving on women's employment -- are not limited to childrearing years. A
recent survey reported by the National Academy on an Aging Society found that
women represent nearly three-quarters of persons providing informal,
uncompensated care for people 50 and over. These caregiving responsibilities
affect their work: 49 percent have had to make changes in their schedules, 11
percent have had to take a leave of absence, 7 percent have had to take a less
demanding job, and some have to leave the workforce entirely.
The wage gap
and different work patterns mean that women still have lower incomes than men of
the same age. In the 15-24 age group, women's median income is 85 percent of
men's. In the 25-34 age group, it drops to 68 percent. In the 35-44 year age
group, women's income is 57 percent that of men; in the 45-54 age group, 55
percent; 55-64, 46 percent.
Although a higher percentage of women in the
future will receive Social Security benefits on their own earnings record,
Social Security's family protections still will be more important to women than
men in the decades ahead. In 2060 -- when today's 6 year olds will be eligible
for retirement, assuming the normal retirement age is not extended further --
the Social Security Administration projects that the percentage of women
receiving benefits based on their own earnings history will have increased from
37 to 60 percent. On the other hand, 40 percent of women still are expected to
receive benefits based on their husband's earnings history -- if that option is
still available.
Lower incomes, and especially heavy economic burdens for
the much higher percentage of women than men that spend time raising children
alone, means that many women have less ability to save for retirement than men.
And despite their increasing years in paid employment, women will still be less
likely than men to qualify for pensions. Most working women -- about 55 percent
-- have jobs in service industries or the retail trade where pension coverage is
less common than in predominantly male manufacturing jobs. And part-time jobs
and interrupted work histories mean fewer women than men will qualify for
pensions, even if their employers offer them.
Women's life expectancy is
expected to increase, as is men's -- but the gap will persist. So the risk of
outliving any other assets will be continue to be greater for women. And
because, on average, husbands are older than wives, women in the future still
face more years living alone, on a reduced income, without a spouse to provide
informal care.
In announcing this hearing, Chairman Shaw stated: "Women make
great sacrifices for American families at home and in the workforce every day."
That statement is as true for younger women who straggle to balance work and
family responsibilities, and pay a substantial economic price for doing so, as
it is for older women who were more likely to be full-time homemakers and
caregivers. And it means that younger women, too, will be at much greater risk
by any changes to the system that undermine Social Security's guaranteed,
progressive, inflation-protected lifetime retirement benefits and family
protections, whether through a system of individual accounts or otherwise.
REDUCING OR UNDERMINING SOCIAL SECURITY'S PROTECTIONS POSES INHERENT RISKS
FOR YOUNGER AND OLDER WOMEN.
Most individual account proposals would divert
a portion of payroll taxes away from the Social Security trust fund into
individual accounts. In exchange for reductions in guaranteed benefits, they
hold out the possibility that the individual account will provide a higher
return than Social Security. But the odds of this happening are stacked against
women.
In contrast to Social Security's progressive benefit formula,
benefits from individual accounts are directly related to the size of the
individual's contribution and the return on investment, minus administrative
costs. Lower earning workers, such as women, have less to invest, and much less
that they can afford to put at risk. Administrative costs are likely to consume
a higher portion of their savings. Some sort of a "safety net" for the lowest
earners could be devised; however, the "safety net" benefits that have been
suggested would be lower than benefits under the current structure for most
women. And history suggests that safety net benefits would be much more
politically vulnerable than Social Security's integrated, progressive, social
insurance approach.
Proponents of individual accounts have stated that they
would be "the property of each investing worker." Such statements should -- and
do -- give women pause. Would "investing workers" be required to provide
protections for spouses? Surviving spouses? Divorced spouses? Children? When
individual accounts are being portrayed as individual property, are such
requirements politically feasible? And even if account holders were required to
make provision for joint and survivor annuities, how substantial would these
benefits be? Under Social Security, the cost of providing benefits for spouses
and survivors is widely shared. How many workers would save enough to provide
family protections comparable to Social Security's, especially for the families
of workers who die or become disabled at a relatively early age? If workers are
encouraged to consider these accounts as individual property, how long will it
be before Congress permits them to access their individual accounts before
retirement, as they can their IRAs and 401(k)s? What would the consequences be
for their basic retirement benefits -- and their families'?
Because women
are expected to continue to live longer than men, they will be especially hard
pressed to obtain through the market the lifetime protection that Social
Security provides. Lifetime annuities can be purchased. But converting to an
annuity -- which is done all at once -makes a woman's lifetime retirement
benefits extremely sensitive to the state of the stock market at the time of the
conversion. In addition, the costs of converting savings to an annuity are high.
Economist Henry Aaron estimates that overall, 30 to 50% of the savings in an IRA
or 401(k) individual account converted to an annuity are lost to administrative
and management fees and the cost of conversion. Few private annuities are
indexed for inflation. And most private annuities -- unlike Social Security --
base monthly payments on gender, providing women with lower lifetime benefits
even when their investment is equal to men's.
ALTHOUGH THE FELDSTEIN PLAN
PURPORTS TO MAINTAIN THE CURRENT BENEFIT STRUCTURE, IT TOO POSES SERIOUS RISKS
FOR WOMEN.
The latest proposal for making individual accounts part of Social
Security was developed by economist Martin Feldstein. It promises to maintain
the current benefit structure, and provide additional retirement income to most
retirees, without raising taxes. Sounds too good to be true - it is too good be
true, especially for women. There are three major problems.
- The costs of
the Feldstein plan fall disproportionately on women.
Unlike other individual
account proposals, the Feldstein plan promises not to reduce guaranteed
benefits. But women should not depend upon this promise.
How is this plan to
be paid for? In the short run, the Feldstein plan is financed by taking all, or
virtually all, of the projected unified federal budget surplus to finance the
contributions to individual accounts. That poses particular risks for women's
retirement security.
The economic security of older women, to a greater
extent than older men, depends not only on Social Security, but on adequate
health care coverage. Compared with men, elderly women will spend more years
living with a disability, are much more likely to need long-term care, and
already spend a higher proportion of their income on medical costs. The
President has proposed reserving 15 percent of the unified budget surplus to
support the Medicare trust fund - that wouldn't be an option if the Feldstein
plan were adopted. Deeper cuts in health benefits, more cost-shifting to
beneficiaries, a delay in the eligibility age for Medicare: these would be the
available options, and all hurt women more than men.
Using all the projected
surplus to fund the individual accounts proposed by Feldstein has other
consequences for women.
It means that other programs of special
importance to women, including education and child care, would face budget cuts.
And, in the long run, even projected surpluses will not be enough. CBO and
Social Security actuaries reject the claim that the program will ever be
self-financing. In the future, when surpluses disappear, sustaining the program
will require benefit cuts, tax increases, or a lot of deficit spending. This is
not a way to offer retirement security to younger women -- or men.
-
Benefits under the Feldstein plan accrue disproportionately to higher earners --
disproportionately men.
Economists Henry Aaron and Robert Reischauer
estimated the returns to low and high earners under the Feldstein proposal,
making the optimistic assumption that low and high earners would obtain the same
rates of return on their individual accounts.
(NOTE: TABLE NOT
TRANSMITTABLE)
As the table shows, the gains for high earners --
disproportionately men -- would be five to six times as great as the gains for
low earners --disproportionately women, and more than twice as high in
percentage terms.
- The Feldstein plan undermines the long-term viability of
Social Security as a social insurance program.
The Feldstein plan is
financed by reducing Social Security benefits by $3 for every $4 in income
provided by the individual accounts. This could be viewed as a 75 percent tax.
The consequence of this approach is -- as the table above shows -- that high
earners, who contribute more to Social Security, would appear to get smaller
Social Security benefits, in absolute dollar terms, than low earners. It is hard
to imagine that such a situation could endure for very long.High earners would
demand a lower tax rate -- the right to keep more of "their account" (even
though contributions had been financed by the budget surplus). If a future
Congress responded, then the promised benefits to lower income beneficiaries,
disabled workers and family members would have to be cut -- with potentially
devastating results for women.
PROTECTING AND IMPROVING WOMEN'S ECONOMIC
SECURITY IN RETIREMENT.
- To protect the economic security of women now and
in the future, Congress should preserve and strengthen the Social Security
system.
The President has made two proposals that are projected to extend
the solvency of the Trust Fund for an additional 23 years, to 2055. First, the
President has proposed dedicating 62 percent of the projected budget surplus --
about $2.7 trillion dollars -- to the Social Security Trust fund. Second, the
President would allow a portion of what are now substantial Social Security
reserves to be managed more like a prudent pension fund would be -- by
diversifying the investment portfolio beyond Treasury bills to include some
equities, with special protections to assure the independence of investment
decision-making. This would permit the Trust Fund to benefit from the projected
growth in the stock market over time, without exposing individual investors to
market risk.
As the President acknowledged, these proposals do not fully
resolve Social Security's long term financing issues. But they substantially
narrow the gap, meaning that smaller adjustments in taxes and/or benefit levels
will be required to bring the system into long term balance. That is especially
important to women. And as you consider such adjustments, we urge you to
consider carefully the impact of the proposals on women, and other groups that
are already disadvantaged. For example, reducing the cost of living adjustment
below the Consumer Price Index would have the greatest impact on people who live
longer -- i.e., women -- who already face an increased risk of poverty in
extreme old age. Raising the payroll tax rate imposes a heavier burden on lower
wage workers, including women. Increasing the number of years used to calculate
benefits would disadvantage women, because they are more likely to spend time
out of the work force for caregiving. Raising the retirement age further would
pose additional hardships for many older women. Many women work in physically
stressful and demanding jobs; a reduction or delay in benefits for women, who
have less other income, is more of a hardship than for men. And while many older
women would be able and willing to continue working, they face greater
discrimination and caregiving responsibilities that can interfere with their
ability to work. There are other, fairer, options this Subcommittee should
consider to extend the solvency of the Trust Fund, such as increasing the amount
of earnings subject to the payroll tax cap.
- Adjustments can be made within
the framework of Social Security to reduce poverty among older women.
Over
the years, the Social Security system has evolved to provide better protections
for all Americans -- especially women. Initially just a program for worker
retirement benefits, family benefits were soon added, then benefits for disabled
workers and their families. The automatic cost of living adjustment legislated
in 1972, and the 1977 reduction in the duration-of-marriage requirement for
ex-spouses to qualify for benefits (from 20 to 10 years) significantly improved
the financial situation of older women. This Congress can and should make
changes, within the framework of the existing system, to reduce poverty among
older women.
Poverty rates vary greatly among different subgroups of women.
Poverty rates for married women, who represent 43 percent of women 65 and over,
is less than 5 percent. Poverty rates for women living alone, nearly 80 percent
of whom are widows, are much higher -- around 20 percent -- and are higher than
for similarly situated men, though widowed and divorced men also experience
higher rates of poverty than married men.
There are several options Congress
should consider to reduce poverty among the elderly, especially women. The most
significant would be to increase the survivors' benefit as a fraction of the
combined income of husband and wife; for example, to 75 percent of the combined
benefits of husband and wife if that is greater than 100 percent of the benefit
of either.
The major reason for the increase in poverty at widowhood,
empirical studies indicate, accounting for 50 percent of the difference in
poverty rates between married women and widows, is the decline in Social
Security benefits at widowhood. While both the husband and wife are living, they
receive two benefits: the husband's worker benefit and the wife's benefit,
either her own earned benefit or 50 percent of the husband's benefit, whichever
is larger. Upon widowhood, the survivor receives the larger of her own benefit
or her husband's benefit, whichever is larger. For couples in which the wife was
receiving the 50 percent spousal benefit, this means a 33 percent drop in Social
Security income. For couples receiving equal benefits, because they had similar
work histories, widowhood means a 50 percent drop in Social Security income.
Increasing the survivor's benefit to 75 percent would benefit both groups, but
would have its greatest impact on two earner couples. Thus, in addition to
alleviating poverty among surviving spouses, this change would provide greater
equity for two earner couples.
Second, Congress should reduce the nearly 100
percent tax imposed on the Social Security benefits earned by the poorest
recipients. The Supplemental Security Income (SSI) program (which is separate
from the OASDI trust fund) provides a safety net for poor elderly, blind, and
disabled people. However, in calculating eligibility and benefit levels for SSI,
only $20/month of the Social Security benefits they have earned is disregarded.
The rest of their Social Security benefits simply reduces their SSI benefits
dollar for dollar: an effective 100 percent tax on Social Security benefits over
$20/month. The $20 disregard was set back in 1972, and has never been changed.
Adjusting it for changes in the Consumer Price Index since 1972 would bring the
disregard to $78.50/month. This approach effectively targets poor older women:
73 percent of elderly SSI recipients are women. It represents no cost to the
Social Security trust fund, though it does affect the rest of the budget.
In
addition, there are various rules that disproportionately impact certain groups
of women. For example, the government pension offset rule,
which applies regardless of the size of the government pension or Social
Security payment, disproportionately hurts women who have smaller pensions and
benefits. The earnings test, applied regardless of prior work history, falls
especially heavily on older women who return to the workforce after many years
of caregiving (President Clinton has suggested eliminated the earnings test
altogether).
In addition to these adjustments within the Social Security
System, Congress should:
- Consider ways to help lower income workers save
for retirement separate from Social Security.
Social Security represents a
secure basic retirement benefit, but was not designed to be the sole source of
income in retirement. In recent years, Congress has created several
tax-advantaged methods of saving for retirement -- but many women and other
lower income earners have been unable to take advantage of them because they
have so little disposable income.
The President has proposed using part of
the budget surplus to create new Universal Savings Accounts separate from Social
Security. The concept is that a small initial contribution would be made by the
government for most workers; additional voluntary contributions from low-income
savers would be matched at a higher rate than contributions from higher-income
savers.
The proposal has the potential for increasing retirement savings for
women and others less likely to have savings, without jeopardizing the future of
Social Security. However, it also raises serious questions.
- How much of
the benefit of these expenditures will go to lower income people, and how much
to higher income people? What are the short and long-term budgetary
implications?
- Will the accounts only be for workers? What provision will
there be for spouses, divorced spouses, survivors and children, and for persons
who take time out of the workforce for caregiving?
- How will the accounts
be managed? Especially for small accounts, how will administrative costs be
minimized?
Finally, improving economic security for women in retirement
involves even more than preserving and improving Social Security, preserving and
improving Medicare, and promoting savings and pensions as sources of retirement
income for women. It also involves improving economic security for women
throughout their lives: promoting equal employment and educational opportunity,
pay equity, higher minimum wages, child support enforcement, and assistance with
caretaking burdens that fall especially heavily on women, including expanded
child care and family and medical leave. In closing, I want to again thank the
Chairman, and the members of the Subcommittee, for focusing attention on the
importance of Social Security to women, and on ways this vital program can be
made even better.
END
LOAD-DATE: February 5,
1999 
