For Release on Delivery

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Tuesday, April 11, 2000

GAO/T-HEHS-00-101

SOCIAL SECURITY

Providing Useful

Information to the Public

Statement of Barbara D. Bovbjerg, Associate Director

Education, Workforce, and Income Security Issues

Health, Education, and Human Services Division

Testimony

Before the Subcommittee on Social Security, Committee

on Ways and Means, House of Representatives

United States General Accounting Office

GAO
Page 10 GAO/T-HEHS-00-101

Mr. Chairman and Members of the Subcommittee:

Thank you for inviting me here today to discuss information the public

should have about Social Security and strategies for providing that

information. Social Security touches the lives of virtually all our nation’s

citizens. Last year, it paid $386 billion in benefits to over 44 million

beneficiaries, including aged and disabled workers and their dependents

and survivors. Ninety percent of elderly households received Social

Security benefits, and 17 percent of such households received no income

other than Social Security. Moreover, Social Security collected $460 billion

in payroll taxes from over 150 million workers, or 96 percent of the

nation’s workforce. Currently, 12.4 percent of workers’ covered earnings

are paid in payroll taxes, divided equally between workers and their

employers. Clearly, to help in their personal financial planning, our

citizens should know where their Social Security payroll taxes go and

what benefits they can expect to receive. In addition, Social Security faces

a significant long-term financing shortfall because of the aging of our

population and other demographic and economic trends. The public

should also have the information it needs to participate in the debate

about Social Security’s future.

Today I would like to discuss the three broad types of information the

public should have about the Social Security program—basic information

about program benefits, the current and projected financial status of the

Social Security program, and information about proposed changes to the

program. For each type of information, I would like to focus on what role

the individualized Social Security Statement might play in providing it. My

testimony is based on work we have done over the past few years1 and an

assessment of the most recent statement.

In summary, the individualized Social Security Statement currently plays a

specific and important role in providing some, but not all, of the

information the public needs. First, individuals should have clear and easy

to understand information about what benefits they can reasonably expect

to receive. This is the specific and primary purpose of the Social Security

Statement, which is now sent annually to nearly all working participants.

In addition, the statement helps individuals and the Social Security

Administration (SSA) ensure that individual earnings records are accurate,

which in turn is crucial to providing accurate benefit payments. SSA has

recently revised this statement so that it more effectively conveys this

1See the list of related GAO products at the end of this statement.

Social Security: Providing Useful

Information to the Public
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Information to the Public

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important information. Second, the public should understand the current

and projected financial status of the Social Security program. The Social

Security Statement now contains a brief disclosure about this, but

technical and detailed information about it is more appropriately conveyed

through other vehicles, such as the annual Trustees’ Report2 and the

federal government’s consolidated financial statements. Third, the public

should have information to help it evaluate different proposals to restore

solvency and make other program changes. However, such information is

complex and must be presented in a fair, consistent, and comprehensive

way that helps the public weigh and balance the various difficult choices

that must be made. This type of information goes beyond estimating

benefits and verifying earnings, which is the Social Security Statement’s

central purpose. Given the difficulties SSA has had in making just this

information clear in the statement, adding information on reform

proposals would likely make the statement lengthy, more complex, and

even more difficult to understand. Doing so could undermine the basic

purpose of the statement.

The Social Security trust funds have a projected financial shortfall or

funding gap of approximately $3 trillion over the next 75 years. This longterm financing problem is largely a result of greater life expectancy, lower

birth rates, and the forthcoming retirement of the baby-boom generation.

Social Security is financed primarily on a pay-as-you-go basis, which

means that current workers pay current retirees’ benefits. Today, there are

approximately 3.4 workers for every beneficiary, and by 2030 this number

is projected to fall to 2.1. Thus, in the foreseeable future relatively fewer

people will be paying into the system and more people will be drawing

benefits.

Restoring Social Security’s long-term solvency will require some

combination of increased revenues and reduced expenditures. Various

options are available within the current structure of the program including

raising the retirement age, reducing inflation adjustments, increasing

payroll tax rates, and investing trust fund reserves in higher-yielding

securities. In addition, some proposals would go beyond restoring longterm solvency and would fundamentally alter the program structure by

setting up individual retirement savings accounts and requiring workers to

contribute to them.

2The 2000 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and

Disability Insurance Trust Funds, Mar. 30, 2000.

Background
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Information to the Public

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Individuals need basic information on the Social Security program for

their personal financial planning. This information includes what benefits

workers can expect for themselves, their dependents, and their survivors

when they retire, become disabled, or die. In addition, workers should

understand that their benefits depend on their average lifetime earnings.3

Finally, they should also understand that Social Security is meant to be

only a foundation of retirement income. Social Security does not

guarantee a benefit that meets the poverty threshold. Therefore, if workers

know what benefit levels they can expect given their earnings history so

far, they can better understand how much to save to meet their retirement

income goals.

SSA’s individualized Social Security Statement is one of the key vehicles

for providing the public with this basic information about Social Security.

It provides workers with an important tool for personal financial planning

because it provides estimates of potential retirement, disability, and

survivor benefits. It also asks statement recipients to check SSA’s records

of their past earnings. In this way, the statement can help SSA correct

errors in agency records and help ensure that benefit payments are correct

when workers retire, become disabled, or die. It also explains that Social

Security benefits were not intended to be the only source of retirement

income and encourages workers to supplement their benefits with a

pension, savings, or investments. This statement reaches a very wide

audience; starting in this fiscal year, SSA is sending the individualized

Social Security Statement annually to almost every U.S. worker aged 25

and older—an estimated 126 million people each year.4 (The statement can

be found on SSA’s website at http://www.ssa.gov, where workers can also

request personalized statements.)

Because it reaches such a wide audience and is the only direct

communication many workers will have with SSA until they retire or

become disabled, the statement must communicate simply and clearly. It

has not always done this. SSA offered benefit statements to some workers

long before this fiscal year, and we reviewed the agency’s 1996 version. At

3The benefit formula calculates average lifetime earnings after adjusting earnings for

inflation and growth in average real wages.

4See 42 U.S. C. 1320b-13. SSA must send a statement to those who are 25 years old, have a

Social Security number, have wages or earnings from self-employment, are not receiving

Social Security benefits, and have a current address obtainable by SSA.

Public Should Have

Basic Information on

Estimated Benefits to

Plan Personal

Finances
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Information to the Public

Page 4 GAO/T-HEHS-00-101

that time, we raised concerns about its usefulness.5 We reported that

although the public felt the statement could be a valuable tool for

retirement planning, the statement provided too much information and

failed to communicate clearly the information its readers needed to

understand SSA’s current programs and benefits. We found that the sixpage statement was too long for many readers, the purpose was unclear,

and the design and organization were not user-friendly. The statement was

disorganized—it contained a patchwork of explanations scattered

throughout, requiring the reader to flip from one page to another to find

needed information. Finally, feedback from the public and SSA staff

indicated that readers were confused by several important explanations,

such as those describing family benefits and credits needed to be eligible

for benefits. We recommended that SSA revise the 1996 version of the

statement to improve its layout and design and to simplify explanations.

We also recommended that SSA evaluate and test alternative formats for

the statement.

Consistent with our recommendations, SSA embarked on a multi-year

effort to revise its statement. The agency developed four different

prototypes and conducted focus groups to assess layout and presentation

preferences and how well the material presented was understood. SSA

then conducted a public opinion survey of the four prototypes. Based on

this information, SSA chose for its fiscal year 2000 mailing a new four-page

layout.

We believe this new statement is much improved. It is shorter, better

organized, easier to read, employs good design principles, and in a number

of cases, provides simpler explanations. The revised statement more

effectively achieves its intended purpose of providing important basic

information on the Social Security program as well as individualized

information on earnings on record at SSA and estimated benefits. In fact,

SSA reports that in a recent survey to measure public understanding of its

programs, workers who received the statement have a significantly greater

knowledge of the Social Security program than those who did not receive

a statement.

Naturally, further improvement is always possible. Working with our

communications consultants, we have identified some remaining rough

spots. These include:

5SSA Benefit Statements: Well Received by the Public but Difficult to Comprehend

(GAO/HEHS-97-19, Dec. 5, 1996).
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Information to the Public

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• Clarity of purpose: We believe that SSA could more clearly and quickly

spell out the statement’s purpose and inform readers that the agency

wants them to take some action—that is, check their earnings as listed on

the statement and inform SSA of missing or incorrect information.

• Explaining inflation-adjustment of benefit estimates: The statement

explains that the estimates are provided in “current dollars.” However,

readers may not understand what this means for their financial planning. It

means that the estimates reflect today’s price level, not the price level that

will exist when they actually start to receive benefits.

• Some explanations still unclear: Other explanations, such as the one

regarding the credits required for benefit eligibility may still leave the

reader confused.6 Also, the revised statement no longer cautions recipients

that the estimates are based on their own individual earnings records and

may also depend on their spouses’ earnings if they have spouses.

SSA’s programs are complex, and it is challenging to explain them in

simple, straightforward language without providing so much information

that it overwhelms the reader. SSA will need to continue to revise and

streamline the statement to make it more clear and easy to understand.

The public also needs to understand the fundamentals of Social Security

financing, including the program’s current and projected financial status.

Workers should understand that their contributions are not deposited into

interest-bearing accounts for each individual but are credited to the Social

Security trust funds, which are largely used to pay for current benefits.

Under current law, the trust funds must invest any surplus in interestbearing federal government securities. In addition, workers should

understand that though significant surpluses are currently building up the

trust funds to help pay future benefits, this situation will deteriorate over

time. According to the most recent trustees’ intermediate projections,

benefit payments will exceed cash revenues in 2015, and the trust funds

will be depleted in 2037. At that time, revenues would only be sufficient to

pay for roughly 72 percent of promised benefits. Knowing this helps

workers to understand that some combination of revenue increases and

6Credits are earned by working for employers who pay taxes to the Social Security system.

The minimum number of credits needed varies, depending on the type of benefit and the

age of the worker.

Public Should Have

Information on Social

Security’s Current and

Projected Financial

Status
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Information to the Public

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benefit reductions will be necessary to restore solvency. In turn, workers

can better understand how to view their personal benefit estimates.

Some recent proposals to provide information to the public call for the

Social Security Statement to more fully disclose Social Security’s longterm financial outlook, the status of the trust funds over time, and the

effect on SSA’s ability to pay future benefits in the absence of changes to

the program. In its most recent version of the statement, SSA has added

information on this topic. On the first page, as part of the message from

the Commissioner, the statement now provides basic information on the

demographic reasons for the financing problems and on the future status

of the trust funds, including the date that the trust funds will be exhausted.

On the page where the benefit estimates are provided, the statement

explains that when this date arrives, absent a change in the law, payroll

taxes collected will be enough to pay only a portion of the benefits owed.

However, according to our communications experts, the information is

somewhat confusing and contradictory, though it could be fixed. The

Commissioner’s message first reassures readers that “of course” Social

Security will “be there” when they retire and then provides the information

about the future financing problems and the resulting percentage

reduction in benefits. The statement explains that SSA is “working to

resolve these issues” and offers a booklet with more information upon

request. Overall, the explanation may leave readers wondering how SSA

can be sure the program will be there to pay the benefits they are

expecting in the future. The status of the trust funds and the need for

change can be clarified with minor adjustments in wording. However, the

statement does not need to go into excessive or technical detail; not every

reader of the statement will need or be interested in this additional detail.

If statement recipients want more information, they can request the

booklet listed in the statement. This booklet, which is written in simple,

straightforward terms for a wide audience, provides additional

information on the reasons for the financing shortfall and the difficult

choices needed to ensure long-term program stability.

More technical and detailed information on the status of the trust funds is

available, however, in a number of vehicles that are used extensively and

studied by a more narrow audience of experts and specialists. These

include the annual Trustees’ Report and the annual Financial Report of the

United States Government. To be most effective and useful to the broadest

audience, the information in these reports needs to be reliable, consistent,

accessible, timely, verifiable, and complete. We have recently noted a
Social Security: Providing Useful

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problem related to their timing and consistency.7 The Financial Report

uses data from the previous year’s Trustees’ Report although a new

Trustees’ report with sometimes significantly different numbers is issued

at nearly the same time. The discrepancies between the two reports may

cause confusion, which can serve to reduce confidence in and the

credibility of the government’s annual financial report. Steps should be

taken in future years to ensure that the government’s Financial Report

contains up-to-date information. In addition, given the importance and

materiality of this information, the Comptroller General has stated that the

time may have come for this information to be subject to audit.

In addition, information on the magnitude of the trust funds’ financial gap

should focus not only on the next 75 years but also beyond that to help

focus on sustainability. The conventional 75-year measure of solvency is

highly transient because the 75-year period changes by one year in each

successive year’s projections. Currently, the years early in the 75-year

period have surpluses while the years at the end of the period have large

deficits. As a result, changes made to restore solvency only for the current

75-year period will result in future actuarial imbalances almost

immediately. Therefore, in addition to examining the 75-year actuarial

balance, examining Social Security’s percentage of the federal budget, the

size of the imbalance in the 75th year, and the trend in the annual balance

at that time would help focus attention on the issue of sustainability.

To address Social Security’s long-term solvency problem, a wide and often

confusing variety of proposals have been offered. To participate in the

reform debate, the public needs understandable, independent, and

objective information that can help it appreciate the difficult choices that

the nation faces. We have concluded that three broad criteria help provide

balance and structure to evaluating the alternatives. These are 1) the

extent to which proposals would achieve sustainable solvency, including

how they would affect the federal budget and the economy; 2) the balance

of adequacy and equity in the benefits structure; and 3) the feasibility of

implementation and administration.8 Adequacy refers to the level and

certainty of benefits, and equity refers to the relationship between the

contributions made and benefits received, sometimes referred to as

7Auditing the Nation’s Finances: Fiscal Year 1999 Results Continue to Highlight Major

Issues Needing Resolution (GAO/T-AIMD-00-137, Mar. 31, 2000).

8Social Security:Criteria for Evaluating Social Security Reform Proposals (GAO/T-HEHS-99-

94, Mar. 25, 1999). Also, see the list of related GAO products at the end of this statement.

Public Should Have

Information to Help It

Evaluate Options for

Restoring Solvency
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Information to the Public

Page 8 GAO/T-HEHS-00-101

“money’s-worth.” No single criterion should be considered in isolation, and

taken together these criteria highlight the difficult trade-offs that exist

between efforts to achieve solvency and to maintain adequate retirement

income for current and future beneficiaries.

Some participants in the reform debate focus especially on individual

equity and on one particular measure of equity—the implicit rate of return

workers can expect on their Social Security contributions. Accordingly,

some recent proposals call for the Social Security Statement to include

estimates of the implicit rate of return. However, substantial controversy

surrounds applying the concept of rates of return to Social Security.9 Some

analysts argue that rates of return on contributions would be much higher

under a new system with individual accounts, and they would like the

public to compare its return on Social Security to returns available on

market investments. Other analysts contend that the rate of return concept

should not be applied to Social Security because it is a social insurance

program and is not designed to provide returns on contributions.

In our work on this topic, we have observed that rate of return estimates

are inherently very uncertain, especially for specific individuals, because

of the many complex factors that affect rates of return. Such factors

include how long individuals will live, how much they will earn, and what

size families they will have. To be clearly understood, Social Security rate

of return estimates need an explanation of how they are calculated and

how uncertain the estimates are. Also, instead of making simple

comparisons between Social Security and historical market returns, one

should make any rate of return comparisons among comprehensive return

estimates for specific reform proposals that include all costs and benefits

of any individual accounts as well as the Social Security components of

the resulting system. In addition, such estimates would not help

individuals plan their personal finances because, under current law, they

do not have the choice of putting their contributions into alternative

investments. Moreover, providing estimates of the implicit rate of return

on Social Security contributions could mislead readers to think they have

an interest-bearing account under the program, which they do not. Adding

rates of return to the Social Security Statement—or for that matter any

information that is not directly relevant to the statement’s purpose—

would make the statement longer and more complex and could undermine

9Social Security: Issues in Comparing Rates of Return with Market Investments

(GAO/HEHS-99-110, Aug. 5, 1999).
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its important and specific purpose of providing benefit estimates and

verifying earnings records.

Given the importance of Social Security to the financial security of most

Americans and the value of citizen participation in the difficult reform

decisions that lie ahead, the public should have easy and timely access to a

wide range of reliable, consistent, and verifiable information. Much of this

information is already available; however, questions have been raised

about the best vehicles to use to make sure the information is available to

as wide an audience as possible. Reasonable people can disagree about

the best vehicle, particularly for the more complex or technical

information. However, we believe the Social Security Statement is not the

right vehicle for this more technical information, such as rates of return.

The newly revised statement more successfully meets its purpose of

providing basic information to individual workers. Adding the

explanations necessary to fairly portray rate of return information would

likely increase the statement’s length significantly and undermine efforts

to shorten and simplify it, thereby running the risk that recipients will not

read or fully understand it.

Mr. Chairman, this concludes my prepared statement. At this time, I will be

happy to answer any questions you or other Members of the

Subcommittee may have.

For information regarding this testimony, please contact Barbara Bovbjerg

at (202) 512-7215. Individuals making key contributions to this testimony

include Kay Brown, Ken Stockbridge, Elizabeth O’Toole, and Kimberly

Granger.

Concluding

Observations

GAO Contact and

Staff

Acknowledgments
Page 10 GAO/T-HEHS-00-101

Auditing the Nation’s Finances: Fiscal Year 1999 Results Continue to

Highlight Major Issues Needing Resolution (GAO/T-AIMD-00-137, Mar. 31,

2000).

Social Security Reform: Information on the Archer-Shaw Proposal

(GAO/AIMD/HEHS-00-56, Jan. 18, 2000).

Social Security: The President’s Proposal (GAO/T-HEHS/AIMD-00-43,

Nov. 9, 1999).

Social Security: Evaluating Reform Proposals (GAO/AIMD/HEHS-00-29,

Nov. 4, 1999).

Social Security Reform: Implications of Raising the Retirement Age

(GAO/HEHS-99-112, Aug. 27, 1999).

Social Security: Issues in Comparing Rates of Return With Market

Investments (GAO/HEHS-99-110, Aug. 5, 1999).

Social Security: Implications of Private Annuities for Individual Accounts

(GAO/HEHS-99-160, July 30, 1999).

Social Security: Capital Markets and Educational Issues Associated with

Individual Accounts (GAO/GGD-99-115, June 28, 1999).

Social Security Reform: Administrative Costs for Individual Accounts

Depend on System Design (GAO/HEHS-99-131, June 18, 1999).

Social Security Reform: Implementation Issues for Individual Accounts

(GAO/HEHS-99-122, June 18, 1999).

Social Security: Criteria for Evaluating Social Security Reform Proposals

(GAO/T-HEHS-99-94, Mar. 25, 1999).

Social Security: Individual Accounts as an Element of Long-Term

Financing Reform (GAO/T-HEHS-99-86, Mar. 16, 1999).

SSA Benefit Estimate Statements: Adding Rate of Return Information May

Not Be Appropriate (GAO/HEHS-98-228, Sept. 2, 1998).

Social Security: Different Approaches for Addressing Program Solvency

(GAO/HEHS-98-33, July 22, 1998).

Related GAO

Products
Social Security: Providing Useful

Information to the Public

Page 2 GAO/T-HEHS-00-101

Social Security Financing: Implications of Government Stock Investing for

the Trust Fund, the Federal Budget, and the Economy

(GAO/AIMD/HEHS-98-74, Apr. 22, 1998).

Social Security: Restoring Long-Term Solvency Will Require Difficult

Choices (GAO/T-HEHS-98-95, Feb. 10, 1998).

SSA Benefit Statements: Well Received by the Public but Difficult to

Comprehend (GAO/HEHS-97-19, Dec. 5, 1996).

(207096)
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