Social Security Reform:
Current Issues and Legislation
Dawn Nuschler
Specialist in Income Security
September 14, 2010
Congressional Research Service
7-5700
www.crs.gov
RL33544
CRS Report for Congress
P
repared for Members and Committees of Congress
Social Security Reform: Current Issues and Legislation
Summary
Social Security reform has been an issue of political debate in recent years. Currently, there is
renewed congressional interest in reform in part due to the National Commission on Fiscal
Responsibility and Reform established by President Obama in February 2010, which has been
tasked with making recommendations on ways to improve the long-term fiscal outlook that could
include changes to the Social Security program. The commission is required to make its
recommendations no later than December 1, 2010.
The spectrum of ideas for reform ranges from relatively minor changes to the pay-as-you-go
social insurance system enacted in the 1930s to a redesigned, “modernized” program based on
personal savings and investments modeled after IRAs and 401(k)s. Proponents of the
fundamentally different approaches to reform cite varying policy objectives that go beyond
simply restoring long-term financial stability to the Social Security system. They cite objectives
that focus on improving the adequacy and equity of benefits, as well as those that reflect different
philosophical views about the role of the Social Security program and the federal government in
providing retirement income. However, the system’s projected long-range financial outlook
provides a backdrop for much of the Social Security reform debate in terms of the timing and
degree of recommended program changes.
The Social Security Board of Trustees projects that the trust fund will be exhausted in 2037 and
that an estimated 78% of scheduled annual benefits will be payable with incoming receipts at that
time (under the intermediate projections). The primary reason is demographics. Between 2010
and 2030, the number of people aged 65 and older is projected to increase by 76%, while the
number of workers supporting the system is projected to increase by 8%. In addition, the trustees
project that the system will run cash flow deficits in 2010 and 2011, and again in 2015 and each
year thereafter through the end of the 75-year projection period. When current Social Security tax
revenues are insufficient to pay benefits and administrative costs, federal securities held by the
trust fund are redeemed and Treasury makes up the difference with other receipts. When there are
no surplus governmental receipts, policymakers have three options: raise taxes or other income,
reduce other spending, or borrow from the public (or a combination of these options).
Public opinion polls show that less than 50% of respondents are confident that Social Security
can meet its long-term commitments. There is also a public perception that Social Security may
not be as good a value for future retirees. These concerns, and a belief that the nation must
increase national savings, have led to proposals to redesign the system. At the same time, others
suggest that the system’s financial outlook is not a “crisis” in need of immediate action.
Supporters of the current program structure point out that the trust fund is projected to have a
positive balance until 2037 and that the program continues to have public support and could be
affected adversely by the risk associated with some of the reform ideas. They contend that only
modest changes are needed to restore long-range solvency to the Social Security system.
During the 110th Congress, six Social Security reform measures were introduced, five of which
would have established individual accounts. None of the measures received congressional action.
During the 111th Congress, four Social Security reform measures have been introduced. This
report will be updated as legislative or other activity warrants.
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Social Security Reform: Current Issues and Legislation
Contents
Background ................................................................................................................................ 1
Social Security Program Financing.............................................................................................. 1
Social Security Financing on a Cash Flow Basis.................................................................... 2
Social Security Trust Fund Solvency ..................................................................................... 7
Program Costs and Income as a Percentage of Taxable Payroll ........................................ 7
Program Costs and Income as a Percentage of Gross Domestic Product........................... 8
Basic Debate............................................................................................................................. 10
Push for Major Reform ....................................................................................................... 11
Arguments for Retaining the Existing System...................................................................... 11
Specific Areas of Contention..................................................................................................... 12
System’s Financial Outlook................................................................................................. 12
Public Confidence............................................................................................................... 13
Doubts About Money’s Worth ............................................................................................. 13
Debate Over Individual Accounts ........................................................................................ 14
Retirement Age Issue .......................................................................................................... 15
Cost-of-Living Adjustments ................................................................................................ 16
Social Security and the Budget ............................................................................................ 17
Initiatives for Change................................................................................................................ 19
Legislation Introduced in the 109th Congress ............................................................................. 22
Legislation Introduced in the 110th Congress ............................................................................. 25
Legislation Introduced in the 111th Congress ............................................................................. 27
Figures
Figure 1. Projected Social Security Trust Fund Balances, Under Intermediate
Assumptions of the 2010 Trustees Report, Calendar Years 2010-2036 ...................................... 6
Figure 2. Projected Social Security Surpluses/Deficits, Under Intermediate Assumptions
of the 2010 Trustees Report, Calendar Years 2010-2036 ........................................................... 6
Tables
Table 1.Surplus Social Security Tax Revenues and Total Social Security Surplus,
Calendar Years 1984 to 2009.................................................................................................... 4
Table 2.Projected Income and Outgo of the Social Security Trust Fund, Under
Intermediate Assumptions, Calendar Years 2010-2036.............................................................. 5
Table 3.Projected Social Security Income Rate, Cost Rate, and Balance as a Percentage of
Taxable Payroll, Selected Calendar Years 2010-2085................................................................ 8
Table 4.Projected Social Security Income, Cost, and Balance as a Percentage of Gross
Domestic Product (GDP), Selected Calendar Years 2010-2085 ................................................. 9
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Social Security Reform: Current Issues and Legislation
Contacts
Author Contact Information ...................................................................................................... 30
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Social Security Reform: Current Issues and Legislation
Background
Social Security reform has been an issue of political debate in recent years. Currently, there is
renewed congressional interest in reform in part due to the National Commission on Fiscal
Responsibility and Reform established by President Obama in February 2010, which has been
tasked with making recommendations on ways to improve the long-term fiscal outlook that could
include changes to the Social Security program. The commission is required to make its
recommendations no later than December 1, 2010.
The Social Security reform debate reflects different approaches to reform. Some policymakers
support restructuring the program through the creation of individual accounts (i.e., a pre-funded
system in which benefits would be based increasingly on personal savings and investments).
Supporters of individual accounts point to the system’s projected long-range funding shortfall as a
driver for change in conjunction with creating a system that would give workers a sense of
“ownership” of their retirement savings. Other policymakers support maintaining the current
structure of the program (i.e., a defined benefit system funded on a pay-as-you-go basis), pointing
to the system’s projected long-range financial outlook to support their view that the system is not
in “crisis” and that only modest program changes may be needed.
Proponents of the fundamentally different approaches to reform (ranging from relatively minor
changes to the current pay-as-you-go social insurance system to the creation of a “modernized”
program based on personal savings and investments modeled after IRAs and 401(k)s) cite varying
policy objectives that go beyond simply restoring long-term financial stability to the system. They
cite objectives that focus on improving the adequacy and equity of benefits, as well as those that
reflect different philosophical views about the role of the Social Security program and the federal
government in providing retirement income. However, the system’s projected long-range
financial outlook provides a backdrop for much of the Social Security reform debate in terms of
the timing and degree of recommended program changes. For example, one of the key criteria
used to evaluate any reform proposal is its projected impact on the Social Security trust fund. To
place the discussion of Social Security reform issues into context, the report first looks at Social
Security program financing and the long-range projections for the Social Security trust fund as
reported by the Social Security Board of Trustees.1 The report then looks at the various objectives
and proposals for reform.
Social Security Program Financing
Social Security, one of the largest federal programs, is a social insurance system that pays benefits
to retired and disabled workers, their family members, and family members of deceased workers.
As of December 2009, there were 52.5 million Social Security beneficiaries. Sixty-four percent of
1 The Social Security Board of Trustees is composed of three officers of the President’s Cabinet (the Secretary of the
Treasury, the Secretary of Labor, and the Secretary of Health and Human Services), the Commissioner of Social
Security, and two public representatives who are appointed by the President and subject to confirmation by the Senate.
The trustees report annually on the financial status of the trust fund based on three sets of assumptions (low cost,
intermediate and high cost) given the uncertainty surrounding projections for a 75-year period. The projections
discussed in this CRS report are the intermediate (or “best estimate”) projections from the 2010 trustees report (see The
2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability
Insurance Trust Funds, August 5, 2010, available at http://www.ssa.gov/OACT/TR/2010/).
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those beneficiaries were retired workers and 15% were disabled workers. The remaining 21%
were survivors or the spouses and children of retired or disabled workers.2 In 2010, Social
Security covers an estimated 156.3 million workers.3
The Social Security program is funded by payroll taxes paid by covered workers and their
employers, federal income taxes paid by some beneficiaries on a portion of their benefits, and
interest income from the Social Security trust fund investments. Social Security tax revenues are
invested in interest-bearing federal government securities (special issues) held by the Old-Age,
Survivors, and Disability Insurance (OASDI) trust fund maintained by the Treasury Department.4
The revenues exchanged for the federal government securities are deposited into the general fund
of the U.S. Treasury and are indistinguishable from revenues in the general fund that come from
other sources. Funds needed to pay Social Security benefits and administrative expenses come
from the redemption or sale of federal government securities held by the trust fund.5
To place Social Security’s finances into perspective, in 2009, the Social Security trust fund had
receipts totaling $807.49 billion, expenditures totaling $685.80 billion, and a total surplus
(surplus including interest income) of $121.69 billion. The trust fund had a cash flow surplus
(surplus excluding interest income) of $3.34 billion. At the end of 2009, the Social Security trust
fund held assets totaling $2.54 trillion.6 Because the assets held by the trust fund are federal
government securities, the trust fund balance ($2.54 trillion in 2009) represents the amount of
money owed to the Social Security trust fund by the general fund of the U.S. Treasury.
Social Security Financing on a Cash Flow Basis
Since 1984, Social Security has been generating surplus tax revenues. Surplus tax revenues and
interest income credited to the trust fund in the form of federal government securities contribute
to a growing trust fund balance. Table 1 shows the amount of annual surplus Social Security tax
revenues collected by the federal government and used for other (non-Social Security) purposes
from 1984 to 2009. Surplus Social Security tax revenues totaled $1.21 trillion (in nominal dollars)
from 1984 to 2009. Table 1 also shows total annual Social Security surpluses (including interest
income) from 1984 to 2009.
At the end of 2009, the trust fund was credited with assets totaling $2.54 trillion. Under the
intermediate assumptions of the 2010 trustees report, the trust fund balance is projected to
continue to grow, peaking at $4.20 trillion (in nominal dollars) at the end of 2024 ($2.90 trillion
in constant 2010 dollars). Beginning in 2025, however, program expenditures are projected to
exceed total income (tax revenues plus interest income) and trust fund assets will begin to be
drawn down to help pay for benefits and administrative expenses. The trustees project that the
trust fund will continue to have a positive balance until 2037, allowing benefits scheduled under
2 Social Security Administration (SSA), Fast Facts & Figures About Social Security, 2010, SSA Publication No. 13-
11785, August 2010, p. 14, http://www.socialsecurity.gov/policy/docs/chartbooks/fast_facts/2010/fast_facts10.pdf.
3 Social Security Administration, 2010 Social Security/SSI/Medicare Information, January 8, 2010, p. 1,
http://www.socialsecurity.gov/legislation/2010factsheet.pdf.
4 OASDI is the formal name for Social Security. There are two separate trust funds: the Old-Age and Survivors
Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund. This report refers to the two trust funds on a
combined basis as the Social Security trust fund.
5 Social Security Administration, Trust Fund FAQs, http://www.ssa.gov/OACT/ProgData/fundFAQ.html.
6 Social Security Administration, Trust Fund Data, http://www.ssa.gov/OACT/STATS/table4a3.html.
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current law to be paid in full until that time. After the trust fund is exhausted, which is projected
to occur in 2037, the program would operate using current Social Security tax revenues, which
would be sufficient to pay an estimated 78% of benefit payments scheduled under current law in
2037 and about 75% of scheduled benefits in 2084. (See Table 2 and Figure 1.)
Starting in 2010, however, Social Security is projected to operate with annual cash flow deficits
(i.e., income excluding interest will be less than outlays). The trustees project that the trust fund
will run cash flow deficits in 2010 and 2011, followed by cash flow surpluses in 2012 to 2014.
Cash flow deficits are projected to re-emerge in 2015 and continue through the remainder of the
75-year projection period (through 2084). When Social Security operates with a cash flow deficit,
the program cashes in more federal government securities than the amount of current Social
Security tax revenues. General revenues are used to redeem the federal government securities
held by the trust fund. When there are no surplus governmental receipts, the increased spending
for Social Security from the general fund can only be paid for by the federal government raising
taxes or other income, reducing other spending, or borrowing from the public (i.e., replacing
bonds held by the trust fund with bonds held by the public). When total trust fund income
(income including interest) is taken into account, the trustees project that Social Security will
have a total surplus each year from 2010 to 2024.
Stated another way, the emergence of cash flow deficits means that the program begins to rely on
interest credited to the trust fund to meet annual program costs (to help pay benefits scheduled
under current law and administrative expenses). Interest credited to the trust fund is an exchange
of credits between Treasury accounts (not a financial resource for the federal government from
outside sources); interest is credited to the trust fund in the form of new special issue securities.
General revenues are used to redeem trust fund securities to cover the difference between Social
Security tax revenues and program costs. In the 2010 trustees report, the trustees project that the
program’s reliance on general revenues will be about $78 billion in 2020 (in constant 2010
dollars). The program’s reliance on general revenues will increase as the trust fund balance begins
to be drawn (starting in 2025 when program costs exceed total income). For example, the
program’s reliance on general revenues is projected to be about $268 billion in 2030 (in constant
2010 dollars). Projected total Social Security surpluses and deficits, as well as projected cash flow
surpluses and deficits, for each year from 2010 to 2036 are shown in Table 2 and Figure 2.
With respect to the program’s reliance on general revenues, it is important to note that the
program is relying on revenues collected for Social Security purposes in previous years that were
used by the federal government at the time for other (non-Social Security) spending needs. The
Social Security program draws on those previously collected Social Security tax revenues (plus
interest) when current Social Security tax revenues fall below current program expenditures.
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Table 1.Surplus Social Security Tax Revenues and Total Social Security Surplus,
Calendar Years 1984 to 2009
(in millions of nominal dollars)
Surplus Tax
Total
Revenues
Revenues
Surplus
from
(Total Tax
(Including
Calendar
Payroll Tax
Taxation of
Total Tax
Revenues
Interest
Year
Revenues
Benefitsa
Revenues Cost Minus Cost)
Income)
1984 $180,067 $3,025 $183,092 $180,429 $2,663 $6,208
1985 194,149 3,430 197,579 190,628 6,951 11,088
1986 209,140 3,662 212,802 201,522 11,280 4,698
1987 222,425 3,221 225,646 209,093 16,553 21,946
1988 251,814 3,445 255,259 222,514 32,745 40,955
1989 274,189 2,534 276,723 236,242 40,481 53,206
1990 296,070 4,992 301,062 253,135 47,927 62,309
1991 301,711 6,054 307,765 274,205 33,560 55,471
1992 311,128 6,084 317,212 291,865 25,347 50,726
1993 322,090 5,616 327,706 308,766 18,940 46,812
1994 344,695 5,306 350,001 323,011 26,990 58,100
1995 359,021 5,831 364,852 339,815 25,037 59,683
1996 378,881 6,844 385,725 353,569 32,156 70,883
1997 405,984 7,896 413,880 369,108 44,772 88,560
1998 430,174 9,707 439,881 382,255 57,626 106,950
1999 459,556 11,559 471,115 392,908 78,207 133,673
2000 492,484 12,314 504,798 415,121 89,677 153,312
2001 516,393 12,715 529,108 438,916 90,192 163,088
2002 532,471 13,839 546,310 461,653 84,657 165,432
2003 533,519 13,441 546,960 479,086 67,874 152,799
2004 553,040 15,703 568,743 501,643 67,100 156,075
2005 592,940 14,916 607,856 529,938 77,918 171,821
2006 625,594 16,858 642,452 555,421 87,031 189,452
2007 656,121 18,585 674,706 594,501 80,205 190,388
2008 672,122 16,879 689,001 625,143 63,858 180,159
2009 667,257 21,884 689,141 685,801 3,340 121,689
Source: Table prepared by CRS based on data from the Social Security Administration, http://www.ssa.gov/
OACT/STATS/table4a3.html.
a. Some beneficiaries are required to pay federal income taxes on a portion of their benefits. For more
information, see CRS Report RL32552, Social Security: Calculation and History of Taxing Benefits.
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Table 2.Projected Income and Outgo of the Social Security Trust Fund, Under
Intermediate Assumptions, Calendar Years 2010-2036
(in billions of constant 2010 dollars)
Annual
Cash Flow
Tax
Interest
Total
Surplus/
Surplus/
Trust Fund
Year
Revenues
Income
Income Cost Deficita
Deficitb
Balance
2010 $673.2 $118.1 $791.3 $714.6 $76.7
-$41.4
$2,617.0
2011 722.8
118.1 840.8 729.6 111.2
-6.8
2,685.4
2012 751.0
122.1 873.1 749.3 123.8
1.7
2,748.8
2013 779.7
128.2 907.9 774.8 133.1
4.9
2,810.3
2014 806.4
134.6 941.0 802.8 138.2
3.6
2,871.9
2015 830.4
140.7 971.1 833.0 138.1
-2.6
2,931.8
2016 855.4
146.7 1,002.1 864.8 137.3
-9.4
2,989.2
2017 877.0
152.8 1,029.8 898.3 131.5
-21.3
3,039.3
2018 896.7
158.3 1,054.9 933.3 121.6
-36.6
3,078.1
2019 913.1
162.2 1,075.3 969.8 105.5
-56.7
3,099.8
2020 929.1
164.8 1,094.0
1,007.4 86.6
-78.3
3,101.9
2021 944.7
166.4 1,111.1
1,045.0 66.1
-100.3
3,083.5
2022 960.3
166.9 1,127.2
1,082.3 44.9
-122.0
3,044.4
2023 976.3
166.2 1,142.5
1,119.8 22.7
-143.5
2,984.2
2024 992.8
164.3 1,157.1
1,157.0 0.1
-164.2
2,903.0
2025 1,009.3
159.2 1,168.5 1,194.0 -25.5
-184.7
2,798.5
2026 1,026.3
152.8 1,179.1 1,230.1 -51.0
-203.8
2,671.3
2027 1,043.9
145.2 1,189.1 1,265.7 -76.6
-221.8
2,521.9
2028 1,061.8
136.3 1,198.2 1,300.4 -102.2
-238.6
2,350.9
2029 1,079.8
126.3 1,206.0 1,333.8 -127.8
-254.0
2,159.1
2030 1,098.2
115.2 1,213.4 1,365.7 -152.3
-267.5
1,948.0
2031 1,117.5
103.0 1,220.4 1,397.3 -176.9
-279.8
1,718.1
2032 1,137.0
89.7
1,226.7 1,428.2 -201.5
-291.2
1,469.8
2033 1,156.7
75.5
1,232.2 1,458.1 -225.9
-301.4
1,203.9
2034 1,176.6
60.3
1,236.9 1,486.7 -249.8
-310.1
921.3
2035 1,196.9
44.3
1,241.2 1,514.2 -273.0
-317.3
623.3
2036c 1,217.9
27.4
1,245.3 1,541.2 -295.9
-323.3
310.4
Source: CRS, based on data from The 2010 Annual Report of the Board of Trustees of the Federal Old-Age and
Survivors Insurance and Federal Disability Insurance Trust Funds, August 5, 2010, table VI.F7, available at
http://www.ssa.gov/OACT/TR/2010/lr6f7.html.
a. The annual surplus/deficit is equal to total income minus cost.
b. The annual cash flow surplus/deficit is equal to tax revenues minus cost.
c. The Social Security trust fund is projected to be exhausted in 2037.
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Figure 1. Projected Social Security Trust Fund Balances, Under Intermediate
Assumptions of the 2010 Trustees Report, Calendar Years 2010-2036
$3.5
$3.0
lars)
$2.5
2010 dol
$2.0
tant
cons
$1.5
of
$1.0
(trillions
$0.5
$0.0
2010
2015
2020
2025
2030
2035
Figure 2. Projected Social Security Surpluses/Deficits, Under Intermediate
Assumptions of the 2010 Trustees Report, Calendar Years 2010-2036
$200
Projected Surplus/Deficit
(Total Income Minus Cost)
$100
lars)
$0
dol
2010
2015
2020
2025
2030
2035
2010
tant
-$100
cons
of
-$200
illions
(b
Projected Cash Flow Surplus/Deficit
(Tax Revenues Minus Cost)
-$300
-$400
Source: Figures are based on data from The 2010 Annual Report of the Board of Trustees of the Federal Old-
Age and Survivors Insurance and Federal Disability Insurance Trust Funds, August 5, 2010.
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Social Security Trust Fund Solvency
The trustees project that the Social Security trust fund will be exhausted in 2037, at which point
incoming receipts will cover an estimated 78% of scheduled annual benefits.7 In addition, the
trustees project that Social Security expenditures will exceed income by 14% on average over the
next 75 years (2010-2084). Demographic changes are among the primary reasons for the system’s
projected funding shortfall. The first wave of the post-World War II baby boom generation began
retiring in 2008, fertility rates continue to be lower than those experienced during the baby boom
era (1946-1965), and life expectancy is projected to increase, factors that contribute to an older
society. Between 2010 and 2030, the number of people aged 65 and older is projected to increase
by 76%, whereas the number of workers whose taxes will finance future benefits is projected to
increase by 8%. As a result, the number of workers supporting each Social Security recipient is
projected to decline from 2.9 today to 2.1 in 2035.8
In addition, program design features contribute to the projected growth in program spending. For
example, elements of the Social Security benefit formula are indexed to wage growth, resulting in
a projected increase in the value of initial monthly benefits for future retirees. Wage indexing
allows initial monthly benefits to replace a constant proportion of pre-retirement earnings for
future retirees so that initial monthly benefits keep pace with rising living standards.
Program Costs and Income as a Percentage of Taxable Payroll
In 2010, the cost of the Social Security program is estimated to be $714.6 billion, an amount
equal to 13.09% of workers’ pay subject to Social Security payroll taxes (or taxable payroll).9 The
trustees project that program costs will increase sharply between 2015 and 2030 as the baby
boom generation moves into retirement. As a share of taxable payroll, the cost of the program is
projected to increase from 12.98% in 2015 to 16.41% in 2030. Program costs are then projected
to increase at a slower rate, reaching 16.73% of taxable payroll in 2035. Beyond 2035, program
costs as a share of taxable payroll are projected to remain relatively stable for several decades
before gradually increasing to 17.47% of taxable payroll in 2085.
By comparison, projections show relatively small increases in income rates over the period
(annual income rates exclude interest income). As a percentage of taxable payroll, program
income is projected to increase from 12.33% in 2010 to 13.31% in 2085. Income rates are
projected to remain relatively stable over the period because the Social Security payroll tax rate
(12.4% for employers and employees combined) is not scheduled to change under current law,
and income from the taxation of Social Security benefits is projected to increase only gradually
relative to taxable payroll as the proportion of beneficiaries who must pay income taxes on a
portion of their benefits increases gradually over time.10 As a result, the gap between income and
7 In June 2010, the Congressional Budget Office (CBO) projected that the Social Security trust fund would be
exhausted in 2039 under the extended-baseline scenario and in 2037 under the alternative fiscal scenario. For more
information on the CBO projections, see The Long-Term Budget Outlook, June 2010 (Revised August 2010), at
http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf.
8 For more information on this topic, see CRS Report RL32981, Age Dependency Ratios and Social Security Solvency,
by Laura B. Shrestha.
9 Program costs and income are evaluated as a percentage of taxable payroll because Social Security payroll taxes are
the primary source of funding for the program.
10 For more information on the taxation of Social Security benefits, see CRS Report RL32552, Social Security:
(continued...)
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expenditures is projected to increase over the period. By 2085, program costs are projected to
exceed income by 31% (or an amount equal to 4.16% of taxable payroll). On average, over the
75-year period (2010-2084), the cost of the program is projected to exceed income by 14% (or an
amount equal to 1.92% of taxable payroll). (See Table 3.)
Table 3.Projected Social Security Income Rate, Cost Rate, and Balance as a
Percentage of Taxable Payroll, Selected Calendar Years 2010-2085
(under the intermediate assumptions of the 2010 trustees report)
Year Income
Rate
Cost
Rate Balance
2010 12.33 13.09 -0.76
2015 12.94 12.98 -0.04
2020 13.05 14.15 -1.10
2025 13.13 15.54 -2.40
2030 13.19 16.41 -3.21
2035 13.22 16.73 -3.50
2040 13.23 16.64 -3.41
2045 13.23 16.44 -3.22
2050 13.23 16.33 -3.11
2055 13.23 16.37 -3.14
2060 13.24 16.48 -3.24
2065 13.25 16.62 -3.36
2070 13.27 16.81 -3.54
2075 13.28 17.03 -3.75
2080 13.30 17.25 -3.95
2085 13.31 17.47 -4.16
75 years:
2010-2084
14.01 15.93 -1.92
Source: The 2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and
Federal Disability Insurance Trust Funds, August 5, 2010, table VI.F2, pp. 182-183, and table VI.F3, p. 184.
Note: Annual income rates exclude interest income.
Program Costs and Income as a Percentage of Gross Domestic Product
Social Security program costs and income are also evaluated as a share of U.S. economic output.
Program costs are projected to increase faster than the economy over the next three decades. The
cost of the program is projected to increase from 4.84% of gross domestic product (GDP) in 2010
to 6.14% in 2035. Program costs as a percentage of GDP are then projected to decline to 5.89% in
2050 and remain between 5.9% and 6.0% through 2085.
(...continued)
Calculation and History of Taxing Benefits, by Christine Scott and Janemarie Mulvey.
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By comparison, program income as a percentage of GDP is projected to remain relatively stable
over the period (annual income excludes interest income). Program income is projected to
increase from 4.56% of GDP in 2010 to 4.89% in 2020. Program income as a percentage of GDP
is then projected to decline gradually to 4.83% in 2040 and 4.60% in 2085. Program income is
projected to decline as a share of GDP because wages subject to the Social Security payroll tax
are projected to increase more slowly than other forms of employee compensation and other types
of income. In 2085, the projected funding shortfall is an amount equal to 1.44% of GDP. On
average, over the 75-year period (2010-2084), the projected funding shortfall is an amount equal
to 0.70% of GDP. (See Table 4.)
Table 4.Projected Social Security Income, Cost, and Balance as a Percentage of
Gross Domestic Product (GDP), Selected Calendar Years 2010-2085
(under the intermediate assumptions of the 2010 trustees report)
Year Income Cost Balance
2010 4.56 4.84 -0.28
2015 4.81 4.83 -0.02
2020 4.89 5.30 -0.41
2025 4.87 5.77 -0.89
2030 4.86 6.05 -1.18
2035 4.85 6.14 -1.29
2040 4.83 6.08 -1.25
2045 4.80 5.97 -1.17
2050 4.77 5.89 -1.12
2055 4.74 5.87 -1.12
2060 4.71 5.87 -1.15
2065 4.69 5.88 -1.19
2070 4.66 5.90 -1.24
2075 4.63 5.94 -1.31
2080 4.61 5.98 -1.37
2085 4.60 6.03 -1.44
75 years:
2010-2084
5.09 5.79 -0.70
Source: The 2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and
Federal Disability Insurance Trust Funds, August 5, 2010, table VI.F4, pp. 187-188.
Note: Income for individual years excludes interest on the trust fund. Interest is implicitly reflected in the
summarized rate.
The projected long-range financial outlook for the Social Security system is reflected in public
opinion polls that show less than 50% of respondents are confident in Social Security’s ability to
meet its long-term commitments.11 There is a growing public perception that Social Security may
11 Polling results are from PollingReport.com at http://www.pollingreport.com/social.htm (see ABC News/Washington
Post Poll, February 19-22, 2009).
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not be as good a value in the future. Until recent years, retirees could expect to receive more in
benefits than they paid in Social Security payroll taxes. However, because Social Security payroll
tax rates have increased to cover the costs of the maturing “pay-as-you-go” system, these ratios
have become less favorable. Such concerns, and a belief that the nation must increase national
savings to meet the needs of an aging society, are among the factors behind reform efforts.
Supporters of the current program structure suggest that the issues confronting the system are not
as serious as sometimes portrayed and believe there is no imminent crisis. They point out that the
trust fund is projected to have a balance until 2037, there continues to be public support for the
program, and there would be considerable risk in some of the reform ideas. They contend that
relatively modest changes could restore long-range solvency to the system.12
Basic Debate
The Social Security system has faced funding shortfalls in the past. In 1977 and 1983, Congress
enacted a variety of measures to address the system’s financial imbalance. These measures
include constraints on the growth of initial benefit levels, a gradual increase in the full retirement
age from 65 to 67 (i.e., the age at which unreduced benefits are first payable), payroll tax
increases, taxation of benefits for higher-income recipients, and extension of Social Security
coverage to federal and nonprofit workers. Subsequently, projections showed the re-emergence of
long-term deficits as a result of changes in actuarial methods and assumptions, and because
program changes had been evaluated with respect to their effect on the average 75-year deficit.
That is, while program changes were projected to restore trust fund solvency on average over the
75-year period, a period of surpluses was followed by a period of deficits.
Some policymakers believe that some type of action should be taken sooner rather than later. This
view has been shared by the Social Security trustees and other panels and commissions that have
examined the issue. In recent years, a wide range of interest groups have echoed this view in
testimony before Congress. However, there is no consensus on whether the projections represent
a “crisis.” In 1977 and 1983, the trust fund balances were projected to fall to zero within a very
short period (within months of the 1983 reforms). Today, the problem is perceived to be as many
as 27 years away (based on the projected trust fund exhaustion date). Lacking a “crisis,” the
pressure to compromise is diffused and the issues and the divergent views about them have led to
myriad complex proposals. In 1977 and 1983, the debate was not about fundamental reform.
Rather, it revolved around how to raise the system’s income and constrain costs. Today, the ideas
range from restoring the system’s solvency with as few alterations as possible to replacing it
entirely with something modeled after IRAs or 401(k)s. This broad spectrum was reflected in the
1997 Social Security Advisory Council report, which presented three different reform plans. None
of the plans was supported by a majority of the 13-member council. Similar diversity is reflected
in the Social Security reform bills introduced in recent Congresses.
12 For more information on Social Security trust fund operations, see CRS Report RL33028, Social Security: The Trust
Fund, by Dawn Nuschler and Gary Sidor.
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Push for Major Reform
Advocates of reform view Social Security as an anachronism, built on depression-era concerns
about high unemployment and widespread “dependency” among the aged. They see the prospect
of reform today as an opportunity to “modernize” the way society saves for retirement. They
maintain that the vast economic, social and demographic changes that have transpired over the
past 75 years require the system to change, and they point to changes made in other countries that
now use market-based individual accounts to strengthen retirement incomes and bolster their
economies by spurring savings and investments. They believe government-run, pay-as-you-go
systems are unsustainable in aging societies. They prefer a system that allows workers to acquire
wealth and provide for their retirement by investing in individual accounts.
Reform advocates also view it as a way to counter skepticism about the current system by giving
workers a greater sense of “ownership” of their retirement savings. They contend that private
investments would yield larger retirement incomes because stocks and bonds historically have
provided higher returns than are projected from the current system. Some believe that individual
accounts would address what they view as the system’s contradictory mix of insurance and social
welfare goals. Others maintain that creating a system of individual accounts would prevent the
government from using any surplus Social Security tax revenues for other government spending.
Recent stock market declines, however, may make investment-based proposals less popular
among some policymakers in the near term.
Some, who do not necessarily seek a new system, view enactment of long-range Social Security
constraints as one way to curb federal entitlement spending. The aging of society means that the
cost of entitlement programs that aid the elderly will increase greatly in the future. The costs of
the largest entitlement programs (Social Security, Medicare and Medicaid) are directly linked to
an aging population. Proponents of imposing constraints on these programs express concern that,
if left unchecked, their costs would place pressure on the federal budget far into the future,
consuming resources that could be used for other priorities and forcing future generations to bear
a much higher tax burden.
As a matter of fairness, it has been pointed out that many current recipients get back more than
the value of their Social Security contributions, and far more than the baby boom generation will
receive. They believe that to delay making changes to the program is unfair to current workers,
who must pay for “transfer” payments that they characterize as “overgenerous” and unrelated to
need, while facing the prospect that their own benefits may have to be scaled back severely.
Others emphasize the system’s projected long-range funding shortfall and contend that steps
should be taken soon (e.g., raising the full retirement age, constraining the growth of initial
monthly benefits for future retirees, reducing cost-of-living adjustments, raising payroll taxes) so
that changes can be phased in, allowing workers more time to adjust their retirement expectations
and plans to reflect what the program will be able to provide in the future. They maintain that
more abrupt changes in taxes and benefits would be required otherwise.
Arguments for Retaining the Existing System
Those who favor a more restrained approach believe that the issues facing the system can be
resolved with modest tax and spending changes, and that the program’s critics are raising the
specter that Social Security will “bankrupt the nation” to undermine public support and provide
an excuse to incorporate individual accounts into the system. They contend that individual
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savings accounts would erode the social insurance nature of the current program that favors
lower-wage workers, survivors and the disabled.
Others are concerned that switching to a new system of individual accounts would pose large
transition problems by requiring younger workers to save for their own retirement while paying
taxes to cover benefits for current retirees. Some doubt that it would increase national savings,
arguing that higher government debt (resulting from the redirection of current payroll taxes to
individual accounts) would offset the increased individual account savings. They also contend
that the capital markets’ inflow created by the accounts would make the markets difficult to
regulate and potentially distort equity valuations. They point out that some of the countries that
have moved to individual accounts did so to create capital markets. Such markets, they argue, are
already well developed in the United States.
Some believe that a system of individual accounts would expose participants to excessive market
risk for an income source that has become essential to many of the nation’s elderly. They say that
the nation has a three-tiered retirement system (Social Security, private pensions and personal
assets) that already includes private savings and investment. They contend that while people may
be willing and able to undertake some “risk” in the latter two tiers, Social Security (as the tier that
provides a basic floor of protection) should be more stable. They further contend that the
administrative costs of maintaining individual accounts could be very large and significantly
erode the value of the accounts.
Some say that concerns about the future growth of entitlement spending are overblown, arguing
that as people live longer, they will work longer as labor markets tighten and employers offer
inducements for them to remain on the job. They point out that a projected low ratio of workers to
dependents is not unprecedented, as it existed when the baby boomers were in their youth.
Specific Areas of Contention
System’s Financial Outlook
There are conflicting views about the severity of Social Security’s projected funding shortfall.
Some maintain that the problem is more acute than portrayed under the traditional 75-year
projections that show an average 75-year deficit equal to 1.92% of taxable payroll ($5.4 trillion in
present value terms). They believe this view is supported by an alternative portrayal in the
trustees’ report that extends the projections indefinitely into the future. On an “infinite horizon”
basis, the projected funding shortfall is equal to 3.3% of taxable payroll ($16.1 trillion in present
value terms). They also point out that, in 2030 for example, the cost of the system is projected to
exceed income by an amount equal to 3.21% of taxable payroll (costs are projected to exceed
income by 24%). By the end of the projection period (2084), however, the cost of the system is
projected to exceed income by an amount equal to 4.12% of taxable payroll (costs are projected
to exceed income by 31%). On a pay-as-you-go basis, the system would require more than a 14%
change in taxes or expenditures over the next 75 years to cover projected program costs (over the
next 75 years, on average, the cost of the system is projected to exceed income by 14%).
They maintain that viewing the problem as 27 years away (the trust fund is projected to have a
balance until 2037) does not take into account the pressure Social Security will exert on the
federal budget as annual cash flow deficits emerge and the system begins to rely on assets held by
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the trust fund (federal government securities) to meet annual expenditures. At that point, the
government must rely on other financial resources to help pay Social Security benefits and
administrative expenses, resources that could be used to finance other governmental functions.
Others express concern that the problem is being exaggerated. They maintain that, in contrast to
earlier episodes of financial imbalance, the system has no immediate problem: the trust fund is
projected to have a positive balance until 2037 and can pay benefits scheduled under current law
in full until that time. They state that projections for the next 75 years, let alone the indefinite
future, cannot be viewed with any degree of confidence and that Congress should respond to the
projections with caution. They point out that, even if the 75-year projections hold, the average
imbalance could be eliminated by increasing the combined employer and employee payroll tax
rate immediately by 1.84 percentage points. While acknowledging that the cost of the system is
projected to represent a notably larger share of GDP in the future (increasing from 4.84% of GDP
today to 6.14% of GDP in 2035), they point out that GDP itself would have risen substantially in
real terms. Moreover, while the ratio of workers to recipients is projected to decline, they believe
that employers are likely to respond with inducements for older workers to stay on the job longer.
Phased-in retirements are becoming more prevalent, and some older workers are viewing
retirement increasingly as more than an all-or-nothing decision.
Public Confidence
In recent years, public opinion polls have shown that a majority of Americans lack confidence in
the system’s ability to meet its future commitments. Younger workers are particularly skeptical.
For example, in one recent poll of non-retired adults aged 18 or older, 70% of those in the 18-49
age group said they did not think the Social Security system would be able to pay them a benefit
when they retire, compared with 34% in the 50 or older age group.13
Some observers express caution about inferring too much from polling data, arguing that public
understanding of Social Security is limited and often inaccurate. They maintain that a major
reason confidence is highest among older persons is that they have learned more about Social
Security because they are more immediately affected by the program. Some believe that the
annual statements provided by the Social Security Administration will make workers more aware
of their estimated future benefits scheduled under current law and thus more trusting of the
system. Others, however, suggest that the skepticism is justified by the system’s repeated
financial difficulties and diminished “money’s worth” for younger workers.
Doubts About Money’s Worth
Until recent years, Social Security recipients received more, often far more, than the value of the
Social Security taxes they paid. However, because Social Security payroll tax rates have
increased over the years and the full retirement age (the age at which unreduced benefits are first
payable) is being increased gradually, it is becoming more apparent that Social Security will be
less of a good deal for many future retirees. For example, for workers who earned average wages
and retired in 1980 at the age of 65, it took 2.8 years to recover the value of the retirement portion
of the combined employee and employer shares of their Social Security taxes plus interest. For
13 Polling results are from PollingReport.com at http://www.pollingreport.com/social.htm (see CNN/Opinion Research
Corporation Poll, August 6-10, 2010).
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their counterparts who retired at the age of 65 in 2003, it will take 17.4 years. For those retiring in
2020, it will take 21.6 years. Some observers believe these discrepancies are inequitable and cite
them as evidence that the system needs to be substantially restructured.
Others discount this phenomenon, viewing Social Security as a social insurance program serving
social ends that transcend questions of whether some individuals fare better than others. For
example, the program’s anti-poverty features are designed to replace a higher proportion of
earnings for lower-wage workers and provide additional benefits for workers with families. Some
observers point out that current workers, who will receive less direct value from their taxes
compared with current retirees, have in part been relieved from having to support their parents,
and many elderly are able to live independently and with dignity. These observers contend that
the value of these aspects of the program is not reflected in comparisons of taxes and benefits.
Debate Over Individual Accounts
Social Security’s projected long-range financial outlook, skepticism about the sustainability of the
current system, and a belief that economic growth could be bolstered through increased savings
have led to a number of proposals to incorporate individual accounts into the Social Security
system, reviving a debate that dates back to the creation of the program in 1935. All three plans
presented by the 1994-1996 Social Security Advisory Council featured program involvement in
the financial markets. The first called upon Congress to consider authorizing investment of part of
the Social Security trust fund in equities (on the assumption that stocks would produce a higher
return to the system). The second would require workers to contribute an extra 1.6% of pay to
individual accounts to make up for Social Security benefit reductions called for under the plan to
restore the system’s long-range solvency. The third would redesign the system by gradually
replacing Social Security retirement benefits with flat-rate benefits based on length of service and
individual accounts (funded with 5 percentage points of the current Social Security tax rate).14
The reform that Chile enacted in 1981, which replaced a troubled pay-as-you-go system with one
requiring workers to invest part of their earnings in individual accounts through government-
approved pension funds, has been reflected in a number of reform bills introduced in recent
Congresses.15 These measures would permit or require workers to invest some or all of their
Social Security payroll taxes in individual accounts. Most call for future Social Security benefits
to be reduced or forfeited. Similarly, the three options presented by the Social Security reform
commission appointed by former President Bush in 2001 would allow workers to participate in
individual accounts and would reduce their future Social Security benefit by the projected value
of the account based on an assumed (rather than the actual) rate of return.16
Another approach is reflected in bills that would require any budget surpluses to be used to
finance individual accounts to supplement Social Security benefits for those who pay Social
14 Report of the 1994-1996 Advisory Council on Social Security, Volume I: Findings and Recommendations,
Washington, DC, January 1997.
15 For more information on the reforms in Chile and other countries, see Congressional Budget Office, Social Security
Privatization: Experiences Abroad, January 1999, available at http://www.cbo.gov/ftpdocs/10xx/doc1065/ssabroad.pdf;
and CRS Report RL34006, Social Security: The Chilean Approach to Retirement, by Christopher Tamborini.
16 Strengthening Social Security and Creating Personal Wealth for All Americans, Final Report of the President’s
Commission to Strengthen Social Security, December 21, 2001, available at http://www.csss.gov/reports/
Final_report.pdf.
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Security payroll taxes. Former President Clinton’s January 1999 reform plan would have
allocated a portion of budget surpluses to individual accounts, supplemented by a worker’s own
contributions and a government match (scaled to income). In addition, the plan would have
redirected a portion of budget surpluses, or the interest savings resulting therefrom, to the Social
Security trust fund. Some of the funds would have been used to acquire stocks, similar to the
approach suggested in one of the Advisory Council plans and some past legislation. Most of these
approaches would require establishment of an independent board to invest some of the funds in
stocks or corporate bonds and the remaining funds in federal securities.
Some individual account proponents believe that individual accounts would reduce future
financial demands on government and reassure workers by giving them a sense of “ownership” of
their retirement savings. Others believe that individual accounts would enhance workers’
retirement income because stocks and bonds generally have provided higher rates of return than
are projected from Social Security. In conjunction with this, they maintain that individual
accounts would increase national savings and promote economic growth. Others maintain that
individual accounts would prevent the government from using any surplus Social Security
revenues to “mask” public borrowing, or for other spending or tax reductions. Generally,
proponents of an individual account system express concern that “collective” investment of the
Social Security trust fund in the markets would concentrate too much economic power in a
government-appointed board.17
Opponents of individual accounts maintain that Social Security’s projected long-range funding
shortfall could be resolved without altering the fundamental nature of the program. They express
concern that replacing Social Security with individual accounts would erode the social insurance
aspects of the system that favor lower-wage workers, survivors and the disabled. Others are
concerned that individual accounts would pose large transition problems by requiring younger
workers to save for their own retirement while simultaneously paying taxes to support current
retirees, and would further exacerbate current budget deficits. Some doubt that individual
accounts would increase national savings, maintaining that any increase in private savings would
be offset by increased government borrowing. They also point out that the investment pool
created by the accounts could be difficult to regulate and distort capital markets and equity
valuations. Still others view it as exposing participants to excessive market risk for something as
essential as core retirement benefits and, unlike Social Security, as providing poor protection
against inflation. Many prefer “collective” investment of the Social Security trust fund in the
markets to potentially bolster their returns and spread the risks of poor performance broadly.18
Retirement Age Issue
Raising the Social Security retirement age is often considered as a way to help restore long-range
solvency to the system. Some of the projected growth in Social Security’s costs is a result of
projected increases in life expectancy. Since benefits were first paid in 1940, life expectancy at
17 For examples of arguments in support of individual accounts, see Strengthening Social Security and Creating
Personal Wealth for All Americans, Final Report of the President’s Commission to Strengthen Social Security,
December 21, 2001, available at http://www.csss.gov/reports/Final_report.pdf, and a variety of sources available from
the Cato Institute at http://www.socialsecurity.org/.
18 For examples of arguments against individual accounts, see the compilation of sources provided in Social Security
Issue Guide, Economic Policy Institute, May 2005, available at http://www.epinet.org/issueguides/socialsecurity/
socialsecurityissueguide.pdf.
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age 65 has increased from 12.7 years for men and 14.7 years for women to 18.1 years for men
and 20.4 years for women. By 2030, life expectancy at age 65 is projected to reach 19.5 years for
men and 21.7 years for women.19 This trend bolstered arguments for increasing the full retirement
age (the age at which unreduced benefits are first payable) as a way to achieve savings when the
system was facing major financial problems in the early 1980s. Congress raised the “full benefit”
age from 65 to 67 as part of the Social Security Amendments of 1983 (P.L. 98-21). The increase
in the full retirement age enacted in 1983 is currently being phased in starting with persons born
in 1938, with the full two-year increase affecting persons born in 1960 or later. The 1983
amendments did not raise the early retirement age (age 62). However, the benefit reduction for
persons who retire at the age of 62 will increase from 20% to 30%. Proponents of increasing the
early or full retirement age view it as reasonable in light of projected increases in life expectancy.
Opponents believe it will penalize workers who already get a worse deal from Social Security
compared with current retirees, persons who work in physically demanding occupations, and
racial minorities and others who have shorter life expectancies.
Cost-of-Living Adjustments
Social Security benefits are adjusted annually to reflect inflation as measured by the Bureau of
Labor Statistics’ (BLS) Consumer Price Index (CPI), which measures price increases for selected
goods and services. The CPI has been criticized for overstating the effects of inflation, primarily
because the index’s market basket of goods and services was not revised regularly to reflect
changes in consumer buying habits or improvements in quality. A BLS analysis in 1993 found
that the annual overstatement may be as much as 0.6 percentage point. CBO estimated in 1994
that the overstatement ranged from 0.2 to 0.8 percentage point. A 1996 panel that studied the
issue for the Senate Finance Committee argued that it may be 1.1 percentage points.20 In response
to its own analysis as well as outside criticisms, the BLS has since made various revisions to the
CPI. To some extent, these revisions may account for part of the slower CPI growth in recent
years. However, calls for adjustments continue.21
According to the Social Security Administration, a cost-of-living adjustment (COLA) reduction
of 0.5 percentage point annually (beginning December 2010) would improve the system’s
projected long-range actuarial balance by 41%. Similarly, a COLA reduction of 1 percentage
point annually would improve the system’s projected long-range actuarial balance by 78%.22
Although some view further CPI changes as necessary to help keep Social Security and other
entitlement spending under control, others view such changes as a backdoor way of reducing
benefits. They maintain that the market basket of goods and services purchased by the elderly is
different from that of the general population around whom the CPI is constructed. It is more
19 Projections of cohort life expectancy are based on the intermediate assumptions of the 2010 trustees report (see table
V.A4, p. 91).
20 Toward a More Accurate Measure of the Cost of Living, Final Report to the Senate Finance Committee from the
Advisory Commission to Study the Consumer Price Index, December 4, 1996.
21 For more information, see CRS Report RL30074, The Consumer Price Index: A Brief Overview, by Brian W.
Cashell, and CRS Report RL34168, Automatic Cost of Living Adjustments: Some Economic and Practical
Considerations, by Brian W. Cashell.
22 Social Security Administration, Provisions Affecting Cost of Living Adjustment, available at http://www.ssa.gov/
OACT/solvency/provisions/cola.html (see items A1 and A2). Estimates are based on the intermediate assumptions of
the 2009 trustees report.
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heavily weighted with healthcare expenditures, which rise notably faster than the overall CPI, and
thus they contend that the cost of living for the elderly is higher than reflected by the CPI.23
Social Security and the Budget
By law, Social Security is considered “off budget” for many aspects of developing and enforcing
annual budget goals. However, it is a federal program and its income and outgo help shape the
year-to-year financial condition of the federal government. As a result, policymakers often focus
on “unified” (or overall) budget totals that include Social Security. When former President
Clinton urged that the unified budget surpluses projected at the time be reserved until Social
Security’s projected long-range funding issues were resolved, and proposed using a portion of
those surpluses to shore up the system, Social Security’s budget treatment became a major issue.
Congressional views about what to do with the surpluses were diverse, ranging from “buying
down” publicly-held federal debt to cutting taxes to increasing spending. However, there was
substantial support for setting aside a portion equal to the annual Social Security trust fund
surpluses.
After budget deficits re-emerged, there continued to be some congressional interest in the concept
of a Social Security “lock box.” For example, in the 109th Congress, H.R. 3435 (Savings for
Seniors Act of 2005 introduced by Representative Blackburn) would have established a Social
Security Surplus Protection Account in the OASI trust fund for the purpose of “holding” surplus
Social Security tax revenues. It would have established a Social Security Investment Commission
to recommend alternative investment options for surplus Social Security funds. Under the
measure, investment of funds held in the account would have been suspended pending enactment
of legislation providing for trust fund investment in nongovernmental assets. Also in the 109th
Congress, S. 1730 (Truth in Budgeting Act of 2005 introduced by Senator Voinovich) would have
established a Trust Fund Administration within the Treasury Department for the purpose of
investing all federal trust fund revenues in nongovernmental debt instruments (such as municipal
and corporate bonds) upon the issuance of special rate Treasury obligations to the trust fund
(investment in stocks would have been prohibited). Under the measure, investment fund assets
would have been used to redeem outstanding special rate Treasury obligations.
In the 109th Congress, Senator DeMint offered an amendment to the Senate budget resolution for
FY2007 (S.Con.Res. 83) that would have allowed for the creation of a reserve fund for surplus
Social Security tax revenues, provided that the Senate Finance Committee approve Social
Security legislation that meets certain requirements. For example, the amendment (S.Amdt. 3087)
specified that such legislation make no changes to Social Security benefits scheduled under
current law for individuals born before 1950 and provide individuals with “the option to
voluntarily obtain legally binding ownership of at least some portion of each participant’s
benefits.” The amendment was defeated by a vote of 46-53.
In the 110th Congress, the FY2008 budget resolution (S.Con.Res. 21) passed by the Senate on
March 23, 2007, included provisions aimed at “protecting” annual Social Security surpluses. The
Senate-passed version of the budget resolution included a provision that would have created a
new “Point of Order to Save Social Security First.” The provision would have allowed a floor
objection to be raised in the Senate against consideration of any legislation that would increase
23 For more information, see CRS Report RS20060, A Separate Consumer Price Index for the Elderly?, by Brian W.
Cashell.
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the on-budget deficit in any fiscal year (i.e., a deficit in the part of the federal budget that
excludes Social Security and the Postal Service). The point of order could be raised against such
legislation until the President submits legislation to Congress, and Congress enacts legislation,
that would restore long-range solvency to the Social Security system (as scored by the Social
Security Administration). The point of order could be waived with a three-fifths majority vote in
the Senate. The Senate-passed version also included a provision (“Circuit Breaker to Protect
Social Security”) that would have provided a point of order against any budget resolution that
does not achieve an on-budget balance within five years, with exceptions provided for periods of
war or low economic growth. The point of order could be waived with a three-fifths majority vote
in the Senate. These provisions, however, were not included in the FY2008 budget resolution
conference report (S.Con.Res. 21, H.Rept. 110-153) passed by the House and Senate on May 17,
2007.24
Today, some policymakers support Social Security program changes as a way to reduce federal
entitlement spending and federal budget deficits. Policymakers who support efforts to restrain the
growth in major entitlement programs such as Social Security, Medicare, and Medicaid express
concern that, without changes in current policy, federal spending for these programs would
eventually cause budget deficits to reach levels that would be unsustainable and that could have a
negative impact on the economy.25 Policymakers differ as to how to restrain spending growth for
these programs. With respect to Social Security, policymakers differ in particular as to how to
apportion benefit reductions and tax increases between workers and retirees in the future.
On February 18, 2010, President Obama established by executive order the National Commission
on Fiscal Responsibility and Reform. The executive order states “ ... the Commission shall
propose recommendations that meaningfully improve the long-run fiscal outlook, including
changes to address the growth of entitlement spending and the gap between the projected
revenues and expenditures of the Federal Government.”26 Members of the commission have
stated publicly that they will consider all options, including potential changes to the tax and
benefit structure of the Social Security program. The executive order requires the commission to
issue its final report with recommendations no later than December 1, 2010. The issuance of a
final report requires the approval of not less than 14 of the 18 members of the commission.
Recommendations made by the commission, including any Social Security program changes,
would require legislation enacted by Congress and signed into law by the President before those
recommendations could be implemented.
24 During Senate floor consideration of S.Con.Res. 21 in March 2007, Senator DeMint offered an amendment (S.Amdt.
489) that would have allowed for the creation of a reserve fund for Social Security reform, provided that the Senate
Finance Committee approve legislation that meets certain requirements. Among other requirements, the amendment
specified that such legislation must ensure “that there is no change to current law scheduled benefits for individuals
born before January 1, 1951” and must provide “participants with the benefits of savings and investment while
permitting the pre-funding of at least some portion of future benefits.” The amendment was defeated by a vote of 45 to
52. Senator DeMint offered a similar amendment to the FY2009 budget resolution (S.Con.Res. 70) on March 13, 2008.
The amendment (S.Amdt. 4328) was defeated by a vote of 41 to 57.
25 For information on legislation introduced in the 111th Congress to form a bipartisan commission to address concerns
regarding the projected growth in federal entitlement spending and federal budget deficits, see CRS Report R40986,
Proposals for a Commission to Address the Federal Government’s Long-Term Fiscal Situation, coordinated by Clinton
T. Brass, Matthew Eric Glassman, and Jacob R. Straus.
26 Executive Order – National Commission on Fiscal Responsibility and Reform, February 18, 2010, available at
http://www.whitehouse.gov/the-press-office/executive-order-national-commission-fiscal-responsibility-and-reform.
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Initiatives for Change
The 1994-1996 Social Security Advisory Council presented three different approaches to restore
long-range solvency to the system, none of which was endorsed by a majority of council
members. The first (the “maintain benefits” plan) would maintain the system’s current benefit
structure by increasing revenues (including an eventual increase in the payroll tax) and making
minor benefit reductions. It was also suggested that a portion of the Social Security trust fund be
invested in stocks. The second (the “individual account” plan) addressed the problem mostly with
benefit reductions, and would require workers to make an extra 1.6% of pay contribution to
individual accounts. The third (the “personal security account” plan) proposed a major redesign
of the system that would gradually replace the current earnings-related retirement benefit with a
flat-rate benefit based on length of service and establish individual accounts funded by redirecting
5 percentage points of the current payroll tax. It would cover transition costs with an increase in
payroll taxes of 1.52% of pay and government borrowing. The conceptual approaches
incorporated in the three plans are reflected in many of the reform bills introduced in recent years.
During his last three years in office, former President Clinton repeatedly called for using Social
Security’s share of budget surpluses projected at the time to reduce publicly held federal debt and
crediting the trust fund for the reduction.27 In the 1999 State of the Union address, he proposed
crediting $2.8 trillion of some $4.9 trillion in budget surpluses projected for the next 15 years to
the trust fund—nearly $0.6 trillion was to be invested in stocks, the rest in federal securities. The
plan was estimated to keep the system solvent until 2059. Concerns were raised that the plan
would be crediting the Social Security trust fund twice for its surpluses, and that the plan would
lead to government ownership of private companies. Former President Clinton further proposed
that $0.5 trillion of the budget surpluses be used to create new Universal Savings Accounts—
401(k)-type accounts intended to supplement Social Security benefits. In June 1999, he revised
the plan by calling for general fund infusions to the trust fund equal to the interest savings
achieved by using Social Security’s share of the budget surpluses to reduce federal debt. The
infusions were to be invested in stocks until the stock portion of the trust fund’s holdings reached
15%. In October 1999, former President Clinton revised the plan again by dropping the stock
investment idea and calling for all the infusions to be invested in federal bonds. Former President
Clinton’s last plan, offered in January 2000, was similar but again called for investing up to 15%
of the trust fund in stocks.
During his first term, former President Bush appointed a commission to make recommendations
to reform Social Security. As principles for reform, he stated that any reform plan must preserve
the benefits of current retirees and older workers, return Social Security to a firm financial
footing, and allow younger workers to invest in individual savings accounts. The commission’s
final report, which was issued on December 21, 2001, included three reform options. Each option
would allow workers to participate in individual accounts on a voluntary basis and reduce their
future Social Security benefit by the projected value of the account based on an assumed (rather
than the actual) rate of return.
The first option would allow workers to redirect 2% of taxable earnings to individual accounts
and would make no other changes. The second option would allow workers to redirect 4% of
27 For more information, see U.S. Congress, House Committee on Ways and Means, The President’s Social Security
Framework, hearing, 106th Cong., 1st sess., February 23, 1999, Serial 106-32 (Washington: GPO, 2000).
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taxable earnings, up to an annual limit of $1,000, to individual accounts; reduce initial benefits
for future retirees by indexing the growth of initial benefits to prices rather than wages; and
increase benefits for lower-wage workers and widow(er)s. The third option would allow workers
to contribute an additional 1% of taxable earnings to individual accounts and receive a
government match of 2.5% of taxable earnings, up to an annual limit of $1,000; reduce initial
benefits for future retirees by slowing the growth of initial benefits to reflect projected increases
in life expectancy, and, for higher-wage workers, by modifying the benefit formula; and increase
benefits for lower-wage workers and widow(er)s.28
During his second term, former President Bush continued efforts to build support for Social
Security reform. Although the former President did not present a detailed plan for reform, he put
forth guidelines for Congress to consider in the development of legislation to create individual
accounts within a program that he described as in need of “wise and effective reform.” During the
2005 State of the Union address, former President Bush offered the following guidelines for
reform: (1) workers born before 1950 (aged 55 and older in 2005) would not be affected by
individual accounts or other components of reform; (2) participation in individual accounts would
be voluntary; (3) eligible workers would be allowed to redirect up to 4% of covered earnings to
an individual account, initially up to $1,000 per year; (4) accounts would be administered by a
centralized government entity; and (5) workers would be required to annuitize the portion of the
account balance needed to provide at least a poverty-level stream of life-long income, with any
remaining balance available as a lump sum.
In addition to restating support for individual accounts as part of the creation of an “ownership
society,” former President Bush acknowledged that other changes would be needed to address the
system’s projected long-range funding shortfall. He cited potential program changes that would
be on the table for consideration, including (1) raising the full retirement age; (2) reducing
benefits for wealthy recipients; and (3) modifying the benefit formula. At the time, the only
approach ruled out by former President Bush was an increase in the payroll tax rate.
On April 28, 2005, during a television news conference, former President Bush proposed a
change in the Social Security benefit formula in which future “benefits for low-income workers
[would] grow faster than benefits for people who are better off.” Although details of the proposal
were not released, a White House press statement indicated that the President was referring to a
proposal similar to one put forth by Robert Pozen, a member of the 2001 President’s Commission
to Strengthen Social Security appointed by former President Bush. Mr. Pozen’s proposal, known
as “progressive indexing,” would constrain the growth of initial benefits for future retirees by
using a combination of wage indexing and price indexing mechanisms in the benefit formula
(rather than wage indexing only) to apply differing degrees of benefit reduction based on the
worker’s level of earnings.29 Under progressive indexing, lower-wage workers would receive a
benefit that is indexed closer to wage growth (as under current law) and higher-wage workers
would receive a benefit that is indexed closer to price growth (or inflation). Based on current
28 For more information, see CRS Report RL32006, Social Security Reform: Effect on Benefits and the Federal Budget
of Plans Proposed by the President’s Commission to Strengthen Social Security, by Dawn Nuschler and Geoffrey C.
Kollmann.
29 For more information, see Testimony on Progressive Indexing before the Senate Finance Committee, April 26, 2005,
by Robert C. Pozen, available at http://finance.senate.gov/hearings/testimony/2005test/ptest042605.pdf.
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wage and price growth projections, a shift from wage indexing toward price indexing would
result in lower initial benefits for many future retirees compared to current law.30
As the first session of the 109th Congress came to a close at the end of 2005, the reform debate
focused on legislation introduced by Senator DeMint (S. 1302) that would have established
voluntary individual accounts funded with surplus Social Security tax revenues and reduced
Social Security benefits to reflect account assets (S. 1302 is described in the following section of
the report). On November 15, 2005, Senator Santorum made unanimous consent requests to
discharge S. 1302 and a second measure (S. 1750, 109th Congress) from the Senate Finance
Committee and bring those measures to the Senate floor for consideration. S. 1750, introduced by
Senator Santorum, would have provided for the issuance of Social Security “benefit guarantee
certificates” to persons born before 1950 for the stated purpose of “guaranteeing their right to
receive Social Security benefits ... in full with an accurate annual cost-of-living adjustment.” The
unanimous consent requests provided for 10 hours of debate on each measure followed by a vote
on passage, with no amendments. Objections raised against the unanimous consent requests
prevented further action on the measures.31
During the 2006 State of the Union address, former President Bush expressed concern regarding
the level of federal spending for entitlement programs, citing projections that Social Security,
Medicare, and Medicaid would account for almost 60% of the federal budget by 2030. The
former President called for the creation of a commission, that would include Members of
Congress from both parties, to “examine the full impact of baby boom retirements on Social
Security, Medicare, and Medicaid.” In addition, former President Bush included in his Fiscal Year
2007 Budget a proposal for voluntary individual accounts funded with a portion of current payroll
taxes similar to the one he outlined in the 2005 State of the Union address. The Fiscal Year 2007
Budget also restated the former President’s support for a change in the Social Security benefit
formula known as “progressive indexing” to constrain the growth of initial benefits for future
retirees as a cost-saving measure.
Immediately following the November 2006 congressional elections, in which Democrats gained a
majority in both the House and the Senate, former President Bush and Administration officials
publicly expressed interest in resuming discussions with congressional leaders on the issue of
Social Security reform. In the Fiscal Year 2009 Budget, former President Bush restated support
for voluntary individual accounts funded with a portion of current payroll taxes. Under his
proposal, starting in 2013, individual accounts would be funded with 4% of taxable earnings, up
to a limit of $1,400 (the contribution limit would increase by $100 more than average wage
growth each year through 2018). The former President also restated support for “progressive
indexing” of initial Social Security benefits for future retirees.
30 Under the trustees’ 2010 intermediate projections, wages are projected to increase at an average annual rate of 4.0%
over the long-range projection period, compared with a 2.8% growth rate for prices.
31 For more information on S. 1302, see CRS Report RS22278, Social Security Reform: Growing Real Ownership for
Workers (GROW) Act of 2005, H.R. 3304, by Kathleen Romig. For more information on S. 1750, see CRS Report
RL32822, Social Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues, by Kathleen S.
Swendiman and Thomas J. Nicola.
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In the Fiscal Year 2011 President’s Budget, President Obama indicated that he is “strongly
opposed to privatizing Social Security and looks forward to working in a bipartisan way to
preserve it for future generations.”32
In the 2010 State of the Union address, President Obama expressed concerns regarding the
federal budget outlook, including the projected growth in spending for Medicare, Medicaid, and
Social Security, and called for the formation of a bipartisan fiscal commission. As previously
noted, on February 18, 2010, the President established by executive order the National
Commission on Fiscal Responsibility and Reform. The executive order states “ ... the
Commission shall propose recommendations that meaningfully improve the long-run fiscal
outlook, including changes to address the growth of entitlement spending and the gap between the
projected revenues and expenditures of the Federal Government.”33 The commission is required
to make its recommendations no later than December 1, 2010.
Legislation Introduced in the 109th Congress
During the past several Congresses, a number of Social Security reform bills have been
introduced, many of which would have established individual accounts within the Social Security
system either on a voluntary or mandatory basis. In the 109th Congress, 10 Social Security reform
measures were introduced: H.R. 440 (Kolbe and Boyd), H.R. 530 (Johnson), H.R. 750 (Shaw),
H.R. 1776 (Ryan), H.R. 2472 (Wexler), H.R. 3304 (McCrery), S. 540 (Hagel), S. 857 (Sununu),
S. 1302 (DeMint), and S. 2427 (Bennett). All but two of the measures (H.R. 2472 and S. 2427)
would have established individual accounts to supplement or replace traditional Social Security
benefits, among other changes. This section provides a summary of Social Security reform
legislation introduced in the 109th Congress, with the exception of H.R. 530, H.R. 750, S. 540 and
H.R. 2472. These measures, which were re-introduced in the 110th Congress, are included in the
section that follows (“Legislation Introduced in the 110th Congress”). Despite intense debate on
the issue of Social Security reform in the 109th Congress, there was no congressional action on
Social Security reform legislation.34
H.R. 440. Representatives Jim Kolbe and Allen Boyd introduced H.R. 440 (Bipartisan
Retirement Security Act of 2005) on February 1, 2005. For workers under the age of 55, the
measure would have redirected 3% of the first $10,000 of covered earnings (indexed to wage
growth) and 2% of remaining covered earnings to mandatory individual accounts. Workers would
have been allowed to make additional contributions of up to $5,000 annually (indexed to
inflation), and lower-wage workers would have been eligible for an additional credit of up to
$600 toward their account.
With respect to traditional Social Security benefits, the measure would have made a number of
benefit computation changes, including several adjustments to the “replacement factors” used in
the benefit formula. It would have constrained the growth of initial monthly benefits for future
32 Budget of the United States Government, Fiscal Year 2011, released February 1, 2010. See section titled “Social
Security Administration,” available at http://www.whitehouse.gov/omb/budget/fy2011/assets/socsec.pdf, p. 139.
33 Executive Order – National Commission on Fiscal Responsibility and Reform, February 18, 2010, available at
http://www.whitehouse.gov/the-press-office/executive-order-national-commission-fiscal-responsibility-and-reform.
34 More detailed descriptions and estimates of the financial effects of these proposals are available from the Social
Security Administration, Office of the Chief Actuary, at http://www.ssa.gov/OACT/solvency/index.html.
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retirees by indexing initial benefits to increases in life expectancy, a provision known as
“longevity indexing” of benefits. The measure would have modified the calculation of the
worker’s “average indexed monthly earnings” (AIME) for benefit computation purposes. In the
future, the worker’s AIME would have been based on the worker’s average career earnings—
counting all years of earnings divided by a 40-year computation period (rather than the worker’s
average career earnings, counting the 35 years of highest earnings divided by a 35-year
computation period).
In addition, the measure would have accelerated the increase in the full retirement age from 65 to
67 scheduled under current law, so that it would have reached age 67 for persons born in 1956 or
later (four years earlier than under current law). It would have modified the early retirement
reduction factors and delayed retirement credits; set widow(er)s’ benefits equal to 75% of the
couple’s combined pre-death benefit (rather than 50%-67%); limited benefits for aged spouses of
higher earners; provided a minimum benefit tied to the poverty level for workers who meet
specified coverage requirements; and reduced cost-of-living adjustments.
With respect to tax changes, the measure would have increased the taxable wage base gradually
so that 87% of covered earnings would be taxable. It would have credited all revenues from the
taxation of Social Security benefits to the Social Security trust fund (instead of crediting part to
the Medicare Hospital Insurance trust fund).
H.R. 440 would have established a central authority to administer the accounts and provided
initial investment options similar to those available under the Thrift Savings Plan for federal
employees. Once the account balance reached $7,500 (indexed to inflation), the worker would
have been allowed to choose among a broader range of centrally-managed investment options.
The account would have become available at retirement, or earlier if the account balance were
sufficient to provide a payment at least equal to 185% of the poverty level. The worker would
have been required to annuitize the portion of the account balance needed to provide a combined
monthly payment (traditional benefit plus annuity) at least equal to 185% of the poverty level.
Any remaining balance could have been taken as a lump sum.
H.R. 3304. Representative Jim McCrery introduced H.R. 3304 (Growing Real Ownership for
Workers Act of 2005) on July 14, 2005. The measure, which is similar to S. 1302, would have
established voluntary individual accounts for workers born after 1949 (workers would have been
enrolled automatically in the individual account system and given the option to disenroll).
Individual accounts would have been funded with general revenues in amounts equal to surplus
Social Security tax revenues projected at the time from 2006 to 2016.
H.R. 3304 would have established a central authority to administer the accounts. Initially, funds
would have been invested in long-term Treasury bonds. Beginning in 2009, additional investment
options may have been made available. The account would have become available at retirement,
or in the event of the worker’s death. At retirement, the worker would have been required to
annuitize the portion of the account balance needed to provide a combined monthly payment
(traditional benefit plus annuity) at least equal to the poverty level. Any remaining balance could
have been taken as a lump sum. For account participants, traditional Social Security benefits
would have been offset by an amount equal to the annuity value of a hypothetical (or “shadow”)
account assumed to have earned, on average, a 2.7% real rate of return. (The assumed rate of
return for the hypothetical account was based on the projected ultimate real rate of return for the
Social Security trust fund (3% on average) minus 0.3 percentage point to reflect administrative
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expenses.) The measure would have made no other changes to traditional Social Security
benefits.
S. 857/H.R. 1776. Senator John Sununu introduced S. 857 (Social Security Personal Savings
Guarantee and Prosperity Act of 2005) on April 20, 2005. Representative Paul Ryan introduced a
companion measure (H.R. 1776) on April 21, 2005. The measures would have allowed workers
under the age of 55 to redirect a portion of payroll taxes to voluntary individual accounts
(workers would have been enrolled automatically in the individual account system and given the
option to disenroll). From 2006 to 2015, workers would have been allowed to redirect 5% of
covered earnings up to a base amount ($10,000 in 2006, indexed to wage growth thereafter) and
2.5% of remaining covered earnings to individual accounts. Beginning in 2016, workers would
have been allowed to redirect 10% of covered earnings up to the base amount and 5% of
remaining covered earnings to the accounts. Workers participating in individual accounts would
have been issued a “benefit credit certificate” (or recognition bond) to reflect the value of benefits
accrued under the traditional system. The recognition bond would have been redeemable at
retirement, though the value of accrued benefits would have been reduced to reflect the payroll
taxes redirected to the worker’s account. The measures would have provided account participants
a combined monthly payment (traditional benefit plus annuity) at least equal to benefits
scheduled under current law. Workers choosing not to participate in individual accounts would
have received traditional Social Security benefits.
The measures would have provided 6 indexed investment accounts, including a default “lifecycle
investment account” with an expected average investment mix of 65% equities/35% fixed income
instruments. Once the worker’s account balance reached $25,000 (indexed to inflation),
additional investment options would have become available. At retirement, the worker would
have been required to annuitize the portion of the account balance needed to provide a combined
monthly payment (traditional benefit plus inflation-indexed annuity) at least equal to benefits
scheduled under current law. Any excess balance could have been withdrawn in a manner chosen
by the worker. Pre-retirement distribution would have been allowed if the account balance were
sufficient to provide an annuity at least equal to a required minimum payment. The measures also
included several financing provisions that would have constrained future growth rates for federal
spending and dedicated the savings to Social Security; “reserved” annual Social Security cash
flow surpluses for Social Security purposes; and dedicated a portion of projected corporate tax
revenue increases to Social Security.
S. 1302. Senator Jim DeMint introduced S. 1302 (Stop the Raid on Social Security Act of 2005)
on June 23, 2005. The measure would have established voluntary individual accounts for workers
born after 1949 (workers would have been enrolled automatically in the individual account
system and given the option to disenroll). Individual accounts would have been funded with
surplus Social Security tax revenues projected at the time from 2006 to 2016. Given the
redirection of surplus Social Security tax revenues to individual accounts, the measure would
have provided for general revenue transfers to the trust fund in amounts needed to maintain trust
fund solvency based on current-law projections.
S. 1302 would have established a central authority to administer the accounts. Initially, funds
would have been invested in long-term Treasury bonds. Beginning in 2008, additional investment
options may have been made available. The account would have become available at retirement,
or in the event of the worker’s death. At retirement, the worker would have been required to
annuitize the portion of the account balance needed to provide a combined monthly payment
(traditional benefit plus annuity) at least equal to the poverty level. Any remaining balance could
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have been taken as a lump sum. For account participants, traditional Social Security benefits
would have been offset by an amount equal to the annuity value of a hypothetical (or “shadow”)
account assumed to have earned, on average, a 2.7% real rate of return. (The assumed rate of
return for the hypothetical account was based on the projected ultimate real rate of return for the
Social Security trust fund (3% on average) minus 0.3 percentage point to reflect administrative
expenses.) The measure would have made no other changes to traditional Social Security
benefits.
S. 2427. Senator Robert Bennett introduced S. 2427 (Sustainable Solvency First for Social
Security Act of 2006) on March 16, 2006. The measure would have modified the benefit formula
to provide “progressive indexing” of initial Social Security benefits for future retirees.
Progressive indexing applies a combination of wage indexing and price indexing to the benefit
formula that, under current projections, would result in lower benefits for workers with earnings
above a certain level (with larger reductions for relatively higher earners) compared to current
law. The measure would have further constrained the growth of initial Social Security benefits for
future retirees by indexing initial benefits to increases in life expectancy, a provision known as
“longevity indexing” of benefits. It would have accelerated the increase in the full retirement age
(from 65 to 67) being phased-in under current law so that the full retirement age would have
reached 67 for persons born in 1955 or later (five years earlier than under current law). The
measure would have provided general revenue transfers to the Social Security trust fund as
needed to maintain adequate trust fund balances.
Legislation Introduced in the 110th Congress
During the 110th Congress, six Social Security reform bills were introduced: H.R. 1090 (Lewis),
H.R. 2002 (Johnson), H.R. 4181 (Flake), S. 2765 (Hagel), H.R. 5779 (Wexler) and H.R. 6110
(Ryan). H.R. 1090 (which is similar to H.R. 750 in the 109th Congress35) would have established
voluntary individual accounts funded with general revenues, among other program changes. H.R.
2002 (which is similar to H.R. 530 in the 109th Congress), H.R. 4181, S. 2765 (which is similar to
S. 540 in the 109th Congress) and H.R. 6110 would have established individual accounts funded
with a redirection of current payroll taxes, among other program changes. H.R. 5779 (which is
similar to H.R. 2472 in the 109th Congress) would have increased Social Security revenues by
requiring workers and employers each to contribute 3% of earnings above the Social Security
taxable wage base (in addition to current-law payroll tax contributions). This section provides a
summary of Social Security reform legislation introduced in the 110th Congress, with the
exception of H.R. 4181, H.R. 5779 and H.R. 6110. These measures have been re-introduced in
the 111th Congress and are included in the next section (see H.R. 107, H.R. 1863 and H.R. 4529
in “Legislation Introduced in the 111th Congress”). There was no congressional action on these
measures during the 110th Congress.
H.R. 1090. Representative Ron Lewis introduced H.R. 1090 (Social Security Guarantee Plus Act
of 2007) on February 15, 2007. The measure would have allowed workers aged 18 and older
(who have been assigned a Social Security Number) to participate in voluntary individual
accounts funded with general revenues. Account contributions would have been equal to 4% of
taxable earnings, up to a limit of $1,000 (the limit would have been indexed to wage growth).
35 In the 109th Congress, H.R. 750 was introduced by Representative Shaw.
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With respect to traditional Social Security benefits, the measure would have provided up to five
years of earnings credits for workers who stay at home to care for a child under age seven and
eliminated the earnings test for recipients below the full retirement age. In addition, it would have
set widow(er)’s benefits equal to 75% of the couple’s combined pre-death benefit (compared to
50%-67% under current law); allowed widow(er)s to qualify for benefits based on a disability
regardless of age and the time frame in which the disability occurred; and lowered the Social
Security spousal/widow(er)’s benefit reduction under the Government Pension Offset from two-
thirds to one-third of the individual’s pension from noncovered employment.
Under H.R. 1090, accounts would have been administered by private financial institutions
selected by the government. The measure would have provided three initial investment options
with specified allocations in equities and corporate bonds (60/40, 65/35, 70/30). The account
would have become available upon the worker’s entitlement to retirement or disability benefits,
or upon the worker’s death. Upon benefit entitlement, the worker would have received a lump
sum equal to 5% of the account balance. The remaining balance would have been used to finance
all or part of the worker’s benefit. The account balance would have been withdrawn gradually and
transferred to the trust fund for the payment of monthly benefits. In addition to the 5% lump sum,
the measure would have provided a monthly payment equal to the higher of a benefit scheduled
under current law and an annuity based on 95% of the account balance.
H.R. 2002. Representative Sam Johnson introduced H.R. 2002 (Individual Social Security
Investment Program Act of 2007) on April 23, 2007. The measure would have established
individual accounts funded with 6.2 percentage points of the current Social Security payroll tax.
Participation in the individual account system would have been voluntary for workers aged 22 to
54 (in 2007) and mandatory for younger individuals. Workers participating in the individual
account system would no longer have accrued benefits under the current system and would have
been issued a marketable “recognition bond” equal to the value of benefits already accrued. The
measure would have provided workers participating in the individual account system a minimum
benefit equal to a specified percentage of the poverty level, up to 100% for workers who have at
least 35 years of earnings.
Workers choosing not to participate in the individual account system would have remained in the
current system, however, initial monthly benefits would have been lower than those scheduled
under current law. The measure would have constrained the growth of initial monthly benefits for
future retirees by indexing initial benefits to price growth (rather than wage growth), a provision
known as “price indexing” of benefits.
H.R. 2002 would have established a central authority to administer the accounts and provided at
least three initial investment options with specified allocations in equities and fixed income
instruments (government bonds and corporate bonds), including a default 60/40 investment mix.
Once the account balance reached $10,000 (indexed to inflation), the worker would have been
allowed to transfer the balance to a private financial institution. The account would have become
available at retirement (i.e., at the Social Security full retirement age), or earlier if the account
balance were sufficient to provide an annuity at least equal to 100% of the poverty level. In the
case of pre-retirement account distribution, the worker would have received an annual rebate of
future payroll tax contributions (the employer share of the payroll tax would not have been
subject to rebate). The worker would have been required to annuitize the portion of the account
balance needed to provide an annuity at least equal to 100% of the poverty level. Any remaining
balance could have been taken as a lump sum. At retirement, if the account balance were not
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sufficient to provide the prescribed minimum payment, a supplemental payment would have been
made to the account from general revenues.
S. 2765. Senator Chuck Hagel introduced S. 2765 (Saving Social Security Act of 2008) on March
13, 2008. The measure would have allowed workers born in 1963 or later (workers aged 45 or
younger in 2008) to redirect 4 percentage points of the current Social Security payroll tax to an
individual account (a SAFE account). Eligible workers would have been enrolled automatically in
the individual account system and allowed to waive their eligibility for a SAFE account.
With respect to traditional Social Security benefits, the measure would have constrained the
growth of initial benefits for future retirees by indexing initial benefits to increases in life
expectancy, a provision known as “longevity indexing” of benefits. In addition, the measure
would have increased the full retirement age from 67 to 68 for persons born in 1963 or later and
increased the early retirement reduction factors. For workers participating in the individual
account system, traditional Social Security benefits would have been offset by an amount equal to
the annuity value of a hypothetical (or “shadow”) account assumed to earn a 3% real rate of
return. The measure would have provided a minimum “primary insurance amount” (basic benefit
amount before any adjustments for early or delayed retirement) up to 135% of the poverty level
for workers with 35 years of Social Security-covered employment (lower percentages would have
applied to workers with fewer years of coverage).
The bill would have established a central authority to administer the individual accounts and
provided initial investment options such as those offered by the Thrift Savings Plan for federal
employees. The individual account would have become available at retirement, or in the event of
the worker’s death. Upon entitlement to benefits, the worker would have been required to
annuitize the portion of the account balance needed to provide a combined monthly payment
(traditional benefit plus annuity) at least equal to 135% of the poverty level. Any remaining
balance could have been withdrawn in a manner chosen by the worker.
Legislation Introduced in the 111th Congress
During the 111th Congress, four Social Security reform bills have been introduced: H.R. 107
(Flake), S. 426 (Bennett), H.R. 1863 (Wexler) and H.R. 4529 (Ryan). This section provides a
summary of these measures, which have received no congressional action to date.
H.R. 107. Representative Jeff Flake introduced H.R. 107 (Securing Medicare and Retirement for
Tomorrow Act of 2009) on January 6, 2009.36 Among other provisions, the measure would
establish individual accounts funded with 6.2 percentage points of the current Social Security
payroll tax. Participation in the individual account system would be mandatory for workers below
the Social Security full retirement age. At retirement, workers would be allowed to choose
between a Social Security retirement benefit (Part A retirement benefit payable to workers and
spouses) and a retirement distribution from the individual account (Part B benefit). Part A
retirement benefits would be phased-out over time. Individuals reaching retirement age after a
36 H.R. 107 is similar to H.R. 4181 introduced by Representative Flake in the 110th Congress.
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period of 42 calendar years following enactment of the bill would not have the option of choosing
Part A retirement benefits.37
The worker’s individual account would be maintained by the employer and contributions would
be invested in a qualified Social Security mutual fund. Workers would designate an investment
fund from among five qualified Social Security mutual funds selected by the employer.
H.R. 107 would establish a Social Security Escrow Fund within the U.S. Treasury. The fund
would include securities held by the Social Security trust fund (the combined Old-Age and
Survivors Insurance and the Disability Insurance trust funds), 6.2 percentage points of the current
Social Security payroll tax, Medicare Hospital Insurance (HI) payroll taxes, and amounts
appropriated for the Supplemental Security Income (SSI) program, among other funding
sources.38 Amounts held in the Social Security Escrow Fund would be available for the payment
of various types of Social Security benefits—including Part A retirement benefits, benefits
payable to a worker’s family members (such as children and surviving spouses), disability
benefits, and lump-sum death benefits—as well as for the payment of SSI benefits. In addition,
transfers would be made from the fund to the Medicare HI trust fund in the amount of Medicare
Part A benefits.
The measure would establish the Personal Accounts Management and Review Board as an
independent agency within the executive branch of the government. Among other duties, the
board would operate the Social Security Escrow Fund and designate and regulate qualified Social
Security mutual funds. The Secretary of the Treasury would serve as managing trustee of the
Social Security Escrow Fund.
S. 426. Senator Robert Bennett introduced S. 426 (Social Security Solvency Act of 2009) on
February 12, 2009.39 The measure would modify the benefit formula to provide “progressive
indexing” of initial Social Security benefits for future retirees. Progressive indexing applies a
combination of wage indexing and price indexing to the benefit formula that, under current
projections, would result in lower benefits for workers with earnings above a certain level (with
larger reductions for relatively higher earners) compared with current law. The measure would
further constrain the growth of initial benefits for future retirees by indexing initial benefits to
increases in life expectancy, a provision known as “longevity indexing” of benefits. In addition, it
would accelerate the increase in the full retirement age (from 65 to 67) being phased-in under
current law so that the full retirement age would reach 67 for persons born in 1955 or later (five
years earlier than under current law). The measure would provide general revenue transfers to the
Social Security trust fund as needed to maintain adequate trust fund balances.
H.R. 1863. Representative Robert Wexler introduced H.R. 1863 (Social Security Forever Act of
2009) on April 1, 2009.40 The measure would increase Social Security revenues by requiring
workers and employers each to contribute 3% of earnings above the Social Security taxable wage
37 The measure also would make changes to the Medicare program in connection with the establishment of Social
Security individual accounts.
38 If an individual elects to receive Part A retirement benefits (in lieu of Part B benefits), the qualified Social Security
mutual fund in which the individual’s account contributions are invested would be required to transfer the amount of
the individual’s Part B benefits to the Social Security Escrow Fund.
39 S. 426 is similar to S. 2427 introduced by Senator Bennett in the 109th Congress.
40 Former Representative Robert Wexler retired from Congress in January 2010.
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base, in addition to payroll tax contributions paid under current law. Under current law, workers
and employers each contribute 6.2% of covered earnings up to the taxable wage base. The taxable
wage base increases each year according to average wage growth (if a Social Security COLA is
payable), and it is $106,800 in 2010. Earnings up to the taxable wage base (earnings on which
payroll tax contributions are paid) are credited for benefit computation purposes.
Under the measure, workers and employers each would be required to contribute 3% of earnings
above the taxable wage base, in addition to the 6.2% of earnings up to the taxable wage base
payable under current law. Earnings above the taxable wage base taxed at the 3% rate would not
be credited for benefit computation purposes.
H.R. 4529. Representative Paul Ryan introduced H.R. 4529 (Roadmap for America’s Future Act
of 2010) on January 27, 2010, to provide for the reform of health care, the Social Security system,
the tax code for individuals and business, job training, and the budget process.41 Title IV of the
bill (Social Security Personal Savings Guarantee and Prosperity Act of 2010) would allow
workers who are aged 55 or younger in 2012 to redirect a portion of their payroll tax
contributions to voluntary individual accounts. From 2012 to 2021, workers would be allowed to
redirect 2% of taxable earnings up to a base amount ($10,000 in 2012, indexed to average wage
growth thereafter) and 1% of remaining taxable earnings to an individual account. The amount of
Social Security contributions that could be redirected to an individual account would increase
over time. From 2022 to 2031, workers would be allowed to redirect 4% of taxable earnings up to
the base amount and 2% of remaining taxable earnings. From 2032 to 2041, workers be allowed
to redirect 6% of taxable earnings up to the base amount and 3% of remaining taxable earnings.
For calendar years after 2041, workers would be allowed to redirect 8% of taxable earnings up to
the base amount and 4% of remaining taxable earnings to an individual account.
Workers who participate in the individual account system would be issued a “benefit credit
certificate” to reflect the value of benefits accrued under the traditional system. The benefit credit
certificate would be redeemable at retirement and the value of accrued benefits would be reduced
to reflect the payroll taxes redirected to the worker’s individual account. The measure would
provide a guarantee by the government that the value of a participant’s individual account would
be at least equal to the sum of his or her contributions to the account adjusted for inflation.
Workers who choose not to participate in the individual account system would receive traditional
benefits (subject to changes to the system).
The measure would provide six indexed investment accounts, including a default “lifecycle
investment account.” Once the worker’s account balance reaches a specified threshold ($25,000
in 2012, indexed to inflation thereafter), additional investment options would become available.
The account would become available at retirement, or earlier if the account balance is sufficient
to provide an annuity at least equal to 150% of the poverty line. At retirement, the worker would
be required to annuitize the portion of the account balance needed to provide a monthly payment
at least equal to 150% of the poverty line, and any excess balance could be withdrawn in a
manner chosen by the worker. Any funds remaining in the account at the time of the individual’s
death would be payable to designated beneficiaries or to the individual’s estate.
41 H.R. 4529 is similar to H.R. 6110 introduced by Representative Ryan in the 110th Congress and includes provisions
similar to H.R. 1776 introduced by Representative Ryan in the 109th Congress.
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Among other changes, the measure would modify the Social Security benefit formula to provide
“progressive price indexing” of initial monthly benefits for future retirees (the change would
apply to workers who are aged 55 or younger in 2011). Progressive price indexing applies a
combination of wage indexing and price indexing to the benefit formula that would result in
lower projected initial monthly benefits for workers with earnings above a certain level (with
larger benefit reductions for relatively higher earners) compared with current law. In addition, the
measure would accelerate the increase in the full retirement age (FRA) scheduled under current
law so that the FRA would reach 67 for persons born in 1959 (one year earlier than under current
law) and would further increase the FRA for persons born in later years to reflect projected
increases in life expectancy.42
Author Contact Information
Dawn Nuschler
Specialist in Income Security
dnuschler@crs.loc.gov, 7-6283
42 For more information, see Congressional Budget Office, An Analysis of the Roadmap for America’s Future Act of
2010, January 27, 2010, available at http://www.cbo.gov/ftpdocs/108xx/doc10851/01-27-Ryan-Roadmap-Letter.pdf.
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