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STRENGTHENING SOCIAL SECURITY TO MEET 

THE NEEDS OF TOMORROW’S RETIREES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SOCIAL SECURITY, 

PENSIONS, AND FAMILY POLICY 

OF THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

MAY 21, 2014 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

RON WYDEN, Oregon, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

MARK R. WARNER, Virginia 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JOSHUA SHEINKMAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

SUBCOMMITTEE ON SOCIAL SECURITY, PENSIONS, AND FAMILY POLICY

SHERROD BROWN, Ohio, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

CHARLES E. SCHUMER, New York 

BILL NELSON, Florida 

BENJAMIN L. CARDIN, Maryland 

PATRICK J. TOOMEY, Pennsylvania 

MIKE CRAPO, Idaho 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Brown, Hon. Sherrod, a U.S. Senator from Ohio, chairman, Subcommittee 

on Social Security, Pensions, and Family Policy, Committee on Finance ....... 1 

Toomey, Hon. Patrick J., a U.S. Senator from Pennsylvania .............................. 4 

Isakson, Hon. Johnny, a U.S. Senator from Georgia ............................................ 5 

WITNESSES 

Goss, Stephen C., Chief Actuary, Social Security Administration, Baltimore, 

MD ......................................................................................................................... 7 

Ghilarducci, Teresa, Ph.D., chair of the economics department, The New 

School for Social Research, The New School, New York, NY ........................... 10 

Fichtner, Jason J., Ph.D., senior research fellow, Mercatus Center, George 

Mason University, Arlington, VA ....................................................................... 13 

Rockeymoore, Maya, Ph.D., president and CEO, Center for Global Policy 

Solutions, Washington, DC .................................................................................. 15 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Brown, Hon. Sherrod: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 37 

Fichtner, Jason J., Ph.D.: 

Testimony .......................................................................................................... 13 

Prepared statement with attachment ............................................................. 40 

Responses to questions from subcommittee members ................................... 57 

Ghilarducci, Teresa, Ph.D.: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 60 

Responses to questions from subcommittee members ................................... 74 

Goss, Stephen C.: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 79 

Responses to questions from subcommittee members ................................... 89 

Isakson, Hon. Johnny: 

Opening statement ........................................................................................... 5 

Rockeymoore, Maya, Ph.D.: 

Testimony .......................................................................................................... 15 

Prepared statement .......................................................................................... 93 

Toomey, Hon. Patrick J.: 

Opening statement ........................................................................................... 4 

Prepared statement .......................................................................................... 102 

COMMUNICATIONS

American Federation of Labor and Congress of Industrial Organizations 

(AFL–CIO) ............................................................................................................ 105 

Human Rights Campaign ....................................................................................... 107 

IBM ........................................................................................................................... 109 

(III) 

(1) 

STRENGTHENING SOCIAL SECURITY TO MEET 

THE NEEDS OF TOMORROW’S RETIREES 

WEDNESDAY, MAY 21, 2014 

U.S. SENATE, SUBCOMMITTEE ON SOCIAL SECURITY, PENSIONS, AND FAMILY POLICY, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:02 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Sherrod Brown 

(chairman of the subcommittee) presiding. 

Present: Senators Nelson, Isakson, and Toomey. 

Also present: Democratic Staff: Michael Evans, General Counsel; 

Tom Klouda, Senior Domestic Policy Advisor; and Kara Getz, Senior Tax Counsel. Republican Staff: Jeff Wrase, Chief Economist; 

and Preston Rutledge, Tax Counsel. 

OPENING STATEMENT OF HON. SHERROD BROWN, A U.S. SENATOR FROM OHIO, CHAIRMAN, SUBCOMMITTEE ON SOCIAL 

SECURITY, PENSIONS, AND FAMILY POLICY, COMMITTEE ON 

FINANCE 

Senator BROWN. The subcommittee will come to order. Thank 

you, Senator Toomey, for joining us—Senator Isakson. I know others will be here. 

Thank you very much for this very distinguished panel. All four 

of you have contributed a great deal to this public debate, and I 

look forward to expanding on all of these issues in questions and 

answers. 

I want to start by reading a letter. This letter is from my Assistant State Director back in Cleveland; she grew up in Pennsylvania. 

Her grandfather worked for Pennsylvania Gas and Electric, and 

her father came across this letter in his stack of papers. Her father 

is in his 80s. This was a letter to her grandfather from the Pennsylvania Gas and Electric Company, and I want to just share this 

letter. 

It is dated December 24, 1936, and it is signed by the vice president of this company in Senator Toomey’s State. It says, ‘‘Dear Fellow Employee: On August 14, 1935, Congress passed the Social Security Act. Under provision of this Act, the company is required to 

deduct 1 percent of your wage beginning this January, 11⁄2 percent 

beginning January 1940, 2 percent January 1943, 21⁄2 percent January 1946, and 3 percent January 1949. These deductions, matched 

by your company, are designed to provide for your retirement at 

age 65.’’ The letter goes on. 

2 

But think about that. You are a worker, getting by, not making 

a huge wage but doing all right, and you have this whole Social Security thing—it was an untested idea. You may not have even 

heard of it; if you had, you did not know much about it. Your employer says they are taking progressively up to 3 percent of your 

wage. 

The employer is going to match it, and then you are going to get 

it sometime later when you are 65. And you look around at your 

family and you realize, nobody in my family has even lived to 65. 

And it makes you understand how difficult it is to launch any of 

these major social insurance programs, whether it is Social Security or Medicare or even now the Affordable Care Act. 

Today, obviously, we all know Social Security. It is woven into 

the fabric of our country. A few years ago the idea that we would 

expand Social Security seemed so unlikely; all the conventional 

wisdom in this town was that we would have to cut Social Security. 

Today, not only are cuts to Social Security deeply unpopular, but 

we are debating how much we need to expand the program. Today’s hearing is to consider whether Social Security is adequate to 

meet the challenges facing today’s workers and to discuss what 

policies we should consider to expand the program. 

Over the last few years, we have fallen into the bad habit of allowing the debate around Social Security to be conducted in the 

context of the budget. This is not serving seniors; this is not serving our country. 

First, discussing Social Security in the context of the Federal 

budget misleads the public. Social Security has its own dedicated 

source of funding. 

Second, most importantly, we should not be raising Social Security in the context of the Federal budget; instead, Social Security 

is about retirement security, about family budgets. Social Security 

is social insurance. Let me repeat that: Social Security is social insurance. 

It is a plan that offers working families a modest bundle of insurance products—retirement, life, disability insurance—at reasonable 

rates. For the bottom two quintiles of Americans over 65, Social Security benefits represent 84 percent of their retirement income. For 

the middle quintile of the five, households with an $18,000 maximum benefit, Social Security benefits represent some 65 percent of 

retirement income. Even in the fourth quintile, Social Security benefits represent 44 percent of a senior’s retirement income. 

Social Security is one of the three legs of the retirement stool we 

talk about. The other two legs of the stool—personal savings and 

pension plans—have, for many, many, many workers in this country, virtually been sawed off. Wages have stagnated. Folks are 

struggling to make ends meet, let alone put aside money for retirement. Defined pension benefits we know have declined. Only half 

of workers have access to an employer-sponsored retirement plan, 

making Social Security more important than ever. It lifts 22 million people out of poverty. In Ohio, there are 2 million Social Security beneficiaries. The program keeps more than 600,000 seniors 

out of poverty. 

I met a Youngstown woman at a town hall a couple of years ago. 

She said she worked two jobs; she was struggling, she was not 

3 

making much money. She said, ‘‘I am 63 years old. I just need to 

stay alive another year and a half so I can have health insurance.’’ 

And that is what she was focused on—‘‘I have just got to get to 

Medicare age.’’ So we know how important these two social insurance programs are. 

To me, it is a moral issue and an economic issue. Last year, Social Security benefits fueled $1.4 trillion in economic output. They 

supported 9 million jobs and generated $200 billion in payroll tax 

revenue. And keep in mind that Social Security’s benefits are modest. Most checks are not much more than $300 a week. 

At the same time, the program is highly efficient. Less than 1 

percent of revenue is used for administration. We know that bipartisan legislation in the Reagan years, in 1983, and then the Clinton 

years, in 1993, placed the program’s finances on a predictable path. 

This tradition of common-sense, bipartisan actions should continue as we reallocate the Disability Trust Fund, a simple process 

that Congress has done bipartisanly 11 times since 1957. Reallocation is not controversial. Twenty years ago, the Social Security 

Trustees predicted we would need to reallocate the Trust Fund in 

2016. They were right; we will. 

Simple reallocation can be done without increasing taxes or decreasing benefits and will result in the program being solvent for 

the next 2 decades. We know the financing options that will make 

it solvent for decades to come and fund the kinds of expansions we 

know are necessary to confront the retirement crisis. 

We have to have the courage to act. Social Security is under duress today, despite its inherent strength. Current laws baked a series of cuts into Social Security that will slowly erode retirement 

benefits by 25 percent over the next few decades. But raising the 

retirement age, increasing taxes, delaying cost-of-living adjustments, or COLAs, are blunt instruments that only harm lowincome workers. 

Americans who work construction, Americans who work in diners, Americans who work in steel mills, cannot work until they are 

70; they cannot retire with dignity without the savings to do so. 

Americans who have worked hard all their lives are seeing prescription bills increase. They cannot afford a tax increase or an unreasonable cost-of-living adjustment. 

That is why we should consider proposals to expand Social Security, including a bill Chairman Harkin and I have introduced to 

change the benefit formula, particularly for low-income workers, 

and to update the cost-of-living adjustment to reflect the true cost 

of living for seniors. 

We will discuss proposals to increase survivors’ benefits. We 

know that, for so many low-income families, it is the only life insurance available. We will discuss proposals to increase the benefits for the most vulnerable people. We can do this by updating the 

SSI program, which has not been updated or indexed in literally 

40 years. 

We will examine proposals to provide caregiver tax credits to 

workers who support children or parents. When children leave the 

workforce to care for their aging parents, that is real work. Those 

caregivers deserve a modest but dignified retirement. 

4 

Finally, we will talk about ways to use Social Security’s proven 

track record to help working families by expanding the program to 

provide paid family leave and help the children of deceased beneficiaries attend college. 

[The prepared statement of Senator Brown appears in the appendix]. 

Senator BROWN. I will stop there and yield to my fellow, if I can 

say Eagle Scout, Ranking Member Toomey. 

OPENING STATEMENT OF HON. PATRICK J. TOOMEY, 

A U.S. SENATOR FROM PENNSYLVANIA 

Senator TOOMEY. Thank you, Mr. Chairman, and thanks for calling this hearing. It is an extremely important topic. 

And I completely agree with the part of your analysis about the 

importance of the program, which is exactly why we have to take 

the measures necessary to ensure that Social Security will actually 

be there for future generations, so that it can play the vital role 

for them that it has played in recent decades and past decades. 

But part of that means acknowledging some of the fundamental 

problems. Number one, the program is insolvent. The present value 

of the promised benefits is much greater than the present value of 

the revenue that is meant to pay those benefits. And that is not 

a problem with some distant future implications. It is running a 

cash-flow deficit now. It has been since 2010—over $200 billion in 

deficits the last 4 years and $75 billion per year, on average, going 

forward. This is the amount by which payroll tax revenue, which 

is meant to fund the program, is less than outgoing benefits. 

Structural reform is necessary, and the sooner we do it, the better. Unfortunately, if we cannot agree that there is a problem, it 

is hard to make progress on the solution. The observation that this 

is a problem, by the way, is not a partisan matter. I think it is a 

matter of arithmetic. 

I want to quote briefly from the Social Security Trustees 2013 

Report. So this is the Social Security program describing itself; it 

says that, quote, ‘‘Both the Social Security and Medicare programs 

face substantial financing shortfalls that require legislative corrections. It is important to grasp that the amount of time remaining 

to enact a financial solution is far less than the amount of time 

projected before final depletion of Social Security’s combined trust 

funds. If lawmakers take action sooner rather than later, more options and more time will be available to phase in changes so that 

the public has adequate time to prepare. Earlier action will also 

help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits.’’ 

As the Social Security actuaries have noted, the fundamental 

problem is that spending in the program is increasing faster than 

the economy is growing. That is pretty much the definition of 

unsustainable. Over the next 10 years, the forecast is for nominal 

GDP to grow at 4.5 percent per annum, while Social Security will 

grow at 6.1 percent per annum. 

Tax increases are not the answer. Tax increases will not bring 

the spending growth in line with GDP growth, and will be economically destructive. Since President Obama has taken office, we have 

5 

seen $1.8 trillion in tax hikes over a 10-year period, and economic 

growth is anemic—only one-tenth of 1 percent last quarter, and we 

have the lowest labor force participation rate in 35 years. These are 

not coincidences. 

I should also point out that the math does not work very well. 

Even, for instance, if you completely eliminated the current existing $117,000 cap on the maximum earnings that are subject to the 

payroll tax, it would amount to a massive tax increase, and the 

program would return to a deficit position in 11 years. 

The solution is that we have to change the rate of growth and 

bring it into line with GDP growth. No government program can 

grow faster than the economy indefinitely, so we have to make the 

decisions. And the sooner we do it, the better it will be for the people who depend on this essential program. 

So thanks again, Mr. Chairman. I look forward to the testimony 

of our witnesses. 

Senator BROWN. Thank you, Senator. 

[The prepared statement of Senator Toomey appears in the appendix]. 

Senator BROWN. Senator Isakson? 

OPENING STATEMENT OF HON. JOHNNY ISAKSON, 

A U.S. SENATOR FROM GEORGIA 

Senator ISAKSON. Well, thank you, Chairman Brown. I will be 

brief, but thank you for the time. 

I think there are two issues. I will tell a brief story. I was born 

in 1944. In 1983, Tip O’Neill and President Reagan got together 

with leaders of Congress, and they said, ‘‘We have a problem. Social Security is not working. It is going negative. We have to fix 

it.’’ And so they passed a law. No one lost at the polls in 1984 on 

this, by the way, not a single member of Congress. 

They passed a law and said that anybody born after 1943 is no 

longer eligible for Social Security at age 65. They have to wait till 

age 66. I was born in 1944, so I was the first of a group of Americans who were told, ‘‘We are taking away 1 year of your benefit.’’ 

I was 39 years old. I did not think I was going to live to be 65, 

first of all. My father had always told me the government was 

going to screw it up anyway, so I did not really pay a whole lot of 

attention to it. Now I am 69 years old, and I realize I lost one of 

my years of Social Security. But I did not really miss it, because 

there was a long-range change in the fundamentals of the formula, 

but it was a change in the out-years. I never considered it a cut 

in benefits. I considered it a saving of the program. 

So it is only right for us to look at what Reagan and O’Neill did 

as a template for what we need to do. And we need to adjust the 

eligibility and the formula to fit the 21st century for my grandchildren and my children. 

There is a second thing we need to do. We need to take some of 

the pressure off the Social Security system by empowering retirees 

and people who will retire to save and invest more for their future. 

Now I understand, for the very lowest income earners, that sounds 

good, but it is just not possible, because they have to live within 

their means, and they do not have the money left over. But for 

6 

most Americans, a vast majority, they are not saving for their retirement. They are not planning for their retirement. 

So it is important for us to take the tax incentives that we have 

in the code for IRAs and 401(k)s and Roths and empower people 

to save. Every time somebody has saved for their retirement, it 

takes pressure off the Social Security system for additional benefits. 

So, as we talk today about saving Social Security, part of that 

is the responsibility of the retiree to help save for themselves. Social Security may have been intended as that letter you read from 

1935 portended. It may have been intended to be your retirement 

program, but we all know we cannot afford a program that would 

be a retirement program in the 21st century. 

It is a social insurance contract; it is not an entitlement. People 

have paid premiums for it; they deserve a benefit. But they deserve 

for us to make sure we are protecting that benefit in the out-years. 

So I welcome the opportunity to hear from our experts, and I 

welcome the opportunity to talk not only about saving Social Security, but about empowering retirees to save for themselves. 

Senator BROWN. Thank you, Senator Isakson, for your alwayswise comments. 

The first witness is Stephen Goss. Mr. Goss is Chief Actuary, Social Security Administration. He has been Chief Actuary since 

2001. He has devoted his career to public service. He joined the Office in 1973 after graduating from UVA with a master’s in mathematics. The Office of the Actuary is the scorekeeper for policy affecting the Social Security Administration. Mr. Goss and his team 

provide us with invaluable nonpartisan resources and insight. We 

appreciate his work. 

Next we have Dr. Teresa Ghilarducci. She is the chair of the economics department for The New School for Social Research in New 

York. Dr. Ghilarducci has been working on retirement security 

issues literally her entire working life. As a 21-year-old, we found 

out, she consulted with unionized workers at Stanford about their 

benefits and helped them choose pension plans. She is one of the 

Nation’s foremost experts on retirement security. We appreciate 

her joining us. 

Next we have Jason Fichtner. Dr. Fichtner is a senior research 

fellow at George Mason. He was a former Deputy Commissioner in 

the Social Security Administration and served as the Social Security Administration’s Chief Economist. He also will soon marry a 

former intern of mine, when I was in the House of Representatives. 

Congratulations on that—not that she was an intern of mine, but 

on the marriage. [Laughter.] 

Finally, we have Dr. Maya Rockeymoore, president and CEO of 

the Center for Global Policy Solutions. Dr. Rockeymoore is a Capitol Hill alum, where she staffed the Ways and Means Committee 

and was Chief of Staff to one of my favorite House members when 

I was over there, Congressman Rangel. She is a lead author of a 

plan to strengthen Social Security for communities of color and 

other vulnerable groups. Thank you for joining us. 

We will begin with Mr. Goss. Thank you. 

7 

STATEMENT OF STEPHEN C. GOSS, CHIEF ACTUARY, 

SOCIAL SECURITY ADMINISTRATION, BALTIMORE, MD 

Mr. GOSS. Chairman Brown, Ranking Member Toomey, and Senator Isakson, thank you very much for the opportunity to come and 

talk to you about this really important topic today. Actually, I 

think, among the three of you, you pretty much covered everything, 

so let me try to fill in a couple of details here. 

There are really three things that I would like to just very briefly 

mention to you today in these brief moments. One is really the 

global challenge of aging. It is not just the U.S.; it is everywhere, 

especially the OECD nations. The second item is Social Security 

benefit levels and the adequacy of those benefits. And third is a little bit about the options, of which there are so many, and we simply will not have time in this brief testimony to really get into that. 

The slide that we have here, I have a little graph of something 

that is referred to as the ‘‘aged dependency ratio.’’ Most are familiar with this. This is just the ratio of the number of people 65 and 

older to the number of people who are of working age, 20 to 64. 

And this ratio, this line, if you look at it, the top line is what we 

are actually facing, going forward in our Nation. As Senator 

Toomey well pointed out, we are going to have a big increase in the 

number of people who are over 65 relative to those who are under 

65 in our adult population. And we can just see how that is going. 

Now, what is really important in thinking about that is why, exactly, is that happening? People usually think, well, obviously, it is 

because everybody is living longer. Death rates are dropping like 

crazy. Actually, that is really not the case. If you look at the center 

and the bottom lines, these two lines indicate what would be happening to this ratio of folks over 65 to folks of the working-age population if the birth rate that we had had prior to the end of the 

baby boom generation had stayed at either 3 children per woman 

or 3.3 children per woman. You can see that this aged dependency 

ratio, if it just continued growing at a very gradual and slow rate, 

as it has in the past, would not really be a big deal. The big jump 

we have is for another reason; it is because the birth rate dropped. 

Now, this is not to suggest for a moment that we should have 

kept the birth rate where it was. I am old enough to remember the 

mention of somebody named Malthus, way back when we were 

worried about the overpopulation of the world. But the bottom line 

is, this is the challenge we are facing. We are facing a level shift 

in the ratio of aged folks to working-age folks, because of the drop 

in the birth rate. And I am just suggesting we should keep that in 

mind when we talk about how we address this challenge. 

By the way, be glad we are not Japan, because they have a much 

bigger problem, and South Korea. Their birth rates are down at 1.2 

children per woman. Ours are still at two children per woman. 

So on the next slide, we have an indication of what really this 

means, what it is doing for Social Security. As we all well understand, and as the Trustees have pointed out, over the next 20 years 

we will have a rise in the cost of Social Security as a percentage 

of gross domestic product that is not only predictable, but it is all 

but certain. The people who will be involved in generating this increase in cost over the next 20 years are already born. And this follows directly from that change in the number of people 65 and 

8 

older compared to those of working age, because after all, benefits 

for Social Security are largely the result of people 65 and older, and 

the GDP and taxable payroll for the program are generated largely 

by people age 20 to 64. 

So it is no surprise at all that we have this level shift, and that 

is really a key point. It is a level shift up to a higher level. Social 

Security had been about 4.3 percent of GDP for decades. It is going 

to rise up over the next 20 years to about 6 percent of GDP and 

stabilize, under all reasonable projections that we could possibly 

make. 

On the next slide, we just have a little indication of really what 

the level of Social Security benefits is. I think, as Senator Brown 

mentioned, the level of Social Security benefits, $300 a week, that 

is about $1,270 per month in 2013. And that is actually about 35 

percent of what the average amount of covered earnings is for 

workers in this country. 

If you peel that back a little bit and consider not just the average 

covered earnings, but leave out the earnings for those who earn 

over $117,000, we end up with a little bit lower average taxable 

earnings, and our average benefit is about 42 percent of that. 

So it is probably not, by any measure, sufficient to cover all of 

people’s retirements needs, but it is a good foundation. It is a good 

floor of protection. It is a good, solid one leg of the stool, and we 

wish we had more of the others. 

And the one comment that I would want to make on that is that 

the issue with the other legs of the stool is not that they have disappeared for everybody. They have certainly diminished. But one 

of the key points really is annuitization. What Social Security offers in its benefits is a life annuity. A lot of people are talking now 

about longevity insurance, longevity protection. A life annuity 

takes care of that for you. A lump-sum amount of money when you 

reach retirement that you then manage yourself does not give you 

assurance of having a lifetime income for the rest of your life. And 

more and more, our employer-provided pensions and savings that 

people have put together on their own are not going into annuities. 

So Social Security is the only thing that people have assurance of. 

Senator Isakson, we hope that you will make it way past 69, and 

when you get up to age 89, if you do not have life annuities, you 

could well be running out of resources, and many American citizens 

will be in that position. 

On the next slide, we have an indication of something that we 

actually have in the Trustees Report, which are benefit replacement rates. And you can see how these went up, and they reached 

a peak around 1980 and have been brought back. This is at age 65, 

and benefit replacement rates are just the amount of money that 

people receive as a benefit in the first year of benefits compared to 

some measure of what their earnings level was in their career. 

In this case, because people’s earnings levels in our country do 

not follow any particular pattern, we look at what the average 

earnings level is on a wage index basis over their entire career. 

That also is the basis upon which we determine the benefit levels 

under Social Security currently. And we can see that this ranges 

anywhere from maybe 30 percent of the benefits that people receive, 25 to 30 percent for our highest earners, down to our lowest 

9 

earners getting about 50 percent of a replacement rate. And, as 

mentioned on the earlier slide, it is about 40 percent on average. 

But we do have another way of looking at this, which we looked 

at much more carefully recently, on the next slide with this bar 

chart. And, if you look at what we call the median level—that is 

the place where half the people have higher replacement rates, half 

have lower replacement rates—what we typically looked at is on 

the black bar. 

And you can see where we have a dark gray bar, which is what 

we show in the Trustees Report, these are, for hypothetical workers, our benefit replacement rates—that is, benefits that you get in 

your first year of benefits, relative to what your earnings level has 

been. At the median level, we are at about 40 percent, and we are 

about 40 percent on this long career average. 

We are also at about 40 percent on another measure of earnings, 

which is not just the long career average, but if we look at the last 

5 years of pretty solid, non-zero earnings. What we actually did 

here is something new we have developed really for this hearing. 

We looked at the last 5 years in which you actually had earnings 

and we ignored the most recent one, because that is probably the 

year of your last earnings. And on average, people worked only half 

a year in that year. So we left that one out and looked at the five 

preceding that, took the average of that, wage-indexed that, and, 

lo and behold, it turns out to give a very, very similar result on 

replacement rates to what we have in the Trustees Report. So we 

think this corroborates what we have in the Trustees Report. 

On the next slide, we did add one other measure that has been 

mentioned from time to time by some folks, in the black bars. The 

black bars are quite a bit higher, but the black bars, I think we 

would all agree, are probably not an appropriate thing to look at 

for a replacement rate, because the measure of earnings for individuals that is included in the black bars is the last 5 calendar 

years of earnings before you start Social Security benefits. 

Fifteen percent of our beneficiaries whom we looked at in the 

year 2011 had no earnings at all in the last 5 years, and about 25 

percent of the last 5 calendar years before people start getting benefits are zero years. So, taking the average of your earnings in the 

last 5 years, including zeroes, really does not give us a solid 

foundational basis of what we would really want to be replacing for 

ourselves or for other American citizens. 

On the next chart, really this is just a look at what Senator 

Toomey addressed and what we are all well-aware of—the challenge we are facing. Senator Brown, you did mention the idea that 

we did have, back in 1994, our last major legislation on Social Security. We had a tax rate reallocation. You can see that on the bottom line here, how the DI program was pulled back up. 

We are now approaching a point by 2016 where we are going to 

have to do that or something like that very soon. And we are looking at 2033 for the Social Security program as a whole. 

So what are we doing to have to do? On the next slide, we just 

show we are going to have to, between now and 2033, do some combination of reducing the level of benefits, cutting them by 25 percent relative to what is scheduled in current law, or increasing the 

revenue by 33 percent, or some combination. 

10 

We have a number of ways of approaching this. In fact, we have 

left some copies with you all of some of the provisions we have up 

on the Internet. We hope that you all look at those carefully, and 

we might have a chance to discuss some of those. 

In addition to the changes that we need to keep the solvency of 

the program intact, to adjust for that level shift that we have in 

the cost of the program from 4.3 to 6 percent of GDP, we have to 

either pull the revenue up to that level or pull the cost down, or 

something in between. 

In addition, there is the other question of the strength of Social 

Security—not just its financial strength, but also the strength of 

the level of benefits, which I think Senator Brown mentioned. And 

we have looked at a number of different provisions that we have 

documented on behalf of members of Congress and others, including restoring student benefits up to age 22, providing a restored 

minimum benefit, which has basically withered under Social Security, doing more for aged surviving spouses, and also possible adjustments to the cost-of-living adjustment. 

And with that, I will stop and pass the torch to Teresa, and I 

look forward to your questions and comments later. 

Thank you very much. 

Senator BROWN. Thank you, Mr. Goss. 

[The prepared statement of Mr. Goss appears in the appendix]. 

Senator BROWN. Dr. Ghilarducci? 

STATEMENT OF TERESA GHILARDUCCI, Ph.D., CHAIR OF THE 

ECONOMICS DEPARTMENT, THE NEW SCHOOL FOR SOCIAL 

RESEARCH, THE NEW SCHOOL, NEW YORK, NY 

Dr. GHILARDUCCI. I do not have any graphs, so I am sorry. 

[Laughter.] 

Thank you very much for inviting me, Chairman Brown, Ranking 

Member Toomey, and thank you for your comments, Senator 

Isakson. 

For the first time in U.S. history, working Americans will be 

worse off than their parents or grandparents in retirement. It is actually a shocking number. But since Social Security’s passing, we 

saw every generation looking forward to living better when they retired than their great-uncle or their parents. And we are now seeing a reversal. The baby boomers expect to do worse. 

And much of that erosion in expectations is because of congressional action, and much of it is unintended. And I am going to talk 

today, and my testimony is about, the layer of income. It is not 

really a stool, but a pyramid. The base is Social Security, and that 

important second layer is employer-provided pension plans or pension plans you get at work. So I am going to include 401(k)s and 

their cousin, individual retirement accounts, IRAs. 

What we are finding is that that layer of income is eroding precipitously. We all know that there are fewer pensions, traditional 

pensions, that pay out an annuity. And that is eroding very, very 

quickly. Older workers are coming in to retirement with much 

more debt. It used to be 65-year-olds, about 35 percent of them had 

some mortgages. Now we are seeing that 65 percent of them have 

some mortgages and other kinds of debt. 

11 

More seniors are going to have to work or, more likely in this 

labor market, just look for work. We have seen a huge rise in the 

unemployment of older people, over 55. And the jobs that they 

have—this is new data coming out of the University of Michigan— 

55-year-olds, 65-year-olds are worse off than they were in the 1980s 

and 1990s. Things are getting worse. 

There is more bending, stooping, requirements for intense concentration and keen eyesight. So the jobs that older people are having to take are actually retail work, service work, and warehousing 

work. There are lots of stories of workers in the Amazon warehouses who are over 55. 

The last reason why most Americans will not have enough in retirement, will do worse than their parents or grandparents, is because, even though there has been an increase of retirement assets 

under Congress’s watch—we have seen the levels of income and assets in 401(k)s and IRAs increase over the past 30 years—those are 

increasingly skewed to the top earners, to the highest income, 

highest-earner retirees, and also in terms of wealth. 

So even though we see trillions piled up in these assets, they are 

more and more skewed to the top, and it is actually unintended 

consequences of some of Congress’s decisions over the last 20 years. 

Congress continues to expand the tax deductions. You call it incentives, but the idea is that, if you have more incentives, more financial literacy, you will get more and more people accumulating assets. That plan, that scheme, is a failure. 

The system is also stacked against the average worker. These incentives are based on voluntary contributions, they are based on individual directed retirement accounts, they are based on commercial private-sector financial firms, and they are based on these deductions. 

So this means that middle-class workers—it is not just lowincome workers, it is actually middle-class workers and upperincome workers who are more likely to take out loans from their 

401(k)s, these liquid assets. They withdraw money, just take out 

the money and pay the tax penalty during their working lives. 

They tend to pay higher fees because of the commercial account 

management. And because middle-class people and low-income people are advised to be more conservative, they get a much lower rate 

of return in their accounts. 

So, piling all those reasons together means that Federal policy 

treats differently people who do identically the same thing. You 

have a high-income worker and a middle-class worker saving the 

same amount in their retirement account, but the higher-income 

worker gets a higher net-of-fee, net-of-tax benefit rate of return. 

Take out an Excel spreadsheet. Look at those rate-of-return differences over just a few periods, and you get that higher-income 

worker getting, because of the structure of the system, a higher 

rate of return. And, even though they contributed equally, the 

higher-income worker has 15, 20 percent more in their retirement 

accounts. 

I know that is an unintended consequence of the way you built 

this system, but it does not add to any retirement income security, 

and you provide these lopsided benefits to people who need them 

12 

the least. It is a very ineffective way of using the $150 billion in 

tax deductions. 

So I also have seen many polls over the last 30 years, and for 

the first time—this happened actually a couple of years ago—our 

researchers who look at polling data, political scientists, say this 

does not happen very often, but this is the first time that the 

American people are running ahead of Congress, that Americans, 

baby boomers in their 40s and 50s, have known that retirement security is a big problem. 

And it is likely voters who are likely to say this is my top concern. Increasingly, older women and higher-income individuals, and 

white voters, are saying that they are especially anxious about 

their retirement future, and they are more likely to say things are 

going to get worse for them as they get older. But all Americans, 

as Maya will talk about, working now should worry about their retirement security. 

Now the solution is, and we have known this for years, to restore 

some of the cuts in Social Security benefits, that minimum benefits 

should be increased to prevent poverty among our older people. But 

we also have to pay attention to that layer of income that has been 

eroding, that income you get when you save at work. We need— 

and Congress can help—an appropriate, safe, and secure savings 

vehicle. It is not that people are not saving; it is that they do not 

have a good place to save. 

So I propose universal retirement accounts for all Americans. Social Security is also very good at administering the premiums from 

workers and paying them out. We should use that infrastructure 

to collect money from all workers to add, on top of Social Security, 

universal savings accounts. 

And we should take the tax deduction and make it into a refundable tax credit. For no extra money, Congress could give every 

worker over $600 per year. If States with income taxes also made 

their deduction into a refundable tax credit, you could add even 

more. California workers with a refundable tax credit under both 

systems could save over $700, $750 per year. 

Like Social Security, there would be no withdrawals before retirement in these accounts. These accounts would be managed by 

institutional investment managers; they are the best managers 

available. The funds would be pooled, unlike they are now in 

401(k)s and IRAs. You would have low fees, and I recommend that 

they be paid out in mostly annuities so no worker has to self-insure 

for the off chance they will live until 90. 

Because Congress has not acted, seven States—California in 

2012, Connecticut, Maryland, Minnesota, Oregon, Vermont, and 

West Virginia—are or will be in the process of studying the feasibility of establishing a system whereby private-sector workers will 

have money managed by their State funds or an exchange. 

And this is back to the future, because, before Social Security 

was passed, 26 States had on the books legislation for some kind 

of relief for older workers, some old-age assistance act. When Social 

Security was passed, these States stopped their initiative. 

So there is a crisis, and it is starting now as boomers are retiring. An action now, helping accumulate funds in people’s retireVerDate Mar 15 2010 17:16 Jan 09, 2015 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 R:\DOCS\91534.000 TIMD
13 

ment accounts, will help reduce costs and hardships in the near future. 

Thank you. 

Senator BROWN. Thank you, Dr. Ghilarducci. 

[The prepared statement of Dr. Ghilarducci appears in the appendix]. 

Senator BROWN. Dr. Fichtner, welcome. 

STATEMENT OF JASON J. FICHTNER, Ph.D., SENIOR RESEARCH FELLOW, MERCATUS CENTER, GEORGE MASON UNIVERSITY, ARLINGTON, VA 

Dr. FICHTNER. Thank you. Senators, thank you for inviting me 

here to testify this morning. And, Chairman Brown, thank you for 

that very wonderful, thoughtful introduction. I do appreciate it. 

Thank you. 

My testimony focuses on two key issues: first, the extent to 

which we are actually facing a perceived retirement crisis and, second, how the current structure of the Nation’s largest retirement 

program, Social Security, is contributing to the problem by providing disincentives to work and save. 

From this discussion, I hope to leave you with the following takeaways. One, painting all Americans with a broad brush of a retirement crisis creates an incomplete picture of the true financial landscape faced by America’s future retirees. Two, the narrative of a retirement crisis leads us to look toward greater dependence on, and 

the expansion of, government programs such as Social Security, 

which are already facing severe financial problems. And three, urgently needed Social Security reform should not exacerbate these 

existing problems. 

The national newspapers are full of stories claiming that Americans are woefully unprepared for retirement. A recent top story on 

The Wall Street Journal’s MarketWatch was titled, ‘‘Our Next Big 

Crisis will be a Retirement Crisis.’’ Similarly, an often-cited index 

of retirement preparedness compiled by the Center for Retirement 

Research at Boston College claims that, quote, ‘‘Fifty-three percent 

of households are at risk of not having enough to maintain their 

living standards in retirement.’’ 

But do these stories and statistics truly equate to a living retirement crisis? Syl Schieber and Andrew Biggs wrote in January of 

2014 this year that, quote, ‘‘The story about the declining income 

prospects of retirees is not true.’’ Schieber and Biggs based their 

argument on the fact that the data most often cited to show there 

is a crisis is compiled by the Social Security Administration, based 

on the Current Population Survey, the CPS, from the U.S. Census 

Bureau. 

These data used by the Social Security Administration do not accurately reflect the total amount of income in retirement derived 

by individual retirement accounts. When instead Schieber and 

Biggs looked at tax return data from the Internal Revenue Service, 

the reported income was much higher. They quote, ‘‘The CPS suggests that in 2008, households receiving Social Security benefits 

collected $222 billion in pension or annuity income.’’ But Federal 

tax filings for that year of 2008 show that these same households 

14 

received $457 billion of pension or annuity income, so twice as 

much. 

This information is important because, in order to have a financially secure retirement, many financial planners suggest a replacement rate of 70 percent. The replacement rate is how much of your 

pre-retirement income a person will need in retirement. 

Social Security was designed to replace about 40 percent of a person’s pre-retirement income, with high replacement rates for lowincome workers, with the remaining amount to be covered by an 

employer pension and/or personal retirement savings. For example, 

a person who earns $50,000 in each of the final 5 years leading up 

to retirement should plan to have enough retirement savings to 

generate $35,000 earned income; that is $50,000 times 70 percent. 

The 70-percent figure, though, includes income received from Social 

Security benefits. 

This is just a general rule of thumb, and everybody’s retirement 

needs are different. And the replacement rates used by the Social 

Security Administration, as Mr. Goss showed in his testimony, for 

some people may be underestimating the actual replacement rates; 

for others they may be accurate. 

Please do not misunderstand me, though. I am not arguing that 

everybody has adequately saved for retirement. Obviously, that is 

not the case. Nor am I arguing policymakers should not focus their 

efforts on policy options that will help Americans save for their retirement. But I do want to stress that painting all Americans with 

the broad brush of a retirement crisis creates an incomplete picture 

of the true financial landscape faced by America’s retirees. 

Further, I am concerned that the narrative being told of a retirement crisis is leading us to look toward greater dependence on— 

and, again, even expansion of—existing government programs, 

many of which, Social Security included, are already facing severe 

financial problems. 

This is simply not a sustainable plan. We must turn instead toward policy options that will encourage individuals to work, save, 

and invest so that they can build their own financially secure retirement. It is important that any reforms remove the negative effects on labor force participation, improve work incentives, and promote individual savings. 

As I have discussed in previous congressional testimony, Social 

Security reform, one, must begin immediately. And possible reforms include things like basing future cost-of-living increases on 

a different CPI, whether it be a chained CPI or a chained CPI–E; 

gradually raising the early and full retirement ages; increasing the 

delayed retirement credit; adjusting the benefit formula; constraining the non-working spousal benefit for high earners; providing payroll tax relief to seniors; increasing access to private accounts or private retirement arrangements through employers; and 

increasing financial literacy. 

Social Security faces real and increasingly urgent financial challenges. Reform is not only the wise thing to do, it is the critical 

thing to do to ensure that Social Security remains solvent and fiscally sustainable and continues to provide retirement security for 

generations to come. 

15 

Senator, in my remaining few minutes, I would like to just highlight also something you brought up in your opening remarks about 

Social Security being an insurance program. I think that is the 

exact way to think about how we should look at reforms. What are 

we insuring against? Originally it was to insure against old age. 

We are all now growing older; in fact, we are living longer than the 

program was originally designed to have people live. 

How do we make sure that it really is an insurance program that 

is there for those who fundamentally need it, but does not provide 

a greater benefit for those who already have assets? We should consider things like a minimum benefit or consider things to help 

those in the lower-income range, but also look to what we are doing 

on the high-income range and make some adjustments there as 

well. 

I thank you for your time and this opportunity to testify today, 

and I look forward to your questions. 

Senator BROWN. Thank you, Dr. Fichtner. 

[The prepared statement of Dr. Fichtner appears in the appendix]. 

Senator BROWN. Dr. Rockeymoore, thank you for joining us. 

STATEMENT OF MAYA ROCKEYMOORE, Ph.D., PRESIDENT AND 

CEO, CENTER FOR GLOBAL POLICY SOLUTIONS, WASHINGTON, DC 

Dr. ROCKEYMOORE. Good morning, Chairman Brown, Ranking 

Member Toomey, and Senator Isakson. Thank you for inviting me 

to speak on a matter of critical importance for our children, our 

workforce, and our Nation. 

Mr. Chairman, there are four big reasons why strengthening Social Security is critical for tomorrow’s retirees. The first is the welldocumented retirement crisis that has gotten progressively worse 

over the past few decades now. Teresa Ghilarducci has already outlined that. 

But the fact that half of the Nation’s population does not have 

access to retirement benefits through their jobs is a structural 

problem. There is also a critical concern that public-sector pensions 

are going to go by the way of the private sector with regards to defined contributions, and that is going to increase risk for individual 

retirees and also put more pressure on Social Security. 

Second are the additional structural factors in our labor market 

that shut out more than 38 million Americans from employerprovided retirement coverage and who suffer from downward pressures on wages that make it difficult to save. 

Third is the generational impact that the Great Recession has 

had on the retirement prospects and earnings potential for younger 

workers who have lost almost half of their already-low levels of 

wealth. 

And fourth, with the number of older Americans expected to increase to over 77 million by the year 2033, and with the dramatic 

growth of households of color who experience a racial wealth gap 

that leaves the typical African-American and Latino families with 

only 6 and 7 cents of wealth for every dollar owned by the typical 

white family, it is clear that a majority of the Nation will continue 

16 

to rely on Social Security for much of their retirement income well 

into the future. 

For these reasons, it is imperative that our Nation’s leaders focus 

on strengthening and expanding Social Security so that we can increase the adequacy and relevance of benefits to meet changing 

population needs. 

Decades of stagnating wages and the effects of the Great Recession have imposed financial hardship on all workers, but have had 

an especially detrimental impact on vulnerable workers who may 

never make up what they lost due to unemployment and underemployment. As a result, Social Security’s modest benefits need to 

be increased across the board to meet the projected income needs 

of future retirees who have been harmed by macroeconomic factors 

beyond their control. 

We must also provide an extra boost in benefits for the very old, 

the very poor, and widowed spouses, all of whom are vulnerable to 

poverty in their retirement due to low wages, absent pensions, poor 

health, the inability to continue working, and/or the likelihood of 

outliving other resources. 

And at this point I would like to reference Dr. Fichtner’s remark 

that everybody is living longer. The fact of the matter is that only 

half of the people in the income distribution, the upper half, the 

wealthier portion of our population, are living longer. For the bottom half of the income distribution, their life expectancies are stagnating and, in some cases, even reversing. 

We are seeing startling information coming out from population 

researchers showing that, for the very low-income, especially white 

women without a high school education, they have experienced a 

reversal in life expectancy, over a recent 20-year period, of 5 years. 

That is a stunning outcome. A reduction in life expectancy is a 

stunning outcome for a nation that is supposed to be the richest 

in the world. And it is important to ensure that the value of Social 

Security benefits keeps pace with increases in inflation by calculating cost-of-living adjustments using the CPI–E, a more accurate 

measure that accounts for the higher medical expenses shouldered 

by seniors. 

It is also important to strengthen the program by extending or 

restoring benefits to new groups. Caregivers play a vital role in society, but are often forced to work part-time or take time out of the 

formal economy to tend to sick children or sick relatives or small 

children. The Social Security benefit formula should include a family service credit that allows caregivers to accumulate imputed 

earnings equal to one-half of the average annual wage for each 

year they have zero or minimal earnings, up to a total of 5 years. 

Comprehensive immigration reform should provide a pathway for 

hard-working immigrants to receive Social Security benefits, while 

improving the program’s actuarial balance over time. 

Social Security should extend benefits to same-sex couples and 

their dependents, regardless of their State of residence or the location where their marriage ceremony occurred. 

And we must restore the benefit that once allowed young people 

to continue receiving Social Security through the age of 22, as long 

as they remain enrolled in college or vocational school. 

17 

Finally, the changing needs of the American public dictate that 

we also look for new and dynamic ways to meet their needs. Although the Family and Medical Leave Act was a revolutionary step 

forward by requiring covered employers to allow workers jobprotected, unpaid time off for specific medical and family purposes, 

it remains a financial hardship for many workers to take unpaid 

leave. 

Establishing a national paid family and medical leave program 

as a part of Social Security would provide partial wage replacement 

for workers across the country who temporarily need to take time 

off from their jobs to tend to their own medical condition, to care 

for an ill family member, or to take care of and bond with newborns or newly adopted children. 

In conclusion, Social Security has helped provide economic security for American workers and their families for 79 years. Given 

the multiple factors undermining retirement security for future retirees, it is imperative that we adopt strategies that can strengthen 

and expand Social Security to meet the needs of an increasingly diverse and economically insecure 21st-century workforce. 

Mr. Chairman, thank you again for this opportunity to present 

this critical information. 

Senator BROWN. Thank you, Dr. Rockeymoore. 

[The prepared statement of Dr. Rockeymoore appears in the appendix]. 

Senator BROWN. I have only one comment, then I want to turn 

to Senator Toomey, who needs to leave, and he can do his series 

of questions first. 

Your comment that one-half of the population is not living longer 

is so important in this debate. Dr. Fichtner talked about the media 

presentation of all these issues, and, while I do not fundamentally 

agree with all of that, I think he is generally right that people do 

not really understand this, are not getting the complete picture. 

But one major part of that incomplete picture is that it is not everybody in this society who is living longer. The woman working 

the diner, the guy working in the steel plant, the people working 

construction, especially if they are not union-protected, so often are 

not in fact living longer. So thank you for that. 

Senator Toomey? 

Senator TOOMEY. Thank you, Mr. Chairman. Thanks very much 

for allowing me to go first on the questions. I appreciate that. 

I just want to follow up on that very same point because, in my 

view, it underscores one of the flaws in the design of the Social Security program. Dr. Rockeymoore is exactly right that lower-income 

workers have not enjoyed the extension of life expectancy that others have. 

Lower-income workers also tend to enter the workforce at an earlier age. They tend not to have gone to college, so they are in the 

workforce earlier. So they work longer, and they pay into the system for a longer period of time. 

And, if they have the misfortune of dying in their early to mid60s, which is not terribly uncommon, they collect nothing. They 

have nothing—nothing to pass on to their kids, and nothing to 

show for the decades they spent paying into the system, which is 

one of the reasons why a reform that includes accumulated savings 

18 

has a huge advantage. It does not ensure that they are going to 

live longer, but it would at least give them something to pass on 

to their kids, and maybe help to lift the next generation out of poverty. 

I want to point out now that Mr. Goss, in his testimony, mentioned the fact that Social Security is by its nature an annuity. 

That is, of course, correct, and a lump sum of savings is not. But 

of course you would agree that a lump sum of savings could be 

used to purchase an annuity. These are readily available in the 

commercial market, correct? 

Mr. GOSS. They could. But they, at this point, rarely are, unfortunately. 

Senator TOOMEY. That may be, but they are available. And it 

might well be that people ought to be more aware of it—that the 

purchase of an annuity is readily available to anyone at retirement 

age. 

I also had a question about—CBO, of course, has famously concluded, their estimate is that, as a result of the Affordable Care 

Act, we will have 2.5 million fewer people working within 10 years 

than we otherwise would. If they are right—if that analysis ends 

up to be true and the workforce is 2.5 million people fewer than 

it otherwise would have been—is that helpful to the Social Security 

program, or is that, on balance, harmful to the Social Security program, Mr. Goss? 

Mr. GOSS. Well surely, if we have fewer people working, that will 

not only result in less revenue coming in, but it will result in less 

benefits payable to those individuals in the—— 

Senator TOOMEY. But if you factor that in, does that make the 

actuarial numbers look better or worse? 

Mr. GOSS. That would not help. I would suggest, though, that our 

projections, our projections for the Trustees, have not incorporated 

that kind of reduction as a result of the Affordable Care Act. 

Senator TOOMEY. Right. 

Dr. Fichtner, I wonder if you could address the tax side of this. 

As you know, when Social Security was launched, the payroll tax 

was 2 percent on the first $3,000 a person earns. Now, of course, 

the value of a dollar has changed a lot. My understanding is that 

$3,000 back in that day is equivalent to about $52,000 today. But now we tax 12.4 percent on the first $117,000, so we have 

had huge, huge increases in taxes. Is it your view that we can continue to raise taxes and indefinitely postpone a day of reckoning 

here? 

Dr. FICHTNER. Senator, that is an excellent question. And no, it 

is not my view. Unfortunately, I think what you get—there is an 

old saying in economics that, if you tax something, you get less of 

it. If you raise taxes on labor, you are going to get less labor. 

And it is a general statement. But I think we start seeing now, 

if you think about the 12.4 percent for Social Security, that does 

not include what we are paying for Medicare taxes as well and 

some additional taxes under the ACA for investment earnings that 

go to Medicare. 

You will get someone in the 28-percent tax bracket federally, who 

lives in the District of Columbia where I live, and you start adding 

in the payroll tax, which is now 15 percent or more—we include 

19 

Medicare—then add in the 10-percent State tax. If we start raising 

the payroll taxes, you start getting to the point where the marginal 

tax rate is over 50 percent for some people. That means you are 

keeping, at the margin, less than half a dollar earned, and at that 

point people start reducing their labor supply. 

I actually teach at two universities besides George Mason, at 

Georgetown and Johns Hopkins, as an affiliate professor, and I get 

paid as an adjunct, so it is an additional class. And I am often 

asked by those schools, would you please teach one more class this 

semester? And they offer a wage. 

At this point now, I am keeping about 53 cents on the dollar. 

And it is to the point where I have said, I am a threshold earner. 

I do not think I really can—there is work and leisure, but when 

you raise the taxes on work, I start saying my leisure is worth 

more. And I think we would see that, in some ways, across the 

economy if we raise taxes too high. 

Senator TOOMEY. Thank you very much. 

Thank you, Mr. Chairman. 

Senator BROWN. Thank you, Senator Toomey. Thanks for your 

insight and comments. 

After listening to the four of you, obviously, there are a number 

of things you say in common, and some are in consensus and some 

not. 

And, Dr. Fichtner, you made comments about the media, that 

this retirement crisis that our country faces is narrower than I 

think the other three witnesses—or at least the two flanking you 

directly—would opine, I guess. 

But I do think we can agree—I think it was Dr. Rockeymoore 

who said that half the people in this country do not have a retirement program of any significance. Seventy-five percent of Americans have less than $30,000 in their retirement accounts. The median 401(k) account balance in 2011 was $16,000. Every number 

you look at paints a picture that there are a huge number of people 

in this country who are not prepared for retirement in any significant way. 

I understand Dr. Fichtner’s view that that does put pressure on 

the public pension system to do more. It puts political pressure. A 

number of us think that is the right way to do that, that there 

should be pressure there, I think. We heard that certainly in Dr. 

Rockeymoore’s comments. 

So let me ask this question. Dr. Fichtner, Social Security gives 

workers an incentive to retire early, because only the first 35 years 

of your earnings are factored into benefit calculations. 

From the four of you, is there any evidence that Social Security 

discourages workforce participation? 

Do you want to start, Dr. Ghilarducci? 

Dr. GHILARDUCCI. Yes. There is no model that convinces me in 

economics that we are anywhere near the tax rates that would discourage labor force participation. There is a tax rate that can be 

too high on work, but we are nowhere near that. 

There are lots of suggestions that the Earned Income Tax Credit 

and the Social Security system encourage people to work legally, to 

work on the books, to be a part of the regular workforce. So there 

is lots of evidence that the Social Security system, with the Earned 

20 

Income Tax Credits, puts people into the system. They do not work 

underground. 

Senator BROWN. Mr. Goss? 

Mr. GOSS. I guess I would just add that any time we offer a benefit under a particular circumstance, whether it is people reaching 

a particular age where they can retire or a benefit where they can 

receive a benefit should they become disabled, that on the margin, 

as economists would say, that might tend to cause fewer people to 

be working than would be the case if there were no such benefits 

available at all. 

If no such benefits are available at all in retirement, people really have no choice then but to depend upon friends and relatives or 

to continue working, and we would have some additional work happening. 

However, I would just add this. Where we have Social Security 

benefits, the structure of the system now is such that when people 

reach age 62—and I wish that Senator Isakson was still here, because the 1983 amendments to Social Security did not change the 

minimum eligibility age for retirement benefits from 62. So he 

could still start receiving benefits at 62, except that we do have a 

retirement earnings test that applies at age 62 up to age 66 now. 

If you earn well over $15,000, your benefit will be reduced and 

maybe even zeroed out, in effect, during the time in which you 

have those earnings. 

However, this is not a tax. This is not lost income, because, if you 

have your benefit reduced due to the earnings test, we simply recalculate at Social Security the level of your monthly benefit later. 

It is, in effect, that you are deferring the start of your benefit, and 

you will receive a higher monthly benefit for the rest of your life. 

So it is actually a good thing. It is, in fact, as many people pointed out—I am sure everybody on this panel has—one of the best 

ways that people can possibly avail themselves of a life annuity 

and perhaps about the only place where you can get a CPI-indexed 

life annuity, and that is to start your Social Security benefits at a 

later date. For people who are working at substantial earnings levels above 62, this happens automatically. 

So I would suggest, in that case, we should not think rationally 

that Social Security is a deterrent to people working. In fact, if 

anything, the fact that your benefit will be enhanced so greatly for 

the rest of your life if you work between 62 and 66, we should actually look at Social Security as potentially an encouragement to such 

work. 

Dr. ROCKEYMOORE. I would like to add on to that qualitatively. 

In terms of our experience, we have found that individuals who 

perhaps work at the State and local level and do not have access 

to Social Security through their State and local coverage actually 

want to work an additional number of years and hours to make 

sure that they can actually qualify for Social Security benefits upon 

retirement. 

For low-wage workers who know that their jobs either do not 

provide retirement benefits or disability benefits, they are striving 

towards meeting Social Security credits, or quarters, so that they 

can make sure that they have access to retirement benefits or disVerDate Mar 15 2010 17:16 Jan 09, 2015 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 R:\DOCS\91534.000 TIMD
21 

ability benefits, should they need them. And so it is important to 

note that. 

I want to also say to Mr. Toomey’s point about people dying at 

a young age and then having no way to leave behind any benefits 

for their dependents or survivors, the fact of the matter is that Social Security actually does that. 

And, when you look at the difference between how whites use Social Security and how African-Americans use Social Security, you 

see the distinction. For whites, more than 70 percent of white people use Social Security for retirement benefits. But for AfricanAmericans, it is just a little over half. The other half of their Social 

Security benefits are paid through disability, and a large chunk is 

through survivor benefits. So, when African-American men, who 

have the lowest life expectancy of most workers, die, and they die 

young, they are actually leaving young dependent children behind. 

And the benefit that those children then end up receiving in survivor benefits is significant. And you see that reflected in the racial 

differences in survivor benefit receipts. 

Dr. FICHTNER. Senator, I would just sort of echo that, because 

Mr. Goss actually said the very important term, which is the economics are ‘‘at the margin’’ and how people respond to incentives 

or taxes at the margin. 

If you take a primary worker—if you raise, for example, my Social Security payroll taxes, I am not going to quit working. I have 

a mortgage to pay; I have a life to lead. I want to keep working, 

but maybe I cut back again on those teaching jobs which, at the 

margin, are extra income. 

You also see this having an effect on second earners, spouses. A 

lot of times it is actually women who find that they are trying to 

take care of a child at home, and all of a sudden the extra taxes 

they have to pay in payroll taxes, as well as the child care—now 

actually the child care cost exceeds what they are paying in and 

getting on a net tax basis, because they are paying payroll taxes, 

Federal taxes. There is sometimes a marriage penalty for some 

earners. So there is a disincentive in some ways, and this goes to 

the point where I think we need to think about it holistically. 

I think we would all agree here we want to help those who truly 

need assistance, and I think that is the underlying point about social insurance. There are people who, it may be no fault of their 

own—you know, they had hard jobs, they cannot work past 62, 

they have had low wages and could not save, and, as both my colleagues have shown on either side of me, they do not have access 

to a retirement plan. 

That in some ways is not trying to reform Social Security. That 

is not how we reform the tax code. So, as Dr. Ghilarducci pointed 

out, let’s not give a deduction for a 401(k); let’s change it to a credit 

so it actually helps low-wage workers. 

We should do that with our housing policy. We give a deduction 

for mortgage interest paid, which I will say I get a large benefit 

from. But I am not the person you need to encourage to buy a 

home. I am already going to buy one. 

We need to help lower-income people buy houses, because that is 

a large asset which helps them save for retirement in some ways. 

Let us change the mortgage interest deduction to a credit or a reVerDate Mar 15 2010 17:16 Jan 09, 2015 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 R:\DOCS\91534.000 TIMD
22 

fundable credit so that they get the benefit of home ownership as 

well in that asset purchase. 

We need to think about retirement security as more than just Social Security as a program. We need to think more holistically 

about how we actually change our culture of debt, consumption, 

savings, housing policy, the tax code. 

This all comes together around what we think is now the retirement crisis and who it is actually affecting, whether it is lowincome, high-income, middle-income people, minorities. This is very 

important. I think we should look at this as a holistic package. 

Senator BROWN. Thank you. 

With that comment—I appreciate those thoughts. 

I want to talk about meeting the needs of workers with long careers and low wages. All of you have touched on that in a variety 

of different ways—all of you, really creatively. 

We know the replacement rates for low-income workers are relatively progressive, compared to the rates for wealthier taxpayers. 

The benefits for workers with average wages—the replacement rate 

is 42 percent. For low-income workers, the replacement rate is as 

high as 77 percent. But the cash benefit is still far too low for a 

long-time, low-income worker, and that is clearly a big part of the 

problem here. 

The benefit to low-income workers results in, far too often, still 

living below the poverty line. Modernizing the special minimum 

benefit would address this problem. The minimum benefit is ineffective because, indexed to price inflation, it has risen more slowly 

than regular Social Security benefits indexed to wage inflation. How do we modernize the benefit so that a $10-, $11-, $12-anhour worker at a fast-food restaurant or working waiting tables at 

a diner or people who are in that wage category, how do we modernize, if you will, the benefit so it meets their needs? 

If you would, Mr. Goss, do you want to take that first and then 

go across the table? 

Mr. GOSS. Wonderful. Yes, thanks very much, Senator Brown. 

The point you are making here, the point about differential lifespans and mortalities, differential earnings levels, all of these really sort of fit together. And I think what everybody has described 

so far about the nature of the Social Security benefit formula really 

does fit into this issue. The fact that we have the higher replacement rates, higher benefits relative to the earnings that people 

have had at the lower end of the earnings spectrum, speaks to, 

really, these needs in many, many ways. 

First of all, the obvious, is that people at the lower earnings levels generally are much less participating in saving towards retirement and much less likely to have a 401(k) or a defined benefit 

plan from their employer. Also, it is the lower-income people who 

tend to have had less progress in improvement in mortality. So, 

having a higher monthly benefit relative to the amount of earnings 

that people had in the past is a way, even beyond these sort of holistic points that Dr. Rockeymoore was describing for disability and 

survivor benefits, to more equalize the kinds of benefits people get 

over an entire lifetime. 

For people with lower earnings who live a shorter amount of 

time, the fact that they get a higher monthly benefit if they live 

23 

a shorter amount of time will also more equalize what they are getting. And so, as to the minimum benefit, we have seen many, many 

proposals about the minimum benefit, because our special minimum benefit, as you described the CPI index, has fallen into being 

virtually not applicable at all now. 

So we have seen in many different proposals, both the SimpsonBowles proposal and the Bipartisan Policy Center proposal as well 

as others, the idea of restoring perhaps the wage index to a level 

of minimum benefit. 

But to the notion of retirement age, let me just add one other 

thing that is in the Simpson-Bowles plan, and we worked very 

closely with that Commission. And one aspect that they were looking at was the possibility of raising the retirement age, but they 

wanted to find a way to raise the retirement age such that people 

with long careers at low income would not be as much affected and 

possibly not affected at all. 

And we worked with them on exactly that. People with 30 or 

more years, who are below 400 percent of poverty in their average 

earnings levels, would be affected less. And, if I recall, those below 

250 percent of poverty in their average earnings, at least—— 

Senator BROWN. So, is it right—— 

Mr. GOSS [continuing]. Would not have the retirement age increased at all. 

Senator BROWN. Is it the right public policy—and I am still very 

taken by a couple things Dr. Rockeymoore said. Is it the right public policy that to ultimately end up in this place, that low-wage, 

lifetime workers—and Dr. Fichtner said, I think it was he who said 

that a low-wage worker often gets into the workforce earlier than 

a higher-wage worker, for starters. 

But do we want to get to the place where the lower-wage worker 

whose life expectancy is less, we know that, that that lower-wage 

worker then—should we build more progressivity into the benefits 

structure, whether it is the minimum benefit or just more progressivity than we already have? I do not know that the public knows 

that Social Security is redistributive and the degree to which it is, 

and some would argue that it should be more so. 

Is there a way to get Social Security to predict sort of, actuarially, people’s life expectancy? Demographically, someone who goes 

to college is likely going to live to be 82 versus somebody who 

worked at a fast-food restaurant much of their lives in low-wage 

jobs, who is more likely to live only to 62 or 72. 

Is there a way to build a progressivity in there so that their benefits, if you will, are more front-loaded, knowing that the 82-yearold will draw fairly high benefits for a longer time? Is there a way 

of building that in? 

Dr. Ghilarducci, you are nodding. 

Dr. GHILARDUCCI. Yes. My research right now is on exactly that, 

that low-income workers start early, end earlier, and die earlier. 

And so, raising the retirement age blanketly is a bad idea. That is 

in my written testimony. It is a bad idea because of these retirement age differences and these longevity differences. 

But let us step back. We do wonderfully in equalizing retirement 

time for low- and high-income workers in our system. It is really 

quite brilliant. And the way we do it is, our disability insurance 

24 

kicks in for workers who are depreciated, are worn out in their 

early 50s. 

With an administrative law judge in a disability hearing, the administrative law judge takes into account their work options. So it 

is their disability as well as their future in the labor market. And 

we have constructed a system where low-income workers are retiring earlier, getting disability until they reach retirement age and 

they get Medicare. And that is actually—— 

Senator BROWN. If I could interrupt, that is the importance of 

doing reallocation right, correct? 

Dr. GHILARDUCCI. That is, because reallocation is all of a system. 

Dr. Fichtner talked about that; the system works holistically as social insurance to take care of people in different life circumstances. 

The other clever idea—— 

Senator BROWN. Disability insurance has never kept up, in terms 

of payments, with Social Security benefits, correct? 

Dr. GHILARDUCCI. Right. There have been a lot of administrative 

and regulatory decisions that make it harder and harder for people 

to get on disability. And that can be changed with, actually, regulatory changes. 

So it has not kept up, but it used to. And so we see current retirees now having the same amount of retirement time, even if they 

earned low or high wages. 

There is also this idea of longevity insurance, so that people 

would get a kicker if they are at age 80 or if they are impoverished. 

There are proposals to add a new benefit. I am on the Bipartisan 

Policy Center’s commission now, and we are going to be looking at 

minimum wage. 

But I still want to leave you with—there are lots of ways to prevent poverty. It is affordable for our older population, and it is not 

just for lifetime low-wage workers. 

Senator Brown, you know more than almost anybody here, because you are from Ohio, that the labor market has really jumped 

around. Industries that were supposed to live for a long time are 

now dying. And so middle-class workers, college-educated workers, 

can drop down into these low-wage jobs for a long time. 

The United States creates more low-wage jobs than any other 

country in the OECD. So it is not just people we do not know; it 

is actually people we do know who are—— 

Senator BROWN. Let me back up on that statement, we create 

more low-wage jobs. Is that because our minimum wage is set so 

low, or is it a function of a service economy versus manufacturing, 

or—— 

Dr. GHILARDUCCI. It is all of that. It is also the erosion of unionized jobs and union protections. So jobs in those industries—service 

sector; manufacturing; fast food workers, if they were unionized; 

textile workers, from where I am from; rubber tire workers from 

where you are from—if they were unionized, those jobs earned a 

lower-income, middle-class wage. And with the erosion of unions 

and the minimum wage together, we lead the world in the creation 

of low-wage jobs. 

Senator BROWN. Dr. Fichtner? 

25 

Dr. FICHTNER. Senator, I would like to just add to my two colleagues’ comments, and keep in mind that a reform based on your 

concept in your opening statement is about insurance. 

Are we insuring against poverty and old age, or are we insuring 

against living too long? What are we insuring against? This program was not designed to be a retirement program for all; it was 

designed to be social insurance. 

And I think we need to keep that in mind and think about what 

we mean by ‘‘minimum benefit.’’ That is, if we are insuring against 

poverty in old age, consider both the low-end income near retirement and at retirement. 

But again, as Dr. Ghilarducci pointed out, those who might hit 

80 or 85 would literally have found that they have now outlived 

their savings. That is the insurance on which Social Security originally started—again, old-age insurance. We should consider both 

angles. 

And I think if we look to reform, if we are going to make the system more progressive—which in general I am for—you have to give 

to some, but you have to take from some. And I would look to the 

higher-income earners in some ways who may not need Social Security as much, or depend on it as much as lower-income earners, 

to balance it out. And we should try to make it sort of revenueneutral so that we do not exacerbate the current program finances. 

That is the Social Security side. But again, I want to focus on the 

holistic nature. 

President Obama has proposed the myRA accounts, or my-R-As. 

Senator Rubio, your colleague, last week proposed opening up the 

TSP plan, which government employees and members of Congress 

and Senators have access to, to the public. 

Again, to hit those 75 million Americans who do not have access 

to a retirement vehicle, we need to make sure they have access to 

a retirement account in some way, shape, or form, whether it is 

TSP or TSP-like or a myRA—something so that you start getting 

people to save and invest. 

When I was working at Social Security, Steve—and I give him 

a lot of credit for this—helped me out a lot in helping the agency 

move our financial literacy efforts and change the publications we 

were doing, the messaging we were working. 

And I found this in my drawer as I was preparing yesterday. 

Steve, I do not know if you remember this one, but Senator, I will 

give you a copy at the end. We created these little cards. One is 

wallet-size and one is larger, and they basically show the benefits 

of delaying Social Security, how much more you get per month past 

62, if you delay from claiming. And it also shows the value of saving just $2 a day. And again, $2 a day comes up to about $600 a 

year, a little more than that, Dr. Ghilarducci was pointing out. 

And we started giving these to people at field offices and events 

we would do, and people would play with the slide rule. It was an 

old-fashioned slide rule many of you have seen before. And it is 

changing, again, how we look at financial literacy and trying again 

to promote savings. 

And I just wanted to encourage again a more holistic picture. Let 

us make sure we help those who really do need the help. And Steve 

26 

mentioned the idea of even working with the Simpson-Bowles Commission on raising the retirement age. 

I am for that, but again, I want to make sure we protect those 

at the low-wage end who, again, have worked in blue-collar jobs 

their whole life, maybe cannot work past 62. 

I am 42 years old. I think I am fairly well-off, but there is still 

a very good chance I could become disabled at some point in my 

career. Social insurance disability, Social Security, is there for me 

as insurance if I get disabled. We need to make sure those insurance portions are protected as much as possible. 

Senator BROWN. The fact that you are 42 years old means you 

can read the small print on those cards. [Laughter.] 

Dr. FICHTNER. I will give you the big one, Senator. 

Senator BROWN. Mr. Goss may be older than that. The other two, 

I think, are younger than 42, way younger. 

Do you want to say something? Because I want to ask him a 

question. But go ahead; then I want to ask Dr. Fichtner a question 

about what he just said. 

Mr. GOSS. I would just like to respond, first of all, to your point 

about redistribution. We have voluminous proposals for having the 

Social Security benefit formula being further redistributed—in fact, 

one that was supported by President George W. Bush, something 

we call progressive indexing, which would, to the extent that benefits will be lowered in the future to right the financial balance for 

Social Security, would be done only for people at higher levels. 

But I would like to address one other thing that—— 

Senator BROWN. That does nothing to redistribute money to 

lower levels; it just, quote-unquote, ‘‘fixes Social Security’’ by taking 

a little from the upper-income. 

Mr. GOSS. Exactly right. 

But I would like to address a point that Dr. Fichtner has made 

here two or three times, which is about Social Security being a 

mechanism for providing benefits just to those who really need it. 

And I would like to draw a distinction here between social insurance and welfare programs. 

The Social Security Administration administers not only Social 

Security benefits, but also the SSI, Supplemental Security Income 

program. That is a means-tested program, as we all know. And 

Senator Brown, as you pointed out, that has not been well-indexed 

over time, in many, many respects. 

But Social Security, from its very foundational start, was designed to be an earned-right benefit for all Americans. It really is 

provided for virtually all Americans. Over 95 percent of Americans 

will expect at some time in their life to get some kind of benefit 

from Social Security. 

Now, it is differential. People get a higher rate of return who are 

lower-income, or at least a higher replacement rate, but its basis 

has been to provide benefits for all, even including people who 

might be extremely wealthy. We have no means test, at least currently, in Social Security. That is a possibility. That could be done 

in the future. 

But I would like to draw that distinction between social insurance and a welfare program which would provide benefits only for 

27 

those who, as I think Dr. Fichtner was describing it, really need 

it. 

Benefits are provided for people of very good means. When Dr. 

Fichtner reaches 20 years hence, at age 62, he will be eligible for 

benefits, even if he has massive income and resources at the time. 

Dr. FICHTNER. I will delay until—— 

Mr. GOSS. And when he reaches the so-called normal full retirement age, we no longer even have an earnings test. At the full retirement age now, you can earn as much as Bill Gates or as much 

as Dr. Fichtner and I hope to be making at that age, and still receive your full benefit. 

So I really just did want to—— 

Senator BROWN. And I appreciate your comment. I think all of 

us, regardless of politics—well, I think there are some number of 

people probably in this body or the House who do not really fundamentally appreciate social insurance. 

But I think surely the great majority of the public understands 

the concept of social insurance, whether they call it that or not, and 

understands the importance of it and does not want it fractured or 

violated. 

That always brings me to the cautionary note. While a number 

of us here want to see a more redistributive, a more progressive Social Security system, it does lead us to not want to means-test 

upper-income people, because it does fracture the universality of it, 

and it does speak to the caution of, you do not want to change Social Security to a welfare program. You did not use that term, but 

that is kind of what you are implying. 

So my question for Dr. Fichtner is, and then I have a couple of 

questions for Dr. Rockeymoore, is there a way to—you mentioned 

that you would support raising the retirement age. You did not get 

to particularly for whom you would raise it, but that is where I 

want to go. 

Would you support a way of raising the retirement age for the 

top fourth or third or half of high-income people? And I am not asking you to be too specific here, but might we be able to, in essence, 

as Dr. Rockeymoore suggested, in some sense lower the retirement 

age for low-income workers by filling it in with disability and other 

kinds of benefits, but making them actual above-the-poverty-line 

benefits? 

Is there a way for a more conservative, politically conservative, 

viewpoint here to get to that place? 

Dr. FICHTNER. That is an excellent, nuanced question, Senator. 

Let me give you an excellent, nuanced answer, because the answer 

is ‘‘yes.’’ 

And what I would do, though, is, instead of trying to focus on 

raising the retirement age for one group over another, you do raise 

the retirement age for all, but you focus on raising up the minimum benefit for those who are forced to retire or do retire at 62. 

And you might even encourage having a higher delayed retirement 

credit for those who work past 66 or 67, as they go towards age 

70. 

That is one way to do it to make sure there is a minimum benefit 

that is higher, so that, for those people who actually, again, work 

physically demanding jobs and need to retire early, cannot work 

28 

longer, that benefit level is above the poverty line or higher. But 

you still then have an incentive in some ways to work longer, if you 

can. 

And I would also throw in there an idea that has been floated, 

again by Senator Rubio and others, about whether or not, if you 

reach a certain age or a certain number of years of paid service, 

you would no longer pay payroll taxes. And this is something that 

would encourage work, as well as savings, in later life. 

So, picture a low-income worker who might start working—does 

not go to college, but starts working a blue-collar job at 18 years 

old. They are going to pay payroll taxes every year in which they 

work. You could do something that says, after 45 years of paid-up 

credit—which would put them about 61, 62 years old—they will no 

longer have to pay Social Security payroll taxes. They could continue working at that point and actually keep all that money for 

savings. 

That would be an incentive, one, to continue working, so that 

would actually support labor incentives. But it also would help people, lower-income workers, as well as higher-income workers, to 

save. 

Senator BROWN. Would you support—and I do not know if Senator Rubio has thought it through in this direction. Perhaps—is 

there a way, say, after 40 years, you no longer pay the Social Security tax, but you put it in an account that the government matches? 

Say it is sort of an enhanced Earned Income Tax Credit that can 

then begin to build savings. 

So that is something you could see, sort of across the political 

spectrum, there would be support for. 

Dr. FICHTNER. Yes. I think, Senator, that is a good way of looking at it. And some have argued, in thinking about the enhanced 

Social Security—and Teresa has mentioned this too—there is a lot 

of opposition on one side to raising payroll taxes. The taxes are too 

high as it is; do not raise them too much. 

But some have argued, again, on the conservative side, do private accounts as the add-on. So, if you are currently doing 12.4 percent for payroll taxes, make it 14.4. 

Senator BROWN. But it would be private accounts. 

Dr. FICHTNER. But the 2 percent would go into a private account. 

That is ownership that encourages savings, whether it is through 

a TSP plan, TSP-like, Fidelity, something. You are now encouraging savings. 

I think the big issue that all of us would agree with is that, in 

some way, shape, or form, regardless of how we do or do not reform 

Social Security—and it does need reform—we still need to focus on 

people’s ability and access to savings. And they do need to save. 

Senator BROWN. Thank you. 

I have a couple of questions for Dr. Rockeymoore, but Senator 

Nelson is here. 

Senator Nelson, take as much time as you need. 

Senator NELSON. Thank you, Mr. Chairman. 

I have the privilege of being the chairman of the Aging Committee. And we have had a number of hearings that have discussed 

Social Security. What makes Social Security great is that virtually 

every worker pays into it, but a worker has to hope that his emVerDate Mar 15 2010 17:16 Jan 09, 2015 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 R:\DOCS\91534.000 TIMD
29 

ployer offers a retirement plan. And for a variety of reasons, many 

do not. 

Senator Collins, my co-leader on the Aging Committee, and I 

have tried to make it easier for small businesses to pool together 

and offer plans. But we do not think that that, as a practical matter, is going to give every worker an at-work option. 

So I would like to ask Dr. Ghilarducci—you have been very vocal 

about creating a mandatory and universal retirement account that 

is professionally managed. Last week my colleague from Florida, 

Senator Rubio, shared his desire to allow Americans without a retirement savings plan at their work to sign up for our Federal 

Thrift Savings Plan. 

So can you talk a little about what the States are doing and what 

you think about Senator Rubio’s idea? 

Dr. GHILARDUCCI. I think Senator Rubio has a good idea. I think 

this may be a truly bipartisan issue. 

We all know—and it is just math—that we have to save for our 

retirement. Twelve-point-four percent goes automatically; it is a 

mandatory system, Social Security. All of us who are in pension 

plans at work save the extra 8 percent, so we all need to save 

about 20 percent, all totaled. 

And half of Americans are not doing it, because their employers 

are not offering a plan. And there is no sign that that is ever going 

to get better, despite all the financial literacy and all the marketing by Fidelity and all the other plans. It is just not working. 

And Congress can pile on more tax deductions, but we are not 

going to get universal coverage. 

So I, and it looks like Senator Rubio, are recommending that we 

mandate extra coverage and make sure that people can use a professional pension system. 

The States are not waiting for Congress. Five States have already passed laws of some sort to get their private employees into 

a system that is managed professionally, based on pooled assets, 

with annuities that prevent them—because we are the only nation 

on Earth that allows people to withdraw retirement assets before 

retirement. What other nations call retirement assets, they treat 

like retirement assets, and people can only get at them at retirement, a thought we have not endorsed. 

So I approve of a mandatory tier. I think it is much better to do 

it at a Federal level, but, like lots of social policy, the States often 

move before the Federal Government does. 

Senator NELSON. This idea that if you are a small business, you 

really do not have enough wherewithal to provide a retirement 

plan, getting small businesses to pool together to do that, is that 

pie-in-the-sky? 

Dr. GHILARDUCCI. No. That is actually what drove the legislation 

in California. The small businesses realized that they did not want 

to deal with the 401(k) brokers and administrators, or the complexity. They did not trust that the 401(k) system or IRAs gave the 

best deal to their employees. And, since it was voluntary, they just 

walked away from it. So they encouraged the legislation in California to provide an automatic enrollment into a private system. 

So this helps small employers that might become medium-size 

and large employers get a pension system to their employees and 

30 

to themselves, because a lot of small businesses also want a plan. 

If you start early saving for retirement, you do much better, and 

it is a lot cheaper. 

Senator NELSON. Are there other States that have a similar kind 

of law like California? 

Dr. GHILARDUCCI. Four others, and I go testify in these State legislatures. There are a lot of them. Fifty, it turns out. Four other 

States besides California have passed legislation and five others 

are considering it. 

Nebraska and Washington State have a lot of legislation and a 

lot of commissions. So I would count 12 States that are seriously 

at some stage of creating these universal plans. 

Senator NELSON. Under the present system, if you delay in taking Social Security, you increase the lifetime benefit by 8 percent 

for every year that you delay. Of course, a lot of seniors cannot 

wait, and that is a big decision. 

Dr. Fichtner, you have discussed this in your expositions and 

writings, and you have applauded Social Security for changing 

course and not encouraging people to take the benefits early. But 

the workers out in the field offices, they do not necessarily discuss 

the benefits of waiting. So what should we, as the committee of jurisdiction on Social Security, what should we be doing? 

Dr. FICHTNER. Oh, Senator, that is an excellent question. And I 

am glad I no longer work for the agency, so I can speak completely 

freely. 

The agencies should promote what is basically an individual option for people when they come to talk about when to retire for Social Security benefits. There is not a one-size-fits-all model. For 

some people, 62 is the right age. They either cannot work longer, 

or they need the money today. Forcing them to work longer is not 

the right move. For others who have assets or can work longer, 

they may decide not to work. They still can delay claiming. Claiming and stopping work in some ways can be two different things. 

The agency needs to do a better job of telling people and showing 

people, here are your options, here is what it means for you, and 

making an individual decision. 

Steve Goss helped a lot when I was at the agency with language 

that we could use. We have a 2-pager—actually, I think the agency, 

hopefully, still uses it—on when to start receiving retirement benefits, which really goes through, consider your health, consider your 

history of your family, your genetics, your income, your lifestyle 

you want to have, your outside assets, and then make a determination. 

You can always walk into Social Security and say, ‘‘I am thinking 

about taking retirement benefits.’’ Talk to somebody. If you decide 

it is not the right time, you can leave. You can come back tomorrow 

or next week or next year, when you are 70. You have the individual choice. 

And I would love it if Congress would help push that message 

on the agency that that should be the focusing message. We have— 

I keep saying ‘‘we’’ because I worked there—the agency has moved 

away from the break-even analysis which, again, with the help of 

Steve Goss, we were able to change so that people were no longer 

being told if they took benefits today at 62 they would be ahead 

31 

for 14 years. That is a problem, because, when you get to 76, you 

are then behind for the rest of your life. They were not getting that 

message. I think a lot of field offices now are getting that. 

But it is a culture change, and that takes time. So the longer we 

put pressure on and keep giving the right message, the more we 

will make that change, Senator. And I appreciate your bringing up 

that issue. 

Senator NELSON. Do I have time for one more? Do we have a vote 

in progress? All right. 

The special minimum benefit in Social Security—it is to help 

low-wage workers, but, come 2016, it is not going to be indexed to 

inflation anymore. So how do we in Congress revamp this benefit 

so that it actually works as intended? 

Dr. ROCKEYMOORE. So, when it comes to low-wage workers, there 

are two things that I think need to be done. 

First of all, because of the effects of the Great Recession on the 

economy and the impact it has had on younger workers who will 

be tomorrow’s future retirees, we need to boost benefits across the 

board for all Social Security recipients. And, when it comes to the 

special minimum benefit, we actually need to increase it to 125 

percent of the poverty level. And we need to make sure that it is 

indexed also to the growth in wages, so that it is adequate. 

As an addition to that, I would add that the CPI–E is important 

to adopt as well for low-wage workers. Because, as you well know, 

the CPI–W, which is the current formula that determines the costof-living adjustment, does not actually account for the higher costs 

borne by the elderly, particularly the medical costs that they incur. 

And so, by also shifting Social Security COLA to use the CPI– 

E, this is another way that we can actually boost benefits for lowincome workers. 

Senator NELSON. So the chained CPI would take it exactly the 

other way? 

Dr. ROCKEYMOORE. It would take it in the exact opposite direction, something that we actually do not need. And it would imperil 

not just low-wage workers, but also middle-income workers. 

More than 38 million-plus members of the U.S. population who 

depend on Social Security for a significant portion, or all of their 

retirement benefits, would be harmed by that proposal. And we 

firmly reject it. 

Dr. FICHTNER. Senator, can I add to that on the CPI? 

Senator NELSON. Please. Please. 

Dr. FICHTNER. I caution, and Steve may also bring this up, that, 

again, he mentioned in his testimony that Social Security is not 

just the program for the elderly. There are children, there are the 

disabled. The CPI–E really is for the elderly. And one of the concerns we have in looking at trying to do inflation is, how do you 

accurately measure inflation? 

The reason that chained CPI has come up in the discussion is 

that it takes into account people’s behavior. If oranges go up in 

price, they may buy more bananas, for example. So, if you are 

thinking about the CPI–E as a basket for looking at just the elderly, I would consider you look at a chained CPI–E, which then would 

take into account health care costs, but also how consumers, these 

32 

beneficiaries, would respond to changes in the basket of goods they 

use. 

Mr. GOSS. If I could just add to that. 

Senator NELSON. Please. 

Mr. GOSS. There are two things that I think should really be 

thought about on the CPI options. Dr. Fichtner is exactly right. 

The CPI–E, which is sometimes referred to as for the elderly or 

as experimental, is based on the market basket choices of people 

62 and over. 

Many of our beneficiaries are disabled, and they are under that 

age. However, it is likely—in fact, we believe that their lifestyle, 

their purchases, are probably more similar to the elderly than they 

are to other people of the same age who are at work. So it may well 

be that the CPI–E is reasonably applicable to them, perhaps more 

so than the CPI–W, which is just for urban wage earners and clerical workers. 

If I could mention one other thing, Senator Nelson. You mentioned the delayed retirement credit—just a small point on that. 

Actually, the 8-percent delayed-retirement credit for every year 

you defer after the normal retirement age, now 66, is actually intended to, in effect, equalize the amount of lifetime benefits you 

should expect to get. If you wait an extra year, you do not get benefits for that year between 66 and 67, but you will get 8 percent 

higher benefits then thereafter, for the rest of your life. 

So it really does provide a very substantial encouragement to 

defer longer the start of their benefits and thereby to get a much 

higher benefit level for the rest of their life. And by the way, that 

delayed retirement credit also ports over to a surviving spouse, 

should you predecease your spouse. 

Dr. FICHTNER. Good point. 

Dr. GHILARDUCCI. We all in this room will probably take the delayed retirement credit because we all probably expect to live 

longer than average. But it is not a good idea for a lot of people 

who do not expect to live the average, and that is half of the people, because that is what the averages are. 

So it is a very good deal; 8-percent return is exceedingly generous, and we are all thankful for it. 

I want to caution us. When we talk about raising the retirement 

age, it is just a form of cutting benefits. And so, it does not seem 

to encourage work. 

Work has its own merit. Wages—people work for wages, and people work because they are invited into the workforce by employers, 

or they choose to do it because it has other kinds of benefits. So 

just raising the retirement age is not a way to get this glorious increase in workforce. So we are spending a lot of time—a lot of us 

are talking about workability in conjunction with raising the retirement age. 

The chained CPI depends, I think, too much on what economists 

fetishize in terms of substitution and choice. Because, if we choose 

to take an inferior product, that is not keeping standard of living 

the same. That is why the chained CPI has often been called the 

cat-food CPI, and that refers to the substitution effect. 

If people substitute away from a good-quality meat to an inferior 

meat because of the price differential, we are still demanding a deVerDate Mar 15 2010 17:16 Jan 09, 2015 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 R:\DOCS\91534.000 TIMD
33 

crease in their standard of living. So chained CPI would reduce the 

standard of living for everybody who would have it. 

Mr. GOSS. Could I just add, at the risk of perhaps making this 

far too technical, all of the CPI indices that we now have—CPI– 

W, the chained CPI, and the CPI–U without chaining—all work off 

of, I think it is 122 different strata of types of goods and services. 

Within each one of those individual strata, we already have substitution bias in effect taken care of. 

We have this geometric means which in effect takes care of substitution issues within each stratum. So what we are faced with 

then on the prospect of going to a chained CPI is substitution or, 

I would say, redistribution of people’s purchases across broad categories of goods and services. 

It is not going from pork chops to hamburger; it is really more 

going for your big-screen TV versus the purchase of a car this year, 

not necessarily substitutable items. And that is where really the 

chained CPI gets to. People of our means do tend to make choices 

in those arenas, but not everybody does. 

Senator BROWN. Thank you, Senator Nelson. 

Let me—we have until noon. I want to ask each of you individually, or the three of you anyway, a specific question and not, unless you have something really brilliant to add to it, the others who 

were not asked. Keep it to yourself, all right? [Laughter.] 

But I want to start with Dr. Rockeymoore. 

Same-sex couples are particularly vulnerable to retirement insecurities. Couples have been treated as individuals, are ineligible for 

private pension and Social Security survivor benefits. The Supreme 

Court obviously has spoken on these issues in terms of discrimination. What policy changes do we make with Social Security? 

Dr. ROCKEYMOORE. We actually need to cover same-sex couples 

just like we do heterosexual couples, and their dependents. They 

need to be eligible for Social Security benefits like any couple, regardless of the place where they got married or where they currently reside. 

Senator BROWN. And that takes congressional action? 

Dr. ROCKEYMOORE. That takes congressional action. And so, basically, federalizing this will be required. 

Senator BROWN. All right. Thank you. 

We also will send written questions. We have at least five more 

questions, probably, for each of you. 

Mr. Goss, this is for you. If there is one area on Social Security 

where every Senator on this committee should agree, it is in modernizing SSI. It is a modest supplemental benefit for the elderly, 

blind, disabled, people of little other income. Strict eligibility requirements were put in place at the inception a long time ago. This 

made sense, but now those requirements, because they have not 

been updated, certainly need better examination. 

Give us comments on proposals for this program, and what you 

think personally, what you think from your incredibly deep knowledge of these issues, what is necessary and prudent. 

Mr. GOSS. I think that the most commonly discussed items for the SSI program are the fact that the $2,000 asset limit and the 

income disregards, of which there are a few, have been at fixed levels now for decades, and there has been no indexation whatever. 

34 

And most people, I think, agree that there should have been 

some indexation. The question is, if we were to make a change in 

those, should there be a level jump? Should there be a change in 

the levels to start with and then indexation thereafter, or just indexing from the current levels? 

The other question really is the Federal benefit rate itself, which 

has been indexed. That is one aspect that has been indexed, but 

to the level of the CPI. 

And, within the structure of our economy, our society, we know 

that fewer and fewer people, as we project into the future—Dr. 

Fichtner will recall models from Social Security that projected the 

percentage of the elderly that will be in poverty would be dropping 

from 10 or 12 percent a few years ago down to 2 percent 50 years 

out. 

Why? Because we have a general, slow, and gradual increase in 

the standard of living in our economy, but, if you have something 

like the poverty threshold or SSI benefits rising only at just the 

cost of living, that will fall lower and lower in the income distribution. 

So serious thought probably ought to be given to whether the 

CPI indexing alone is sufficient for SSI. 

Senator BROWN. Thank you. 

Dr. Ghilarducci, it is important, as really all of you have pointed 

out, in a sort of holistic way, as Dr. Fichtner said, that we think 

of Social Security as sort of a group of insurance products—the 

Old-Age, Survivors, and Disability Insurance program, an affordable insurance package for all Americans. Within that context, we 

can consider what expanding Social Security is all about, expanding social insurance to strengthen families. 

Women make up roughly half the workforce. The increase in 

women’s work hours between 1979 and 2007 led to an additional 

$1.7 trillion of economic output, in 2012 dollars. The U.S. is the 

only advanced country and economy in the world that does not 

guarantee women the right to paid maternity leave, I believe. 

One proposal you spoke about was the Family and Medical Leave 

Act of 20 years ago, which was progress, but obviously did not pay 

for it. One proposal would create a national paid family and medical leave social insurance benefit. 

What would the effect of that be on workers and on the economy, 

if you would give us a fairly expansive answer there? 

Dr. GHILARDUCCI. Yes, sure. I really like your phrase, an affordable insurance product for all. I would add, an affordable insurance 

and savings product for all. That is what we can do here, because 

the Social Security system is so strong administratively. 

I think we overlook how powerfully—— 

Senator BROWN. Strong means low overhead and reliability? 

Those two? 

Dr. GHILARDUCCI. Thank you. And universality. Almost all Americans participate in the Social Security system. We do a lot better 

than Italy, for instance, where there is lots of avoidance of being 

in the formal economy. 

So we really do need to give ourselves a pat on the back and really celebrate the fact that we have a system that is universal and 

that people participate in. I really want to stress that, because the 

35 

Earned Income Tax Credit, Dr. Fichtner, actually pays for the lowincome workers’ payroll tax. 

So it is a brilliant mosaic of social insurance that also comes 

from the tax code. Do not overlook that when you are celebrating 

our successes. 

So what you have asked me is whether or not this infrastructure—I call it a financial insurance infrastructure—that is available to all at a very low cost can be expanded to include the kind 

of modern insurance products that we need. 

And the answer is a definitive, absolute ‘‘yes.’’ And it should be; 

it is designed to do that. 

So, if we recognize that family needs are changing, then the Social Security system is an appropriate place to add on new insurance products. And family leave is an excellent insurance product. 

You know, it is an accident of history that the unemployment insurance systems were not administered on the Federal level. 

States, for their own reasons, wanted to have their own unemployment insurance system. Those reasons are really past, and we 

should consider federalizing the unemployment insurance system 

to a greater extent. 

So we should take advantage of—let me just summarize—the 

fact that most Americans participate in Social Security. That does 

not happen in other countries. They avoid paying a payroll tax in 

the black market, and take advantage of the very low cost and efficient—— 

Senator BROWN. Well, but you said ours is more universal, and 

now you are saying that others—that we avoid it more—— 

Dr. GHILARDUCCI. That we should celebrate that ours is universal in theory and in fact, where other countries have a social insurance system that a lot of workers avoid by working in the black 

or gray markets. 

So let us take advantage of the fact that everybody pays a Social 

Security tax, and add in other insurance products. 

Senator BROWN. Thank you. 

And my last question is for Dr. Fichtner. So, when is the wedding? 

Dr. FICHTNER. May 31st, so I have to—— 

Senator BROWN. You have to get out of here. All right. [Laughter.] 

Thank you all. This was a very good discussion. I appreciate the 

openness and the candor from all of you and the good insight and 

the public service all of you bring to this. We will have some—and 

I think I could speak for some others—we will have some written 

questions. If you could answer them as quickly as possible. 

The subcommittee is adjourned. 

[Whereupon, at 11:56 a.m., the hearing was concluded.] 

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