Statement of Marty Ford, Co-Chair, Social Security Task Force
Consortium for Citizens with Disabilities
Testimony Before the Subcommittee on Social Security
of the House Committee on Ways and Means
Hearing on the Impacts of the Current Social Security System --
Reducing Poverty, Protecting Minorities, Surviving Families, and Individuals with Disabilities
February 10, 1999
Chairman Shaw and Members of the Subcommittee, thank you for this opportunity to discuss the Social Security system solvency issues from the perspective of people with disabilities.
I am Marty Ford, Assistant Director for Governmental Affairs of The Arc of the United States, a national organization on mental retardation. I am here today in my capacity as a co-chair of the Social Security Task Force of the Consortium for Citizens with Disabilities.
The Consortium for Citizens with Disabilities is a working coalition of national consumer, advocacy, provider, and professional organizations working together with and on behalf of the 54 million children and adults with disabilities and their families living in the United States. The CCD Task Force on Social Security focuses on disability policy issues and concerns in the Supplemental Security Income program and the disability programs in the Old Age, Survivors, and Retirement programs.
For more than 60 years, the Social Security program has been an extremely successful domestic government program, providing economic protections for people of all ages. It works because it speaks to a universal need to address family uncertainties brought on by death, disability, and old age. The Social Security system has evolved to meet the changing needs of our society and will have to change again in order to meet changing circumstances in the future. However, any changes must preserve and strengthen the principles underlying the program: universality, shared risk, protection against poverty, entitlement, guaranteed benefits, and coverage to multiple beneficiaries across generations.
People With Disabilities Have A Stake In Social Security Reform
The Title II Old Age, Survivors, and Disability Insurance (OASDI) programs are insurance programs designed to reduce risk from certain specific or potential life events for the individual. They insure against poverty in retirement years; they insure against disability limiting a person's ability to work; and they insure dependents and survivors of workers who become disabled, retire, or die by providing a basic safety net. While retirement years can be anticipated, disability can affect any individual and family unexpectedly at any time.
People with disabilities benefit from the Title II trust funds under several categories of assistance. Those categories include: disabled workers, based on their own work histories, and their families; retirees with benefits based on their own work histories; adult disabled children who are dependents of disabled workers and retirees; adult disabled children who are survivors of deceased workers or retirees; and disabled widow(er)s.
More than one-third of all Social Security benefit payments are made to 16.7 million people who are non-retirees, including almost 4.7 million disabled workers, nearly 1.5 million children of disabled workers, about 190,000 spouses of disabled workers, and 713,000 adult disabled children covered by the survivors, retirement, and disability programs. Other non-retirees include non-disabled survivors and dependents. For the average wage earner with a family, Social Security insurance benefits are equivalent to a $300,000 life insurance policy or a $200,000 disability insurance policy.
Beneficiaries with disabilities depend on Social Security for a significant proportion of their income. Data from the Census Bureau's Current Population Survey indicates that, in 1994, the poverty rate for working age adults with disabilities was 30 percent. The recently conducted National Organization on Disability - Harris Poll revealed significant data on employment of people with disabilities: 71 percent of working age people with disabilities are not employed, as compared to 21 percent of the non-disabled population. The capacity of beneficiaries with disabilities to work and to save for the future and the reality of their higher rates of poverty must be taken into consideration in any efforts to change the Title II programs.
I. Maintaining Old Age, Survivors, and Disability Insurance as Insurance Programs
The nature of the OASDI programs as insurance against poverty (for survivors; during retirement; or due to disability) is essential to the protection of people with disabilities. The programs are unique in providing benefits to multiple beneficiaries and across multiple generations under coverage earned by a single wage earner's contributions. Proposals that partially or fully eliminate the current sharing of risk through social insurance and replace it with the risks of private investment will be harmful to people with disabilities who must rely on the OASDI programs for life's essentials, such as food, clothing, and shelter, with nothing remaining at the end of the month for savings and other items many Americans take for granted.
Privatization of the Social Security trust funds would shift the risks that are currently insured against in Title II from the federal government back to the individual. This could have a devastating impact on people with disabilities and their families as they try to plan for the future. The basic safety nets of retirement, survivors, and disability insurance would be substantially limited and individuals, including those with limited decision-making capacity, would be at the mercy of fluctuations in the financial markets. In this document, the use of the term privatization does not include the proposals for the federal government to invest a portion of the trust funds in the private market. Those proposals contemplate shared investment with no shift of the risks from the government to the individual.
In addition, solvency plans which are likely to produce substantial pressure on the rest of the federal budget in the future could have negative impact on people with disabilities, ultimately reducing the other services and supports upon which they also must rely. Plans which spend the current or projected Social Security trust fund surpluses on building private accounts would have such negative results. Plans which create private accounts from non-Social Security surpluses, though promising, must be weighed against other priorities, such as preserving Medicare.
In short, we believe that Congress should only consider legislation that maintains the basic structure of the current system based on workers' payroll taxes; preserves the social insurance disability, survivors, and retirement programs; guarantees benefits with inflation adjustments; and preserves the Social Security trust funds to meet the needs of current and future beneficiaries. Certainly, changes will be necessary within the basic structure to bring the trust funds into long-term solvency. However, those changes must not be so drastic as to undermine or dismantle the basic structure of the program.
II. Effects of Proposals to Privatize and to Pay for Privatization
Many proposals try to address the very high transition costs associated with privatization through deeper cuts in the current program; these cuts could negatively affect people with disabilities. In addition, many solvency proposals claim to leave disability benefits untouched. However, as described below, these plans include elements that will seriously hurt those with disabilities. Further, proposals that claim to offset cuts in the basic safety net by the creation of individual accounts based on wages ignore the fact that many people with disabilities are significantly limited in their ability to contribute to those accounts for themselves and their families.
Following are some basic components of the major proposals that could have a negative impact on people with disabilities. These must be critically analyzed since the combined effects of the provisions may push many people with disabilities and their families into or further into poverty.
Changes to the Benefit Formula - A common element in several reform plans is a modification to the benefit formula so that the Primary Insurance Amount (PIA) is lower. This change also would cut disability benefits since they, like retirement benefits, are based on the PIA. Such a modification would reduce disability benefits from 8 to 45 percent or more, depending on the plan, with some of the major proposals resulting in cuts of 24 to 30 percent. Reducing the PIA would force more people with disabilities further into poverty.
Access to Retirement Accounts - Under most plans, disabled workers younger than age 62 would not have access to their individual investment account to offset the cuts created by changes to the benefit formula. About 85 percent of disabled workers are below age 62 and would have to make up for lower disability benefits with their own resources, which may be limited, until age 62. In addition, those adult disabled children who are substantially unable to earn a living or save for retirement, or those workers who are disabled early in their work years, could have no individual retirement account to access, even if allowed, and could have little to no personal assets to supplement benefits.
Conversions from Disability to Retirement/Adequacy of Accounts - Upon reaching normal retirement age, disabled workers (DI program) convert from disability to retirement benefits. At this point, disabled workers could find their individual accounts are inadequate because the proceeds from individual accounts would necessarily be limited by the fact that, while disabled and not working, no additional contributions could have been made. If the disabled worker were able to work, earnings would likely be lower than average. Therefore, the disabled worker would have far less accrued (in both principal and investment return) than had s/he been able to contribute throughout their normal working years or been able to contribute at higher rates due to higher earnings. Yet, Social Security benefits also would have been reduced due to changes in the benefit formula. In addition, there would be a substantial number of adult disabled children who would have no accounts or minimal accounts at retirement age.
In addition, for each worker, there would be only one individual account. Now, Social Security will pay benefits to spouses, children, adult disabled children, surviving spouses, and former spouses. Under individual account proposals, those accounts would have to be divided among, or may be unavailable to, those who can now get benefits.
Computation of Years of Work - The proposals to extend the computation period for retirees could hurt those people with disabilities whose condition or illness forces a reduction in work effort (with resulting lower earnings) in the years prior to eligibility for disability benefits. These proposals would increase the number of years of earnings that are taken into account in deciding the individual's benefit amount. Essentially, the number of years of "low" or "no" earnings that are now dropped in the computation would be reduced; thus, the years of low and no earnings that people with disabilities may experience prior to eligibility for disability benefits would have a more substantial effect on the individual's average earnings when computing their retirement benefits.
Maintaining the purchasing power of benefits - Social Security benefits are adjusted for inflation so that the value of the benefit is not eroded over time. Some proposals would reduce annual cost-of-living adjustments (COLAs) by arbitrary amounts. These arbitrary reductions cumulate over time so that a 1 percent reduction in the COLA would result in a 20 percent reduction in benefits after 20 years. For people with disabilities who must rely on benefits from the OASDI system for a substantial period of time, cuts could be devastating. It is critical that benefits be set at meaningful levels to support such individuals and that appropriate COLAs be included to ensure that the purchasing power of the benefit is not reduced over time.
Raising the Normal Retirement Age (NRA) - Raising the normal retirement age could create an incentive for older workers to apply for disability benefits in two ways. (1) If only the NRA is increased, the early retirement age benefit would be reduced to a greater degree than under current law (reflecting the actuarial reduction in benefits based on drawing benefits for a number of years earlier than NRA). Disability benefits, unless similarly reduced, would then become more attractive to older workers. (2) For many of those in hard, manual labor jobs who simply can no longer work at the same level of physical exertion, leaving the workforce before NRA will be necessary. Many would apply for disability benefits. These added pressures on the disability insurance program (to make up for changes in the retirement program) would increase costs and potentially create political pressure for more drastic changes in the disability program based upon its "growth".
Privatization of Retirement and Survivors Only - Some privatization proposals claim they privatize retirement and survivors protection but leave disability protection alone. There would be no intended direct effect on the disability insurance program. However, those adult disabled children who depend upon retirees' dependent benefits or upon survivor's benefits would be directly negatively affected. The private accounts of the parents are unlikely to be adequate to provide basic support to adult disabled children for the rest of their lives, perhaps decades after the parents' deaths (especially if the parents were themselves dependent on the private accounts for any length of time before death) and some plans would require the parents to purchase annuities. Under plans where a deceased worker's funds go to the estate, there is no assurance that, upon distribution of the estate, the adult disabled child would be adequately protected for the future. Under some plans, funds are transferred to the worker's surviving spouse's account; again, there is no protection of the adult disabled child.
Annuities - Where retirees are required to purchase annuities with individual account proceeds (as some plans require), no funds would be available for the surviving adult disabled child when the retiree dies. Again, the adult disabled child may live for decades after the death of the parent; the annuity approach makes no plans for these dependents/survivors.
Opting Out of the System - One proposal which allows individuals to opt out of the system would require those who opt out to purchase disability insurance. Whether this insurance would be comparable to the current disability insurance system is unknown; currently, there is no insurance comparable to Social Security disability benefits which includes indexing for inflation and coverage of family members. In addition, as the disability community well knows, disability insurance (or for that matter, health or other insurance) is essentially non-existent for most people who already have disabilities. Also, there is no guarantee of support through this means for dependents or survivors with disabilities.
Flat Retirement Benefit - One proposal would replace the benefit formula with a flat retirement benefit ($410 in 1996 dollars). This plan would provide a disability benefit (based on the primary insurance amount) using the current law formula, but reduced to reflect the age-based reduction applicable to age 65 as the NRA rises. This would lead to a 30% reduction when fully phased-in. Without the protection of well-funded private accounts, which people with disabilities are unlikely to have, this reduction would harm beneficiaries in the disability insurance program.
Increased Risk and Capacity to Manage Accounts - The increased risk associated with retirement that depends upon private account earnings is an issue for everyone. In addition, the capacity of an individual to manage these private accounts profitably is similarly an issue for everyone, and involves many factors including education, money management skills, and risk-taking. The risks and management issues become a much more significant concern when considering people with cognitive impairments, such as mental retardation, or mental illness, when the impairment creates substantial barriers to the individual's ability to make wise and profitable decisions over a lifetime. In many cases, the person may be unable to make any financially significant decisions. Privatization removes the shared-risk protection of social insurance and places these individuals at substantial personal risk.
Again, we strongly recommend that the Subcommittee and Congress only consider legislation that maintains the basic structure of the current system based on workers' payroll taxes; preserves the social insurance disability, survivors, and retirement programs; guarantees benefits with inflation adjustments; and preserves the Social Security trust funds to meet the needs of current and future beneficiaries. Changes necessary to bring the trust funds into long-term solvency must not be so drastic as to undermine or dismantle the basic structure of the program.
To assist the Subcommittee, and, indeed all parties to the debate, we urge the Subcommittee to follow through on a suggestion made at an earlier hearing to request a beneficiary impact statement from SSA on every major proposal, or component of a proposal, under serious consideration. In a program with such impact on millions of people of all ages, it is simply not enough to address only the budgetary impact of change; the people impact must also be studied and well understood before any change is initiated. For our constituency, people with disabilities, their very lives depend on such analyses.
Again, I thank the Subcommittee for considering our viewpoints on these critical issues. People with disabilities and their families will be vitally interested in the Subcommittee's work; the CCD Task Force on Social Security pledges to work with you to ensure that disability issues remain an important consideration in reform analysis and solution development.
ON BEHALF OF:
Adapted Physical Activity Council
American Network of Community Options and Resources
Bazelon Center for Mental Health Law
Children and Adults with Attention Deficit Disorders
International Association of Psychosocial Rehabilitation Services
National Alliance for the Mentally Ill
National Association of Developmental Disabilities Councils
National Association of Protection and Advocacy Systems
National Association of State Directors of Developmental Disabilities Services
National Easter Seal Society
Paralyzed Veterans of America
Research Institute for Independent Living
The Arc of the United States
United Cerebral Palsy Associations, Inc.