U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

23–917 2005

SECOND IN A SERIES OF SUBCOMMITTEE 

HEARINGS ON PROTECTING 

AND STRENGTHENING SOCIAL SECURITY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SOCIAL SECURITY 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

FIRST SESSION 

MAY 24, 2005 

Serial No. 109–9 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

BILL THOMAS, California, Chairman 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

BOB BEAUPREZ, Colorado 

MELISSA A. HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

DEVIN NUNES, California 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

SUBCOMMITTEE ON SOCIAL SECURITY 

JIM MCCRERY, Louisiana, Chairman 

E. CLAY SHAW JR., Florida 

SAM JOHNSON, Texas 

J.D. HAYWORTH, Arizona 

KENNY C. HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

SANDER M. LEVIN, Michigan 

EARL POMEROY, North Dakota 

XAVIER BECERRA, California 

STEPHANIE TUBBS JONES, Ohio 

RICHARD E. NEAL, Massachusetts 

ALLISON H. GILES, Chief of Staff 

JANICE MAYS, Minority Chief Counsel 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 

iii 

C O N T E N T S 

Page 

Advisory of May 17, 2005 announcing the hearing .............................................. 2 

WITNESSES 

Social Security Administration, Stephen C. Goss, Chief Actuary ....................... 4 

SUBMISSIONS FOR THE RECORD 

Anderson, Donald L., Harpswell, ME, statement ................................................. 52 

Bessler, Janet Marie, Medina, OH, statement ...................................................... 52 

California Retired Teachers Association, Sacramento, CA, George Avak, statement ...................................................................................................................... 53 

Elia, Joyce R., Mission Viejo, CA, statement and attachment ............................. 55 

Jackson Jr., Kenneth Basil, Glendale, CA, statement .......................................... 58 

Jones, Roger Pond, Auburn, MA, statement ......................................................... 59 

(1) 

SECOND IN A SERIES OF SUBCOMMITTEE 

HEARINGS ON PROTECTING AND 

STRENGTHENING SOCIAL SECURITY 

TUESDAY, MAY 24, 2005 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON SOCIAL SECURITY

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:05 p.m., in room 

B-318, Rayburn House Office Building, Hon. Jim McCrery (Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 

2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON SOCIAL SECURITY 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–9263 

May 24, 2005 

No. SS–2 

McCrery Announces Second in a Series 

of Subcommittee Hearings on Protecting 

and Strengthening Social Security 

Congressman Jim McCrery (R–LA), Chairman, Subcommittee on Social Security 

of the Committee on Ways and Means, today announced that the Subcommittee will 

hold the second in a series of hearings on protecting and strengthening Social Security. This hearing will examine how the Social Security Trustees project the financial outlook for Social Security under current law. The hearing will take place 

on Tuesday, May 24, 2005, in room B–318 Rayburn House Office Building, 

beginning at 2:00 p.m. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

The Social Security Act (P.L. 74–273) requires the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds to report to Congress each year on the financial and actuarial status of the trust funds. 

In the 2005 Annual Report to Congress, the Trustees announced that in 2017 benefit payments will exceed revenue from payroll tax collections and the taxation of 

benefits, and that in 2041 the Social Security Trust Funds will be exhausted. The 

gap between promised benefits and revenues will continue to grow after 2041 and 

by 2079 the Trustees estimate that promised benefit payments will exceed revenues 

by almost 2 percent of gross domestic product. 

In order to make their projections the Trustees rely on a number of demographic 

and economic assumptions including the fertility rate, the rate of decline in mortality, the future real earnings growth, real interest rate, the inflation rate and the 

unemployment rate. Under these projections, there is little doubt that the Social Security program will become insolvent. 

In announcing the hearing, Chairman McCrery stated: ‘‘As the Subcommittee considers options to protect and strengthen Social Security, this hearing provides the 

opportunity for Members of Congress and the public to learn more about what 

drives the financial condition of the program.’’ 

FOCUS OF THE HEARING: 

The Subcommittee will examine the financial outlook of Social Security under current law as determined by the Social Security Trustees, as well as how the Trustees 

make their assumptions. 

3 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘109th Congress’’ from the menu entitled, ‘‘Hearing Archives’’ (http://waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Tuesday, February 22, 2005. Finally, please note that due to the change in House mail policy, 

the U.S. Capitol Police will refuse sealed-package deliveries to all House Office 

Buildings. For questions, or if you encounter technical problems, please call (202) 

225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman MCCRERY. The meeting will come to order. Good 

afternoon, everyone. We have with us today Steve Goss, the Chief 

Actuary for the Social Security Administration (SSA), and Steve is 

going to talk to us today about the annual report of the Board of 

trustees and the history of that annual report, how we got to where 

we are today, and rather than going over an opening statement 

that basically reiterates that history, I am going to submit it for 

the record, so we can get the hearing underway expeditiously. 

Thank you, Mr. Goss, for coming. Mr. Levin, would you like to 

make opening remarks? 

[The opening statement of Chairman McCrery follows:] 

4 

Opening Statement of The Honorable Jim McCrery, Chairman, and a 

Representative in Congress from the State of Louisiana 

Good afternoon. Today marks our second in a series of Subcommittee hearings on 

protecting and strengthening Social Security. 

Today, we will hear from Stephen Goss, the Chief Actuary of the Social Security 

Administration. Mr. Goss will discuss how the Social Security Trustees project the 

financial outlook for Social Security under current law. 

The Annual Report of the Board of Trustees has a history dating back to the early 

years of the Social Security program. When President Franklin D. Roosevelt signed 

the Social Security Act into law, an old-age reserve account was created. In 1939, 

this account was replaced by the Federal Old-Age and Survivors Insurance Trust 

Fund. At the same time a Board of Trustees, made up of the Secretary of the Treasury, Secretary of Labor and the Chairman of the Social Security Board, were 

charged with oversight of the Trust Fund. 

In 1941, the Trustees began the practice of issuing an Annual Report. Since then, 

the Annual Report has served as an essential road map to guide lawmakers, policy 

experts and the public in understanding the costs of the program, the revenues dedicated to its financing and the meaning and operation of the trust funds. The Trustees also provide information on demographic, economic and other factors affecting 

the program’s finances. 

In recent decades, the Trustees’ Report has served as an early warning system 

to let Congress know when Social Security’s finances are headed toward trouble. 

The Trustees’ Reports gave several years’ warning prior to the Congress’ enactment 

of the Social Security Amendments of 1977 and 1983, two pieces of legislation that 

attempted to address Social Security’s long-term under-funding. 

The Trustees Report has been sounding alarm bells once again. The Subcommittee welcomes the opportunity to delve into the complex and critical messages 

from the Social Security Trustees. It is our responsibility to be fully informed about 

the trends driving Social Security toward insolvency. Lawmakers must not wait 

until a crisis is upon us before Congress acts. Our job is to build a firm financial 

foundation for Social Security’s future based upon the facts. 

f 

Mr. LEVIN. Thank you. Very briefly, Mr. Chairman. I join you 

in welcoming Mr. Goss. Your office has been known for its tradition 

of fairness and high quality analysis and independence, and you 

surely have been characterized accordingly. The transparency and 

the integrity of your office is really critical, as well as the availability of neutral and confidential consultation. We also know that 

you have the responsibility, when asked, to do actuarial analyses 

of various plans to strengthen or replace Social Security, and that 

you do so with immense intelligence and integrity, and we much 

appreciate that. As we delve further into these issues and go into 

further, deeper waters, your analyses will be important to us. So, 

thank you. I look forward to your testimony. 

Chairman MCCRERY. Thank you, Mr. Levin. Steve, why don’t 

you begin. We are not going to put you on the clock. If you go over 

by a little bit, that will be fine. We would appreciate your summarizing your written testimony. 

STATEMENT OF STEPHEN C. GOSS, CHIEF ACTUARY, 

SOCIAL SECURITY ADMINISTRATION 

Mr. GOSS. Thank you very much, Chairman McCrery, Ranking 

Member Levin, and Members of the Subcommittee here. Thank you 

very much for this opportunity to come and talk to you today about 

the Social Security Trustees Reports and the future financial status 

of the Social Security program. 

The Annual Reports from the Board of Trustees to the Congress 

on the financial condition of the Old-Age, Survivors, and Disability 

5 

Insurance (OASDI) program have been prepared continuously since 

1941. These reports are required by the law, and they are required 

to include an assessment of the actuarial status of the trust funds. 

The Office of the Actuary, which I am proud to be a Member of at 

this point, at the SSA prepared the projections used in these reports annually as well as projections of the effects of proposals, as 

Mr. Levin mentioned, and we have done so continuously since the 

inception of the program in 1935. The office has always operated 

on a non-partisan basis, providing objective estimates to the trustees, the Administration, and the Congress. 

The 2005 Trustees Report, which was recently submitted to the 

Congress, in that report the intermediate assumptions indicate 

that the annual excess of tax income over the cost of the program 

will begin to decline in 2009 and that in 2017 the cost will then 

exceed the tax income from that point forward. At that point the 

accumulated trust fund assets projected will be about $2.4 trillion 

in present value and will begin to be used to augment tax collections in order to pay full benefits as scheduled on a timely basis. 

While there is no question that these securities will be redeemed, 

as is now being the case for the Medicare Trust Fund, this redemption will require the Federal Government to increase taxes, to 

lower other expenditures, or to issue publicly held debt in amounts 

equal to the net redemptions by the trust funds at that time. 

If no changes are made, it is projected that the combined trust 

fund assets would become exhausted in 2041 under the Trustees’ 

intermediate assumptions and the program would no longer at that 

point be able to fully pay benefits scheduled in current law on a 

timely basis. Instead, in 2041, we would be able to pay benefits 

equal to about 74 percent of what has been scheduled under current law. After 2041, program cost is projected to continue growing 

faster than tax income. By 2079, only about 68 percent of scheduled benefits are expected to be payable if no changes are made. 

On page two we have a graph showing the trust fund projections 

under current law, with the bold line being under the intermediate 

assumptions, and we also have a high-cost and low-cost alternative 

based on varying assumptions. 

Changes from the 2004 to the 2005 Trustees Report, again, recently issued, were relatively small. No changes in the principal ultimate economic or demographic assumptions were made. The estimates that the years of expected trust fund exhaustion and the 

year of the cost beginning first to exceed tax income are both projected now to be 1 year earlier, and this is largely the result of unexpectedly high growth in prices in the last couple of years that 

was not matched by similarly higher than expected increases in the 

average earnings level. This effect resulted in lower annual program cash flow surpluses or higher cash flow deficits through the 

year 2024 in our projections. On page three of the written testimony, you will see a graph that sort of illustrates this. The solid 

line is where we are in the 2005 report on these cash flow balances, 

and the dashed line is where we were in last year’s Trustees Report. You can see that through 2024 we are a little bit worse off, 

but after that we are actually a little bit better off. 

For these years after 2024, other changes, principally in the 

methods we use for the projections, resulted in this somewhat 

6 

lower annual cash flow deficit for the program. For the year 2078, 

which was the 75th year in last year’s Trustees Report, the estimated annual cash flow deficit was reduced from 5.91 percent of 

taxable payroll down to 5.66 percent of taxable payroll—not a large 

change, but a small change in a good direction. 

Annual balances and trust fund asset levels provide, we think, 

the most important measures of the future status of the Social Security program for the analysis that we do and that we believe will 

be important to policymakers as they look into the future. The actuarial deficit expresses the magnitude of expected net future 

shortfalls on a summarized basis over the upcoming 75-year projection period. Normally, this actuarial deficit is expected to increase 

from one Trustees Report to the next by about 0.07 percent of payroll solely due to the shift in the 75-year period from one report to 

the next. In fact, this actuarial deficit increased from 1.89 to only 

1.92 percent, an increase of 0.03 percent, of payroll for the 2005 report, consistent with the small reduction in projected cash flow 

deficits for 2025 and later. The 75-year net shortfall may also be 

expressed as a percentage of the Gross Domestic Product (GDP) 

over the entire period. For the 2005 report, the net shortfall as a 

percentage of GDP is projected to be 0.6 percent, a little less than 

one percent, of GDP over the entire 75-year period. Again, this is 

very slightly lower than was projected in the 2004 report. 

Finally, the shortfall can be viewed from the view of an aggregate dollar amount expressed in present value discounted dollars 

back to the beginning of the given valuation period, in this case, 

January 1, 2005. In this form, the net shortfall over the next 75 

years is estimated in the most recent report at $4 trillion in 

present value. This value tends to be measured as a larger amount 

each year simply due to the advancing valuation date, even when 

the annual shortfalls are not changed. Expressing the unfunded obligation as a percentage of taxable payroll or GDP we think better 

illustrates the magnitude of the changes that will be needed, especially when we are looking from one Trustees Report to the next. 

Assessing the actuarial status of the Social Security program involves more than just attaining solvency throughout the 75-year 

projection period. Sustainable solvency requires, in addition, that 

the projects level of trust fund assets be stable or rising as a percentage of the annual cost of the program at the end of the period. 

Meeting these criteria indicate that the program is expected to be 

solvent for the foreseeable future and that even if actual experience 

in future years varies from current assumptions, only relatively 

small modifications are likely to be needed to maintain adequate 

financing for the program. The Office of the Actuary has provided 

an assessment of the degree to which each comprehensive proposal 

that we have done estimates for achieves the criteria of sustainable 

solvency in our scoring starting in the middle nineties. 

Projections of the future cost and income of Social Security are 

driven by a number of principal economic and demographic assumptions that are addressed in each year Trustees Report. 

Changes in the ultimate assumptions are made incrementally, as 

can be seen in Table C, which we attached at the end of the written statement. This provides the basic economic and demographic 

7 

assumptions utilized in Trustees Reports from 1976 all the way 

through 2005. 

Maintaining consistent and objective assumptions for the Trustees Report has been aided by two important requirements imposed 

by the Congress in the law, by you all. First, the law requires the 

inclusion of two Public Trustees on the board, one effectively representing each major political party. This is in addition to our four 

Members of the Board of Trustees who are from the current Administration. The second requirement is, of course, that the Chief 

Actuary is required to provide a statement included in the report 

at the back of it indicating whether or not the assumptions and 

methods used in the report are individually and collectively reasonable. 

Now, in the most recent report, the principal economic assumptions include real-wage and productivity growth, price growth, interest rate, and employment rate assumptions. However, due to the 

indexing and other features of Social Security, program cost is not 

greatly sensitive to variation in these economic assumptions, not as 

greatly sensitive as it is to the changes possible in principal demographic assumptions. 

Primary among the demographic assumptions which are really 

having an effect on our projections into the future are birth rates. 

In fact, birth rates, I would suggest, are the principal reason that 

the cost of the Social Security program as a percentage of taxable 

payroll will shift to a new higher level over the next 25 years. The 

total fertility rate or average number of children that a woman will 

have throughout the full lifetime was about 3.3 children per woman 

during the Baby Boom years 1946 through 1965. However, by 1972, 

just seven years later, the total fertility rate dropped to just two 

children per woman and has stayed at about that level ever since. 

It was actually lower for a while and is right back at about 2 now. 

The Trustees’ ultimate assumption now is to be right at about 

two—actually, 1.95 children on average going into the future. 

On page six of the handout, we have a picture of the total fertility rate shown starting in 1940, where it has gone with the peak 

of the Baby Boom, down to the lower levels and where we have it 

going into the future. Now, the shift in the total fertility rate is directly responsible for the shift in the much discussed ratio of workers to beneficiaries that is projected to occur between 2010 and 

2030. Also on page six of the written testimony, we show the second graph toward the bottom of the page, where you can see the 

ratio of covered workers to OASDI beneficiaries. This ratio has remained constant at about 3.3 workers per beneficiary ever since 

1975 when the Social Security program first really matured in its 

coverage of the population. Had the total fertility rate stayed at 

three or higher, the current 12.4-percent payroll tax rate would, in 

fact, be adequate to finance currently scheduled benefits. Because 

of the shift in birth rates, however, 30 years ago and remaining at 

the lower level, the ratio of workers to beneficiaries will drop to 2.2 

by 2030 from the current 3.3 level, and to 2.0 by 2040. It is this 

shift that makes the current law 12.4-percent payroll tax rate insufficient to fully finance the scheduled benefits in the long run. 

Now, the downward shift in projected worker-to-beneficiary ratio 

between 2010 and 2030 also causes the upward shift in the Social 

8 

Security cost rate as show on page seven in the graph that we have 

of the cost rate. Again, we show Alternative One and Alternative 

Three to give you some sort of sense of the range of uncertainty 

around these estimates. The projected net shortfall in financing for 

Social Security over the next 75 years could be met by an average 

reduction in benefits over the entire period of about 13 percent or 

by an average increase in revenue to the system of about 15 percent. The timing of when the shortfalls occur and when we would 

address them is very important. 

The annual cash flow shortfalls begin in 2017. They become most 

critical by the time of trust fund exhaustion. By the end of the 75- 

year period, 2079, the projected shortfall is expected under intermediate assumptions to be 5.7 percent of taxable payroll. To meet 

this annual shortfall in 2079 would require benefits that are nearly 

one-third lower than are currently scheduled, revenue that is nearly 50 percent higher than currently scheduled, or some combination 

of the two. Greatly reducing or eliminating this annual shortfall for 

2079 will be necessary if sustainable solvency, as defined in the 

Trustees Report, is to be achieved. 

Finally, I just want to conclude by suggesting that, again, the 

Trustees Reports required by law have played a fundamental role 

in informing the Congress and the Administration of the actuarial 

status of the program and the magnitude of changes that may be 

needed for the future. The Office of the Actuary has been, and will 

continue to be, available to the Congress, to each of you, and to the 

Administration for objective and non-partisan estimates both of the 

current status of the program and for possible changes to the Social 

Security program. Thank you very much for the opportunity to 

present this testimony, and I look very much forward to any and 

all questions. Thank you. 

[The prepared statement of Mr. Goss follows:] 

Statement of Stephen C. Goss, Chief Actuary, Social Security 

Administration 

Chairman McCrery, ranking member Levin, and members of the subcommittee, 

thank you very much for the opportunity to talk with you today about the Social 

Security Trustees Reports and the future financial status of the Social Security program. 

Annual Reports from the Board of Trustees to the Congress on the financial condition of the Old-Age, Survivors, and Disability Insurance program have been prepared continuously starting with 1941. These reports are required by law to include 

an assessment of the ‘‘actuarial status’’ of the trust funds. This assessment has been 

used by the Congress numerous times since 1941 as the basis for modifying the program to either alter the scope and nature of the program, or to improve the financial 

status of the program. 

The Office of the Actuary at the Social Security Administration prepares the projections used in these reports as well as projections of the effects of proposals to 

change the program, and has done so continuously since the inception of the program in 1935. The Office has always operated on a non-partisan basis providing objective estimates to the Trustees, the Administration, and the Congress. As you 

know, while the Office of the Actuary resides within the Social Security Administration, it operates on an independent basis, particularly regarding work for the Congress, including this Subcommittee, the full Ways and Means Committee, and the 

Senate Finance Committee. Our work for the Congress is always done on a confidential basis during the development of a proposal for changing Social Security, 

and remains confidential unless and until the requestor is prepared to go public 

with the proposal. Our current Commissioner, Jo Anne Barnhart, as well as former 

Commissioner Kenneth Apfel have strongly supported the independence of the OfVerDate Aug 31 2005 13:11 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00012 Fmt 6633 Sfmt 6621 E:\HR\OC\23917.XXX 23917
9 

fice of the Actuary, well understanding the importance of this independence to the 

credibility of our work. 

Today I would like to speak about three aspects of our analysis of the actuarial 

status of the Social Security program under current law for the Trustees Report. 

These are (1) the basic status of financing and solvency over the 75-year long-range 

period as reported in the 2005 Trustees Report and changes from the prior report, 

(2) the principal assumptions used in the projections and how they are driving the 

projected financial status, and (3) some of the possible legislative changes that are 

available to improve the actuarial status of the program. 

(1) Where We Are—The Basic Actuarial Status of the Social Security Program 

In the 2005 Trustees Report, the intermediate projections indicate that the annual 

excess of tax income over program cost will begin to decline in 2009, and in 2017 

cost will exceed tax income. At that point the accumulated trust fund assets of about 

$2.4 trillion in present value will begin to be used to augment tax income so that 

benefits scheduled in current law will continue to be paid in full. These assets are, 

by law, invested wholly in securities backed by the full faith and credit of the 

United States Government, and have always been redeemed when needed. While 

there is no question that these securities will be redeemed when needed, this redemption will require the Federal Government to increase taxes, lower other expenditures, or issue publicly-held debt in amounts equal to the net redemptions by 

the trust funds. 

If no changes are made, it is projected that the combined trust fund assets would 

become exhausted in 2041 and the program would no longer be considered to be solvent. This means that we would no longer be able to fully pay benefits scheduled 

in current law on a timely basis. Instead, we would be able to provide 74 percent 

of scheduled benefits with continuing tax revenues. After 2041, program cost is projected to continue growing faster than tax income. By 2079, 68 percent of scheduled 

benefits are expected to be payable if no changes are made. 

Changes from the 2004 to the 2005 Trustees Reports were small. No changes in 

the principal economic or demographic ultimate assumptions were made. The estimate that the years of expected trust fund exhaustion and cost exceeding tax income 

will be one year sooner was largely the result of unexpectedly high growth in prices 

that was not matched by a similar unexpected increase in average earnings levels. 

This effect resulted in lower annual program cash-flow surpluses or higher deficits 

through 2024. 


Insert offset folio 23917a.001
10 

However, for years after 2024, other changes, principally in the methods we use 

for the projections resulted in somewhat lower annual cash-flow deficits for the program. For the year 2078, the estimated annual cash-flow deficit was reduced from 

5.91 to 5.66 percent of taxable payroll. Thus, on balance, the long-range actuarial 

status of the Social Security program is essentially unchanged in the 2005 Trustees 

Report. 

This change may also be seen in the estimates for the actuarial deficit and other 

measures of the unfunded obligation for the program over the 75-year long-range 

valuation period. The actuarial deficit expresses the magnitude of expected net future shortfalls over the entire period as a percentage of the taxable payroll over the 

entire period. Normally this actuarial deficit is expected to increase by 0.07 percent 

of payroll solely due to the shift in the 75-year period from one report to the next. 

In fact, the actuarial deficit increased from 1.89 to only 1.92 percent of payroll for 

the 2005 Report, consistent with the small reduction in projected cash-flow deficits 

for 2025 and later. The 75-year net shortfall may also be expressed as a percentage 

of the GDP over the entire period. For the 2005 Report, the net shortfall as a percent of GDP is projected at 0.6 percent of GDP over the period, again slightly lower 

than projected for the 2004 Report. 

Finally, the shortfall can also be viewed in the form of an aggregate dollar amount 

in present discounted value to the beginning of the valuation period, or January 1, 

2005. In this form, the net shortfall over the next 75 years is estimated at $4 trillion 

present value dollars. This amount is larger than the estimated unfunded obligation 

of $3.7 trillion present value dollars reported in the 2004 Trustees Report largely 

because the valuation date, that is the date to which net shortfalls are discounted, 

is one year later in time. By discounting the annual shortfalls for each future year 

to 2005 rather than to 2004, the present value amount is measured as 5 to 6 percent 

greater in the new report. What is critical to note in these measures of unfunded 

obligation is that they represent the net shortfall for the 75-year period as a whole, 

and thus must be met with changes that will be applied over the 75-year period as 

a whole. Expressing the unfunded obligation as a percent of taxable payroll or GDP 

better illustrates the magnitude of the changes that will be needed. 

It should also be noted that in assessing the actuarial status of the Social Security 

program, more than just attaining solvency throughout the 75-year projection period 

is considered. When this first goal is met, an additional criterion for achieving ‘‘sustainable solvency’’ should be considered. This additional requirement asks that the 

level of the trust fund assets be projected to be stable or rising as a percent of annual program cost at the end of the period. When both 75-year solvency and this 

additional requirement are met, the program may be expected to continue to be solvent for the foreseeable future, under the assumptions used in the projection. Meeting these criteria further suggests that even if actual experience in the future varies 

from the assumptions to a degree, only small modifications are likely to be needed 

to maintain adequate financing for the program. 

The Office of the Actuary has provided an assessment of the degree to which each 

comprehensive proposal achieves the criteria for sustainable solvency in scoring 


Insert offset folio 23917a.002
11 

starting in the middle 1990s. Providing this additional assessment has helped to 

lead to the development of numerous proposals that meet the criteria for sustainable solvency under the Trustees intermediate assumptions over the last 10 years. 

The Trustees Reports have also referred to the criteria for sustainable solvency 

since 1999. 

(2) The Principal Assumptions for the Trustees Report 

Projections of future cost and income for Social Security are driven by a number 

of principal economic and demographic assumptions that are selected by the Trustees each year. The process for this selection each year starts with analysis and recommendations provided to the Trustees by the Office of the Actuary. This analysis 

and the recommendations are discussed extensively and final assumptions are 

adopted by the Trustees, generally very close to those recommended by the actuaries. In fact, this process has resulted in remarkably consistent assumptions over 

the years, and across Administrations. Changes in ultimate assumptions are made 

incrementally and only after evidence supporting change is fully discussed and analyzed. See Table C, attached. 

Maintaining consistent and objective assumptions for the Trustees Report has 

been aided by two important requirements imposed by the Congress in the law. 

First, the law requires the inclusion of two Public Trustees on the Board, one effectively representing each major political party. Over the years, the Public Trustees 

have always worked together and have had a major and positive influence on the 

Board. The second requirement is that the Chief Actuary is required to provide a 

statement included in the report indicating whether the assumptions and methods 

used are individually and collectively reasonable. I am happy to report that my 

statement in the 2005 Report indicated that the assumptions and methods are reasonable. 

The principal economic assumptions include real-wage and productivity growth 

assumptions, price growth, interest rate, and employment rate assumptions. Productivity growth provides the basis for average wage growth. The intermediate assumptions include an ultimate assumption of 1.6 percent average annual growth in total 

economy productivity, equal to the average growth rate over the last four complete 

economic cycles, from 1966 to 2000. The average annual real growth rate in the average wage was 1.15 percent over the same period, also very close to the ultimate 

real wage differential of 1.1 percent. The ultimate real interest assumption on longterm Treasury bonds is assumed to average 3 percent, or slightly below the average 

yield of 3.4 percent over the last four complete economic cycles. 

However, due to the indexing and other features of Social Security, program cost 

is not greatly sensitive to variation in economic assumptions. The major effects on 

program cost relative to the base of taxable earnings are in the demographic 

changes that confront the program. 

The principal demographic assumptions include birth rates, death rates, and immigration. The ultimate rate of decline in death rates for individuals over age 65 

is about the same as for the average of the last century, and considerably faster 

than for the last 20 years. Immigration is assumed to be at roughly the average 

level over the last 20 years or so. 

But birth rates are the principal reason that the cost of the Social Security program as a percentage of the taxable payroll will shift to a new higher level over 

the next 25 years. The ‘‘total fertility rate’’ or the average number of children 

women have was about 3.3 children per woman during the baby-boom years from 

1946 through 1965. By 1972, however, the total fertility rate dropped to 2 children 

per woman and has stayed at about that level ever since. The ultimate assumption 

is for an average total fertility rate of 1.95 for the future. 

12 

This shift in the total fertility rate is directly responsible for the shift in the ratio 

of workers to beneficiaries that is projected to occur between about 2010 and 2030. 

This ratio has remained constant at about 3.3 workers per beneficiary since 1975, 

when the Social Security program matured in its coverage of the population. Had 

the total fertility rate stayed at 3 or higher, the current 12.4 percent payroll tax 

rate would be adequate to finance currently scheduled benefits and we would not 

be discussing future shortfalls. But due to the shift in birth rates over 30 years ago, 

we will see the ratio of workers to beneficiaries drop to 2.2 by 2030 and 2.0 by 2040. 

It is this shift that makes the current law 12.4 percent tax rate insufficient to fully 

finance the currently scheduled benefits in the long run. 


Insert offset folio 23917a.003 Insert offset folio 23917a.004
13 

Directly reflecting the decline in the projected worker to beneficiary ratio between 

2010 and 2030, is the increase in the Social Security cost rate, as a percent of taxable payroll, over the same period. During this period the cost rate is projected to 

shift from a level that is now well below the current tax rate of 12.4 percent to a 

level that is well above it. 

Continuing but much more gradual decreases in the worker to beneficiary ratio 

and increases in the cost rate are projected after 2030 based on expected future increases in life expectancy. But these are modest in comparison with the shift in the 

cost rate that will result from the decline in birth rates after 1965. 

(3) Possible Legislative Changes to Improve the Actuarial Status of Social Security 

The projected net shortfall in financing for Social Security over the next 75 years 

could be met by an average reduction in benefits of 13 percent or an average increase in tax revenue of 15 percent over the period. But the timing of the expected 

shortfalls is important. Most proposals being considered would confirm the pay-asyou-go nature of the financing of Social Security by targeting changes to years after 

trust fund exhaustion in amounts roughly equal to the projected annual shortfalls. 

As mentioned earlier, the annual cash-flow shortfall for the year 2079 is projected 

to be about 5.7 percent of taxable payroll. To meet this annual shortfall in 2079 

would require benefits that were then nearly one third lower than are currently 

scheduled, or revenue that is nearly 50 percent higher than currently scheduled, or 

some combination of the two. Greatly reducing or eliminating this annual shortfall 

for 2079 will be necessary if sustainable solvency is to be achieved. 

Several changes to lower scheduled benefits, by slowing the projected growth, 

have been considered. These include changes in the normal retirement age, and 

modifications of the basic benefit formula. Benefit formula changes include general 

‘‘price indexing’’ of benefits across future generations, and ‘‘progressive indexing’’ 

which would provide for larger percentage reductions for higher earners, thus making the current benefit formula more progressive. 

Potential changes to increase revenue for Social Security in the future include increasing the taxable maximum amount, increasing taxation of benefits, and increasing payroll tax rates. Additional revenue could also be generated by modifying the 

pay-as-you go nature of Social Security financing to include more substantial advance funding. 

Many combinations of the provisions mentioned above, as well as a large number 

of other possible provisions could restore long-range solvency, and sustainable solvency for the Social Security program. Changes will be needed well before the expected date of trust fund exhaustion in 2041. By enacting needed changes sooner, 

we will have more options to consider, be able to phase changes in more gradually, 

and give affected individuals more advance notice. 


Insert offset folio 23917a.005
14 

Conclusion 

The Trustees Reports required by law have played a fundamental role in informing the Congress and the Administration of the actuarial status of the program, and 

the magnitude of changes that may be needed for the future. The Office of the Actuary has been and will continue to be available to the Congress and the Administration for objective and non-partisan estimates both of the current status of the program, but also for possible changes to Social Security. 

Thank you very much for the opportunity to present these remarks. I look forward 

to trying to answer any questions that you may have. 

f 

Chairman MCCRERY. Thank you, Mr. Goss, and I certainly 

want to echo Mr. Levin’s comments that we all appreciate the job 

that you do and the way in which you present the numbers that 

you come up with. President Bush has emphasized that the need 

to strengthen Social Security should be done—or we should achieve 

that strengthening of Social Security in a sustainable way. ‘‘Sustainable solvency’’ is the term that he has used. Would you describe 

what that means? What do we mean by ‘‘sustainable solvency’’ as 

opposed to some other kind of solvency? 

Mr. GOSS. Thank you very much, Chairman McCrery. The example that I think comes to mind for all of us are really the 

amendments back in 1983, the most recent comprehensive amendments that we had under Social Security. Those amendments did 

step number one of sustainable solvency. They did result in projections and changes that resulted in projections where we would expect to have the trust funds be solvent and all scheduled benefits 

to be payable for the 75 years hence from that point. However, they 

were done in such a way that the level of the assets, the level of 

the reserves in the program, were to be built up fairly rapidly and 

then to be spent down toward the end, and just beyond the 75-year 

period, they would have been exhausted. In fact, we really have 

seen the reality of that come true now. 

So, the amendments that were enacted at that time did achieve 

step number one, solvency for 75 years in the projection, but they 

did not achieve sustainable solvency. Sustainable solvency, the way 

we really thought of this and the way we initially developed this 

working with the 1994 to 1996 Advisory Council, was really addressing exactly this situation that happened with the 1983 

amendments. We wanted to be sure that we would be in the position to provide estimates that would inform our policymakers as to 

whether or not they were ending up with something that would be 

a 1983 solution or whether they would have a solution that would 

tend to have more legs, a solution that would be more stable under 

circumstances in the future. We know that if we achieve solvency 

for 75 years but have our trust fund ratios at the end not dropping 

rapidly, like they were as a result of the 1983 amendments—and 

that was included in our projections at the time. The 1983 Trustees 

Report shows this. If, in fact, we have a stable, rising trust fund 

ratio, that is, a stable, rising level of assets in the trust fund as 

a percentage of the annual cost of the program, then we can be reasonably well assured that we will for the foreseeable future continue to have solvency for Social Security. We will have no absolute 

assurance because, clearly, assumptions today about what happens 

over the next 20, 30, 50, 75 years may not turn out to be exactly 

15 

true. This is why we sort of give a range of estimates and make 

stochastic projections also. 

Because there is a principal focus on the intermediate assumptions—we understand that—we feel that if we end up with a solution the next time we enact changes to Social Security that does 

meet the sustainable solvency criteria, stable levels of trust fund 

assets in the future, we at least will then be in a position where, 

if reality turns out to be somewhat different from the assumptions, 

we will not veer greatly away from a sustainable path and only relatively small changes will be necessary. 

Chairman MCCRERY. Now, the reason we talk about a 75-year 

solvency is that that is in the law, isn’t it? The trustees are required to report on a 75-year window on the health of the system, 

so to speak, over a 75-year window? 

Mr. GOSS. Actually, Chairman McCrery, the 75 years is really 

sort of an interpretation of the law. The law actually has something like three different specific requirements the trustees must 

report on, one of which is to report on the actuarial status of the 

program. That has been interpreted in many ways over the years 

for the last something like 30 to 40—about the last 40 years, it has 

been interpreted very consistently as projecting a 75-year window 

of expectation. 

The rationale for that has been, for a long time, arguments along 

the lines of the very youngest people we have involved in the system, the very youngest workers, that is approximately the remaining amount of time that they will have to live. Another, I think, 

good argument for using an open window of something like 75 

years is that virtually any kind of proposal we can imagine for 

modifying Social Security, that would be sufficient time to show the 

full, mature, phased-in effects of it so that we would be able to see 

exactly what we are facing with any changes in law. 

Chairman MCCRERY. What you are saying today is that we can 

manipulate that 75-year window in a way on paper to achieve solvency over the 75 years, but if the lines are going the wrong way, 

the income and the outgo lines are going the wrong way at the end 

of that 75-year period, it is fairly apparent that solvency won’t be 

achieved past that window, and that is what we did in 1983? 

Mr. GOSS. That is exactly right. I believe at the time—and I was 

there and involved to a degree with the 1983 amendments. I think 

the attitude to some extent then was 75 years of solvency was pretty good, especially because we were really on the door of becoming 

not able to pay full benefits on a scheduled basis at that time, 

within a couple of months. So, they felt 75 years was pretty good, 

and I think the general sense that we have in working with Members of Congress and commissions since the mid-nineties, though, 

is that the next time around there is a desire to perhaps go for 

more than that, go for more than just having a 75-year window of 

projected solvency, but also to have it have the stable financing toward the end of the period. 

Chairman MCCRERY. I have said in this Committee room that 

I think the best way to put Social Security on that sustainable solvency path is to prefund some of those out-year obligations so we 

know we have the money in the bank, so to speak, and we are not 

just counting it on paper. Clearly, President Bush has proposed 

16 

personal accounts to achieve some of that prefunding that I have 

talked about. As we prefund those obligations, there is a lot of talk 

about, well, there is a transition cost, short-term transition cost. 

Could you explain what we mean by transition costs, and whether 

that is good or bad, or just how—from an economic or fiscal standpoint, what does it mean? 

Mr. GOSS. Transition costs are one of the concepts that we have 

probably struggled with more than almost any other, because when 

you talk about a transition, it is from one state to another state, 

and when people talk about transition costs, it is not clear we are 

always talking about the same transition. I think, Chairman 

McCrery, what you are talking about here in the kind of transition 

is a transition of going from a basically pay-as-you-go system that 

we have now and moving toward a partially or more nearly fully 

advanced funded system. There are many ways of doing that, either by having advanced funding occurring within the trust funds, 

or occurring within the broader context of individual accounts. Regardless of which way one might want to go on this, obviously to 

move from a pay-as-you-go system, a current cost system, toward 

having some advanced funding, some extra money, has to be put 

on the table at some point. 

In the work we did for the President’s Commission on Social Security back in the 2001 era, it was clear that we addressed this. 

We even referred to the additional amounts of money that had to 

be put on the table as transition investments at that time. Basically, it is really just a question of the additional money that has 

to be put forth in order to create the advanced funding, whether 

it be in individual accounts or whether it be potentially in the trust 

funds. That is just a reality. 

There are, unfortunately, a lot of other ways that one could look 

at transition costs. For instance, another possible way of looking at 

transition costs is going from the transition from the state of Social 

Security financing that we have now toward having a fully financed system in the future. We sometimes talk, for instance, 

about the $4 trillion that we have for the 75-year period or the 

$1.92 trillion shortfall, and eliminating those involve a kind of 

transition also. I believe the one that you are referring to is the one 

specifically toward the development of advanced funding, whether 

it be in individual accounts or through advanced funding of the 

trust funds. 

Chairman MCCRERY. Really, even if we use personal accounts 

or if we were to do direct government investment, let’s say, that 

we take all the surplus and instead of spending it on other things, 

we make a direct government investment in the stock market. Either way you have to come up with the cash today to do that. Isn’t 

that just a way of recognizing the obligations that we already have, 

that we know we will have to pay at some point in the future? 

Mr. GOSS. It is, and I think that is a very fair and appropriate 

way to put it. I would suggest there is even a little bit more to it 

than that in that we think in terms of there being a distinction between the obligations that we have going forward in Social Security, say this $4 trillion unfunded obligation that we have, plus 

there are other obligations over and above that that are, in fact, 

actually funded. For instance, now we have the roughly $1.8 trilVerDate Aug 31 2005 13:11 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 E:\HR\OC\23917.XXX 23917
17 

lion of trust fund assets, which, of course, do require—when and 

if they need to be liquidated, the Federal Government has to come 

up with the money. Nonetheless, those two represent a liability on 

the Federal Government to the trust funds. Everybody agrees, the 

U.S. Department of the Treasury Secretary Snow agrees, that, of 

course, those obligations will be met. Those really are absolute 

commitments of money. 

Should we move toward more advanced funding, especially in either the trust funds or in individual accounts, we have investment 

in private securities, those would represent, we feel, solid securities 

and investments in the same sense, which we cannot really say 

about the unfunded obligations of the Social Security program now. 

Chairman MCCRERY. Right. Now, you mentioned pay-as-you-go, 

and I am going to ask—I just want you to repeat part of your testimony, and then I am going to turn it over to Mr. Levin. You talked 

about the pay-as-you-go system. That is what we have now, a payas-you-go system, which means current work force pays for the 

benefits of the current retiree population, and they pay for it 

through the payroll tax. Now, you said in 2079, if we make no 

changes in the system and it is still a pay-as-you-go system, that 

we would have to cut benefits—or outgo to equal income, by onethird or have a 50-percent increase in payroll taxes. Is that what 

you said? 

Mr. GOSS. About a third reduction in the benefit payments or 

about a 50-percent increase in the revenue to the system, which 

could be in the form of payroll taxes or—— 

Chairman MCCRERY. Yes, let’s assume it is payroll taxes. We 

are at 12.4 percent today, and you increase it by 50 percent, you 

are looking at roughly a 19-percent payroll tax. 

Mr. GOSS. That is exactly right. Either one of those approaches 

would suffice. We could either lower the benefits to live within the 

12.4 percent tax rate or raise the tax rate, or other sources of revenues, in order to provide the currently scheduled benefits. Therein 

really lies the choice that faces us. 

Chairman MCCRERY. Okay. Thank you, Mr. Goss. Mr. Levin? 

Mr. LEVIN. I would like to ask you a few questions about your 

report, and so I will just say this once. We will leave the debate 

to some other day. Now the term ‘‘prefunding’’ is being used, and 

essentially what that means under what the President has suggested—a combination of private accounts, of an offset, of the diversion of Social Security moneys—what all of that means is that over 

time for most people the guaranteed benefit is replaced. That is the 

implication. You can call it ‘‘strengthening’’ if you want. You can 

call a replacement ‘‘strengthening.’’ We think it is replacement. 

That is not exactly your domain, but I want everybody to understand what the idea of prefunding is when it is combined with private accounts and with the major offset that has been very much 

suggested. I will not get into the other aspects of it either in terms 

of the proposals for annuitizing, for limiting how the investments 

would be made. As you say, there are other ways to prefund that 

would not mean the replacement of the guaranteed benefit for most 

people. That is for another day. 

I just think everybody should understand that language is sometimes descriptive, and I think sometimes really obscures what is 

18 

really being proposed. Let me just ask you, as you analyze proposals, in some cases you use an asterisk, do you, in your actuarial 

analysis? 

Mr. GOSS. I am sorry. Could you repeat that last—— 

Mr. LEVIN. Or I can ask you another way. How do you handle 

it when a proposal has in it a major use of general funds to take 

care of any deficit within the other proposed funding plan? How do 

you handle that? 

Mr. GOSS. Thank you very much. That is a wonderful question. 

In all of our analyses, as you will see the memoranda that we do, 

we have a number of different tables, and in these tables we attempt to look at what is happening as a result of any change that 

is put forth from more than one perspective. The initial perspective 

that we look at most fundamentally is what is happening to Social 

Security and the trust funds. From that point of view, if indeed we 

have a provision that says—in the law it specifies that there will 

be X amount or X percent of payroll or X percent of GDP, or some 

well-specified amount of money coming in from the general fund to 

the Treasury, as far as Social Security financing is concerned, that 

will look like a legitimate source of income. That will be something 

that we can score as speaking to the solvency of the Social Security 

program. 

However, we also look at—and, again, there was a watershed 

event for us in the 1994 to 1996 Advisory Council. They asked us 

to do lots of things that we have maintained since. Once of the 

things that we have been doing since then also is to provide additional tables for proposals that indicate the budget effects. If, for 

example, we have a proposal that calls for General Fund transfers 

to the Social Security program, in effect what we see in the budget 

effects is that such transfers from one part of the government to 

the other part of the government really do not show up as any 

change, unless and until those monies are actually utilized by the 

Social Security Trust Funds to spend it. So, to the extent that 

transfers allow the trust funds to persist longer by way of having 

the money come in and to pay benefits for a longer period of time, 

that actually would end up resulting in more expenditures under 

Social Security. 

Mr. LEVIN. A number of the plans that you have analyzed call 

for the use of general funds to supplement the money that is earmarked for Social Security, isn’t that true? 

Mr. GOSS. That is true. A number of plans we have where there 

is a need for especially a temporary period, there is a General Fund 

transfer provision provided. 

Mr. LEVIN. Another form of pay-as-you-go? Let me just point out 

one fact that I think is interesting here. On page seven, this ratio 

has remained constant at about 3.3 workers per beneficiary since 

1975. So, you are saying that for 30 years that ratio has remained 

more or less the same. So, when people talk about 15 to one, which 

actually occurred before Social Security really went into full operation, they don’t talk about the steadiness of the ratio since 1975. 

You say that is changing from here on in under your reports, mainly because of proposed or prospective changes in the fertility rate; 

right? 

19 

Mr. GOSS. Exactly. Actually, really, Representative Levin, it is 

principally because of the changes that have already occurred in 

fertility. There is a lag between the time in which we have births 

and when those births then rise to the level of reaching the age 

where they enter into the labor force. So, the seeds really of the 

impact of the lower birth rates that we had gradually coming in between 1965 and 1972 are well sown at this point. 

Mr. LEVIN. In terms of 75 years, you make an assumption as 

to what the fertility rate will be; right? 

Mr. GOSS. Exactly. 

Mr. LEVIN. That we don’t know. 

Mr. GOSS. That we certainly do not know. 

Mr. LEVIN. No. 

Mr. GOSS. That is true with all of our assumptions, although 

there is a sufficient lag on the effect of birth rates in what happens 

in—— 

Mr. LEVIN. That is understood. 

Mr. GOSS. —that we have a fairly good sense of what is likely 

to happen unless there is a dramatic change in birth rates in the 

future. 

Mr. LEVIN. Okay. Thank you. My time is up. 

Chairman MCCRERY. Mr. Goss, just a quick question: have you 

scored any proposals that contain personal accounts that do not cut 

benefits at all, and that achieve sustainable solvency? 

Mr. GOSS. Let us see. We have provided estimates for a number 

of plans that would in effect provide a guarantee—— 

Chairman MCCRERY. Right. 

Mr. GOSS. —that either benefits in the case of one—there are, 

in fact, I think as many three people on your panel who have plans 

that we have scored that would, in fact, provide a guarantee such 

that benefits would not in any case in the future fall below the 

level of present law scheduled benefits. All three of these plans do 

involve individual accounts. They do them through slightly different mechanisms. 

Chairman MCCRERY. Do they achieve a sustainable solvency? 

Mr. GOSS. All three of these achieve sustainable solvency. 

Mr. LEVIN. Would you yield just for a second? 

Chairman MCCRERY. Sure. 

Mr. LEVIN. Just so the record is clear. Do all of them involve 

General Fund transfers? 

Mr. GOSS. All of them involve to a varying degree fairly significant amounts of General Fund transfers. 

Mr. LEVIN. Thank you. 

Chairman MCCRERY. Thank you, Mr. Goss. Mr. Johnson? 

Mr. JOHNSON OF TEXAS. Thank you, Mr. Chairman. I would 

say that probably General Fund transfers are going to be required 

whether we do anything or not. Based on your office’s scoring a 

number of legislative proposals, which you just talked about that 

include personal accounts, would you agree that plans with personal accounts do achieve sustainable solvency, one. Would you explain how personal accounts strengthen Social Security’s long-term 

financial outlook? 

Mr. GOSS. Well, on the basis of any one single provision, whether it be changing the retirement age, or changing the tax rate, or 

20 

including individual accounts, we cannot say that a plan will necessarily achieve sustainable solvency. It really requires looking at 

the complete package of the provisions in a plan. We have been 

lucky enough to be able to work with Members of this Subcommittee and other Members actually in developing plans and 

generally speaking at least over the last decade the desire has been 

to move toward a plan that would not only achieve 75-year solvency, but also achieve sustainable solvency. With that goal in 

mind, we have a number of plans that actually have done that. 

The way in which individual accounts or personal accounts per 

se really affect Social Security, it depends on the nature of the 

plan. We have some plans, for instance, which may have personal 

accounts financed from General Fund money directly, and then the 

money from the individual account is actually then redirected to 

the trust funds to help sustain the trust funds in a direct sense. 

Many other plans operate on the basis where the individual account financing may come as a result of money being redirected 

from the trust funds to the individual accounts, and then there is 

a subsequent offset against benefits for those who are participating 

in the individual accounts. 

So, we have a number of mechanisms. The latter one is the 

mechanism which we have a number of plans being considered at 

the time, and generally speaking the general effect on the trust 

funds for that is that with the money being redirected starting relatively early from the trust funds this is where we do get into the 

question that Chairman McCrery mentioned about the transition 

investment, where you might need General Fund transfers to, in 

effect, sort of fill the gap for that money that is redirected. Subsequently, though, the benefit offsets under many of these plans then 

start to come up and they will, in many cases, reach the point 

where the amount of the benefit offsets will reach the point ultimately on a cash flow sense where they will meet and perhaps 

even exceed the amount of the money coming out. 

So, once you get past the point of making the transition investment, which can be a fairly lengthen period, and a fairly substantial amount of money, you can reach the point where the individual 

accounts will, in fact, provide a net positive cash flow in out years 

in the system. 

Mr. JOHNSON. Thank you. When scoring the plans that include 

person accounts, what assumptions do you make with regard to 

rates of return on stocks, bonds, and government bonds, and I wonder if you could explain how you arrived at those estimates and 

how do you respond to those who say your expected rates of return 

are too high or too low? 

Mr. GOSS. Well, we really first got involved in having to deal 

with returns on private securities back around the time of the 1994 

to 1996 Advisory Council, which had three plans which did indeed 

involve equity returns. Right at the same time, we also had on the 

Senate side, I’m sorry to say, we had a plan by Alan Simpson and 

Bob Kerry that was a unique plan in that it included not only investment of the trust funds in equities, but also personal accounts 

within one plan. We haven’t seen that since. For their plan and 

also for all three plans of the advisory council, we had to deal with 

21 

the question of what would the return on stocks and on corporate 

bonds be. 

At the time we looked at what the experience had been. We 

looked at the Ibidsen data out of Chicago, which is sort of the 

source for what has happened historically. We looked at the data 

from Jeremy Siegel at the University of Pennsylvania, who has explored these issues, going back 200 years or more in the U.S., and 

we looked at international data also. We came to the conclusion 

that the equity returns, which at the time over long periods of 

time, had averaged at about 7 percent above inflation, 7 percent 

real, seems to be a realistic number going forward. 

Since that time, we have been in discussion with numerous finance and economist folks over the years, and we have become convinced that there are reasons to believe that this 7 percent equity 

yield should be expected to be somewhat lower than that in the future, and we are now using a 6.5 real assumption, largely on the 

basis of greater access by the population to stocks on perhaps a 

slightly lower sense of the riskiness of investment in stocks. There 

has been a considerable discussion about the nature of the trustees 

estimates, which suggest that there will be a slowdown in the rate 

of growth in the aggregate size of the economy, the aggregate gross 

domestic product and potential implications of that slowdown in 

the growth of the aggregate gross domestic product relative to what 

you might expect to happen by way of a return on stocks or bonds. 

Our sense—and again, we have done a considerable discussion of 

this, is that we do not see that there is a necessary connection between a slow down in the rate of growth in the overall economy 

versus the return that you might expect to get per dollar invested 

in stocks and bonds. Unless you desire to go into greater detail on 

this, I won’t go into all of that at this point. The bottom line basically is that when you have a slower growing economy, because we 

have a slower growth in the labor force, and that because we have 

lower fertility rates and a slower growth in the population in general, this does not mean that we will have a lower rate of productivity growth or a slower growth in technological progress in the society. Those are really the ingredients that allow us to have a return on capital investments that allow us to enjoy returns on 

things like stocks and bonds. So, we do not see in the U.S. or in 

the world environment that those will necessarily be changing in 

the future. 

Mr. JOHNSON. Thank you, Mr. Goss. Thank you, Mr. Chairman. 

Chairman MCCRERY. Thank you, Mr. Johnson. Mr. Goss, I 

should tell you that should you wish to elaborate on any of your 

answers to these questions, we would welcome anything further in 

writing that you would wish to provide the Committee. 

Mr. GOSS. Thank you. 

Chairman MCCRERY. Mr. Neal? 

Mr. NEAL. Thank you very much, Mr. Chairman. Let me thank 

you, too, Mr. Chairman. I think the witnesses that you have had 

to date have been really helpful to this discussion, and I think that 

in addition had the Administration begun this discussion with discussing solvency and sustainability rather than traveling across 

the country talking about a crisis, it would have been most helpful 

22 

to the debate. Back in Boston, people are saying imagine Paul Revere traveling through the streets of Boston announcing the British 

are coming—in 40 years. 

That has been part of the problem here. We really have an opportunity to discuss, as you suggested in your previous comments, 

an opportunity to really put some good ideas in front of the American people. I do want to discuss a bit with you this 75-year window, because if we were sitting here 25 years ago, we would have 

had trouble discussing with any accuracy the advent of the computer and how it has changed things in terms of productivity. Certainly 40 years ago, we would have had trouble discussing divorce 

rates, and we would have had trouble discussing longevity, and 

there would be the discussion of women in the workforce, two-income families, and all of those things. So, that 75-year window, I 

think is a bit difficult to predict beyond, and I think that we should 

be very, very careful as we proceed down that road. Let me get to 

an issue of specificity with you. 

Social Security benefits are designed to keep pace with the 

standard of living so that replacement rates are constant over time. 

Each generation of workers receives benefits that reflect the higher 

wages they earned over their working years. The President and 

others have characterized this as growth. In fact, the replacement 

rate, the amount of their pre-retirement earnings replaced by Social Security remains steady. 

Let me explore what would happen if we were to switch to a formula that ties initial benefits to growth in prices rather than 

wages or some combination thereof. If we did that, would benefits 

continue to replace a constant portion of workers’ pre-retirement 

earnings or would that replacement rate shrink over time? In that 

case, would the standard of living guaranteed by Social Security 

decline for retirees relative to the general population? 

Mr. GOSS. Thanks very much, Representative Neal. As you indicate, the current Social Security benefit formula does indeed result 

in benefits that increase with the average wage from one generation to the next at retirement. We have been looking at a number 

of proposals that would modify this in various forms, and one of 

which is the Consumer Price Index (CPI) indexing. 

If we went to the CPI indexing, it has been suggested and it 

would be a true statement that the benefit levels, the purchasing 

power of benefits from one generation to the next would be maintained. However, it is also an exactly appropriate observation to 

make that over time, Americans have been lucky enough to enjoy 

productivity and an increasing standard of living. That means that 

our purchasing power has really been increasing from one generation to the next, and the current benefit formula does afford that. 

If we were to go to a purely CPI indexed formula, then the increase in the benefits over time would not be reflecting an increasing standard of living in effect in the benefits, but would maintain 

the same purchasing power. I think these are all valid observations. The principal observation that we wrestled with, of course, 

is that we are glad that we do not have to make the decisions on 

which way to go on this and that is your job, because all we can 

really report on is the fact that we do have shortfalls coming forVerDate Aug 31 2005 13:11 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00026 Fmt 6633 Sfmt 6602 E:\HR\OC\23917.XXX 23917
23 

ward, and we have to make a decision either to lower these benefits or to increase the financing for them. 

The only small exception to the observation of the stable replacement rates in the future is that in the last major amendments we 

had in the 1983 Social Security amendments we did have changes 

that will increase the normal retirement age by 2 years. One was 

just completed for people reaching retirement eligibility today, this 

year. Their normal retirement age is now 66. Just a few years ago, 

of course, we know it was 65. In another couple of decades, it will 

be raised further up to 67. These two changes in the normal retirement age will have the effect of for a person retiring at any given 

age, say, 65, of in effect of lowering their benefit replacement rate 

relative to the earnings levels they had during their working career 

and the two ages combined will lower them by about 13 percent 

relative to what the program would have provided prior to the 1983 

amendments. At least we have some changes along those lines already. 

Mr. NEAL. Yes. The argument is made in the Committee, and 

it has been made in other places, that there is an imminent danger 

that somehow Social Security is going to be insolvent in the near 

future, and we ought to plan for it now. The result is that there 

could be lower benefits, but the point is that if we were to move 

right now from wages to prices wouldn’t that mean a lower benefit. 

Mr. GOSS. It would clearly mean lower benefits than those that 

are scheduled under current law, and the question really is how 

much financing we have available on the table. There is also an argument that can be made about the level of benefits that would 

occur as a result of, for instance, price indexing relative to the benefits that are payable under current law. As we see, the benefits 

payable under current law are about 32 percent below those that 

are scheduled by the end of the 75-year period. If we were to go 

to a pure price indexing formula, the benefits would be reduced 

somewhat more than that by the end of the 75-year period. 

Mr. NEAL. Okay. Again, Mr. Chairman, thanks for the witnesses. I think they have been very helpful. 

Chairman MCCRERY. Thank you, Mr. Neal. Just to clarify, 

though, you said in answer to Mr. Neal’s last question that if we 

were to go to price indexing now, that would mean lower benefits, 

lower than promised benefits, but that would be to new retirees; 

correct? Current retirees who are already in the system wouldn’t 

experience any change in their benefit, or future benefits, would 

they? 

Mr. GOSS. That is absolutely true. So far, all proposals—all provisions we have ever seen would apply generally by way of modifying benefits for people who become newly eligible in the future 

years. 

Mr. NEAL. Mr. Chairman? Could I seek a point of clarification 

on this as well? 

Chairman MCCRERY. Sure. 

Mr. NEAL. What we are saying, though, then to the next generation perhaps, as the President has suggested, for somebody who is 

54 years old right now, lower benefit? 

Chairman MCCRERY. Lower than promised benefit. 

Mr. NEAL. Lower than promised benefit. 

24 

Mr. GOSS. Lower than has been scheduled in current law. 

Mr. NEAL. Okay. Thank you for that clarification. 

Chairman MCCRERY. Yes. Thank you. Mr. Lewis? 

Mr. LEWIS OF KENTUCKY. Yes. Thanks, Mr. Chairman. Mr. 

Goss, the Social Security actuaries have been involved in assessing 

the program’s long-term finances for the Social Security Trustees 

Report, since the first report was issued in 1941. The Social Security actuaries have also provided the only scores on the long-term 

effects of major legislative changes in benefits and financing in 

every major reform effort through the last reform effort in 1983, 

and that is correct. Recently, the Congressional Budget Office 

(CBO) developed a model that analyzes the effect of changes in 

benefits and financing of the Social Security Program. Could you 

briefly describe the similarities and differences between the Social 

Security actuaries’ model and the CBO model? 

Mr. GOSS. Thank you very much. There really are a lot of similarities in these models. In fact, we worked closely with the folks 

at the CBO in the development of their model. In fact, they actually even use our population projections in the model. The principal 

areas of difference are in the economic assumptions and the nature 

of the methodologies that are used for projecting benefits into the 

future. 

Initially, when they have developed their model, we looked, and 

there were some differences in the methodologies for projecting average benefits that were giving somewhat different results. We 

have gone back and we have looked, and they have made some 

changes. We have made some changes, and we think we are a lot 

closer together now. The principal area that really remains where 

there are significant differences between their projections and ours 

really are in some fundamental assumptions. They have a higher 

rate of growth in the real wage into the future. They have a higher 

real interest rate, and they have a lower price inflation rate that 

they are assuming going to the future. These really explain the 

large majority of any differences that we have. 

What is similar, though, about the projections is largely because 

they use the same demographics, the same population base as the 

ones that we project, is that they both project that there will be significant and substantial shortfalls in the program under the intermediate assumptions going into the future. I believe their year of 

the cash flow of the system turning negative is different from ours 

by two or 3 years. The year in which trust funds would be exhausted is projected by them to be perhaps a decade different from 

ours. The gist of really the outgrowth of these projections is in essence we would say fairly similarly. 

Mr. LEWIS OF KENTUCKY. Thank you. 

Chairman MCCRERY. Thank you, Mr. Lewis. Mr. Pomeroy? 

Mr. POMEROY. Thank you, Mr. Chairman. I would echo Mr. 

Neal’s comments about the informative and fair handed way these 

Subcommittee hearings have unfolded. I appreciate it. Mr. Goss, I 

think you are to be recognized for your long-time service to Social 

Security, during which period you have been available to any of us 

that have wanted to ask questions in terms of various ideas on Social Security, and it has been my pleasure over the years to work 

with you. 

25 

Mr. GOSS. Thank you. 

Mr. POMEROY. So I get this straight. When we talk about sustainable solvency, this is basically what? A levelized outflow of liability past the year 2080; is that correct? 

Mr. GOSS. Past the year 2079. Approximately 2080 is the end 

of our current 75-year projection period. 

Mr. POMEROY. I am fairly staggered that we are worrying 

about 2080, 2079. I have seen tax bills pass out of this Ways and 

Means Committee that, once the scoring window is gone, they will 

have a very different dramatic effect on revenue loss. That hasn’t 

seemed to bother anybody. That is obviously much more a nearterm event than 2079 or 2080. It really is a matter of—it gets to 

a little bit of the actuarial debate about the $10 trillion unfunded 

liability in perpetuity. The American Academy of Actuaries says it 

is pretty hard to calculate in perpetuity, didn’t they? 

Mr. GOSS. They did. 

Mr. POMEROY. Do you believe that you can fairly estimate a 

perpetuity shortfall for Social Security? 

Mr. GOSS. Well, the estimate that we have calculated and that 

is included in the Trustees’ report for the last two or 3 years, we 

do characterize it as really an extrapolation of the estimates that 

we make for the 75-year projection period, and it is, I am sure clear 

to everybody in this room that as we make projections going out 

even as far as 75 years, that the level of uncertainty that is associated with those estimates becomes greater. 

Mr. POMEROY. It is kind of like weather, isn’t it? Weather forecasting the next hour is pretty good. Tomorrow a bit dicey. Next 

week, fairly iffy. The longer you get, the greater the weight assumptions must play, and, therefore, the less tangible the number. 

Mr. GOSS. I think that is true. The one thing to keep in mind, 

though, with all of our projections is that when we are projecting 

out over a long period of time, we are projecting really what the 

average experience will be, and that is to good in terms of the 

longer projections because the cycles that go up and down over 

near term sort of even out. However—— 

Mr. POMEROY. Although my time is going to run, Steve. I don’t 

mean to cut you off. 

Mr. GOSS. I am sorry. 

Mr. POMEROY. Or in any way be in an argumentative pose with 

you. I want to move on to a different point, and that is the nearer 

term events that we need to go through to get this long-term sustainable solvency of 2079, first of all, we have to borrow a lot of 

money. This transition cost dimension I have seen estimates ranging from roughly $2 trillion taking the task force’s proposal, $2 trillion in the first 10 years; $4 trillion additional after that. Is that 

roughly correct to fund the transition costs—create these accounts? 

Mr. GOSS. I am not sure which proposal this—— 

Mr. POMEROY. Proposal B of the Social Security Task Force 

proposal. 

Mr. GOSS. Are you talking about the model two of the Commission? 

Mr. POMEROY. Correct. 

Mr. GOSS. The President’s Commission? I believe we had a number when we looked at the amount of the actual general revenue 

26 

transfers that were necessary, they amounted to somewhere in the 

vicinity of $1.5 to $2 trillion. 

Mr. POMEROY. I believe that is the first 10-year figure; is that 

correct? 

Mr. GOSS. Well, I tend to think of these in terms of the present 

value dollar amounts, which is the way we normally add these up 

over time. I think you get larger numbers if you look at them in 

terms of constant dollars amounts, and people look at them in different forms. 

Mr. POMEROY. So, there is trillions of dollars of additional 

money required; because we are in a national deficit, that means 

trillions of dollars of additional borrowing in the near term, and 

then the sustainable solvency gathered by essentially taking down 

the Federal guarantee under Social Security to the individual; in 

other words, changing substantially the defined benefit nature of 

the commitment Social Security now has to Social Security recipients and reducing it, reducing it in the nature of what is in the account it pays out. So, is that essentially how sustainable solvency 

is reached? Do you initially borrow a lot of money, and then over 

the long term you reduce substantially the guarantee of Social Security? 

Mr. GOSS. Well, it depends on the proposal. There are certainly 

proposals that you could probably characterize as operating in that 

fashion. The other proposals, for instance, by people like Peter Diamond and Peter Orszag that have put forth proposals that would 

not involve accounts, and would also achieve sustainable solvency. 

We have a wide variety. 

Mr. POMEROY. Do the private accounts—that is true. Do the 

private accounts, however, generally conform to that model—borrowing money now and reducing the Social Security guarantee to 

the individual over the long term? 

Mr. GOSS. Well, the first portion of that is I believe true. On all 

plans that we have looked at, it would involve significant increases 

in advanced funding. Most of such plans have involved individual 

accounts now. The former President, of course, had a plan that 

would involve advance funding within the trust funds, and that 

would also have involved considerable additional money to be 

brought in. The part about reducing the defined benefit later is a 

little bit less clear. It depends. Representative Shaw, who was here 

a moment ago, in his plan would not, in effect, really reduce the 

sort of scheduled benefit. Representative Ryan’s plan would not 

really do that either. They work by different mechanisms, but 

many of the plans do operate on a fashion where the totality of the 

benefit that would be guaranteed from Social Security and the individual account would be guaranteed not to be lower. 

Mr. POMEROY. I am aware of the Shaw plan that has that. I 

am not aware of the other features. My time has elapsed. Thank 

you very much. 

Mr. GOSS. Okay. 

Chairman MCCRERY. Thank you, Mr. Pomeroy. You may not 

have been here earlier when Mr. Goss answered that same question, and actually Mr. Ryan’s plan also does that without reducing 

the guaranteed benefit. 

27 

Mr. GOSS. If I may just add the one tiny clarification, Chairman 

McCrery. The one difference is Mr. Shaw’s plan would work on the 

basis where the money from the individual accounts would, in effect, come back to the trust funds, and, therefore, the entirety of 

the benefit would be paid from Social Security. I think Mr. Ryan’s 

plan and some other plans would operate on the basis where there 

would be a guarantee that the benefit could not be lower in total 

than what is scheduled under current law, but it would be a mix 

between disbursements from the individual accounts and from the 

Social Security Trust Fund. 

Mr. POMEROY. Mr. Chairman, may I ask one follow-up question, a brief one? Not in any way to prolong this. 

Chairman MCCRERY. We can do a second round of questioning. 

Mr. POMEROY. It is right on this precise point. 

Chairman MCCRERY. You are afraid that we would forget that? 

Okay. Go ahead. 

Mr. POMEROY. Does this essentially put the Federal Government into the position of guaranteeing the stock market? 

Mr. GOSS. In some plans you could argue that. It is not really 

so much a matter of guaranteeing the stock market. We have not 

seen any plans that would say in effect we will guarantee a specific 

return on your investments and personal accounts. However, we do 

have a number of plans that would suggest that if the personal account falls below or to whatever extent the personal account falls 

below an amount necessary to augment your Social Security benefit 

and bring it up to a given level, like present law scheduled benefits, then the Social Security Trust Funds would come forth and 

would make up that difference. So, it is an arguable point that that 

is essentially guaranteeing your return. 

Chairman MCCRERY. Thank you. Mr. Hulshof? 

Mr. HULSHOF. Thank you, Mr. Chairman. I wish to follow up 

on the line of inquiry from my good friend from Massachusetts inquired a little bit earlier and that is the idea that demographic 

trends are really driving the financial challenges in the long term. 

With some certainty, I tell people at a town meeting back in Missouri the adage that or the suggestion well, if you fellows in Congress had not borrowed from the Social Security Trust Fund in the 

’seventies and the ’eighties and the ’nineties, we wouldn’t have this 

fix that we are in. Yet, to be definitive, as the 2005 Trustees Report 

says, the probability of trust fund exhaustion is about 97 and a half 

percent that the funds will be exhausted before the end of 75 years 

and that is because of the demographics. Is that a fair assessment, 

Mr. Goss? 

Mr. GOSS. We would argue that the principal basis for the big 

shift in the costs that we see in the future, with likelihood, is principally because of the demographics. If I could just sort of elaborate 

just on one tiny point. Our stochastic projections in Appendix E of 

the report to which you refer, we have worked very hard on those, 

and we think we have some very good projections. They are very 

similar to stochastic projections made by a number of other entities, like the CBO. However, all people doing these stochastic projections understand that we still have some work to do. We do not 

believe we are projecting the full range of possibilities that is getting out there. Nonetheless, the probability given the demographics 

28 

that we have currently and are likely to see in the future, the probability that Social Security will be solvent throughout the next 75 

years we think is very low. 

Mr. HULSHOF. These aren’t the kind of trends that are subject 

to substantial fluctuation in the near term, are they? 

Mr. GOSS. Well, there is always that potential, but the big fluctuation and the major variable that has really affected us, which 

is fertility, the big fluctuation we saw was between 1965 and 1972, 

and I think we all understand what some of the major factors 

were—availability of birth control, for example. Will there be substantial changes in birth rates going forward? We suspect not. We 

think that is going to be relatively stable. Certainly, it could potentially go either way. We see in many of the other industrialized 

countries in Europe where they have much lower birth rates than 

we have. So, there is a possibility that we could go that way. 

Mr. HULSHOF. I would say then again to my good friend, who 

has cited a very famous patriot from the colony of Massachusetts, 

and to paraphrase, Mr. Neal, the red ink is coming. The red ink 

is coming, as opposed to the red coats, and I would invite the gentleman to be a patriot as the gentleman from Massachusetts was 

when he went on his midnight ride. 

Mr. NEAL. Would you yield for a question? 

Mr. HULSHOF. Yes, I would be happy to yield. 

Mr. NEAL. Are you saying the writing coming in 42 years? 

Mr. HULSHOF. I also want to follow up on something that Mr. 

Levin said, and I do acknowledge that the use of language is so important, and there are terms of art now related to this discussion. 

We have heard add-ons and carve-outs, and we have had progressive benefits. We have talked today to find sustainable solvency, 

guaranteed benefits, or at least guaranteed as opposed to promised 

benefits. Again, all those are terms of art. Perhaps one that is not 

a term of art, at least I don’t think there is a disagreement, that 

is the word ‘‘voluntary,’’ an adjective from the root word to volunteer, optional, a personal choice. Surely there is not a dispute as 

to the idea of a voluntary account, that that is in essence what it 

means. Then we make assumptions. There is where I want to go 

for the remainder of my time, Mr. Goss, because in your analysis 

of plans or the actuaries’ analysis of plans with personal accounts, 

you make certain assumptions. In one instance or in some cases a 

participation is estimated to two-thirds, that is, one out of every 

three Americans would choose not to have a personal account, but 

where do you come up with this estimate, or give us some sense 

of the confidence that we can place in these assumptions regarding 

personal accounts, if you would? 

Mr. GOSS. That is a very good question. Unfortunately, we do 

not clearly have data. We do not have experience that we can draw 

upon for the precise kinds of accounts we are generally looking at. 

We do have the experience of looking at what happens with 401(k) 

experience in the United States, and we see that participation in 

401(k)s started out at something like less than half. It is now more 

like two-thirds to three-quarters of individuals participating. We 

feel that in fact there has been a learning curve for people in the 

United States, that there will be an expectation of people having 

29 

a greater tendency to engage in individual accounts, all else equal, 

today than might have been the case 20 or 30 years ago. 

The principal differentiation we make on types of accounts 

though as to what we would anticipate the participation rate will 

be is basically what people will be confronted with. The first and 

most important distinction is whether or not there will be an outof-pocket component required by individuals. Some plans would require an individual to, say, put up 1 percent of their pay into the 

individual account and then they will get a match, much like most 

of our 401(k)s. We would expect a plan of that sort will tend to, 

all else equal, to have a lower participation rate than a plan where 

you simply sort of sign on the dotted line and say, now, two or 

three or 4 percent of my pay will be directed from the trust funds 

to the individual account, and you don’t have to put up any extra 

money on your own. That is the first distinction. 

The other distinction, which requires a little bit more foresight 

down the road by individuals is what do I give up in return for 

having the money go into my individual account? What is the nature of the benefit offset? How large will the offset be and what will 

its characteristics be? There is a wide variation in characteristics 

of that sort. Most of the plans we have scored so far has either had 

two-thirds or 100 percent participation, and we have really reserved 100 percent participation for plans where there would be a 

clear and obvious choice where individuals, if they make it, simply 

really cannot lose. They would be guaranteed to come out with 

more as a result of engaging in the individual account than if they 

did not engage in the individual account. 

Most of the other plans we have seen present people where there 

is some variability, some fluctuation, some risk, if you will in what 

the outcome might be, but generally would give a relatively high 

expectation of coming out ahead as a result of engaging in the account. We think two-thirds is appropriate in that case. There is 

some variation though. 

Chairman MCCRERY. Mr. Becerra. 

Mr. BECERRA. Thank you, Mr. Chairman. Mr. Goss, thank you 

for being here, appreciate it, for the testimony and answers so far. 

Mr. GOSS. Thank you. 

Mr. BECERRA. Let me ask a little bit about the financial situation of the Social Security system, the trust fund, because we have 

gotten into this a little bit. Today Social Security is running a surplus. It is collecting more from people who are working, from their 

FICA taxes, and they are having to send out to retirees who are 

currently receiving pension benefits, retirement benefits or disability benefits or survivor benefits. We have been running a surplus for several years now, many years, and we will continue to 

run surpluses for still many years, correct, in Social Security? 

Mr. GOSS. Absolutely. 

Mr. BECERRA. Tell me if I am wrong. This year we will collect 

from Social Security Federal Insurance Contributions Act (FICA) 

taxes about some $70 billion more from workers than is actually 

needed to send out, plus the interest that we will continue to accrue on those treasury bonds that are in the trust fund will add 

up to a total surplus for the year 2005 as something approaching 

$170 billion or so, correct? 

30 

Mr. GOSS. I believe it is in that vicinity. 

Mr. BECERRA. It is $165, $170. I have heard $169. Somewhere 

around $165 to $170 billion in surplus dollars for this year. To 

date, do you know how much has been accrued, how much has accumulated over the last several decades in the trust fund? Do you 

know how much we have today? Mr. GOSS. We are currently at about $1.8—— 

Mr. BECERRA. Trillion? 

Mr. GOSS. There is $1.8 trillion in the trust funds at this point 

from revenue accumulating over and above what has been spent. 

Mr. BECERRA. My understanding is that in that year 2017, 

2018, that everyone keeps saying that we are going to now stop collecting enough from workers paying in to pay out those who are retired or disabled or receiving survivor benefits, that the trust fund 

will have reached the point of having some $5 trillion in it. 

Mr. GOSS. I believe in then current nominal dollars it would 

reach that level, as I mentioned in the statement, in present value 

dollars it will be about $ 2.4 trillion. It will be a very large amount 

of accrued reserves at that point in time. 

Mr. BECERRA. My understanding is, as much as we hear others 

say that there is a crisis, that surplus continues to grow until 

about the year 2027 to about $6.5 trillion. 

Mr. GOSS. In nominal dollars that is true because the amount 

of money that would be necessary to augment taxes to pay full 

scheduled benefits during that interim period would be less in that 

period than the amount of interest that is—— 

Mr. BECERRA. So, we are still adding up a little bit more, but 

by 2027, 2028, that is when we start to see the decline into about 

2041, 2042, or the CBO says 2050, 2052. Now, let us compare that 

to the existing Federal budget, which my understanding is, this 

year, this fiscal year will run not a surplus like Social Security will 

run this year, but will run a deficit of some $425 billion. So the deficit today in the operating budget, the budget the President presented to Congress was about $400 and some odd billion in the 

hole. To use the words of my friend from Missouri, not only is the 

red ink coming, the red ink is here when it comes to the operations 

of budget. 

So, while we have years to go before Social Security ever encounters a problem, if indeed it even will if all these assumptions play 

out, we know today that the Federal Government has misallocated 

its dollars at least—or its priorities in terms of its spending, because obviously it is running massive deficits, has been running 

deficits now since the President took office, and will continue to 

run deficits. The President does not project that when he leaves office in another 3 years, he will still have a surplus in the budget. 

So, when we hear that there are proposals out there, privatization 

proposals that would fund that transition cost or the gap between 

what is needed to cover benefits and to take care of the cost of 

transitioning to privatization, that those plans, those privatization 

plans rely on general revenue transfers. What we are in essence 

saying is taking money from those pots of money which are today 

also trying to figure out where they are going to get their money 

since right now that operating budget is running in a deficit. Are 

you following my line of thought here? 

31 

Mr. GOSS. Yes. 

Mr. BECERRA. So, I am thinking to myself, there are privatization plans out there saying, don’t worry, we can guarantee you benefits if you have a private account, because guess what, we are 

going to take the money from the general revenues. General revenues is another word for saying the 100 million in our Nation who 

are going to school, public education gets about $60 billion in a fiscal year. If the transition costs alone are in the trillions, $60 billion 

a year, you could take every single dime out of funding for education for the 100 million students in this country, and you would 

have to do that for at least 20 years to get to a trillion dollars. So, 

if these privatization plans are going to have to fund trillions of 

dollars in costs by taking it out of the general revenue, I don’t expect many Members in Congress are going to want to take it out 

of national defense, so we will have to take it out of education or 

housing or senior care or veterans benefits. It has to come from 

something in general revenues, correct? 

Mr. GOSS. That is correct. There basically would be three 

choices for all of the plans that would incur some extra money 

needed from general revenues, either there would have to be additional taxes outside of Social Security to provide that, or reducing 

other spending as I think you are suggesting, or more borrowing 

from the public. 

Mr. BECERRA. Thank you. I see my time has expired and the 

Chairman has been very generous. So, I thank you for your time. 

Thank you, Mr. Chairman. Yield back. 

Chairman MCCRERY. Thank you, Mr. Becerra. Mr. Brady? 

Mr. BRADY. Thank you, Mr. Chairman. Is it safe to say that 

Congress will have to find trillions of dollars to preserve Social Security, either to keep it in its current pay-as-you-go form or to 

prefund a different approach to long-term solvency? 

Mr. GOSS. I think it really depends on really what the goal is 

in achieving. One option, for example, certainly would be to just 

lower the level of scheduled benefits in the future. We could in effect smooth out—— 

Mr. BRADY. To preserve the current benefits we would have 

to—— 

Mr. GOSS. If we want to preserve the current benefits there is 

no question we need to find—— 

Mr. BRADY. So, we will spend money, absent changes in benefits, we will spend trillions of dollars to either keep the current 

benefits or to prefund a longer-term approach, say, personal accounts? 

Mr. GOSS. No question about it. 

Mr. BRADY. Thanks. I appreciate your testimony. I have done 

like a number of other Members of this panel, a number of townhall meetings. I wish I could drag you around to all of them. We 

have lots of questions, good questions from people. Let me ask you 

some of them as if you were at my workshops. Outsourcing, what 

is the actual actuarial impact of outsourcing on our Social Security 

system? 

Mr. GOSS. I assume, Mr. Brady, when you say outsourcing you 

mean American companies tapping into labor supplies outside of 

this country? 

32 

Mr. BRADY. Yes. 

Mr. GOSS. In the near term at least, what this really means is 

that there would be a transference of capital by these companies 

to labor supplies. If we are talking about, for instance, going to 

China or India and actually hiring people and setting up plant and 

equipment, that means that there would be less labor and less 

work than there might otherwise be in this country. The real question is, when that is done, is it done because there is a shortage 

of labor, or is it—— 

Mr. BRADY. Perhaps, let me be more specific. Have you measured the actuarial impact of outsourcing on the Social Security system? 

Mr. GOSS. We haven’t really, per se, because when we make our 

projections of the future labor supply and the future number of 

workers in the economy, we assume that going to the future we 

will have rates of employment amongst people by age and sex that 

are following trends that are very similar to what we have now. 

Mr. BRADY. Have you estimated the actuarial impact of 

insourcing jobs? 

Mr. GOSS. By insourcing I assume you mean foreign companies 

coming in, employing Americans in the United States? 

Mr. BRADY. Exactly. 

Mr. GOSS. We have not specifically identified separately the impact of insourcing versus outsourcing. 

Mr. BRADY. What is the actuarial impact of illegal immigration 

on our Social Security system? 

Mr. GOSS. The impact on the financing of our Social Security 

system of other than illegal immigration is generally an unbalance 

positive toward the financing of the Social Security system, and 

really the principal reason for that is because immigrants who 

come into the country, whether they come on a legal or on an other 

than legal basis, once they arrive in this country, generally in their 

early or their mid twenties, if and when they have children on our 

shores, those children of course are U.S. citizens. The principal impact over the 75-year time horizon is those children who are born 

in the United States, should they continue to reside in the United 

States, represent an increase in our population, much as though we 

had an increase in the fertility in the United States, and that actually does accrue positively to the financial outlook of Social Security. 

The specific immigrants who come to the country is really a very 

mixed situation we have for individuals who come to the country 

on an other than legal basis, many of them end up working and 

contributing and perhaps getting benefits at a later time, but very 

many of them also may work and contribute to Social Security and 

never really receive benefits, so there tends to be a plus. Others, 

of course, never work in the so-called above-ground economy and 

contribute at all. So, it is a very, very diverse possibility here. 

Mr. BRADY. What is the—this is my favorite question at workshops—wouldn’t Social Security be solvent if just Members of Congress paid into Social Security? 

[Laughter.] 

I needed you yesterday. We had 350 people at a very informed 

town hall meeting, and clearly two-thirds of them were astounded 

33 

to find we pay into Social Security and have for some time. The 

President’s plan, I hear all sorts of wild estimates, $5 trillion costs 

and 90-percent reduction in benefits. Has your office scored or published an official proposal by President Bush? 

Mr. GOSS. We have an aspect. At the time of the State of the 

Union address the President put forth a specific specification for 

the individual accounts that he had in mind, and we got specifications for that through the year 2015. We produced a memorandum 

based on what they had laid out in specifics through that time period, including the effects of the benefit offsets which they were 

also specific about. The White House was not specific at the time 

as to what would happen after 2015 in the nature of the individual 

account contributions. So, we were really not able to make a projection beyond that. 

Since that time the President has, as we all know, also spoken 

to a kind of a progressive indexing benefit structure. We have done 

estimates on that particular progressive indexing concept for a gentleman named Bob Pozen, which whom I believe you are all familiar, who we worked with in developing that provision. As the President has outlined it, we believe that he has some aspects of that 

that are probably different from what Bob Pozen had in mind perhaps in the way that it affects disabled workers and possibly other 

items. We do not at this time have sufficient specification on that 

provision or of a complete plan really to be able to do an estimate 

in total. 

Mr. BRADY. The answer at this point is not yet? 

Mr. GOSS. Not at this point. 

Mr. BRADY. I will finish with this, Mr. Chairman. The Windfall 

elimination Provision is one of those formulas that affects workers 

in Social Security substitutes, those who have earned a pension in 

Social Security, those who have earned one in a substitute. There 

are a number of bills out there. One of the ones we have proposed 

creates equal treatment, and it is scored at affecting the solvency 

of Social Security by 0.01 percent. In real terms how much is 0.01 

percent? 

Mr. GOSS. Well, 0.01 percent of payroll is equivalent to about 

$400 million per year on sort of a steady basis going into the future 

on sort of a wage index basis. So, in most of our personal lives that 

would sound like an awful lot. In the context of the entire Federal 

budget and even in the context of the Social Security system, that 

is not a very large amount. Put a 1 percent of payroll, that can be 

compared also to the sort of long-term cost of the system of 15 percent of payroll, so it is very small compared to that. Also compared 

to the 2 percent of payroll roughly shortfall that we have over the 

future. So, it is not an enormous amount, but significant. 

Mr. BRADY. Well, we have lowered that I think by half as well, 

so we will talk. Thanks, Mr. Chairman. 

Chairman MCCRERY. Thank you, Mr. Brady. Ms. Tubbs Jones? 

Ms. TUBBS JONES. Thank you, Mr. Chairman. Good afternoon, 

Mr. Goss. I am the only Member of this Committee that happens 

to be on the Subcommittees on Select Revenue Measures and Social 

Security and it meant today both are meeting at the same time. So, 

I apologize for coming in late and not having the opportunity to 

hear your testimony. Let me follow up on something my colleague, 

34 

Mr. Brady said. Mr. Brady said that for personal accounts and to 

keep Social Security benefits in place, that we will have to borrow 

or pay out more money, but it is not ‘‘or,’’ it is ‘‘and,’’ to do both 

of these it is going to cost us a lot more money than to do one or 

the other. Is that a fair statement? 

Mr. GOSS. I am sorry? To do both, to provide? 

Ms. TUBBS JONES. To provide money for personal accounts as 

well as to keep the benefits at the level that they are right now 

through 2079-2041. I am sorry. 

Mr. GOSS. It depends really on exactly how you approach this, 

but oftentimes the way we try to characterize it in the memoranda 

that we do for proposals, we try to break down as clearly as we can 

what is really happening with a given proposal. Fairly recently we 

have added a new table to our memoranda. It is Table D as in difference, where we actually try to elaborate upon what happens on 

a year by year basis within a proposal and several aspects. One of 

the aspects is the way in which the proposal actually affects the 

cost of the system and how much the level of benefits that are 

scheduled under current law are changed and—— 

Ms. TUBBS JONES. Mr. Goss, I know you are very good at responding to questions and mine was really simple, that it is going 

to cost us more money to be able to fund personal accounts. 

Mr. GOSS. I apologize. You are right. If what you are talking 

about is to fund personal accounts and in addition have the Social 

Security benefits maintained—— 

Ms. TUBBS JONES. Yes. 

Mr. GOSS. —at the present law scheduled level, there is no question but that that would be fairly expensive. 

Ms. TUBBS JONES. Thank you. Also you talked about Mr. 

Pozen as being the person who assisted the President in proposing 

private accounts, and he is the one that recently said that private 

accounts should not be the first option. Have you heard that that 

is what he said, sir? 

Mr. GOSS. I haven’t heard the exact quote, but I have heard that 

he indicated something along those lines. 

Ms. TUBBS JONES. Great. Let me ask you, as an actuary, you 

factor in race, gender, in terms of length of life, fair statement, 

when you are doing computations as an actuary? 

Mr. GOSS. We do not in our projections explicitly have race specific numbers, but certainly they are inherent in the numbers 

we—— 

Ms. TUBBS JONES. So, are you then the person who would have 

provided information to the President for him to say that AfricanAmericans live shorter lives than other Americans in this country, 

and that therefore it should perhaps be factored in, that the reason 

we want to create a private account is to assure them that they get 

paid more money—more of the money that they pay into Social Security? 

Mr. GOSS. Well, the agency in the Federal Government that actually does the calculations about race-specific mortality is the Bureau of Census, and they actually have those data. No one would 

contest the data that they have. There is no question about that 

African-Americans do have shorter life expectancies. 

35 

Ms. TUBBS JONES. So, do you support the President’s position 

that in order to help African-Americans who have shorter life 

expectancies, that we ought to pay them more out of Social Security? 

Mr. GOSS. That we ought to pay African-Americans more out of 

Social Security? 

Ms. TUBBS JONES. Yes. 

Mr. GOSS. Well, we as actuaries, as you would probably guess, 

do not really support any particular position. We try to do the best 

analysis we can. It is clear that under Social Security or under any 

pension plan where annuities are provide that are the same for everybody who reaches an age, people who live a shorter length of 

time thereafter, whether they be African-American or men versus 

women, will tend not to get as much. One of the features of Social 

Security as we know it today, or course, as a positive, is that also 

survivor benefits and disability benefits are provided, and for those 

groups that tend to have shorter life expectancies and get less from 

the pension, they in general—— 

Ms. TUBBS JONES. That is the argument that I would make, 

but the President makes that argument. So, let us stick with what 

he said. So my statement is, or my question is, wouldn’t it be better 

for our country to cure the reason for early death for African-Americans than to say we are going to provide them a greater benefit 

when they die or when they age? 

Mr. GOSS. I don’t think anybody would question that attempts 

to address differences in mortality across segments of our population would be a wonderful thing. 

Ms. TUBBS JONES. Let me also ask you, Mr. Goss, in the 

course of—strike that. Let me go to another question, Mr. Goss. In 

fact, my time is up. So if we do another round, I will get some more 

time. Thank you very much, Mr. Goss. I appreciate it. Thanks, Mr. 

McCrery. 

Chairman MCCRERY. Thank you, Ms. Tubbs Jones. Mr. Ryan? 

Mr. RYAN. I was going to go one direction, but I want to address 

a couple points that Mr. Becerra and Ms. Tubbs Jones raised about 

the, quote, unquote, ‘‘costs of personal accounts.’’ Is it not true, Mr. 

Goss, that according to the trustees that today we would have to 

put aside $4 trillion in today’s dollars today to maintain scheduled 

benefits for the next 75 years, or in other words, to put it in human 

terms, for my mother, myself, my wife and my children? 

Mr. GOSS. I think that is a basically accurate statement. We 

would have described it a little bit differently and suggest that the 

$4 trillion represents the shortfalls in net we have over the 

next—— 

Mr. RYAN. In net present value terms, which means put it aside 

today and grow it at the prevailing rate? 

Mr. GOSS. That is one option that we could pursue, but another 

way to look at it is really that is the amount that we need to develop in terms of additional revenues over the course of the next 

75 years as a whole. 

Mr. RYAN. Right. If we wanted to just keep current benefits 

going for the next 75 years, we would have to come up with four 

trillion today in present value dollars to fund that? 

36 

Mr. GOSS. Well, we need to come up with sufficient revenue over 

the course of 75 years, not today, but over the course of 75 years 

that in present value would be equivalent to four—— 

Mr. RYAN. Thank you. That is what I am getting at. I forgot the 

table number you used but you have a new measurement called 

total system assets, which is the sum of trust fund assets and the 

personal account assets, and it indicates the total resources set 

aside to pay Social Security benefits. Using this measure of total 

system assets, would it be fair to say that personal accounts either 

drain resources from the system or that they build other programs’ 

assets? 

Mr. GOSS. We developed this sort of concept of total system assets at the time of the President’s Commission on Social Security, 

and this was, as I think you are suggesting, in recognition of the 

fact that plans that would in fact redirect money from the trust 

funds and buildup individual accounts. To the extent that you look 

at these as a single entity, as a total system, you really do have 

to look at the assets that are in both of them on a combined basis. 

We have always made estimates where we have individual accounts or where we have trust funds invested in other than Treasury securities on the basis of both of the expected yield that we 

were talking about before with the 6.4 percent of real return expected on equities, and with a lower yield expected on equities and 

on corporate bonds that would be equivalent to the so-called risk 

adjusted basis. So, we really present both of these. 

If you look at it on the risk adjusted basis, which many economists and finance people believe is an appropriate way to look solely at this, then in fact you see that total system assets really are 

not affected by investing either in individual accounts or in the 

trust funds in anything other than Treasury bonds. 

Mr. RYAN. Using the trustees’ numbers and historic rates of returns in the marketplace? 

Mr. GOSS. Well, using the trustees’ numbers and specifically the 

actuary assumptions of expected yields on equities and on corporate bonds. On an expectation basis we see generally whether 

you invest in the trust funds or in personal accounts, that total system assets are in fact advantaged by investing in private securities 

in all likelihood in the future. 

Mr. RYAN. With the inclusion of personal accounts? 

Mr. GOSS. Absolutely, yes. 

Mr. RYAN. Since time is running fairly quickly, I wanted to ask 

you a question. There is all this confusion or talk about transition 

costs on new borrowing or new debt or new costs incurred to the 

system on top of the problems we have today when you go over to 

personal retirement accounts. Is it not the case that—and obviously 

I can’t speak for every person’s plan—but most plans that you are 

scoring, is it not the case that transition costs or any borrowing 

that might occur is another way of simply taking that long-term 

debt out there, that $11.1 trillion unfunded liability, and paying it 

off on a discounted present value basis if in fact the end result, according to you the actuary, is that the plan achieves permanent solvency. So, is it not replacing the debt that is out there with a 

smaller debt that is paid off in the present time at a lower number? 

37 

Is that not in fact what is achieved when you have a personal account component to your reform that achieves permanent solvency? 

Mr. GOSS. Well, this really depends very much on precisely the 

nature of the plan, as you suggest. If I could take on example, for 

instance, the President’s Commission Model Two, which was a fairly pure example of the way a plan might work. Under President’s 

Commission Model Two, because of the basic changes in Social Security through the price indexing of benefits, that provision alone— 

and it was very clear and the Commission desired to have this 

shown clearly—that that in effect fixed the long-term, in fact even 

if you go that far, the infinite horizon projection. So the actual savings to Social Security as a result of just that change in basic benefit levels would satisfy the entire $4 trillion shortfall. That was 

really over and above that, the roughly $1-$1.2 trillion transition 

investment occurred under the Commission Model Two in order to 

finance the advance funding. 

So, there really were two components under Commission Model 

Two. one was to in effect lower the benefits, to live within the 12.4 

percent payroll tax basically, and that was a reduction of roughly 

$4 trillion over the 75-year period in benefit obligations by lowering 

benefits from what was scheduled; and then in addition, the roughly $1-$1.2 trillion of transition investment in order to create the advance funding for the personal accounts. 

Mr. RYAN. To bring the benefit up for the net—for the addition 

of the traditional benefit and the account and to wipe out the entire contingent liability; is that what you are saying? 

Mr. GOSS. The combination of those definitely did wipe out the 

liability, and there is—— 

Mr. RYAN. I cannot see the light from here so I am going to keep 

asking you a question unless the Chairman shuts me down. I really 

can’t see the light. Is it red? Okay. I guess we are going to do round 

two. 

Mr. LEVIN. We don’t think you see the light in many ways. 

[Laughter.] 

Mr. RYAN. Thanks, Sandy. Appreciate it. I yield. 

Chairman MCCRERY. Thank you, Mr. Ryan. I am going to allow 

another round if anyone wants to stay and ask additional questions, if Mr. Goss can stay. Mr. Shaw? 

Mr. SHAW. Thank you, Mr. Chairman. I want to go back to a 

couple of questions that were asked on the minority side. Mr. Neal 

made the statement that for the President or anybody to say there 

is a crisis in Social Security is like Paul Revere running through 

Boston streets saying the British are coming in 40 years. I would 

like to dissect that statement and look and see exactly what we are 

talking about. Isn’t it true that over the next 12 years we are going 

to experience a shrinking surplus in Social Security? 

Mr. GOSS. That is absolutely correct. Beginning in the year 2009 

we see that the size of the cash flow positives will be starting to 

diminish. 

Mr. SHAW. That means, in just plain language, the Social Security was set up so that the government can use that surplus in 

order to run the government and replace it with Treasury bills. In 

what year do we run out of surplus? 

38 

Mr. GOSS. Well, the year that we project currently under the intermediate assumptions that the positive cash flows will turn into 

negatives is the year 2017. 

Mr. SHAW. So beginning in 2017, the Congress not only will not 

have the surplus in order to help run the government, which is a 

shortfall in revenue to the general fund, but they will also then experience an obligation to start putting cash out in order to take 

care of benefits to recognize its liabilities to tomorrow’s seniors. 

Now, in saying that, I think that what we can really begin to start 

talking about is that there may not be a Social Security crisis out 

there, but there is certainly going to be a funding crisis. The funding crisis is going to be both to the Federal Government in order 

to run the government as well as in order—we are going to have 

to find revenue with which to pay the seniors. 

Now, taking that and moving that forward, Mr. Ryan, being an 

economist, talks in terms of today’s dollars; in terms of today’s dollars, there is going to be a $4 trillion shortfall. Over the next 75 

years, in terms of cash flow, what would be the total cash shortfall 

to Social Security as the outlays, not in terms of today’s dollars but 

in terms of how many dollars we are going to have to find over the 

next 75 years to meet our obligation under Social Security? 

Mr. GOSS. The difficulty with trying to answer exactly that 

question is when we talk about the cash flow shortfalls, these are 

shortfalls that we usually are able to think of in terms of 1 year 

at a time what the cash flow shortfall is. For each year we look at 

what the shortfall is for that year, and the problem in sort of translating across years what those dollars amounts mean. 

Mr. SHAW. Well, I have heard the figure $26 trillion. I think 

that came out of your shop as to the total cash shortfall over the 

next 75 years. 

Mr. GOSS. Well, we have certainly made projections of the annual cash flow shortfalls on a year-by-year basis, and we do show 

them, I believe, in the Trustees Report in nominal dollars. It is certainly easy to translate those into constant dollars on a year-byyear basis. The difficult part is adding them up across different 

years. We feel the most meaningful way, perhaps the only really 

meaningful way to add up the dollars in summation over a number 

of years is to do them in the present value, reflecting the so-called 

time value of money. If you do that, then we can add them up, and 

that is where we come up with the $4 trillion amount. I believe the 

$26 trillion number might be from adding up the constant dollar 

amount, which would be equivalent—— 

Mr. SHAW. Yes, that is what people understand. You have to remember, I am a Certified Public Accountant, he is an economist, 

and we do not agree on much of anything. 

[Laughter.] 

I deal in real figures. He deals in today’s dollars, tomorrow’s dollars, on this hand, on the other hand. So, I think it is very clear 

that we do have a problem. Then I want to go to Ms. Tubbs Jones’ 

comment with regard to it is going to cost a lot to set up these individual accounts. Well, over the next 75 years, it is going to cost a 

lot more not to if we maintain existing benefit levels. Is that not 

correct? 

39 

Mr. GOSS. It depends really on how we develop the individual 

accounts and how we utilize them. 

Mr. SHAW. Let’s take Mr. Ryan’s proposal and my proposal. I 

think you have scored them as actually over 75 years, borrowing 

a lot of money but paying it all back and producing a surplus. Is 

that not correct? 

Mr. GOSS. That is certainly true of your plan. I am not sure that 

is true of all the plans of this sort. 

Mr. SHAW. We will just leave it with mine. We won’t worry 

about Mr. Ryan’s. 

[Laughter.] 

So, the point that I am trying to make is a very real one, that 

actually if we set up individual accounts, no matter whose plan it 

is, that can avoid a financial crisis over a total of 75 years. It is 

going to—we are going to have a shortfall. We are going to have 

to borrow money. We are going to have to put it into these accounts. We are going to have to let these accounts grow. When 

these accounts, as they grow and become available then to the SSA 

to take care of benefits of future retirees, it does and it can very 

well create a surplus, and we can maintain existing benefits. Is 

that not a correct statement? 

Mr. GOSS. I believe that is a fair statement, and we certainly 

see that demonstrated in your proposal. 

Mr. SHAW. I will stop the questions right there. I have got the 

answer that I want. Thank you, Mr. Chairman. 

Mr. RYAN. Will the gentleman yield just for a second? 

Mr. SHAW. I would be glad to yield if the Chairman will allow 

it. 

Chairman MCCRERY. The gentleman’s time has expired, but the 

Chair will briefly yield. 

Mr. RYAN. Just a quick indulgence on our plan. I think the reason why Mr. Goss did not expand on that is if the financing that 

we have in our plan materializes, then no borrowing is necessary 

to finance the accounts in our plan. I think that is why he hesitated in responding. 

Mr. LEVIN. Mr. Chairman, is it my turn? 

Chairman MCCRERY. Yes, sir. Mr. Levin? 

Mr. LEVIN. I don’t think we want to extend this and get you involved in our debate beyond where we should. 

Mr. GOSS. If we can be helpful in any way at all, we are happy 

to do that. 

Mr. LEVIN. Happy to do what? 

Mr. BECERRA. You should take the out while you have it. 

[Laughter.] 

I said inappropriately. You can talk about what is clear under 

your plan is that we borrow now. That is certain. What happens 

75 years from now is uncertain. That is clear. Anybody can set up 

a plan that assumes over 50, 75 years that it will work out and 

that the government will guarantee any difference, either by tax 

increases or budget cuts, which is what you do. I think—and so 

when you ask them to analyze it, they are going to say, sure, if the 

government is going to make up any difference, it will be solvent. 

Right? If we say if projections are off and the government will 

make up the difference, then there is sustainability, right? 

40 

Mr. GOSS. That is correct, much as there is, for instance, for the 

Medicaid Supplemental Medical Insurance plan. 

Mr. LEVIN. The gentleman can say that about anything. Your 

actuarial figures about the impact are all averages. They do not 

talk about the differences for individuals in terms of what they will 

receive through these different plans, right? 

Mr. GOSS. We do in many instances—not in all—provide, when 

requested, also some analysis of benefit levels that would occur for 

individuals at different earnings levels. 

Mr. LEVIN. Okay, but in terms of the impact on where the market was when somebody would retire and the differentials that 

exist according to where the stock market might be, you have not 

analyzed that? 

Mr. GOSS. We actually have. We have not publicized that greatly, but in order to develop estimates, as I know Representative 

Ryan well knows because we have talked about this considerably, 

to develop estimates for the cost of providing a guarantee which 

will provide something for people if, in fact, certain conditions go 

badly, but will not provide anything if things go very well. In order 

to provide that kind of a guarantee, we have to make an estimate 

of sort of the stochastic variation that might occur in account investments. We do that for the purposes of pricing guarantees in all 

plans that we have developed, and that is true for Mr. Johnson’s 

plan, for Mr. Shaw’s plan, and also for Mr. Ryan’s plan. 

Mr. LEVIN. So, if we gave you some figures that indicated a retirement at a certain level of the stock market 20 years from now 

at one point and where it was 9 months later with the kind of drop 

that we saw a few years ago, you can estimate the differential in 

what would be the retirement benefit received by the individual, 

right? 

Mr. GOSS. Well, what we do is we have a need to be able to estimate sort of what the range of possible variations are over time because, as you indicate, there will be times when people in the 40 

year course of their work history will have had a somewhat better 

than average stock market that they have been investing in, and 

there will be other generations that will have a somewhat worse 

than average stock market. We need to reflect those kinds of variations in a plan that will be showing a guarantee so that on the 

cases—in the probabilities where we will have a lower than average stock market or corporate bond yield, that we will know with 

what probability and to what degree will have shortfalls and the 

guarantee would have to come forth and provide the additional 

money. 

Mr. LEVIN. From someplace. 

Mr. GOSS. Well, from the trust funds of Social Security in these 

cases. On plans where we have this kind of a guarantee, what we 

do is we, in effect, estimate what the cost of this guarantee would 

be on almost, in effect, an insurance premium basis that becomes 

part of the cost of the plan. That is true with Mr. Ryan’s plans, Mr. 

Johnson’s plan, and Mr. Shaw’s plan. 

Mr. LEVIN. I think it was Mr. Lewis who talked about 

optionality. One thing is clear, that while under some plans, not 

all, using private accounts would be optional, the benefit cuts that 

have been proposed by the President would apply to everybody, and 

41 

those benefit cuts are not optional. So we need to be careful how 

we use the word ‘‘optionality’’ because the impact would be on everybody. Thanks. 

Chairman MCCRERY. Mr. Ryan? 

Mr. RYAN. Steve, I want to ask you to comment on something 

that I have been reading about lately. Some economists are projecting that future stock market returns are going to be a lot lower 

than they have in the past. I think Paul Krugman uses 4.6 percent; 

Ned Gramlich from the Fed says stocks ought to yield us 4.5 percent. I am sure we can respond to those arguments, but what interests me is both Krugman and Gramlich are saying that if stock returns are lower, then government bond returns will be lower as 

well. I think Krugman says bonds will be 2.1 percent instead of 3. 

Gramlich said they are going to be 1.5 percent instead of 3. Since 

Social Security’s financial status is calculated using the bond rate, 

wouldn’t the lower return on those bonds exacerbate our problems, 

exhaust the trust funds sooner, and accelerate the date at which 

trust fund exhaustion occurs? That is question number one. 

Question number two, have you valued that? Have you measured 

the value and the acceleration of our problems if we had a 2-percent bond rate or a 1.5-percent bond rate, rate of return? So, it 

seems to me that those who are saying stocks are going to do crummy in the future are also saying so will bonds, which will simply 

exacerbate our trust fund problems. Is that not the case? 

Mr. GOSS. That is absolutely the case. In fact, our Trustees Report, annually we have a sensitivity analysis section in it. 

Mr. RYAN. Yes, what does your sensitivity do on bonds? 

Mr. GOSS. Our sensitivity analysis, we have three different levels at which we showing changing only one variable on the interest 

rate for the investments of the trust funds. Our central assumption 

is about a 3 percent real return on long-term Treasury bonds in the 

future. Our low-yield assumption we show at 2.2 percent, which is 

perhaps—— 

Mr. RYAN. Even higher than those two estimates. 

Mr. GOSS. Which is higher than those are, and that would 

change our 1.92 shortfall to a 2.48 shortfall, a little bit more than 

one-half of 1 percent of payroll, or a little bit more than a onefourth increase in the size of the shortfall over the next 75 years. 

Mr. RYAN. So a 25-percent increase in the unfunded liability? 

Mr. GOSS. That is correct. 

Mr. RYAN. One more quick question. Just to try and summarize 

things here, is it not axiomatic that, regardless of a benefit guarantee, the larger the personal account is—with a benefit offset feature, that the larger the personal account is, the sooner the system 

comes into solvency, but also the larger the short-term transition 

costs? Am I simplifying it too much? I am just trying to see if we 

can get a few basic understandings. 

Mr. GOSS. It really depends on exactly how the plan is laid out 

and how the transition investment is, in effect, handled. To the extent that the structure of an individual account plan is set up so 

that after the transition investment is handled, we do have a positive cash flow. In fact, larger accounts will, of course, give a magnified effect in every aspect of both larger transition investment 

but also larger positive effects in the cash flow—— 

42 

Mr. RYAN. So, the larger the account, the sooner individuals outgrow the minimum benefit, wherever that may be set, and the 

sooner the system comes into positive cash flow? 

Mr. GOSS. I believe that the first statement is certainly true. 

The second statement is—— 

Mr. RYAN. It depends on the benefit guarantee. 

Mr. GOSS. It really depends on the nature of the guarantee. 

Mr. RYAN. Okay. Got you. Thank you. 

Chairman MCCRERY. Mr. Becerra? 

Mr. BECERRA. Mr. Goss, let me see if I can try to limit my 

questions to these. On the whole question of solvency and what it 

takes and what happens if you privatize the system, we are talking 

about a shortfall over 75 years, as you have said, in present dollars 

of something around $4 trillion. My understanding is that that 

amounts to about the same as saying about 0.7 percent—or less 

than 1 percent of our GDP. 

Mr. GOSS. It is 0.6 percent over the 75 years as a whole, on average. Mr. BECERRA. Okay. Let’s use the $4 trillion because it is probably a little clearer. A couple trillions of dollars is a lot of money, 

but $4 trillion. My understanding is—and I don’t know if you 

would have done the actual scoring calculations of this because it 

is not within your jurisdiction as the Social Security actuary. My 

understanding is that the President’s tax cuts that he enacted in 

2001 and 2003 and so far is trying to now make permanent because under a nice little scheme, they only were to extend for about 

10 years and end, and now there is an effort to try to make them 

permanent. If you were to extend those tax cuts of 2001 and 2003, 

for that same period of time that we are talking about for Social 

Security, where Social Security has that shortfall of about $4 trillion in present dollar value, that the costs of those tax cuts—because there is a cost. The Treasury is not collecting the money. The 

cost of those tax cuts is at least three times, if not closer to four 

times, what the cost of the shortfall is for Social Security. 

Mr. GOSS. I am not familiar with the magnitudes of these numbers in terms of the present value dollars, but I do know—I have 

heard from a number of sources, including the CBO, that their estimate of the effect of the tax cuts, if made permanent, would be on 

the order of 2 percent of GDP, and with our projected shortfall for 

Social Security unfunded obligations, about 0.6 percent of GDP. 

The 3:1 ratio would appear to be approximately correct. 

Mr. BECERRA. So, if the President had not enacted his tax cuts 

and we had used what were at the time, we were told, surplus dollars instead to try to get ready for the Social Security shortfall 

which is coming in 40 or 50 years, we could have actually still gone 

forward with two-thirds of the tax cuts and still had enough money 

to take care of any insolvency that Social Security would face for 

the next 75 years. 

Mr. GOSS. The possibility of using general fund financing with 

or without the tax cuts is certainly a possibility. Without tax cuts, 

presumably it would be easier if you all decide to pursue that. 

Mr. BECERRA. So, now let’s go back to the question that since 

today we are running a Federal budget deficit and because the 

President in his budget called for using the Social Security surplus 

43 

moneys that we are now collecting and using them to fund things 

like the cost of the tax cuts, we are today spending what amounts 

to about $400 million a day—a day, if I do the calculations correctly of $170 billion annual surplus that is collected for this year 

from Social Security—it translates to about $400 million a day that 

is being spent out of the Social Security Trust Fund to fund things 

that are other than Social Security. If we were to use that money, 

those surplus trust dollars, Social Security Trust Fund dollars, and, 

say, pay down the size of the national debt, wouldn’t we be preparing ourselves better into the future in the 40 years from now 

to be able to deal with the fact that we would need to help Social 

Security meet that shortfall that it has because we would then 

have a smaller debt, and therefore, we would be more capable of 

paying off things like the Social Security shortfall? 

Mr. GOSS. First of all, there is absolutely no question about that 

for Social Security, the moneys that are in the trust fund, regardless of how the actual dollars are handled, will be there and will 

be made good to Social Security. 

Mr. BECERRA. Thank you for pointing that out. 

Mr. GOSS. When we do reach the point at which we do have to 

start having net redemptions of trust fund assets, it has to be either from raising taxes or borrowing from the public or lowering 

other spending. Clearly, if we had less publicly held debt at that 

time, that presumably would make that action easier. 

Mr. BECERRA. So, if folks are so concerned about the fiscal situation of Social Security in 40 years, you would think that they 

would also want to worry about what the fiscal situation is of the 

Federal Government this year when we are running these massive 

deficits that require us to use Social Security Trust Fund dollars 

to help offset the size of the deficit. In fact, even with the use of 

the Social Security Trust Fund dollars to the tune of $170 billion 

or so, we still have a massive Federal budget deficit this year of 

about $425 billion. So, I think Congressman Shaw from Florida 

said it best, I think. He said it is not a Social Security crisis. I 

think he said it is really a funding crisis and where our priorities 

are with regard to funding. 

Final question. Can you name for me a productivity out there in 

the private marketplace which offers you a pension benefit that is 

guaranteed, a disability insurance benefit that is guaranteed, a 

survivor benefit for a spouse or children of a deceased worker that 

is guaranteed, that also offers you a cost-of-living increase every 

year that is guaranteed? Can you find anything out in the marketplace right now, private sector marketplace, that offers you those 

four aspects guaranteed? 

Mr. GOSS. I am not aware of any private offering that exists of 

that sort, no. 

Mr. BECERRA. Thank you very much. 

I yield back, Mr. Chairman. 

Chairman MCCRERY. Mr. Johnson? 

Mr. JOHNSON. Thank you, Mr. Chairman. First of all, Mr. 

Becerra, you know and I know that the cash increase this year is 

higher than ever, and it is because of tax relief. Furthermore, you 

keep talking about the President’s proposal. I would like to ask you 

a question, Mr. Goss. There is a lot being said about the PresiVerDate Aug 31 2005 13:11 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 E:\HR\OC\23917.XXX 23917
44 

dent’s proposal. Has your office ever scored or published an official 

proposal by President Bush? 

Mr. GOSS. The only proposal—the only official scoring that we 

have done for the President’s proposal is just in the limited aspect 

of the individual account that he has put forth through 2015 with 

the offsets. We have done some scoring, as I mentioned earlier, for 

Robert Pozen on a change in the benefit structure, which appears 

to be along the lines of what the President has proposed, but we 

have not yet received specifications particularly on the nature of 

that. 

Mr. JOHNSON. You do not have a President’s proposal. Yes or 

no? 

Mr. GOSS. We do not have a comprehensive plan from the President at this point that we can actually provide a score for. 

Mr. JOHNSON. Thank you. Would you agree the numbers that 

have been circulated are based on significant assumptions, I guess, 

on the part of the authors as to details on what the President’s solvency would include? 

Mr. GOSS. I am not totally familiar with some of the numbers 

that you are referring to. I am aware of some numbers going 

around. I believe in fairness that there is a suggestion—and I have 

heard this from people on the White House staff—that they have 

suggested that the individual account structure would eventually 

move toward having a full 4 percent for everybody. The piece that 

we are missing is exactly on what basis and with what speed you 

would move toward having that. So, we simply do not have sufficient specification at this point to be able to say exactly what the 

Administration’s plan would be. 

Mr. JOHNSON. Right, and you said that the accounts would 

start going negative in 2009. I heard 2008 in your last proposal. 

Is that true? 

Mr. GOSS. I am sorry. You mean—— 

Mr. JOHNSON. When we start not having enough money to 

cover all our expenses out of the trust fund. 

Mr. GOSS. Well, it is 2009 is the first year under our 2005 

Trustees Report. That is the first year in which we will start to actually see the size of these annual cash flow positives that we have 

now will actually start to diminish. They will still be positive for 

a while. They will be positive through 2016. 

Mr. JOHNSON. It diminishes. 

Mr. GOSS. They start diminishing in two—— 

Mr. JOHNSON. So, the dollars, which are not real, have to come 

from somewhere to cover our budget concerns here in the Congress, 

and somebody is going to suffer. We are going to have find money 

to fund agriculture, education, those kinds of things. Is that true? 

That is where that money is going now. 

Mr. GOSS. Well, that is where basically the money from any investments, in effect, that the Social Security trust funds are making in the Treasury, much as if any of us were to buy a U.S. savings bond also, those dollars arguably would be used for similar 

purposes. It is a fair point to make that the money is not quite the 

same as if it were going into private securities. On the other hand, 

though, I think it is also a fair point that the money is not terribly 

45 

different from investments that would be made by individuals in 

savings bonds. 

Mr. JOHNSON. No, but we are being squeezed—is that true? 

Starting in 2009. 

Mr. GOSS. Well, certainly the contribution that Social Security 

taxes are making over and above the cost of that program will be 

diminishing starting in 2009, and then we will turn over toward it 

being a draw, in effect, from the general fund of the Treasury starting in 2017. 

Mr. JOHNSON. Thank you. Thank you, Mr. Chairman. 

Chairman MCCRERY. Thank you, Mr. Johnson. Ms. Tubbs 

Jones, did you want to ask another question or two? 

Ms. TUBBS JONES. I would love to. Thank you. Earlier in this 

process, I think it was my colleague Mr. Ryan who was asking you 

something about total system assets as the way in which you determine that private accounts could support—or not create insolvency. 

Was that what you were saying, sir? 

Mr. GOSS. No—— 

Ms. TUBBS JONES. A term you were using, what—— 

Mr. GOSS. Total system assets per se in the context of including 

assets in individual accounts do not per se speak to solvency of Social Security. What they really speak to is sort of a different issue, 

and that is that if you have the Social Security trust funds and you 

have some money, in effect, redirected from the trust funds to individual accounts, it is true that the trust funds then are diminished. 

Moreover, if the money leaves the trust funds and goes to individual accounts outside of the government, in fact, that is actually 

scored as an expenditure from a budget point of view. The reason 

for considering the concept of total system assets is to say that that 

money is, of course, not lost to the world. That money has gone out 

there and goes into the individual accounts. As long as the individual accounts are preserved and are maintained, then those assets continue to accrue in—— 

Ms. TUBBS JONES. So before we started mucking around with 

trying to create a private account, ‘‘total system assets’’ was not a 

term that we talked about in Social Security. 

Mr. GOSS. That is correct. 

Ms. TUBBS JONES. A new term also, since we decided to start 

working this, is ‘‘progressive indexing’’ instead of ‘‘wage indexing’’ 

and ‘‘price indexing,’’ right? Let me ask you one more question— 

I have two more questions, actually. You were talking about—actually, that was still total system asset. Let’s forget that. Let me go 

to this one. Okay. I understand you have not prepared an analysis 

of the President’s plan because, quote-unquote, the Administration 

does not have a full plan, they keep throwing us little chit-chats 

here and there, private accounts, possibly raising this, that, and 

the other. In spite of you not having a President’s plan, have you 

ever—you not having the President’s plan, are you familiar with an 

analysis that was done by Jason Furman of the Center on Budget 

and Policy Priorities? 

Mr. GOSS. I briefly saw that. I am not sure which analysis you 

are referring to, but I believe he has done an analysis in the last 

few days. 

46 

Ms. TUBBS JONES. It is called ‘‘The Impact of the President’s 

Proposal on Social Security Solvency in the Budget.’’ 

Mr. GOSS. I am aware of that. I have not had the opportunity 

to look at it with any care. Unfortunately, we have been fairly 

busy. 

Ms. TUBBS JONES. Okay. 

Mr. GOSS. Looking at his analysis—— 

Ms. TUBBS JONES. So, somebody believes the President has a 

plan. At least Mr. Furman, Dr. Furman does, because he has done 

an analysis of the President’s plan. 

Mr. GOSS. Well, if he has specifics on the plan that the White 

House has shared with him but not us, we would certainly be very 

interested in knowing what those are. I think there is a possibility 

that he has perhaps inferred some things about it. 

Ms. TUBBS JONES. I mean, there is a real possibility, it is not 

unlikely that the President might have shown the plan to some 

other part of government and not shown it to you. 

Mr. GOSS. Oh, I think that is certainly possible. 

Ms. TUBBS JONES. It is likely, too, isn’t it? 

Mr. GOSS. Pardon? 

Ms. TUBBS JONES. It is likely? 

Mr. GOSS. No, I don’t think so. 

Ms. TUBBS JONES. You don’t think it is likely? 

Mr. GOSS. No, I don’t—— 

Ms. TUBBS JONES. Well, let me ask you this—— 

Mr. GOSS. —think it is likely that he shared with Jason 

Furman—— 

Ms. TUBBS JONES. —has Dr. Furman consulted with your office to determine what assumptions you used about various elements of Social Security reform proposals? 

Mr. GOSS. He has certainly been in touch with us in the context 

of the last Administration and since then about aspects, for example, the return that we assume as our expected yield on equities 

and on government bonds. Also, he has asked questions about what 

our assumptions are regarding participation rates for individual accounts. 

Ms. TUBBS JONES. Since Dr. Furman is not an actuary, it is 

likely that he consulted with you so he would be able to do an appropriate analysis in order to give some or shed some light on the 

circumstances of private accounts? 

Mr. GOSS. Well, I wish I could, but I cannot really speak to Dr. 

Furman’s analysis. I am sure that he has done his best effort to 

do a very credible analysis, but unless he has more specification 

than we do, he would not be able to do a definitive analysis of the 

President’s plan. 

Ms. TUBBS JONES. So, you are not the only actuary. You are 

the actuary, but there are other people that work under you. Is 

that a fair statement? 

Mr. GOSS. That is true. We have an office of 50 people. 

Ms. TUBBS JONES. So it is possible that Dr. Furman has talked 

with some of the other actuaries in your shop to assure that his 

analysis is coming close to whatever the proposal is on the table. 

47 

Mr. GOSS. Well, it would be very, very difficult for him to compare that to our analysis of a plan for the President because we 

have not made an estimate of a specific plan for the President. 

Ms. TUBBS JONES. You have done actuarial computations. You 

do actuarial computations on things that are not called the President’s plan. Fair? 

Mr. GOSS. Oh, absolutely. 

Ms. TUBBS JONES. Okay. 

Mr. GOSS. We do estimates for many Members of Congress and 

the Administration on a number of—on a wide variety of possibilities. 

Ms. TUBBS JONES. Thank you, Mr. Chairman. I yield back the 

balance of my time. 

Chairman MCCRERY. Mr. Pomeroy? 

Mr. POMEROY. Thanks, Mr. Chairman. Much of the discussion 

on the reform proposals is macroeconomics. We take a look at the 

economics of the system, the economics of the Federal Government, 

how this all works in the macro, macro view. One of the things I 

think we need to worry about as Members of Congress is the microeconomic. What does this mean to the household? What do we need 

to have in a system that adequately supports the household given 

changes occurring in longevity and such? I don’t know to what extent this micro analysis involves the actuarial office, but I will just 

pose a couple of things for you. 

Longevity rates are increasing. People are living longer. Do you 

have any data on that? 

Mr. GOSS. We absolutely do. We monitor the data on declining 

death rates and increasing longevity on an annual basis. In fact, 

at the Social Security Administration we have access to what is undoubtedly the very best quality data available in the country for 

mortality rates, a combination of Social Security and Medicare 

data, and we tabulate these every single year based on the latest 

experience. The Bureau of Census and, in fact, the U.S. Life Tables 

even make use of the data that we are able to develop for ages 65 

and over. 

Mr. POMEROY. For your actuarial assumption, is it your expectation longevity rates—people will continue to live longer than 

present life expectancies? 

Mr. GOSS. Absolutely, yes. 

Mr. POMEROY. I don’t know to what extent your office accumulates data on people saving for retirement years or having pensions 

or defined contribution plans or private savings that give them an 

income stream in addition to Social Security for those longer years 

of life expectancy. Do you have any information on this? 

Mr. GOSS. We have not in the Office of the Actuary done a lot 

of work in the area of amassing information for additional sources 

of income. We do some of that in the area of analysis we do for benefits under the Supplemental Security Income plan, the SSI plan. 

There is another office at Social Security that does a lot of distributional analysis where they very specifically developed models to 

look at the overall aspects of income that individuals have. 

The principal area where we have to worry for the Social Security system about other assets and income that individuals have is 

when they receive benefits to determine the extent to which taxVerDate Aug 31 2005 13:11 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00051 Fmt 6633 Sfmt 6602 E:\HR\OC\23917.XXX 23917
48 

ation of benefits will have an effect on the benefit levels they receive and the revenue that they pay. 

Mr. POMEROY. Do you believe—— 

Mr. GOSS. We receive—— 

Mr. POMEROY. Do you believe system design changes need to 

carefully evaluate what else is going on relative to sources of retirement income to the individual so that you have a complementing 

response? In other words, if there are growing problems in the private side, you don’t compound those problems with changes made 

to the Social Security design. 

Mr. GOSS. I think that is an absolutely positive statement, Representative Pomeroy, and the way we have always operated in 

dealing with Members of Congress is we always seek to try to help 

to develop plans that would meet the objectives and the goals that 

the Member states. I think that is a very good goal. 

Mr. POMEROY. We heard testimony from Dallas Salisbury last 

week, the head of the Employee Benefits Research Institute, an individual known to you, I am sure. 

Mr. GOSS. Yes. 

Mr. POMEROY. He said the risk of living to—how did he say 

this? The risk of income through retirement years is increasingly 

falling on the individual, and I think he was speaking about the 

shift from pensions with their guaranteed annuity payment to the 

individual and the nest egg approach and trying to match that. 

One thing I am very concerned about as we are talking about these 

design changes, they seem to me to make the risk that an individual might outlive an asset stream greater. To me it seems like 

the defined benefit model of the existing Social Security, with its 

monthly paid annuity, inflation adjusted, a payment you cannot 

outlive—it will be there as long as you live, rather, is a design that 

works very well in terms of helping people deal with the risk of 

outliving their assets. Would you agree? 

Mr. GOSS. Absolutely, and that is why we believe that virtually 

every plan we have seen, whether it be maintaining for Social Security essentially the defined benefit nature or moving at least partially in the direction of individual accounts, have generally incorporated at least some aspect of annuitization so that there would 

be a lifetime guaranteed benefit going forward, once you determine 

at retirement how much you have to work with. 

Mr. POMEROY. I am out of time, but I think that that is—I 

mean, I am glad there is consensus on annuitization. I think we 

do not have consensus on what is an adequate annuity to sustain 

independent living, and that is really the crux of it, not just getting 

the income every month but making certain they can live independently on that. I thank you and yield back to the Chair. 

Chairman MCCRERY. Mr. Goss, I am just going to ask you a 

couple simple questions here that you can dispense with quickly, 

and then be on your way. We have not talked about people who 

were the subject of our last Subcommittee hearing, and that is, vulnerable populations—survivors, widows, disability recipients, and 

so forth. I know that some of the plans that you have looked at and 

scored treat those vulnerable populations in a way different from 

the way they treat the retiree population. Can you describe how 

49 

some of these solvency proposals that have been presented to your 

office treat these populations within Social Security? 

Mr. GOSS. Absolutely. Very many of the plans—not all of them, 

but very many of the plans treat disabled workers and also young 

survivors—that is, survivors, generally speaking, of workers who 

died when they were pre-retirement—treats those two groups really differently from the retirees, as you suggest. The way in which 

many of the proposals would treat them differently is to say that 

even if there would be reductions in the basic benefit level through 

price indexing or progressive indexing or other measures, that, in 

fact, those reductions may not apply in certain proposals to the disabled worker beneficiaries or to the young survivor beneficiaries. 

Depending on the nature of the plan in the case of disabled worker beneficiaries, the reductions that do not apply while they are receiving disability benefits may then apply on a partial basis once 

they reach retirement, and generally the partial application of 

these reductions is designed to, in effect, match up with a proportion of their working years in which they were not disabled and, 

therefore, would have been able to save money either on their own 

or within a personal account. 

Chairman MCCRERY. You are able to score these provisions? 

Mr. GOSS. Yes. Yes, we are. 

Chairman MCCRERY. One last question. We have talked about 

how people are living longer in this country, and that is one of the 

demographic factors that is contributing to the problem with Social 

Security. There is a proposal called longevity indexing that some 

have spoken about. Would you explain how that would work, how 

longevity indexing would work? Would that help solve the longterm problem of Social Security? 

Mr. GOSS. Thank you for that wonderful question. First of all, 

let me just mention very quickly that I was really more than a little bit too much glib in suggesting that birth rates or fertility are 

the really big issue in terms of the cost of Social Security in the 

future. It is true that the shift in our cost rates from the relatively 

low level we have now below our 12.4 percent tax rate over the period from 2010 to 2030 up to the higher level that is higher than 

our present law scheduled tax rates is largely because of the 

change in fertility that we had some 30 years ago. However, if you 

look at that cost rate, you see that it does tend to very gradually 

grow even beyond 2030, and that is the other component from increasing longevity that we have going into the future. 

There are a number of ways in which to address that, and one 

of the ways that we have looked at over the years very, very, significantly is to have a kind of longevity indexing that would explicitly address in the currently financed system changes in either the 

retirement age or in the benefit formula that would be just sufficient to, in effect, immunize the Social Security system from increasing longevity. As it turns out based on our current intermediate projections of the improvement in mortality in the future, 

we would end up with changes that would be roughly equivalent 

to increasing the retirement age, the normal retirement age, by 

about 1 month every 2 years; or, in other words, if we were to do 

that in the form of a change in the benefit formula, that would be 

50 

equivalent to reducing the level of benefits below a pure wage-indexed basis by about 0.3of 1 percent per year into the future. 

These are essentially equivalent in terms of indexing the system 

so that you could maintain a given level of replacement rate but 

for the 0.3 reduction with the same 12.4 percent tax rate over time. 

By doing it, however, from the very gradual increase in the retirement age, you would be doing it in a way where the replacement 

rates at the normal retirement age could be exactly maintained 

with a 12.4-percent tax rate. You would simply be saying that as 

people live longer—this mechanism would say that as people live 

longer in their adult life expectancy, that we would keep the same 

ratio of retirement years to working years and keep that in the 

same relationship. Right now we have about two working years, on 

average, between 20 and 60 for every 1 year of retirement because 

life expectancy is about 20 years out of retirement. So, if we were 

to maintain that ratio and change the normal retirement age fast 

enough to maintain that, we would, in effect, immunize the system 

from changes in longevity alone, and that would be equivalent to 

changing the benefit formula by about 0.3 of one percent per year 

in the future or the retirement age by about 1.5 months per year. 

Now, if I may just very quickly, there are several other forms of 

longevity indexing that are available. Most of them would have 

larger effects. We had for the Model three of the President’s Commission proposal another sort of version of longevity indexing, 

which is really sort of a different flavor. It is substantially different. Rather than keeping the sort of relationship between retirement years and working year in sync with each other, it would instead say that as people live longer and longer in their adult life 

expectancy, all of those additional years of life expectancy should 

go into work years, and, therefore, we should maintain the expected number of retirement years as a constant in the future. This 

is just a policy determination that would have to be made. 

Obviously, by doing that, but keeping the same amount of life expectancy in retirement in the future and having additional years 

of life expectancy go into working years, this would save more 

money from Social Security, and it would be equivalent to raising 

the retirement age at a faster rate. In terms of reduction in the 

benefit formula to have an equivalent effect, rather than 0.3 of 1 

percent per year reduction in benefits across generations, this 

would be equivalent to a reduction of about 0.5 of 1 percent. 

Chairman MCCRERY. Thank you. 

Mr. LEVIN. Mr. Chairman, we want to finish. I just hope as we 

deal with these numbers, we realize the impact on individuals. I 

don’t mean—I have had the privilege of working with actuaries for 

many, many years, and you are a splendid example. Let’s remember when we talk about these things what the impact is on individuals. Also, let me say in response to Mr. McCrery’s question about 

plans and survivor benefits and also disability benefits, for example, Mr. Pozen in his plan would not safeguard either survivors or 

disabled people from these benefit cuts. I think that is true of his 

plan. 

Mr. GOSS. That is exactly through in the formulation that he 

put forth. 

51 

Mr. LEVIN. Okay. The same was true of the second model of the 

Commission. 

Mr. GOSS. That is also true. 

Mr. LEVIN. So, when the President said nice things about the 

Pozen plan, let’s remember what was in it. Later statements about 

disabled people, persons, let’s remember that if you safeguard 

them, you put a squeeze right on Social Security benefits for other 

people. 

Mr. GOSS. Well, certainly the Pozen provision will save less 

money if, in fact, we safeguard the disabled. It is our understanding, though, that the President has suggested that the way 

that he would apply the Pozen provision would safeguard the disabled beneficiaries, at least until retirement. 

Mr. LEVIN. Not the survivors. 

Mr. GOSS. The survivors, our presumption is that that would be 

the case with the young survivors also. 

Mr. LEVIN. Why do you presume that when Mr. Hubbard said 

that was not true? 

Mr. GOSS. Well, obviously we should not—if Mr. Hubbard said 

that was not true, then we should not assume that, obviously. This 

is just part of the lack of clarity on the precise specification of the 

plan. 

Mr. LEVIN. Also remember, I think—and I will finish—when we 

talk about other plans safeguarding, essentially it is in part because they are constructed so that if there is any shortfalls in the 

private accounts, as they impact on what would be a guaranteed 

benefit, the Treasury would pick up the difference. We can do that 

with any kind of plan. All right. Thanks. This has been a useful 

hearing. Thank you, Mr. Chairman. 

Chairman MCCRERY. Thank you, Mr. Levin. I would just say to 

the Ranking Member that I appreciate the President being out 

front on this issue and making the case for reform of Social Security, which I think he has done. When it comes to specifics of putting together a plan to reform Social Security and achieving what 

I hope to be sustainable solvency in the system, the details are up 

to the legislative branch of government, and that is us, and that 

is why we are having these hearings. So, while it is, of some use 

to speculate as to what the President might be for or might not be 

for, really, it is up to us. My view is that the vast majority of Members of this Committee want to do something to preserve disability 

benefits and survivor benefits in some form or fashion. So, I suggest we move forward and talk about how we do that and how we 

structure a plan to achieve that, and that would be most productive. 

Mr. LEVIN. I hope we will do that. When the President says private accounts must be in a plan and we say they must not be, 

there is a basic difference, and the President has not been vague 

about that. 

Chairman MCCRERY. It is likely we are going to have differences, even on this Subcommittee. 

Mr. LEVIN. That is a big difference. 

Chairman MCCRERY. At some point we have to vote, and if you 

cannot vote for the whole plan, then that is fine. I would welcome 

your participation in whatever part of the plan you would like to 

52 

participate in, in terms of structuring a solution. Perhaps you cannot be terribly constructive when it comes to the personal account 

section of the bill, but maybe the other parts you can be. So, I 

would welcome that. I would also encourage you at some point to 

sit down and talk about personal accounts and how they might be 

structured to solve some of your objections to what you perceive to 

be some Republican plan out there for personal accounts, which we 

have not yet formulated. 

Mr. LEVIN. Okay. There is just a lot on the table. 

Chairman MCCRERY. Great. I got it. Okay. He said, ‘‘Okay.’’ We 

are going to talk. 

[Laughter.] 

Thank you. This has been a great hearing. Thank you, Mr. Goss. 

Mr. GOSS. Thank you very much. 

[Whereupon, at 4:22 p.m., the hearing was adjourned.] 

[Submissions for the record follow:] 

Statement of Donald L. Anderson, Harpswell, Maine 

Stealing My Social Security 

For years I received notices from Social Security that I would receive a certain 

pension amount from SS. I used this info in my retirement planning. 

About three years before I retired, I learned at a state retirement seminar that 

that was not true. Not true if I were to receive a state pension. I was told SS would 

reduce my SS amount by about 60%. Of course, I learned nothing about this from 

SS! 

Because of this shortfall, I continued working past my 65th birthday, though that 

was not my original plan. When I turned 65, I applied to start my SS pension and 

got the small amount of about $407/month. 

I am now retired. SS has reduced my monthly payment by 56% because I am 

‘‘double-dipping’’—their word. 

My word—STEALING. I earned that money. If I had a pension from a private 

employer, SS wouldn’t reduce my SS pension. As I said, I was depending on that 

money for my retirement. I find it difficult to pay my bills without that money. 

This is most unfair. It angers me. The government is reducing my pension so it 

has money to give to the top 5% for tax cuts. Or to fund that illegal Iraqi war. 

SS is a safety net for tens of millions. By subjecting me to the unfair GPO/WEP 

provisions, Congress has cut a hole in my safety net. 

I expect Congress to quickly repeal the GPO/WEP provisions. 

f 

Statement of Janet Marie Bessler, Medina, Ohio 

I have been retired for 10 years and in that time, I have been cheated out of about 

$60,000.00 because of the Government Pension Offset. Can you tell me how anyone 

can feel that this is fair? Boy, what I could do with that money. Maybe I could maintain my comfortable, independent life style, even after I lose my husband if I should. 

That is a lot of money and how dare someone decide that those of us in Ohio should 

not be allowed to double dip! My friend in Iowa can. She gets her teacher’s pension 

and full Social Security. My husband, if I pre decease him, will get my full pension 

because he did not earn it. But, if he goes first, I will again be subjected to the Government Pension Offset and I will get over $200.00 less then him. I want so much 

to be able to maintain our lifestyle, not be financially dependent on anyone and stay 

in our little house here on Heather Lane. Please help me do that. Please do all that 

you possibly can to repeal the Government Pension Offset. It is stealing from me 

and many people just like me and just has to be corrected. I don’t care if it can’t 

be made retroactive. Just start right now letting us have what is ours. That is the 

only fair thing to do. We are at your mercy and should not be. Do the humane thing 

and correct this horrible mistake made years ago and make it right with us. It is 

really getting harder and harder to name priorities. I went to the dentist yesterday 

and it cost me $164.00. I don’t have dental coverage—don’t feel that I can afford 

53 

it. But, give me what is rightfully mine and what will I do? I will spend it to maintain my life and help the economy at the same time. 

Thank you so much and please do what you know in your hearts is the right thing 

to do. 

f 

Statement of George Avak, California Retired Teachers Association, 

Sacramento, California 

Chairman Thomas and members of the Committee, my name is George Avak and 

I am president of the California Retired Teachers Association. We are a non-profit 

organization with 53,000 members, and we represent the interests of the 170,000 

retirees who receive a pension from the California State Teachers Retirement System (CalSTRS). I want to thank you for convening these hearings on alternatives 

to strengthening Social Security, America’s fundamental safety net for retirees. 

We believe that a basic premise of strengthening Social Security is to keep faith 

with its promise of ensuring that older Americans do not fall into poverty at the 

end of their working lives. 

The CalSTRS system is not integrated with Social Security, so many of our members are victims of the Windfall Elimination Provision and the Government Pension 

Offset. These two penalties remove that financial safety net and we find our members suffering from unexpected income losses late in life. Many women are plunged 

into poverty when their husbands die and they are denied any survivor’s benefits 

from Social Security due to the Government Pension Offset. Other teachers find 

their summer work, when they typically paid into Social Security in order to support 

their families during the school-year break, is discounted in retirement when they 

receive thousands of dollars less than they would have if they had not been teachers. 

The underlying assumption seems to be that teachers have their own pension and 

that should protect them from poverty. The sad truth is otherwise. CalSTRS conducted analyses in 1998 and 2005 on the adequacy of the pension benefit they provide, and in both instances found many lagging behind the amount of income they 

need to maintain an adequate lifestyle in retirement. Even with long years of teaching service, California educators who retired before 1998 were only able to replace 

about 58 percent of their income—far below what experts consider to be adequate. 

The typical female retiree receives less than $2,000 a month from her teacher’s pension, hardly sufficient in a high-cost state like California. Unlike Social Security, 

which provides full cost-of-living increases annually, teachers’ pensions in California 

are only protected at 80 percent of their original purchasing power. 

In addition, many of our members only found out about the WEP and GPO when 

they filed for their benefits. By then, it was too late to make alternative financial 

plans to ensure a secure retirement. Worse, many others mistakenly receive benefits 

for years and then are forced to pay back all money received—in one instance more 

than $40,000. In most instances, these people relied in good faith on estimates of 

benefits provided by the Social Security Administration itself. The Social Security 

Administration itself has admitted that it overpays upwards of $335 million a year 

in mistaken benefits. If Social Security doesn’t know who is affected by these penalties, how can we expect that those subject to them will understand them? 

Beyond the policy itself, you have to understand the personal financial suffering 

many people have endured because of these penalties. We have collected many, 

many such stories from our members and I want to share some of those with you 

today. 

Ruth Benjamin of San Diego had planned on Social Security payments of approximately $800 per month when she retired, because that is what the Social Security 

Administration told her to expect. Instead, due to the GPO, she receives only $216 

per month plus a teacher’s pension of about $700 per month. Her husband is a retired New York City Police Department officer, who receives a police pension of approximately $1,500 per month plus a Social Security benefit of $1,000 per month. 

In their retirement planning, they opted to take a higher police pension without survivor’s benefits because they believed Ruth would be adequately provided for with 

her teacher’s pension and Social Security. Now, if she becomes a widow, she will 

have to survive on income of less than $1,000 per month due to these penalties. 

Wanda Moore of Fresno was married for 38 years to her husband, a barber. He 

paid into Social Security for 40 years and died before collecting any benefit. She was 

initially told she would receive a survivor’s benefit of $496 per month from Social 

54 

Security before that payment was eliminated under the GPO because of her teacher’s pension. 

Carol Huntsman of San Diego began her teaching career at age 36 and was only 

able to teach for 20 years before retiring in 1996 with a monthly pension of $700. 

The twenty previous years she had worked in Social Security-covered employment 

was reduced in value by 60 percent, or $223 per month under the WEP. Fortunately 

in 2000 her teachers’ pension was increased under a law that provided minimum 

pensions to teachers with 20 years or more of service. 

Georgia Beno of Santa Ana taught for 32 years before she retired in 1989. She 

receives a pension of about $2,100 a month now. But she lost $900 a month income 

from Social Security when her husband died in 1999 and she was told she was ineligible for a survivor’s benefit. Since then, her health insurance and rent and other 

expenses continue to increase. She hasn’t taken a vacation in four years, digs into 

her savings each month to meet expenses and still has to rely on her family to help 

pay her bills. 

Claire M. Koronkiewicz of Palm Springs taught for 30 years in California before 

retiring in 1986. Today she receives a teacher’s pension of about $1,800 per month, 

after taxes. Her husband, a Purple Heart veteran of General Patton’s 3rd Army, had 

a modest income as a worker in the floral industry in Los Angeles for 30 years. He 

died at age 65 after receiving three years of Social Security benefits. Claire was told 

she was eligible for $374 per month in survivor’s benefits—before that was eliminated under the GPO. Since then, she has had to sell her home because it was too 

expensive to maintain and has dipped into her savings earlier than planned to meet 

her living expenses. 

Marylyn McInnes of Visalia taught for 31 years before retiring in 1998. Her husband owned his own carpet cleaning business for 15 years and, as a self-employed 

individual, paid both the employee and employer shares of the Social Security tax. 

He received Social Security for 2 years before he died. When Marylyn applied for 

her widow’s benefit, she was told she did not qualify because of her teacher’s pension and she lost $400 a month in income. 

Elbert Bade of San Diego had a 20-year career in the U.S. Air Force. When he 

retired from the Air Force, he had a choice of a second career as a teacher or in 

the aerospace industry. Unaware of the GPO and WEP, he figured his future retirement income—assuming money from a teacher’s pension and Social Security—and 

determined that he could afford to become a teacher. He taught for 23 years and 

retired in 1997. When he applied for Social Security, he was informed of the penalties and saw his retirement income reduced by $8,400 a year. ‘‘Teaching’s a great 

career and very satisfying but no one tells you they’re going to jerk your Social Security because you were a teacher,’’ he told us. 

What all of these people have in common is that they worked hard at public service jobs all of their lives. They raised families and took care of themselves. They 

recognized they wouldn’t receive a full Social Security benefit, but they believed 

they would receive what they had earned and been promised. 

There is yet another unintended consequence of these penalties. California, like 

many states, faces severe teacher shortages in the years ahead—an estimated 

100,000 new teachers will be needed in the next 10 years just to replace retirees; 

more will be needed to accommodate our growing population. Many of our best 

teachers come from other professions. Typically they are unaware that they are giving up significant Social Security benefits in retirement to make a switch to public 

service, often at a lower salary than they were receiving from their first career. An 

estimated 50,000 current teachers fit this profile, and will retire with 20 years of 

less teaching service. That means a substantially smaller teachers’ pension and a 

significant loss of Social Security income. They willingly make the sacrifice in salary 

during their working life; they are forced to sacrifice in retirement. 

We recognize that there are financial challenges facing Social Security, if not a 

crisis. We appreciate, however, that growing numbers of Congressional Representatives understand that these penalties have not had the intended effect, that they 

penalize hard-working people of modest means. I would note that 251 Congressional 

Representatives have already signed on to HR 147, which would repeal these penalties. Any reform of the Social Security system must restore its foundation in fairness. On behalf of the California Retired Teachers Association, I would say that you 

can do no less. 

Thank you. 

f 

55 

Statement of Joyce R. Elia, Mission Viejo, California 

As the Committee reviews the multitude of issues associated with Social Security, 

I ask members to consider correcting a ‘‘fix’’ that was initiated in 1983, and, to also 

not make similar mistakes this time around (such as privatization which will line 

the pockets of Wall Street and cost billions of dollars to implement). Congress has 

made the same mistake as many corporations recently in the news—they have 

‘‘spent’’ the hard-earned pension funds of workers during the stock market’s heyday 

and have now been ‘‘caught short’’. Workers in this country have had enough of the 

corporate greed and fiscal irresponsibility of government. We are tired of ‘‘paying’’ 

for everyone’s mistakes, while the corporate CEOs continue to live the ‘‘good life’’ 

with no understanding, and with a complete lack of conscience, of how the ‘‘real’’ 

people in this country live. 

The private sector continues to follow the government’s lead in cheating employees out of their retirement benefits (United Airlines, possibly General Motors, to 

name a few), with the government’s blessing. At the same time, like Congress, the 

retirements for the ‘‘chosen few’’ are preserved. The hardworking, tax-paying individuals of this country deserve better and we expect you to act responsibly. President Bush espouses a Christian ethic. There is absolutely nothing ‘‘Christian’’ about 

defrauding American workers with high taxes and erosion of their pensions. 

As a current government (court) employee and former private sector employee, I 

am seeking your support of HR 147, ‘‘Social Security Fairness Act,’’ to eliminate the 

Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) to Social Security. This legislation was enacted in 1983, during a period when Congress 

was looking for ways to reduce the cost of Social Security. Their decision to place 

that burden on the backs of government workers and teachers has created a fraudulent and discriminatory solution which wrecks financial havoc on the lives of affected individuals. 

The GPO and WEP will greatly affect mine and millions of other Americans’ ability to collect the full Social Security benefits that they have earned and to which 

they are entitled. This is a non-partisan issue that transcends politics and affects 

voters of all parties. 

Three years ago, a co-worker returned from her ‘‘retirement planning session’’ 

crestfallen to learn that the small pension which she had earned working for the 

Orange County Superior Court was going to dramatically impact the receipt of her 

earned (as well as her ability to collect her husband’s earned) social security benefits. Her situation will become worse, should her spouse predecease her. She will 

not be eligible for any spousal benefits, which he worked a lifetime to earn in his 

effort to provide for his wife. At the time, I was totally unaware of these two laws 

and their impacts. I had worked in the private sector for many years before ‘‘retiring’’ to raise a family. 

When I returned to the workforce in 1994, to work as a Senior Administrative 

Assistant to the CEO of the South Orange County Municipal Court (unified to Superior Court in 1998), I was not informed by the County/Court that paying into the 

County retirement system would negatively impact my ability to collect mine and/ 

or my husband’s hard-earned Social Security benefits. The County retirement plan 

is predominantly self-funded by employees, with only a small portion of the contribution coming from LOCAL (not Federal) taxes. I erroneously assumed that any 

pension I earned would supplement my earned Social Security benefits. These laws 

force me to either leave my job, friends and an important part of my life prior to 

ten years of service (vesting) or relinquish my own and my spousal rights to Social 

Security. It punishes me for doing what the government told me to do—plan for the 

future. (I would have been better off staying at home and letting the government 

subsidize me.) The outcome is discriminatory and dishonest, as well as disheartening, to a loyal hard-working employee. 

The laws are arbitrary and selective—being particularly discriminatory to women. 

Women receive only half the average pension benefits received by men and these 

laws further reduce that small sum. 

Please preserve teachers’ and government workers’ retirement benefits that they 

have paid for and deserve by passing HR147, which will repeal legislation which in 

actuality is ‘‘legalized fraud,’’ (i.e., the government has taken, or in many cases, 

continues to take monies via social security taxation, which it has no intention of 

returning by way of future benefits). Numerous teachers and public workers (many 

of whom are single Moms), have part-time employment to make ends meet. From 

those private-sector checks, social security is being deducted—when under current 

laws, that money will never be returned. If private companies acted in such a manner, they would be charged with FRAUD. 

I have included a briefing paper which expands on the legislation’s impacts. 

56 

I urge Congress’ support and passage of this important legislation. I also urge 

Congress to look into other areas for savings: reduction/restructuring of Congressional retirement benefits; reduction in foreign national benefits, fairer taxation, to 

name but a few. 

I do not support private accounts OR melding government/teacher pensions into 

Social Security. This practice would place yet another undue burden on this class 

of individuals. Their pensions should be treated in the same manner as private sector retirement plans—separate and apart from Social Security. 

Additionally, Congress makes it increasingly difficult for individuals and families 

to save for their retirement, especially when the interest on SAVINGS accounts are 

taxed. 

BRIEFING PAPER RE HR 147 and S 619 

SOCIAL SECURITY FAIRNESS ACT 

On December 16, 1773, early settlers to this country staged a Tea Party in Boston 

to demonstrate their unwillingness to be unfairly taxed. It was a fairly small protest. 232 years later, a much larger group of American voters (public workers and 

teachers, active and retired) wishes to clearly and emphatically send a message to 

the President and Congress, that THEY are unwilling to continue to be unfairly 

taxed. 

MYTH #1: The myth is that this is unearned ‘‘double dipping’’. 

TRUTH: The Windfall Elimination Provision (WEP) and Government Pension 

Offset (GPO) laws prevent public workers and teachers from receiving their justly 

earned retirement benefits. The two laws cause public workers and teachers 

to DOUBLE PAY but receive single benefits. The various pension funds of public workers and teachers are primarily self-funded with very little in the way of outside contributions. The outside contributions come from LOCAL not FEDERAL monies—no relation to Social Security monies. 

EXAMPLE: A working person is required by law to hold two insurance policies. 

After a number of years of paying the premiums, one of the insurance companies 

notifies the worker that he will no longer be covered under the policy, but will be 

compelled by law to continue paying for it. 

On December 27, 2002, Fox Channel Headline News reported that the Social Security Administration currently has agreements with 20 countries, which permit foreign nationals who pay into retirement systems in their home countries and the 

United States, to collect benefits from both sources. The story reported there is currently discussion to extend this practice to Mexican nationals as well. 

The Federal Government should recognize naturally born American citizens who 

work as teachers and public employees as well as foreign nationals. 

MYTH #2: It is a myth that over the long-term the Federal Government saves 

money by denying public employees and teachers earned Social Security benefits. 

TRUTH: It is true that the National Education Association reports that affected 

recipients lose an average of $3,600 a year due to the GPO—an amount that can 

place a recipient below the poverty level. When individuals do not have adequate 

dollars to meet their most basic needs, they stop seeking preventative medical care, 

are unable to fill needed prescription drugs, have inadequate nutrition and often are 

forced to live in less than sanitary and unsafe conditions. All of these workers have 

paid for benefits that these two laws prevent them from receiving. Many of these 

workers are single parents or women who need their paid-for Social Security benefits to meet basic expenses. 

RESULT: There is no monetary savings. The government will need to provide financial assistance to these individuals through more expensive government programs (welfare, food stamps, medical plans, long-term care and housing assistance). 

It is better to remove discriminatory prohibitions to earned benefits so that seniors 

can avoid seeking emergency care for catastrophic illness. The added dollars will be 

put back into the economy and the discriminatory effect of these statutes would be 

eliminated. 

FACT: Workers have not been informed of this legislation by government 

employers and teaching associations and are misled by Social Security estimate statements which do not reflect these offsets. Most employees are unaware that they have relinquished their entitlement to earned or spousal Social Security dollars until they are within a few years of retirement and attend a retirement planning session. At that time they are devastated to learn that they will not 

be receiving their anticipated Social Security funds. These are workers who have 

57 

faithfully paid their full contributions to a system that takes their money 

and provides no benefits. 

REALITY: Americans have been told for decades by government experts that it 

is an individual’s responsibility not to rely solely on Social Security for their retirement incomes. Often, when children leave the nest, the wife/mother will seek outside employment to assist her husband in building their retirement. When these individuals choose to become public employees or return to the teaching profession, 

they are not told by their employers (through non-disclosure of the impacts of the 

GPO and WEP) that the monies they contribute to separate pension plans will not 

be returned to them in addition to earned Social Security benefits. 

Private sector individuals may collect multiple pensions (many through employeronly contributions) PLUS earned Social Security benefits . . . why the distinction 

for public workers and teachers? 

RESULT: As more and more public workers and qualified teachers become aware 

of the impact of this unfair and discriminatory legislation, they will be less inclined 

to apply for jobs in those areas. This country already faces a critical shortage of 

skilled teachers. The condition is certain to worsen. Fewer teachers will chose to return to their classrooms after extended leaves to raise their children, while young 

people will be less inclined to consider a teaching career. States, counties and cities 

will find smaller and smaller pools of willing/skilled applicants to staff government 

offices, courts, libraries, airports, divisions of Motor Vehicles, transportation departments, etc. 

Non-partisan issue. Goes beyond politics. Voters of all political affiliations are 

affected. (This is a national problem—there are affected people in ALL states. The 

number of people impacted across the country is growing every day as more and more 

people reach retirement age.) This is the same group of voters (baby boom) that were 

willing to stage protests in the 1960’s to bring their ‘‘causes’’ to the street to effect 

change by gaining national attention for unfair government practices. As more voters become aware of these unjust laws and their impacts, they will be angry and 

seek to blame elected officials. 

Most Americans are unaware that promised Social Security benefits are not 

legally guaranteed. They expect adequate Social Security benefits and assume government will pay all monies due because government has faithfully collected their 

‘‘contributions’’. Especially when it is widely known that the Federal Government 

extends Social Security benefits to people who have NEVER paid into the system. 

These laws are not understood. It makes retirement ‘‘planning’’ inaccurate. (Many 

workers rely on misleading Social Security Administration statements that fail to 

take into account the GPO and WEP when projecting benefits.) It makes the SSA 

information statements a lie because workers are led to believe they will receive 

these funds because the government is or has taken their money. This is, in essence, 

a government ‘‘bait and switch’’ tactic. 

Severely impacts women. Women receive only one-half the average pension benefits received by men. When they attempt to collect anticipated, earned Social Security benefits and discover that their benefits are substantially reduced, they find 

themselves below the poverty level, after a lifetime of work. 

Working wives should have the same rights to their spouse’s full benefits as nonworking wives. (The GPO/WEP causes affected employees to lose up to 60% of the 

benefits they earned themselves). 

Widows should receive full Social Security spousal benefits. The deceased spouse 

worked his entire life to provide for his widow. His benefits are her benefits. 

Laws are arbitrary and selective. The burden falls squarely on pocketbooks/wallets of certain public employees and teachers. (9 out of 10 public 

employees affected by the GPO/WEP lose their entire spousal benefit, even though 

their spouse paid Social Security taxes for many years while non-affected workers 

who have paid into multiple private retirement systems are not affected by these 

laws. The discrimination exists only for those who work in the public’s interest.) 

These laws are discriminatory, punitive and create a climate of bad faith. They 

have caused an unjust and unfair inequity between public and private pension recipients. The laws diminish the value of a public employee’s or teacher’s contribution to this country in relation to the value placed on the contributions of workers 

in the private sector . . . for what reason? 

REQUEST: We want the law applied equally to all employees. The only 

way for this to be accomplished is for these two statutes to be repealed. We 

urge your support and the support of all of Congress and the President for 

passage of HR 147 and S 619. 

President Bush has claimed that the wants to bring fairness to the taxation of the American people. Support of HR 147 and S 619 is a perfect 

58 

place for him to right a wrong and bring equity to an unrepresnted and 

growing body of unfairly taxed voters. 

f 

Statement of Kenneth Basil Jackson, Jr., Glendale, California 

The solution to the SSA actuarial imbalance is simple The Honorable Charles B. 

Rangel has found the most economical and efficient fix for the problem. 

A 1.89 to 2 % increase in the FICA Tax. This amount is 13.79 @ 1.89% per 

week per worker @ 35k/yr salary. Simple to start and easy to repeal when 

no longer need. Add to this an increase in the FICA salary cap to 140,000.00 

and the problem is solved. 

There is a larger problem to face it is the loss of the baby boomers buying power 

in the years of 2015 to 2030. This decrease in buying power may lead to one of the 

largest recessions in the history of the United States of America, if not a depression. 

If the United States of America is forced to repay 5 Trillion in SSA reform transition costs with interest, plus 2 to 3 Trillion in General fund budget deficits, plus 

another 4.6 Trillion to stabilize SSA, China will become the last great super power. 

DROP THE PRESIDENTS SSA REFORM PLAN. 

The real priority problem is to find a way to keep the economy growing as the 

baby boomers retire. The best way to do this is to add incentives and benefits to 

the safety net of Social Security. This can be done by adding a private account to 

the SS benefit. This account must be in addition to all other pension plans and programs. Participation in this plan must not limit or interact with any other plans 

or programs now offered or begun in the future. 

SOME BASIC REQUIREMENTS FOR A PRIVATE ADDITION TO THE SSA 

BENEFIT. 

• This is in addition to the SS FICA. 

• There is a higher limit on the annual contribution say 20k dollars/year. 

• The FICA salary cap shall rise to; $140,000.00 . 

• The money is exempt from state and federal tax. 

• The money grows; tax free. 

• The money can be available from say 59 to 64 on, as a monthly pay out 

over 30 years. 

• THE CONGRESS IS PRECLUDED FROM ANY FORM OF BORROWING 

FROM THIS ACCOUNT, THE EXECUTIVE BRANCH IS PRECLUDED 

FROM ISSUING ANY PROCLAMATIONS OR EXECUTIVE ORDERS ATTACHING OR USING THESE FUNDS FOR ANY; PERPUS OTHER 

THAN THE BENEFITS OF THE OWNERS . FURTHER THERE WILL BE 

NO COMMINGLING OF THESE FUNDS WITH ANY OTHER AGENCY 

OR BRANCH OF THE U.S. GOVERNMENT. NO LIEN OR ATTACHMENT OF THE ‘‘PRIVATE PLAN’S’’ LEGALLY OBTAINED AND DEPOSITED FUNDS BY ANY COURT, JUDICIAL ENTITY, OR ENTITY WILL 

BE PERMITTED BY THE U.S. GOVERNMENT. THESE FUNDS WILL BE 

INVESTED AND MANAGED AS A BOND FUND. THE OBJECTIVE WILL 

BE OPTIMUM LONG TERM YIELD. ALL U.S. GOVERNMENT ISSUED 

AND GUARANTEED OPENLY TRADED U.S. GOVERNMENT BONDS 

AND NOTES, OF ALL MATURITIES SHOULD BE USED AS NEEDED. 

• The operation of the ‘‘private plan’’ should mimic the operations of a 

bond mutual fund. 

• Interest compounding and, pay outs should be made quarterly. 

• A $3.00 minimum per week contribution with a $20,000.00 yearly maximum. 

• Extra deposits should be accepted via inter bank money transfers or 

EFET deposits to the account, also deposits can be made at any bank 

cash or check. Subject to the prevailing money laundering laws on the 

books. 

• All deposits will be tracked by SSA and reported to the IRS as exempt 

income (not taxable) but reported. 

• The total of all deposits will show up on the W–2 form. 

• The amount to be deposited via weekly payroll deduction should be 

easily changeable, up or down. 

• The interest paid is as close to the coupon as clipped value as possible. 

• Once the agreed upon retirement age is reached the right to start, stop 

and restart benefit pay outs should be available. 

59 

• Each baby born an American Citizen at the issuance of his/her SS card 

will have 3.00 dollars deposited into his/her private plan, as a one time 

retirement grant. 

The Idea here is to reach the first $1000.00 in the account A.S.A.P. For a new 

worker entering the work force and, living at home with his/her parents making 

extra deposits as savings would make for an comfortable retirement. When this 

worker moves up the pay scale increasing the weekly deposit and or making extra 

deposits will further increase the additional income provided by the ‘‘private plan’’. 

The power of large scale buying of bonds can reduce the fixed cost of the 

operation to the .5 % to .2 % level. 

This plan has the potential to transform the idea of retirement living. 

This plan can double the safety net for new workers entering the labor 

pool. In order for us older folks to take advantage of this system we would 

have to increase the amount of our initial deposits. The best use for us 

older folks would be an cash trap, say after the sale of a house, what 

should you do with 50k excess profit? shelter 20k, and let it turn into over 

$159,000.00 in 15 years. That points to the 6 trillion dollar question, why 

has not the brain trust that Bush has assembled figured this out. Is there 

some other reason why some thing like this is not on the table and, up for 

debate. There is some thing going on and they are not talking. WILL SOME 

ONE IN THE ADMINISTRATION PLEASE TELL THE TRUTH, WHAT IS 

GOING ON. 

This plan will enhance the savings rate in the country. The number of seniors on 

welfare will decline. The spending power of seniors will start rising just as the population starts to gentrify. As the baby fizzle of the, late 70’s early 80’s, moves to the 

workforce center stage, the spending power of the retied will be on the rise. To days 

pre-tweens will be entering the work force with their greater numbers and, will 

have spending support to maintain job growth. The pre-tweens will have at least 

a chance to establish themselves as an economic force. The number of seniors retiring to poverty should begin to approach 0, because of the doubling of the safety net 

benefit. This plan has one goal to produce more customers. This country needs more 

customers with money. 

GROW OR DIE 

I believe that adoption of a SS ad on private account will fundamentally change 

the idea of retirement living. If every body is given a chance to excel and save like 

the wealthiest of Americans retirement poverty can be eliminated. 

RUN A COST ANALYSIS OF THIS PLAN AND COMPARE. 

f 

Statement of Roger Pond Jones, Auburn, Massachusetts 

It is my opinion that when our Government takes moneys from people leaving 

them with the impression that this is money being saved for retirement and not a 

government expense (tax) item that that money should be returned to them upon 

retirement. (With interest based upon the average market values over the past sixty 

five years.) 

If citizens have paid in they should get back at least what they paid in. 

Citizens have been allowed to look at Social Security money as THEIR MONEY. 

Obviously it is not THEIR MONEY if they can not get it back upon retirement. 

If Social Security is a social program to bail out people who have made poor judgments during their life times or fallen upon hard luck then make it clear that Social 

Security is a tax not a savings program and not owned by anyone but the government. 

Æ