Newswise — Social Security's long-term solvency is a "manageable problem" that will not require "drastic action," but federal policy makers need to ensure that benefits are adequate for widows and other vulnerable groups to survive, said University of Maryland professor and former Social Security Commissioner Kenneth Apfel in recent Senate testimony.
While the system will be strained by the aging of baby boomers and other demographic changes, "it's certainly not Armageddon," Apfel said in prepared testimony.
He urged Congress and the Obama Administration to take action in the next 18 months, adding that "Any solvency proposal needs to address the adequacy of benefits for vulnerable populations."
Apfel, professor at the Maryland School of Public Policy and board chair of the National Academy of Social Insurance served as Social Security Commissioner in the Clinton administration.
He testified June 17 before the U.S. Senate Special Committee on Aging.
EXCERPTS FROM APFEL'S TESTIMONY
# "Almost all the discussion over the past 16 years has been focused on financing Social Security. We need to be clear that we face twin challenges that both need to be addressed: the solvency challenge and the benefit adequacy challenge.
# "The Social Security financing shortfall is manageable without drastic changes. A doubling of the senior population will certainly place strains on financing Social Security, but it's certainly not Armageddon. According to projections by the Social Security Trustees and the Congressional Budget Office, the Social Security trust fund will not be exhausted for decades, and the system will not be 'bankrupt' after that time. Social Security revenues will still be sufficient to pay between 70 percent and 80 percent of today's benefit commitments. Social Security will be there in the future.
# "A package of tax increases and modest reductions in the growth of benefits phased in over the next half century is what is needed to resolve the solvency challenge.
# "A related solvency question is whether the privatization of Social Security will help to solve the long-term Social Security shortfall. Absolutely not. Taking payroll tax revenues out of Social Security to create private accounts makes the long-term financing problem bigger, not smaller.
# "Future benefit commitments will most likely have to be sharply curtailed if we privatize parts of Social Security. With privatization, a growing share of retirement income will be based on the returns of the market. Certainly stock market investments can lead to high returns over time. We all know from personal experience, however, that what goes up also sometimes comes down. Retirement savings has declined by about 40 percent over the past year. With privatization, trying to retire in a time of down market conditions can be a very risky proposition.
# "I would hope that the President and Congress could come together soon on a package of changes to ensure the long term solvency of Social Security. That package should not include private accounts. But it is likely that it will have to include changes to slow the growth of benefits for future generations. Benefits will likely be affected by any bipartisan effort to restore long term solvency. And that takes us to our second Social Security challenge: benefit adequacy, particularly for vulnerable populations. Any solvency action should be accompanied by proposals to address the current weaknesses in our benefit structure.
# "I would like to provide four quick examples. Should we explore ways to enhance benefits for the oldest old, whose sources of non-Social Security income support often erodes over time? Should benefits for widows be enhanced, and, if so, how? Should we provide more adequate benefits to those with low lifetime earnings, given the near absence of other substantial sources of retirement support for these workers? Lastly, since low-paid workers experience greater risk of becoming disabled before becoming old enough to retire, should the disability benefit safety net be adjusted for those unable to work, particularly if increases are made to the eligibility age for Social Security retirement benefits?"
APFEL RECOMMENDATIONS
"First, I would urge President Obama and the Congress to set a goal of addressing by the end of 2010 the dual challenges of Social Security solvency and Social Security benefit adequacy. Social Security has evolved for the past 75 years to meet changing needs, and it must continue to evolve. Any solvency proposal needs to address the adequacy of benefits for vulnerable populations.
"Second, Congress and the Administration need to come to agreement on the overall proportional mix of benefit and revenue changes needed to strengthen the system. Given the importance of Social Security as a source of income, I personally would lean more towards revenue enhancements. And rather than trying to solve a potential problem that may exist in the year 2100, I urge you to establish a more realistic goal. Frankly, no one knows what our fertility rates or our economic growth rates will be 100 years from now.
"Third, I do not believe that progress will take place on the Social Security issue until there is agreement to drop consideration of privatizing part of Social Security. A privatized system represents a dramatic departure from the framework that has guided Social Security for generations. If added retirement savings is desired - and it should be - it should come not at the expense of Social Security. I suggest that the Committee consider 401-k and IRA changes to help low and moderate income workers save through changes in default rules and added retirement savings tax incentives targeted at low and moderate income families."
Apfel's complete testimony is available online.
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