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Congressional Testimony
June 27, 2000, Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3267 words
HEADLINE:
TESTIMONY June 27, 2000 JOSEPH RUGOLA AMERICAN FEDERATION OF STATE
HOUSE SOCIAL SECURITY GOVERNMENT
BODY:
June 27, 2000 TESTIMONY OF JOSEPH RUGOLA INTERNATIONAL VICE PRESIDENT of the
AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES (AFSCME), AFL-CIO
before the SUBCOMMITTEE ON SOCIAL SECURITY COMMITTEE ON WAYS AND MEANS U.S.
HOUSE OF REPRESENTATIVES on SOCIAL SECURITY REFORM Good morning, Mr. Chairman
and Members of the Subcommittee. I am Joseph Rugola, International Vice
President of the American Federation of State, County and Municipal Employees
(AFSCME) and Executive Director of AFSCME Local 4 -- the Ohio Association of
Public School Employees (OAPSE). I appreciate the opportunity to be here today
in order to express AFSCME's opposition to mandatory Social Security coverage
for public employees who do not currently participate in the system. We would
also like to share our experiences with the Government Pension
Offset (GPO), a federal law that's had a devastating effect on so many
of our members. My local union, known as "OAPSE," represents nearly 40,000
workers in school districts throughout Ohio. Ohio is a stage that does not
participate in Social Security for its public employees. Our OAPSE members are
covered, instead, under SERS -- Ohio's School Employees Retirement System --
which is a defined benefit pension plan. While our members cant receive Social
Security benefits based on their earnings in public service, they can receive
benefits as the spouse or widow of a Social Security-covered worker.
Unfortunately, the Government Pension Offset demands that they
reduce these Social Security benefits by two-thirds of the amount of their
public pension. Currently, the average RS pension is less than $500 a month.
These relatively low pensions reflect the lower-paying job categories and work
patterns of school district employees, who are predominantly women4 Our members
are school cafeteria workers, crossing guards, bus drivers and custodians. Many
retire after a full-length career as school district employees, but they may
have worked only a 30-hour week -- a pattern we call "short- hours." Others may
have had less than a full career -- say 15 or 20 years in their school district
following divorce or child rearing. Most of these women began their careers
expecting to retire with both a public pension and a Social Security spouse
benefit. It's a shock when they realize that they will not receive a much-
needed portion of their expected retirement income. We recognize that
priv4e-sector workers cannot receive full Social Security benefits from their
own work plus full benefits from a spouse. This rule for dually-eligible Social
Security beneficiaries is supposed to be the basis for the GPO. But the
situations really are not comparable. To start, school district employers in
Ohio contribute 13.5 percent of payroll to SERS. The workers 'share is more than
8 percent. The total of these contributions -- 21.5 percent -- is nearly double
the combined employer-employee contribution under Social Security. These rates
are typical for public pensions in non-Social Security jurisdictions. The GPO
law assumes that the public-plan contributions that exceed Social Security rates
are the equivalent of contributions to a private pension plan. This reasoning
precipitated the 1983 offset revision, which reduced the original I 00 percent
offset to the current two-thirds. But even the two-thirds calculation is very
imprecise and not very fair. Consider the fact that most private pension plans
do not require any contributions from workers. They're financed completely by
the employer. Nevertheless, when the workers retire they get their full pension
benefit plus their full Social Security benefit, with no offset of any kind.
Meanwhile, our members pay on both the front and back ends. To make matters
worse, their entire pension benefit is subject to federal income taxes, while
Social Security benefits are tax-free for most retirees. To see how much the GPO
can hurt, take a look at two of the members of our retiree organization. Due to
time limitations, they will have to represent the many, many calls and letters
that OAPSE regularly receives from GPO victims. Take Shirley Milburn of Windsor,
Ohio, for example. Her SERS pension check is $405 a month. Her husband's monthly
Social Security benefit is $786.30. Normally, she could expect to receive a
spousal benefit equal to half his benefit, or $393.15. Instead, the GPO reduces
it to only $121.80, giving her a total retirement benefit -- pension plus Social
Security -- of only $526.80 a month. And from that amount, she must still deduct
her Medicare Part B premium of $43.80. Another example is Donna Stevenson, an
OAPSE member who retired to Lake Park, Georgia. Her SERS pension is $534.39 a
month and her husband receives $827.60 a month from Social Security. Instead of
getting a spousal benefit of $413.80, Donna's benefit from Social Security is
only $55.80. When she deducts her Medicare premium, she's left with a monthly
check of only $12. It's my understanding that when the GPO was first enacted, it
was meant to target people receiving multiple government pensions, some of whom
had higher incomes in retirement than they had while working. Our members just
don't fit the image of these so-called "double and triple dippers." Clearly,
Congress did not have them in mind when the GPO was passed. That's why AFSCME
strongly supports H.R. 2273, the GPO reform bill sponsored by Louisiana
Congressman William Jefferson. The Jefferson bill would permit public pensioners
who were not covered by Social Security to keep as much as $1,200 a month in
combined pension and Social Security spouse or widows' benefits before the
two-thirds offset is imposed. We believe this will protect thousands of
low-pension women who badly need their Social Security benefits to keep them out
of poverty. It's a targeted approach to GPO reform and it makes good sense. If
H.R. 2273 were in effect today, Shirley Milburn would be a lot better off. She
could keep her SERS pension check of $405.00 a month, plus her entire Social
Security spouse benefit of $393.15. This would give her a combined monthly
benefit of $798.15 -- well within the bill's $1,200 limit. Donna Stevenson would
also be in much better shape. She'd receive a total monthly benefit of $948.19
and could put a few of her financial worries to rest. We urge the Members of the
Social Security Subcommittee to give careful consideration to H.R. 2273. Shirley
and Donna -- and thousands more like them -- desperately need your support. Just
as we oppose the punishing effects of the Government Pension
Offset, AFSCME opposes any action to mandate Social Security
participation for state or local governments that do not currently provide
Social Security coverage to their public employees. Nearly 25 percent of public
employees are not covered by Social Security. About the same percentage of
AFSCME members are in this category. But these individuals do not lack pension
protection. Nearly all are covered by state or local defined benefit pension
plans. Furthermore, the Omnibus Budget Reconciliation Act (OBRA) of 1990 has
already ensured that any temporary, part-time or seasonal employee not covered
by one of these public plans be covered under Social Security. So, already there
is basic pension protection for all American workers -- private and
public-sector. There is no need to mandate Social Security coverage in an effort
to protect workers' interests. Public employees and their employers have been
given ample opportunity to come under Social Security. Most have voluntarily
done so. Those still outside the system clearly prefer their own state or local
pension plans. The vast majority of these plans are healthy and actuarially
sound. Most of them have been in existence longer than Social Security and were
designed to function without it. They have excellent records for providing
disability protection and retirement security to their participants. ' Mandated
Social Security coverage could have serious implications for public employees,
their employers, and their pension plans, even if the coverage applies only to
ftiture hires. Employees (i.e., future hires) would be required to pay 6.2
percent of their paychecks in FICA tax, even though most are already making
substantial contributions to their public employee pension plans. Unlike the
private sector -- where plans are usually financed entirely by employers --
contributions by public workers in non-Social Security jurisdictions typically
range from 8 to IO percent of pay. Adding the Social Security payroll tax would
create an unaffordable burden for millions of these workers, most of whom have
lower- to middle-incomes. Employers would also be required to contribute 6.2
percent of payroll to Social Security, on top of the contributions they now make
to fund their own pension plans (typically 13 to 15 percent of payroll). Many of
the states most affected, such as California and Massachusetts, have only
recently pulled themselves out of deep fiscal crises and simply cannot afford to
meet this new expenditure. If forced to do so, the result could be a loss of
jobs and public services. Faced with a requirement to pay the Social Security
payroll tax on behalf of employees, governments would most likely try to create
new pension plan tiers for new hires that would integrate Social Security with
supplemental public pensions. This could result in reduced benefits, increased
employee contributions and changes in retirement ages. Benefit structures for
future retirees could be drastically altered. It could also destabilize public
pension funds for today's workers and retirees. Benefits in existing public
pension plans rely heavily on a fund's investment earnings. If some of these
investments are cut off and the proceeds diverted to new plans, it could spell
serious trouble for AFSCME members and other public employees. The result could
be the inability of pension plans to pay promised benefits to current
participants, unless taxes are raised to fund much higher employer
contributions. In addition to reductions in basic benefits, plans would be
forced to look seriously at other types of cuts -- in already small cost-of-
living adjustments or retiree health care coverage, for example. AFSCME believes
that mandatory coverage would create havoc for public retirees, while providing
only limited relief for Social Security. After all, an influx of new funds might
help with a quick fix, but eventually the new participants will be eligible to
collect benefits. At that point, they might create new problems for Social
Security. In closing, we would like to emphasize AFSCME's strong support for
strengthening Social Security -- our nation's great system of income protection
that touches the lives of most American workers, including 75 percent of AFSCME
members. AFSCME opposition to mandatory coverage is not based on a belief that
Social Security doesn't work. We think it does a remarkable job of providing
basic security and shielding participants from potential poverty. Rather, we
oppose mandatory coverage because it will cause serious problems for a group of
workers and retirees who have never been part of that system. For the majority
who do participate in Social Security, we advocate maintaining the system's
current social insurance structure, while making the moderate changes necessary
to ensure the system's long-term solvency. Thank you.
LOAD-DATE: July 10, 2000, Monday
