United States General Accounting Office

GAO Testimony

Before the Subcommittee on Social Security, Committee

on Ways and Means, House of Representatives

For Release on Delivery

Expected at 10:00 a.m.

Thursday, April 10, 1997

SOCIAL SECURITY

REFORM

Implications for the

Financial Well-Being of

Women

Statement of Jane L. Ross, Director

Income Security Issues

Health, Education, and Human Services Division

GAO/T-HEHS-97-112

Social Security Reform: Implications for the

Financial Well-Being of Women

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here to discuss the impacts of proposals to finance and

restructure the Social Security system, specifically the impacts on the

financial well-being of women. As you know, the Social Security trust

funds are predicted to pay out more in annual benefits than they collect in

taxes beginning in 2012 and are expected to be depleted by 2029. Recently,

the Social Security Advisory Council offered three alternative reform

proposals to address this long-term financing problem. Each of the

alternative proposals also affects the financial well-being of beneficiaries,

especially women. One reason to be especially concerned about the

financial well-being of women is that elderly unmarried women are much

more likely to be living below the poverty line. For example, 22 percent of

unmarried elderly women have income below the poverty threshold,

compared with 15 percent of unmarried elderly men and only 5 percent of

elderly married couples.

Today, I would like to discuss how and why the benefits for women differ

from those for men under the current Social Security system and how

each of the three reform proposals of the Social Security Advisory Council

might particularly affect women. The information I am providing today is

based on previous GAO work and contains preliminary findings from a

report being prepared at the request of the Ranking Minority Member of

the Subcommittee.1

In summary, our work shows that, although the provisions of the Social

Security Act do not differentiate between men and women, women tend to

receive lower benefits than men. This is due primarily to differences in

lifetime earnings because women tend to have lower wages and fewer

years in the workforce. Women’s experience under pension plans differs

from men’s not only because of earnings differences but also because of

differences in investment behavior and longevity. Moreover, public and

private pension plans do not offer the same social insurance protections

that Social Security does.

Furthermore, some of the provisions of the Social Security Advisory

Council’s three proposals may exacerbate the differences in men and

women’s benefits. For example, proposals that call for individual

retirement accounts will pay benefits that are affected by investment

1

Pension Plans: Survivor Benefit Coverage for Wives Increased After 1984 Pension Law

(GAO/HRD-92-49, Feb. 28, 1992); Social Security: Issues Involving Benefit Equity for Working Women

(GAO/HEHS-96-55, Apr. 10, 1996); and 401(k) Pension Plans: Many Take Advantage of Opportunity to

Ensure Adequate Retirement Income (GAO/HEHS-96-176, Aug. 2, 1996).

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Social Security Reform: Implications for the

Financial Well-Being of Women

behavior and longevity. Expected changes in women’s labor force

participation rates and increasing earnings will reduce but probably not

eliminate these differences.

Demographic

Characteristics and

Labor Market

Attachment Affect

Retirement Income

for Men and Women

Differently

Over their lifetimes, men and women differ in many ways that have

consequences for how much they will receive from Social Security and

pensions. Women make up about 60 percent of the elderly population and

less than half of the Social Security beneficiaries who are receiving retired

worker benefits, but they account for 99 percent of those beneficiaries

who receive spouse or survivor benefits. A little less than half of working

women between the ages of 18 and 64 are covered by a pension plan, while

slightly over half of working men are covered. The differences between

men and women in pension coverage are magnified for those workers

nearing retirement age—over 70 percent of men are covered compared

with about 60 percent of women.

Labor Force Participation

and Earnings Differ for

Men and Women

Labor force participation rates differ for men and women, with men being

more likely, at any point in time, to be employed or actively seeking

employment than women.2

 The gap in labor force participation rates,

however, has been narrowing over time as more women enter the labor

force, and the Bureau of Labor Statistics predicts it will narrow further. In

1948, for example, women’s labor force participation rate was about a

third of that for men, but by 1996, it was almost four-fifths of that for men.

The labor force participation rate for the cohort of women currently

nearing retirement age (55 to 64 years of age) was 41 percent in 1967 when

they were 25 to 34 years of age. The labor force participation rate for

women who are 25 to 34 years of age today is 75 percent—an increase of

over 30 percentage points.

Earnings histories also affect retirement income, and women continue to

earn lower wages than men. Some of this difference is due to differences

in the number of hours worked, since women are more likely to work

part-time and part-time workers earn lower wages. However, median

earnings of women working year-round and full-time are still only about

70 percent of men’s.3

2

The labor force participation rate is the proportion of the population under consideration who are

working or actively seeking employment.

3

Even after accounting for differences in education, work effort, age, and other characteristics that

affect wages, women earn wages that are about 15 to 20 percent lower than men’s wages, on average.

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Social Security Reform: Implications for the

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The lower labor force participation of women leads to fewer years with

covered earnings4

 on which Social Security benefits are based.5 In 1993,

the median number of years with covered earnings for men reaching 62

was 36 but was only 25 for women. Almost 60 percent of men had 35 years

with covered earnings, compared with less than 20 percent of women.

Lower annual earnings and fewer years with covered earnings lead to

women’s receiving lower monthly retired worker benefits from Social

Security, since many years with low or zero earnings are used in the

calculation of Social Security benefits. On average, the retired worker

benefits received by women are about 75 percent of those received by

men. In many cases, a woman’s retired worker benefits are lower than the

benefits she is eligible to receive as the spouse or survivor of a retired

worker.6

Life Expectancies Differ

for Men and Women

Women tend to live longer than men and thus may spend many of their

later retirement years alone. A woman who is 65 years old can expect to

live an additional 19 years (to 84 years of age), and a man of 65 can expect

to live an additional 15 years (to 80 years of age). By 2070, the Social

Security Administration projects that a 65-year-old woman will be able to

expect to live another 22 years, and a 65-year-old-man, another 18 years.

Additionally, husbands tend to be older than their wives and so are likely

to die sooner. Differences in longevity do not currently affect the receipt

of monthly Social Security benefits but can affect income from pensions if

annuities are purchased individually.

Women Invest More

Conservatively Than Men

Many pension plans give participants responsibility for managing the

investment of their pension assets, and differences in how men and

women invest can lead to differences in pension benefits they receive.

When making financial decisions, women tend to be more risk averse than

men. One consequence of this is that women tend to invest more of their

pension funds in safer but lower yielding assets, such as government

bonds. The results of a recent study7

 of the federal Thrift Savings Plan

indicate that men are much more likely to invest in the stock fund than are

4

Years of covered earnings are the years in which the individual received earnings on which Social

Security taxes were paid.

5

Social Security benefits are based on the 35 years of highest covered earnings.

6

GAO/HEHS-96-55, Apr. 10, 1996.

7

Richard P. Hinz, David D. McCarthy, and John A. Turner, “Are Women Conservative Investors?

Gender Differences in Participant Directed Pension Investments,” in Positioning Pensions for the Year

2000, Olivia Mitchell, ed. (Philadelphia: University of Pennsylvania Press, 1996).

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Social Security Reform: Implications for the

Financial Well-Being of Women

women. The authors estimated that, after 35 years of participation in the

plan at historical yields and identical contributions, the difference in

investment behavior between men and women can lead to men having a

pension portfolio that is 16 percent larger.

Pension Plan

Provisions Offer

Different Benefits

From Social Security

Social Security provisions and pension plan provisions differ in several

ways (see app. I for a summary). Under Social Security, the basic benefit a

worker receives who retires at the normal retirement age (NRA)8

 is based

on the 35 years with the highest covered earnings.9

 The formula is

progressive in that it guarantees that higher-income workers receive

higher benefits, while the benefits of lower-income workers are a higher

percentage of their preretirement earnings. The benefit is guaranteed for

the life of the retired worker and increases annually with the cost of living.

Private pensions are different. They can be classified into two basic types:

defined benefit and defined contribution plans. Pension benefits in defined

benefit plans are generally based on a formula that includes years with the

firm, age at retirement, and salary averaged over some number of years.10

Employers offering defined contribution plans generally promise to make

guaranteed periodic contributions to workers’ accounts, but the amount of

retirement benefits is not specified. The benefits from defined contribution

plans depend on the contributions plus investment returns or losses.

Today, defined contribution plans are the most prevalent type of pension

plan, and 401(k) plans are one of the fastest growing defined contribution

plan types.11 Typically, at retirement, workers receive a joint and survivor

annuity that provides pension benefits to the surviving spouse after the

worker’s death, unless both the worker and spouse elect, in writing, not to

take the joint and survivor annuity. In this instance, the retiring worker

8

Currently, the normal retirement age is 65 years. It is set to gradually increase to 67 for those born in

1960 or after. The early retirement age (the earliest age at which a worker qualifies for Social Security

retirement benefits) will remain at 62.

9

The calculation of a worker’s basic benefit amount first involves calculating average indexed monthly

earnings (AIME) on the basis of the 35 years of highest earnings. For workers becoming eligible for

Social Security benefits in 1997, benefits are equal to 90 percent of the first $455 of AIME, plus

32 percent of the AIME from $455 to $2,741, plus 15 percent of the AIME in excess of $2,741. The dollar

amounts in the formula are called the bend points, and the percentages are called the conversion

factors.

10In defined benefit plans that are integrated with Social Security, pension benefits also depend on the

size of an individual’s Social Security benefit.

11401(k) pension plans are salary reduction plans that allow participants to contribute, before taxes, a

portion of their salary to a retirement account. Many employers match workers’ contributions to these

accounts. Also, many employers allow participants to direct the investment of their account balances.

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Social Security Reform: Implications for the

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may elect, along with the spouse, to take a single life annuity or a

lump-sum distribution if allowed under the plan.

When workers retire, they are uncertain how long they will live and how

quickly the purchasing power of a fixed payment will deteriorate. They run

the risk of outliving their assets. Annuities provide insurance against

outliving assets. Some annuities provide, though at a higher cost or

reduced initial benefit, insurance against inflation risk, although annuity

benefits often do not keep pace with inflation. Many pension plans are

managed under a group annuity contract with an insurance company that

can provide lifetime benefits. Individual annuities, however, tend to be

costly.

Benefits for Dependents

Differ Under Social

Security and Pensions

Under Social Security, the dependents of a retired worker may be eligible

to receive benefits. For example, the spouse of a retired worker is eligible

to receive up to 50 percent of the worker’s basic benefit amount, while a

dependent surviving spouse is eligible to receive up to 100 percent of the

deceased worker’s basic benefit. Furthermore, divorced spouses and

survivors are eligible to receive benefits under a retired worker’s Social

Security record provided they were married for at least 10 years. If the

retired worker has a child under 18 years old, the child is eligible for Social

Security benefits, as is the dependent nonelderly parent of the child. The

retired worker’s Social Security benefit is not reduced to provide benefits

to dependents and former spouses.

Pensions, both public and private, generally do not offer the same

protections to dependents as Social Security. Private and public pension

benefits are based on a worker’s employment experience and not the size

of the worker’s family. At retirement, a worker and spouse normally

receive a joint and survivor annuity so that the surviving spouse will

continue to receive a pension benefit after the retired worker’s death. A

worker, with the written consent of the spouse, can elect to take

retirement benefits in the form of a single life annuity so that benefits are

guaranteed only for the lifetime of the retired worker.

This wasn’t always the case. Under the Employee Retirement Income

Security Act of 1974, a married worker had the option to choose an

annuity that provided benefits only as long as the retiree lived.

Recognizing marriage as an economic partnership, the Congress sought

through the Retirement Equity Act of 1984 to bring the retiring worker’s

spouse directly into the decision-making process concerning benefit

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Financial Well-Being of Women

payment options. Under this act, a joint and survivor annuity became the

normal payout option and written spousal consent is required to choose

another option. This requirement was prompted partly by testimony

before the Congress by widows who stated that they were financially

unprepared at their husbands’ death because they were unaware of their

husbands’ choice to not take a joint and survivor annuity. Through the

spousal consent requirement, the Congress envisioned that, among other

things, a greater percentage of married men would retain the joint and

survivor annuity and give their spouses the opportunity to receive survivor

benefits.

The monthly benefits under a joint and survivor annuity, however, are

lower than under a single life annuity. Moreover, pension plans do not

generally contain provisions to increase benefits to the retired worker for

a dependent spouse or for children. As under Social Security, divorced

spouses can also receive part of the retired worker’s pension benefit if a

qualified domestic relations order is in place. However, the retired

worker’s pension benefit is reduced in order to pay the former spouse.

Some Reform

Proposals Would

Make Social Security

More Like Pension

Plans

The three alternative proposals of the Social Security Advisory Council

would make changes of varying degrees to the structure of Social Security.

The key features of the proposals are summarized in appendix II.

The Maintain Benefits Plan

Would Make Fewest

Changes to Social Security

The Maintain Benefits (MB) plan would make only minor changes to the

structure of current Social Security benefits. The major change that would

affect women’s benefits is the extension of the computation period for

benefits from 35 years to 38 years of covered earnings.12 Currently,

earnings are averaged over the 35 years with the highest earnings to

compute a worker’s Social Security benefits. If the worker has worked less

than 35 years, then some of the years of earnings used in the calculation

are equal to zero. Extending the computation period for the lifetime

average earnings to 38 years would have a greater impact on women than

on men. Although women’s labor force participation is increasing, the

Social Security Administration forecasts that fewer than 30 percent of the

women retiring in 2020 will have 38 years of covered earnings, compared

with almost 60 percent of men.

12One supporter of the MB plan does not support this provision.

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The Individual Accounts

Plan Would Add a Defined

Contribution Component

The Individual Accounts (IA) plan would keep many features of the current

Social Security system but add an individual account modeled after the

401(k) pension plan. Workers would be required to contribute an

additional 1.6 percent of taxable earnings to their individual account,

which would be held by the government. Workers would direct the

investment of their account balances among a limited number of

investment options. At retirement, the distribution from this individual

account would be converted by the government into an indexed annuity.

The IA plan, like the MB plan, would extend the computation period to 38

years; it would also change the basic benefit formula by lowering the

conversion factors at the higher earnings level. This plan would also

accelerate the legislated increase in the normal retirement age and then

index it to future increases in longevity. As a consequence of these

changes, basic Social Security benefits would be lower for all workers, but

workers would also receive a monthly payment from the annuitized

distribution from their individual account, which proponents claim would

offset the reduction in the basic benefit.

In addition to extending the computation period, elements of the IA plan

that would disproportionately affect women are the changes in benefits

received by spouses and survivors, since women are much more likely to

receive spouse and survivor benefits. The spouse benefit would be

reduced from 50 percent of the retired worker’s basic benefit amount to

33 percent. The survivor benefit would increase from 100 percent of the

deceased worker’s basic benefit to 75 percent of the couple’s combined

benefit if the latter was higher. These changes would probably result in

increased lifetime benefits for many women. Additionally, at retirement a

worker and spouse would receive a joint and survivor annuity for the

distribution of their individual account unless the couple decided on a

single life annuity.

The Personal Security

Accounts Plan Would

Replace Social Security

With a Flat Benefit and a

Defined Contribution

Component

The Personal Security Accounts (PSA) plan would make the most dramatic

changes to the structure of Social Security. This plan would replace the

current system with a two-tier system. The tier I benefit would be a flat

benefit based on years of covered earnings. The full tier I benefit, which

would be equivalent to 65 percent of the poverty threshold, would be

received after 35 years of covered earnings. The tier II benefit would be

the distribution from the retired worker’s personal security account. The

personal security account is modeled after the 401(k) pension plan and

would be funded by diverting 5 percentage points of the worker’s Social

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Financial Well-Being of Women

Security payroll tax into the account,13 which would not be held by the

government. Proponents of the PSA plan claim that over a worker’s lifetime

the tier I benefits plus the tier II distribution would be larger than the

lifetime Social Security benefits currently received by retired workers. The

worker would direct the investment of his or her account assets. At

retirement, workers would not be required to annuitize the distribution

from their personal security account but could elect to receive a lump-sum

payment. This could potentially affect women disproportionately, since

the worker is not required to consult with his or her spouse regarding the

disposition of the personal account distribution.

Under the PSA plan, the tier I benefit for spouses would be equal to the

higher of their own tier I benefit or 50 percent of the full tier I benefit.

Furthermore, spouses would receive their own tier II accumulations, if

any. The tier I benefit for a survivor would be 75 percent of the benefit

payable to the couple; in addition, the survivor could inherit the balance of

the deceased spouse’s personal security account assets.

Effects on Women’s

Benefits of Changing

Basic Social Security

Law

Many of the proposed changes to Social Security would affect the benefits

received by men and by women differently.14 The current Social Security

system is comparable to a defined benefit plan’s paying a guaranteed

lifetime benefit that is increased with the cost of living. Each of the

Advisory Council proposals would potentially change the level of that

benefit, and two of the proposals would create an additional defined

contribution component. Not only would retired worker benefits be

changed by these proposals, but the level of benefits for spouses and

survivors would be affected.

Conservative Investment

Behavior May Have

Adverse Consequences for

Retirement Income

Two Advisory Councils plans—the IA and PSA plans—would create defined

contribution accounts for workers. Both plans would also lower basic

Social Security benefits. On the basis of calculations by the National

Academy of Social Insurance, the IA plan would lower basic benefits by

17 percent for the average earner, while the PSA plan would lower the basic

or tier I benefit to about 47 percent of the benefit paid to today’s average

earner. The rest of a retired worker’s Social Security benefit would come

from the distribution from his or her private account. Under both plans,

13The payroll tax for Social Security is 12.4 percent of taxable earnings. The tax is split evenly between

the employee and employer.

14The proposed changes could also affect benefits received from pension plans that are integrated with

Social Security. How the changes in these benefits would affect men and women is beyond the scope

of our testimony.

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Social Security Reform: Implications for the

Financial Well-Being of Women

the account balances at retirement would depend on the contributions

made to the worker’s account and investment returns or losses on the

account assets. Since women tend to earn lower wages, they would be

contributing less, on average, than men to their accounts. Furthermore,

even if contributions were equal, women tend to be more conservative

investors than men, which could lead to lower investment returns.

Consequently, women would typically have smaller account balances at

retirement and would receive lower benefits than men. The difference in

investment strategy could lead to a situation in which men and women

with exactly the same labor market experiences receive substantially

different Social Security benefits. The extent to which investor education

can close the gap in investment behavior between men and women is

unknown.

How Account Distributions

Are Handled Affects

Benefit Levels

The two Advisory Council proposals with individual or personal accounts

differ in the handling of the distribution of the account balances at

retirement. The IA plan would require annuitization of the distribution at

retirement, and choosing a single life annuity or a joint and survivor

annuity would be left to the worker and spouse. If the single life annuity

option for individual account balances was chosen, then the spouse would

receive the survivor’s basic benefit after the death of the retired worker

plus the annuitized benefit based on the work records of both individuals.

The PSA plan would not require that the private account distribution be

annuitized at retirement. A worker and spouse could take the distribution

as a lump sum and attempt to manage their funds so that they did not

outlive their assets. If the assets were exhausted, the couple would have

only their basic tier I benefits, plus any other savings and pension benefits.

Furthermore, even if personal account tier II assets were left after the

death of the retired worker, the balance of the PSA account would not

necessarily have to be left to the survivor. If a worker and spouse chose to

purchase an annuity at retirement, then the couple would receive a lower

monthly benefit than would be available from a group annuity.

Both the IA and the PSA plans could lead to situations where men and

women in identical circumstances received different Social Security

benefits. Suppose a man and woman had the same labor market

experiences and the same amount in their private accounts and then

annuitized their distributions. The monthly annuity payments would

reflect the differences in expected longevity (separate life tables could be

used for men and women in the calculation of annuitized benefits) and,

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although the expected lifetime payments would be the same, the monthly

payments to the woman would be lower, since women have longer life

expectancies.

Conclusions Even though the current provisions of Social Security are gender neutral,

differences during the working and retirement years may lead to different

benefits for men and women. For example, differences in labor force

attachment, earnings, and longevity lead to women’s being more likely

than men to receive spouse or survivor benefits. Women who do receive

retired worker benefits typically receive lower benefits than men. As a

result of lower Social Security benefits and the lower likelihood of

receiving pension benefits, among other causes, elderly single women

experience much higher poverty rates than elderly married couples and

elderly single men.

Social Security is a large and complex program that protects most workers

and their families from income loss because of a worker’s retirement.

Public and private pension plans do not offer the social insurance

protections that Social Security does. Pension benefits are neither

increased for dependents nor generally indexed to the cost of living as are

Social Security benefits. Typically, at retirement a couple will receive a

joint and survivor annuity that initially pays monthly benefits that are 15 to

20 percent lower than if they had chosen to forgo the survivor benefits

with a single life annuity. Furthermore, under a qualified domestic

relations order, a divorced retired worker’s pension benefits may be

reduced to pay benefits to a former spouse.

While the three alternative proposals of the Social Security Advisory

Council are intended to address the long-term financing problem, they

would make changes that could affect the relative level of benefits

received by men and women. Each of the proposals has the potential to

exacerbate the current differences in benefits between men and women.

Narrowing the gap in labor force attachment, earnings, and investment

behavior may reduce the differences in benefits. But as long as these

differences remain, men and women will continue to experience different

outcomes with regard to Social Security benefits.

This concludes my prepared statement. I would be happy to answer any

questions you or other Members of the Subcommittee may have.

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Financial Well-Being of Women

Contributors For more information on this testimony, please call Jane Ross on

(202) 512-7230; Frank Mulvey, Assistant Director, on (202) 512-3592; or

Thomas Hungerford, Senior Economist, on (202) 512-7028.

Page 11 GAO/T-HEHS-97-112
Appendix I 

Features of Social Security Under Current

Law and Those of Pensions

Current pension plan provisions

Type of beneficiarya

Provisions under

current Social Security

law

Federal Employees’

Retirement

System/Thrift Savings

Plan Defined benefit plans

Defined contribution

plans

Retired worker — Benefit computation is

based on 35 years of

highest covered earnings

— Progressive formula

leads to redistribution

— Benefits reduced

actuarially if taken

between 62 and normal

retirement age (NRA);

increased if taken after

NRA

— NRA to increase to 67

years for those born after

1959

— FERS benefit is based

on statutory formula

— TSP benefit is based

on employee and

government

contributions plus

investment returns of

individual account

balances

Benefit is based on

formula under plan

documents

Benefit is based on

contributions of

employee, employer, or

both plus investment

returns of individual

account balances

Spouse — Benefit is 50% of the

retired worker’s benefit

— Benefit is actuarially

reduced if taken

between 62 and NRA

b b b

Survivor — Benefit is equal to

amount deceased

spouse would be

receiving but not less

than 82-1/2% of

deceased spouse’s

benefit 

— Benefit is actuarially

reduced if taken

between 62 and NRA

Joint and survivor

annuity is normal form of

annuity, and survivor

receives 50% of basic

annuity

Joint and survivor

annuity is normal form of

annuity

Joint and survivor

annuity is normal form of

annuity

Dually entitled beneficiaryc Receives own retired

worker benefit plus

difference (if positive)

between spouse or

survivor benefit and

his/her retired worker

benefit

b b b

(continued)

Page 12 GAO/T-HEHS-97-112
Appendix I 

Features of Social Security Under Current

Law and Those of Pensions

Current pension plan provisions

Type of beneficiarya

Provisions under

current Social Security

law

Federal Employees’

Retirement

System/Thrift Savings

Plan Defined benefit plans

Defined contribution

plans

Divorced and surviving

divorced spouse

— Must have been

married for at least 10

years and currently be

unmarried 

— Must be at least 62

years old for divorced

spouse, 60 years old for

divorced survivor

— Benefit actuarially

reduced if younger than

NRA

— Divorced spouse

benefit is 50% of retired

worker’s benefit 

— Surviving divorced

spouse benefit is 100%

of retired worker’s benefit

Qualifying court order Qualified domestic

relations order

Qualified domestic

relations order

Mother or father and

widowed mother or father

plus child

— Have eligible child in

care

— Under 65 years old

— 50% of retired

worker’s benefit plus

50% of child’s benefit

— 75% of deceased

worker’s benefit plus

75% of child’s benefit

b b b

aBeneficiary categories are based on Social Security definitions.

bNot applicable.

cEntitled to benefit both as retired worker and as spouse or survivor of retired worker.

Page 13 GAO/T-HEHS-97-112
Appendix II 

Features of Social Security Under Current

Law and Those of Three Reform Proposals

Reform proposals of 1994-96 Social Security Advisory Council

Type of beneficiarya

Provisions under

current Social Security

law Maintain benefits Individual accounts

Personal security

accounts

Retired worker — Benefit computation is

based on 35 years of

highest covered earnings

— Progressive formula

leads to redistribution

— Benefits reduced

actuarially if taken

between 62 and normal

retirement age (NRA);

increased if taken after

NRA

— NRA to increase to 67

years for those born after

1959

Extends computation

period from 35 years to

38 years of covered

earnings

— Extends computation

period from 35 years to

38 years of covered

earnings

— Changes benefit

formula by lowering

conversion factors

— Accelerates increase

of NRA and indexes to

longevity

— Creates individual

account (IA) based on

defined contribution

pension

— Creates two-tier

system with tier I a flat

benefit based on years

of covered earnings and

tier II a personal security

account (PSA) based on

defined contribution

pension

— Accelerates increase

of NRA and indexes to

longevity

— Increases early

retirement age to 65

years

Spouse — Benefit is 50% of the

retired worker’s benefit

— Benefit is actuarially

reduced if taken

between 62 and NRA

Same as current law — Benefits are lowered

from 50% to 33% of

retired worker’s benefit

— Joint and survivor

annuity with IA balance

Benefits are tier II

accumulations plus 50%

of full tier I benefit

Survivor — Benefit is equal to

amount deceased

spouse would be

receiving but not less

than 82 1/2% of

deceased spouse’s

benefit 

— Benefit is actuarially

reduced if taken

between 62 and NRA

Same as current law — 75% of couple’s

combined benefit

— Joint and survivor

annuity with IA balance

75% of benefit payable

to couple plus eligible to

inherit balance of

deceased spouse’s PSA

Dually entitled beneficiaryb Receives own retired

worker benefit plus

difference (if positive)

between spouse or

survivor benefit and

his/her retired worker

benefit

Same as current law Higher of own basic

benefit or 33% of

spouse’s benefit

Tier II accumulations

plus higher of own tier I

benefit or 50% of full tier

I benefit

(continued)

Page 14 GAO/T-HEHS-97-112
Appendix II 

Features of Social Security Under Current

Law and Those of Three Reform Proposals

Reform proposals of 1994-96 Social Security Advisory Council

Type of beneficiarya

Provisions under

current Social Security

law Maintain benefits Individual accounts

Personal security

accounts

Divorced and surviving

divorced spouse

— Must have been

married for at least 10

years and currently be

unmarried 

— Must be at least 62

years old for divorced

spouse, 60 years old for

divorced survivor

— Benefit actuarially

reduced if younger than

NRA

— Divorced spouse

benefit is 50% of retired

worker’s benefit

— Surviving divorced

spouse benefit is 100%

of retired worker’s benefit

Same as current law No mention No mention

Mother or father and

widowed mother or father

plus child

— Have eligible child in

care

— Under 65 years old

— 50% of retired

worker’s benefit plus

50% of child’s benefit

— 75% of deceased

worker’s benefit plus

75% of child’s benefit

Same as current law Same as for spouse or

survivor plus child’s

benefit, which is same as

current law

Same as for spouse or

survivor plus child’s

benefit, which is same as

current law

aBeneficiary categories are based on Social Security definitions.

bEntitled to benefits both as retired worker and as spouse or survivor of retired worker.

(207004) Page 15 GAO/T-HEHS-97-112
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