Benjamin W. Veghte, Vice President for Policy, National Academy of Social Insurance
Elliot Schreur, Research Associate, National Academy of Social Insurance
Last Thursday, big thinkers from around the country joined the Academy in Washington, DC to discuss how Social Security policy could respond to prevailing demographic, economic, and workforce trends. Video of the event can be accessed here. The policy options discussed were not the familiar “Lego pieces” of Social Security policy, as AARP’s Chief Public Policy Officer, Debra Whitman, put it in her closing remarks at the forum. In other words, the discussion did not center around the typical set of reform options like “raise the tax cap,” “raise the retirement age,” or “change the COLA.” While those ideas have their place in comprehensive discussions about Social Security, the purpose of the convening was to air and discuss bold new ideas, and by doing so to leverage Social Security’s ability to respond to some of the forces reshaping retirement security in our time: increasing and disparate longevity, growing inequality, and the changing structure of the family and the labor market.
The first panel addressed the challenge of providing retirement security in an era of increasing but disparate longevity. Two presenters offered ways to incentivize later claiming of Social Security benefits. Research shows that many people underestimate the time they will spend in retirement and the amount of resources they will need. Because of this, it often pays to wait to claim benefits. AARP’s Gary Koenig presented an idea – developed with Jason Fichtner and Bill Gale – for “Supplemental Transition Accounts for Retirement.” These would offer people the opportunity to draw down separate assets instead of claiming Social Security benefits, thereby delaying the age at which someone will claim benefits and affording them higher monthly benefits for life. Wharton’s Olivia Mitchell presented a proposal – developed with Raimond Maurer and Tatjana Schimetschek – that would allow individuals to receive a portion of their delayed benefits as a lump sum as a way to encourage later claiming. Anthony Webb of the New School offered an idea – developed with Teresa Ghilarducci, Wei Sun, and Michael Papadopoulos – to improve benefits especially for low earners through voluntary catch-up contributions that an individual could make at older ages while still in the workforce. The Academy has produced numerous resources to educate the public about when to claim Social Security benefits, and the goals of these reform proposals are consistent with the insights from this body of work.
Slow and unequal wage growth over the past four decades poses significant challenges to both Social Security revenue and benefit policies. On the revenue side, two policy options to respond to this development were discussed. Nobel-prize winning economist Peter Diamond suggested that, in light of Social Security’s financing challenges, dedicating a portion of the estate tax to Social Security could be a sensible option. The Academy’s Ben Veghte discussed the possibility of including capital income in Social Security’s contribution and benefit base. Rather than broadening Social Security’s revenue base, Ken Buffin, a renowned Social Security actuary and Research Director at the Buffin Foundation, proposed automatic adjustments to Social Security’s payroll tax rate to maintain cash flow adequacy over the long term.
Decades of growth in income inequality and increasingly precarious labor force attachment call for reconsideration of Social Security benefits as well. One panel focused on ways to improve benefits for low lifetime earners. Pamela Herd and Elizabeth Johns each offered proposals for updated minimum benefits. Herd’s proposal, developed with Melissa Favreault, Timothy Smeeding, and Madonna Harrington Meyer, would create a new, means-tested “minimum benefit plan” that would help keep seniors out of poverty and avoid negative interaction effects with other assistance programs. Johns’ proposal, developed with Kimberly Johnson, would create a revamped minimum benefit within the existing Social Security system that would offer higher benefits to workers with long work histories and also ensure adequate benefits for older retirees. Kenneth Couch offered a way to ensure that benefits would not be reduced for low earners under proposals to raise the retirement age. Couch proposed to accomplish this by increasing Social Security benefits for low-lifetime earners to offset reductions due to an increased retirement age.
The workforce, and the caregiving demands placed upon it, has changed dramatically in recent decades with a decline in the number of households with a stay-at-home caregiver and the increased need for advanced professional skills. In looking at ways to update Social Security policy to reflect changes in the labor force, Christian Weller, in collaboration with Darrick Hamilton, proposed a way to improve benefits for people in retirement who take time out of the workforce to provide caregiving. Debra Whitman proposed allowing workers who are fully insured under Social Security to draw benefits before age 62 for up to two years to improve their skills through education or training. Financing option for this would include having the beneficiary pay back the additional benefits through higher contributions or delayed retirement claiming.
The goal of the Academy-AARP convening was not to identify a single solution to the challenges facing the nation’s premier retirement security program, or to find one best way for the program to innovate. Rather, the purpose was to add new “Lego pieces” to those already in the traditional Social Security policy box. In his event keynote, Peter Diamond analyzed the goals and achievements of the last major Social Security reform in 1983. As policymakers craft the next round of Social Security reform in the coming years, they should do so in ways that come to terms with secular demographic, economic and workforce trends. As they do so, the proposals discussed at the convening last week will offer useful points of departure.