SECURE RETIREMENT 
The Magazine for Mature Americans  

January/February
2002 Issue
Vol. 11
No. 1

An official publication of the National Committee to Preserve Social Security and Medicare (NCPSSM)      

PRESIDENT'S VIEW

• Standing Together in 2002
  by Martha A. McSteen

• Privatization of Social Security
  by Lee Goldberg

• Signed, Sealed, Approved
  by Kristin K. Nauth
  
  

Standing Together in 2002
by Martha A. McSteen

We face this year the greatest challenge our country has experienced in decades. Your demonstrated strength in the past reassures me that together, we will triumph in efforts to assure our successful democracy for future generations.

But in the process, we cannot forget other responsibilities, like assuring the well-being of seniors, the disabled and other vulnerable groups. Social Security, which has achieved this goal in a progressive and fair manner, faces the prospect of huge changes that may hurt its ability to meet that goal.

Yes, long-term shortfalls in the system must be addressed, but Social Security is not "in crisis" and doesn't need the radical restructuring that is being touted right now.

The National Committee to Preserve Social Security and Medicare's mission, "to protect, preserve, promote and ensure the financial security, health and well-being of current and future generations of maturing Americans," has never been more significant. Our name itself implies that Social Security and Medicare are fundamental for all ages.

However, while preserving Social Security is critical, it isn't the only issue in the world. You undoubtedly have welcomed the new year with great resolve to do your part in assuring that our democracy will continue to flourish in this land of the free and the brave. We have done the same. What a privilege that is!

Sept. 11 brought tremendous shock and sorrow to American citizens, and, at the same time, reminded us that through the centuries we have been successful in sustaining and enhancing our democracy.

The National Committee's valued members may not be in the armed services, but we do have an opportunity to maintain the values we have struggled to establish.

As individuals, we have a personal responsibility to invest and save for our respective futures. And, as we anticipate longer lives due to breakthroughs in science and medicine, we must ensure that our excellent healthcare system is accessible and affordable for today and tomorrow.

In this respect, I believe, our challenge should be focused particularly on the availability and affordability of prescription drugs. I perceive this issue to be equally as challenging as preserving our Social Security system.

Thank you for being a leader and supporter of your National Committee, as we stand steadfast in our resolve to maintain the America we love and honor.

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After six months of public hearings and closed-door deliberations, the President's Commission to Strengthen Social Security at last delivered its final recommendations for creating individual retirement accounts. And in a crowded downtown Washington hotel room, the commission's co-chairs—former U.S. Sen. Daniel P. Moynihan (D-NY) and Robert Parsons, the chief executive officer of media conglomerate AOL Time Warner—answered questions about the three options that the commission would present to President George W. Bush later in the month.

For anyone planning on retiring or who is counting on Social Security for disability insurance, the recommendations were disturbing news. And one lingering question hangs in the air: How hard will the president push for individual retirement accounts that partially privatize the Social Security program?

Roots of the Current Debate

Commission Long On Choices, Short On Answers In the final report of the President's Commission to Strengthen Social Security, the following options are recommended by the commission: Option 1:  Individuals would be allowed to invest 2 percentage points of payroll into personal accounts. The remaining 8.6 percentage points would continue to go to the Social Security trust fund. Guaranteed benefits would be reduced by 3.5 percentage points of payroll to make up the lost revenue to the program. Because the plan fails to achieve full solvency, it assumes that, at some future date, beneficiaries—whether or not they opt for private accounts—will experience a reduction in their defined Social Security benefits. This reduction in benefits would be equivalent to the projected shortfall. At present, with no changes to the system, this shortfall is projected to be 29 percent in 2038. Option 2:  Individuals would be allowed to invest up to 4 percentage points of payroll or a maximum of $1,000. The guaranteed benefit would be reduced by 2 percentage points. In addition, benefits would be calculated using price indexing rather than the current method of wage indexing. For a worker who earns the average wage throughout his or her career and retires in 2040, benefits would be cut by 24 percent below what he or she would be entitled under current law. An average wage earner who retired  in 2070 would face a benefit reduction of 43 percent compared to the current benefit structure. This option would increase benefits for the lowest wage earners so that by 2018, a 30-year minimum wage earner would be guaranteed a benefit equal to at least 120 percent of poverty. This plan would also increase the retiree benefit for spouses from the current 50 percent to 75 percent of the spouse's benefits, although the increase would be based on the reduced benefits under price indexing. Congress would be asked to appropriate an unspecified amount of general revenues to finance the transition. Option 3: Individuals would be allowed to invest at least 1 percent of workers' own income outside of payroll tax contributions. Guaranteed benefits would be reduced by an amount equal to 3.5 percent of payroll. A new indexing factor would be added to the benefit to take life expectancy into account. Benefits would be adjusted downward for those who take early retirement (currently about three-quarters of beneficiaries) and upward for those who delay retirement. There would be a decrease in the current "bend point factor" for the highest incomes from 15 percent to 10 percent in 2009. Congress would be asked to provide an unspecified amount of general revenue to provide refundable tax credits to provide incentives for the 1 percent personal contribution. There would be a minimum benefit guaranteed at 100 percent of the federal poverty line. Also, the benefit for surviving spouses would be increased to 75 percent of the spouse's earnings.

In summer 2000, Social Security was a top priority for candidate Bush. However, the tax cuts, the sagging economy and the war against terrorism have used up the budget surplus needed to make the transition to private accounts.

Many Republicans in Congress have urged the White House to delay privatization considerations until after the congressional elections in November because they do not want to run while defending cuts to Social Security benefits.

On the other hand, U.S. Rep. Clay Shaw (R-FL), the chairman of the House Ways and Means Subcommittee on Social Security, has vowed, "If I see the opportunity to move a bill forward, I will."

Commission Offers Flawed Options

Ironically, none of the plans proposed by the commission meet a key goal set forth by the president: to achieve solvency for the program over the next 75 years. It was this shortfall in revenue of approximately $2 trillion that initially generated public concern over the future of the program.

"We wasted time and money that could have been used to develop a more workable, more realistic way to improve the solvency of the Social Security program," said Max Richtman, executive vice president of the National Committee to Preserve Social Security and Medicare (NCPSSM), while addressing reporters after the commission's Dec. 11 meeting. "In fact, given the economy and the tax cuts that were passed last spring, we are in a worse position than we were six months ago."

The next step is up to Congress. "We are urging members of Congress to put aside this report and start the process over," NCPSSM President Martha McSteen says. "Congress needs to look at a wider array of options for improving the solvency of the program."

In the end, only a limited number of ways exist to fund a move to a partially privatized system: cut benefits, increase taxes or increase government borrowing. In all of its three recommendations, the commission has chosen cutting benefits as a major part of the solution. "The idea of using private accounts to provide large capital gains without cutting back on the defined benefit significantly is wishful thinking," asserts Scott Frey, an NCPSSM senior legislative representative. "The numbers just don't add up."

The report confirmed concerns that privatizing Social Security not only would shred an important social safety net for families and retirees, but it would worsen the program's  financial condition. "If Social Security is in a crisis, the last thing we should be doing is privatizing it," McSteen notes. "If Congress appropriated general revenue, we could ensure the solvency of Social Security without trading away the guarantee of a defined benefit for private accounts—and we could do it for less."

Plusses and Minuses

Advocates are concerned about more than just retirement benefits. The commission report fails to follow through on a key promise by President Bush: to preserve the disability program. According to the commission itself, even partial privatization will require Congress to consider significant changes to the disability program, which currently provides tens of millions of workers and their families with disability insurance benefits that in most cases they could not otherwise afford. The current coverage level would likely shrink under the commission's recommendations—perhaps as much as 48 percent over the next 70 years.

Advocates did find some silver linings, particularly the suggestion that Congress restore a minimum benefit eliminated during reforms in 1983. In fact, many believe that the commission made a major contribution to the debate by recognizing the need to inject more revenues into the system. "As our society gets grayer, we will need to devote more resources to programs such as Social Security," McSteen points out.

In the end, the best analysis may be a comment inspired from the commission itself. The forward to the report, signed by Moynihan and Parsons, concludes with the words carpe diem (seize the day). According to Richtman, it should probably read caveat emptor (buyer beware).

For the Record

NCPSSM was among a handful of groups chosen to testify before the President's Commission to Strengthen Social Security at a public hearing on Sept. 6, 2001, and the representative it sent was Dr. Percil Stanford, director of the gerontology program in the College of Health and Human Services at San Diego State University and an NCPSSM board member. Here are just a few excerpts from his testimony:

"While addressing the projected shortfalls presents challenges, let me be clear—Social Security is not in crisis and radical restructuring is unnecessary and unwarranted."

"Beginning in the year 2025, interest and tax revenues combined will be insufficient to meet benefit demands and the program will need to redeem some of the bonds held by the trust funds. In the year 2038, if no changes are made, the trust funds will be exhausted and incoming revenues will meet about 72 percent of benefit obligations.Even at this point, Social Security will not be ‘broken.'"

"Although individual accounts are often presented as a way to ‘save' Social Security, diverting money to individual accounts actually worsens Social Security's long-term projected shortfall and requires more revenue. Indeed, funneling two percentage points of payroll out of Social Security and into private accounts will more than double the long-term shortfall."

"Although proponents of privatization like to talk about market averages, there is no such thing as an investor who earns the market average every year."

Alternative Options to Privatization

There are other ideas to consider besides the three privatization plans promoted by the president's commission, including:

• Supplement payroll taxes with general revenue. An influx of dollars from general revenues would help meet the increased demands of an aging population.
  
  
• Increase the maximum wage base. Currently, only the first $84,900 of earned income is subject to payroll tax. The base should be increased so that 90 percent of covered earnings are taxable and indexed thereafter.
  
  
• Expand coverage. Newly hired state and local workers could be brought into the Social Security program. This would provide these workers with increased retirement security, greater freedom in changing jobs and added protection from the eroding effects of inflation on income.
  
  
• Invest some of the trust fund reserves. Investment by the government of a portion of the reserves in privately held securities should be seriously considered and debated. Investing some of the reserves in an indexed selection of stocks and bonds would allow Social Security to realize a higher return on its investments, without appreciably increasing individual risk.
  
  

Investing By What Means? Under current privatization plans, workers would have access to a two-tier system for investment of their Social Security funds. Initial contributions would be to a limited group of broad index funds chosen by a new federal oversight agency. Once a worker had accumulated a certain amount—perhaps $5,000—he or she could invest directly in a broader range of funds offered by private firms. However, workers would face a significant lag time with private accounts. It would take as many as 15 months before payroll tax contributions would actually be invested and the account credited. The concept of lump-sum withdrawals was proposed and very seriously considered by the President's Commission to Strengthen Social Security but was not included in the final set of proposals.

NCPSSM In Action National Committee to Preserve Social Security and Medicare Challenging the Drug Card Plan Priscilla Chatman, a senior legislative liaison for the NCPSSM, testified Oct. 25 before members of the U.S. House of Representatives in opposition to the Medicare prescription drug card plan being touted by the Bush administration. While the NCPSSM is very much in favor of medication discounts for seniors using Medicare, or for full-fledged prescription drug coverage through Medicare, Chatman pointed out that the Bush administration plan for a discount card has too many holes as currently envisioned—holes that could prove problematic for seniors and for many drug stores. Among the concerns she expressed to members of the House Small Business Committee were that the drug cards might prevent seniors from receiving the precise medication prescribed by their physicians and that pharmacy benefit managers would only provide discounts on brand-name medications. In addition, Chatman voiced the NCPSSM's concern that pharmacy benefit managers might absorb little or none of the cost of such discounts, leaving community drug stores to absorb the discounts and putting them at risk of financial hardship. Congress Discusses Social Security Response to Sept. 11 The Subcommittee on Social Security of the U.S. House of Representatives' Committee on Ways and Means convened on Nov. 1 to discuss the response of the Social Security Administration (SSA) to the Sept. 11 terrorist attacks. The NCPSSM sent representatives to attend the hearing, including senior health policy analyst Sharon Brigner. The two primary aims of the hearing were to address the issue of quickly processing benefits claims for the attack victims and their families and steps that can be taken to prevent terrorists from using stolen identities.

 

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Financial, health and social concerns can pose daily challenges to millions of America's seniors. For some of the most vulnerable seniors over the past few decades, one thread has often meant the difference between connecting with necessary services and support—or missing out.

That thread is the Older Americans Act (OAA), a low-key but venerable social program passed in 1965 as part of President Lyndon Johnson's Great Society initiative. The Act, which was designed to help seniors continue living independently and with dignity, has impacts that are small in scope but wide in scale: nearly 7 million seniors—about 15 percent of Americans aged 60 and over—rely on it for free meals, job assistance, transportation, home health care, legal aid, protection from abuse and a myriad of other services.

Last year, OAA paid for more than 200 million meals and 45 million rides, according to U.S. Assistant Secretary for Aging Josefina Carbonell. And Sen. Mike DeWine (R-OH), former chairman of the U.S. Senate Subcommittee on Aging, in interviews and editorials has described the Act as "the closest thing on record to a national policy on aging."

"Not only are these services a lifeline for seniors, they're a tremendous benefit for younger generations," points out Scott Frey, senior policy analyst at the National Committee to Preserve Social Security and Medicare.

When the Lifeline Frayed

The Act in Brief The Older Americans Act, which was passed in 1965, is designed to help seniors stay in their homes and communities as long as possible. Its programs and services include: • Home-delivered meals • Home health care • Transportation assistance • Elder abuse protection • Senior employment • Adult day care • National Family Caregiver Support Program • Legal help and counseling The OAA will continue to be refashioned to reflect important social, demographic and economic trends, says U.S. Assistant Secretary for Aging Josefina Carbonell. "I want to build on [our] successes and enhance programs to better serve people, provide better access to services, improve resources and improve coordinating abilities," she says. "I want to focus on innovations and ... utilizing research to foster knowledge and prepare for the retirement of the baby boomers."

Congress has reauthorized the OAA 13 times since its inception, usually with near-unanimous agreement. Yet in 1995, that suddenly changed. Congress failed to renew the Act. Relatively small disputes over implementation spiraled out of control among Republicans, Democrats and not-for-profit seniors' organizations that help provide OAA services, leading to a stalemate that dragged on stubbornly for five years.

While the OAA hung in legislative limbo, Congress continued to "flat-fund" its programs at existing levels, without increases for inflation or the rising numbers of seniors. The effect on services was palpable. "We've seen waiting lists grow," Frey reports. "Some seniors wait so long for a service that they no longer need it—they end up in a nursing home."

In late 2000, Congress finally achieved a compromise. The breakthrough came, many observers say, when Sen. Charles E. Grassley (R-IA), then chairman of the Special Committee on Aging, galvanized and unified the disputing parties by proposing an initiative to provide government support to family caregivers—the 23 million Americans who take care of more mature relatives as well as the seniors who care for young children.

The National Family Caregiver Support Act "served as a catalyst in the OAA's reauthorization," Carbonell affirms. "It had widespread bipartisan support."

Today, with the OAA safely renewed through September 2005, senior advocates are applying lessons from the reauthorization crisis to forge an even stronger, better-funded Act—one whose relevance for a graying America will never again be questioned or jeopardized.

Reinforcing the Act

Sen. DeWine calls OAA 2000 "a modernized and streamlined" version of the Act. All of the titles are preserved, while a compromise on cost-sharing gives states the option of charging sliding-scale fees (based on seniors' voluntary self-declaration of their income) for costlier services like transportation. The deadlock over Title V (Senior Employment Program) was resolved by requiring service providers to coordinate their efforts through the aging agencies, among other modifications.

Most important, the reauthorization flushed OAA programs with new money: an increase of $170 million over fiscal year 2000, for a total budget of $1.1 billion. The lion's share of the increase, $125 million, went to the caregiver support initiative, but nearly every OAA program received a raise (except Title V, which was frozen at $440 million).

Nevertheless, OAA 2000 barely begins to rectify the funding gap that grew during the reauthorization snafu. Take the National Family Caregiver Support Program. Divvying $125 million up among 23 million caregivers, not to mention the program's administration, translates to about $5 per caregiver. "It's a drop in the bucket," one congressional aide says.

But underfunding is nothing new to the OAA. "Since 1980, the Act has lost about 40 percent of its original purchasing power due to repeated flat-funding in the face of a growing senior population," Frey notes. "A lot of OAA programs are forced to depend on volunteerism for their very existence."

In fact, Frey acknowledges, the number of seniors who are being helped by OAA programs might be significantly higher than the current 7 million if funding were adequate. "These programs do turn seniors away," he says.

Viewed in that perspective, the five-year reauthorization hiatus seems merely a particularly egregious example of the chronic undervaluation that dogs the OAA.

"No member of Congress would stand up and say they want to eliminate the Act," Frey points out. Yet its successes look like a loaves-and-fishes story when compared to its tiny budge—at $1.1 billion, a minuscule portion of the $450 billion administered by the Department of Health and Human Services (HHS).

One positive effect of the reauthorization predicament was that seniors' organizations raised their advocacy of the Act to new heights, especially toward the end. "We said, 'Five years is enough,'" Frey recalls. "We really began to educate the public, rally them to contact Congress. The senior community brought a lot of pressure to bear." The National Council on the Aging, for instance, launched a national "Silver Ribbon Campaign" to raise public awareness, under the slogan "Free the Older Americans Act!"

Also, President Bush's fiscal year 2002 budget request seeks to augment HHS' aging programs by 7 percent, from $2.8 billion to $3 billion—roughly twice the percentage increase requested for domestic discretionary spending overall, Carbonell noted. But more funding will be needed, says Frey. "Just look at the demographic bubble that's about to burst open when all the baby boomers reach retirement age."

Hopefully, Congress will agree. The sooner these programs receive proper recognition and funding, the better for America's seniors.

Kristin K. Nauth is an associate editor of Swift News Service in Washington, D.C.

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To read this issue in its entirety, please contact the National Committee to Preserve Social Security and Medicare at (800) 966-1935 or Secure_Retirement@ncpssm.org