Social Security

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E M P L O Y E E   B E N E F I T S ,   C O M P E N S A T I O N
                  A N D   P E N S I O N   L A W
                Vol. 2, No. 3: February 15, 2001
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Publisher:     Legal Scholarship Network
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Editor:        PAMELA J. PERUN
               Urban Institute
               Mailto:pamela@planetnow.com

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TOPIC OF THIS ISSUE: SOCIAL SECURITY

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T A B L E of C O N T E N T S
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WORKING PAPERS

"The Effects of Social Security Reform on Private Pensions"
     ANDREW A. SAMWICK
        Dartmouth College
        Department of Economics
        National Bureau of Economic Research (NBER)

"The Implications of Social Security's Long-Range Financial
Projections"
     LAWRENCE H. THOMPSON
        Urban Institute
        Executive Office Research

"Matching Private Savings with Federal Dollars: USA Accounts and
Other Subsidies for Saving"
PAMELA J. PERUN
Urban Institute

NEW and FORTHCOMING ARTICLES

"Taxability of Social Security Benefits After the Repeal of the
Earnings Test"
      Tax Notes, October 23, 2000
     NATHAN OESTREICH
        San Diego State University
        College of Business Administration

"Analysis of Current Social Security Reform Proposals"
      National Tax Journal, Vol. LIII, No. 3, Part 1, Sept 2000
     ANDREW B. LYON
        University of Maryland
        Department of Economics
     JOHN L. STELL
        University of Maryland
        Department of Economics

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Benefits, Compensation and Pension Law we do not referee working
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W O R K I N G P A P E R Abstracts
_________________________________________________________________

"The Effects of Social Security Reform on Private Pensions"

      BY: ANDREW A. SAMWICK
              Dartmouth College
              Department of Economics
              National Bureau of Economic Research (NBER)

Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=257768

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Paper ID: SIEPR (Stanford Inst. of Econ. Policy Research) Policy
Paper No. 00-17
Date: December 2000

Contact: ANDREW A. SAMWICK
   Email: Mailto:andrew.samwick@dartmouth.edu
Postal: Dartmouth College
           Department of Economics
           6106 Rockefeller Hall
           Hanover, NH 03755 USA
   Phone: 603-646-2893
     Fax: 603-646-2122

ABSTRACT:
Among the far-reaching effects of Social Security reform on the
rest of the economy is the impact on private pensions. This
paper develops a model of pension plan design that incorporates
heterogeneity in tastes for saving and sorting of workers in the
labor market. The model is used to analyze the likely effects of
a range of Social Security reform proposals on the design of
employer-provided pensions. Several reform options are shown to
change the relative benefits received by high- and low-income
workers and to affect the ability of pension plan sponsors to
comply with nondiscrimination rules for the distribution of
pension contributions and benefits.

JEL Classification: H55, J32
______________________________

"The Implications of Social Security's Long-Range Financial
Projections"

      BY: LAWRENCE H. THOMPSON
              Urban Institute
              Executive Office Research

Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=256589

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           http://urban.org/retirement/briefs/6/Brief6.PDF
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Paper ID: Urban Institute Retirement Project Brief No. 6
Date: July 1999

Contact: LAWRENCE H. THOMPSON
   Email: Mailto:LThompso@ui.urban.org
Postal: Urban Institute
           Executive Office Research
           2100 M Street, NW
           Washington, DC 20037
   Phone: 202-261-5526
     Fax: 202-728-0232

Paper Requests:
All Urban Institute publications (books, policy briefs, etc) and
Urban Institute Press books may be ordered from: Urban Institute
Press, P.O. Box 7273, Dept. C., Washington, DC 20044
Fax:202-467-5775; Toll-free:877-UIPRESS (847-7377);
Mailto:pubs@ui.urban.org http://newfederalism.urban.org/

ABSTRACT:
A major shift is projected in the demographic structure of the
population, leading, among other things, to serious financing
problems for the nation's public pension and health financing
systems. This brief explores the demographic and economic
assumptions that underlie the current Social Security financing
projections and notes some of their implications for Social
Security reform. The financing problem comes virtually entirely
from a projected increase in the ratio of beneficiaries to
workers. Although the retirement of the baby boom generation
contributes, at least temporarily, this demographic trend is
projected to continue long after the last of the baby boom
generation has moved through the system. The projection is the
result of assumptions about future trends in birth rates, death
rates, and disability incidence. In fact, some 60 percent of the
entire projected 75-year Social Security deficit can be traced
to the assumption that people will live longer in the future and
that the incidence of disability will increase, neither of which
has any direct relationship to the baby boom's retirement. Much
of the current debate about financing options focuses on the
possible role of individual accounts and faster economic growth
and ignores the fact that the major cause of the financing
shortfall is the increase in life expectancy and disability
incidence. As a practical matter, the fiscal implications of
these two changes can be addressed through one or a combination
of three basic adjustment strategies: (1) reductions in monthly
benefits of some 17 to 20 percent, (2) increases in aggregate
program revenues of some 20 to 25 percent, or an increase in the
retirement age to roughly age 69. Accelerating economic growth
will have little impact on future Social Security costs because
rising real wage levels will also produce rising real retirement
benefits (although faster growth may make future workers more
willing to bear the tax increases required to maintain currently
scheduled benefits). Taken by itself, switching to a system of
individual, defined contribution accounts also will not close
the financing gap. Such a change is likely, however, to cause
most of the adjustment to longer life spans to occur through
reductions in monthly retirement incomes rather than one of the
other two types of changes; that result is less likely if the
current collective, defined benefit approach to the program is
preserved.

Keywords: Social Security, demographic, economic, baby boom,
retire, public pension, benefits, defined contribution, defined
benefit

JEL Classification: H55, I12, J10, J11, J13, J14, J26
______________________________

"Matching Private Savings with Federal Dollars: USA Accounts and
Other Subsidies for Saving"

BY: PAMELA J. PERUN
Urban Institute

Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=236840

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Paper ID: Urban Institute Retirement Project Brief No. 8
Date: November 1999

Contact: PAMELA J. PERUN
   Email: Mailto:pamela@planetnow.com
Postal: Urban Institute
           2100 M. Street, NW
           Washington, DC 20037 USA
   Phone: 202 261-5320

ABSTRACT:
The Clinton Administration has proposed a new savings initiative
called "Universal Savings Accounts" or a "USA Accounts." These
accounts would provide low and middle income workers with
automatic annual contributions for retirement savings. They also
borrow the popular technique of matching contributions from the
private pension system and surround it with a new federal
program of savings incentives and subsidies. Similar proposals
for individual savings accounts - the Bipartisan Social Security
Reform Act of 1999 and the 21st Century Retirement Act - have
also been introduced in Congress as part of the debate over
Social Security. The federal government currently supports
savings by providing indirect subsidies through the tax code to
the pension system. These three proposals envision a new role
for the federal government in leveraging individual savings
through direct, progressive incentives and subsidies. The paper
analyses these proposals on four dimensions: incentives and
subsidies; ease of use; coordination with other savings
vehicles; and administrative expense. It finds that all three
proposals are innovative approaches to increasing retirement
savings. They are also all targeted to an appropriate
population, low and middle income workers, which in reality
could use some help from the government in saving for
retirement. USA Accounts offer more generous federal
contributions for savings at very modest income levels and
devote most of their resources to those most in need of
assistance. They also work best with the private pension system.
But these are all very complex programs, and participation rates
for voluntary contributions may be low. All proposals will be
expensive to implement and administer. The paper suggests that
federal resources might be better spent on direct subsidies for
the poor in retirement than on a complicated incentive program
which may produce only a marginal increase in savings. It might
also be better to target savings incentives to those who can
afford to save and are motivated to respond. One alternative to
consider is subsidizing contributions into IRAs and other
401(k)-type plans while providing very similar rules for taxing
contributions and benefits. This would preserve the incentives
for savings that are the essence of these proposals while
reducing their complexity and cost.

Keywords: Retirement, Saving, Subsidy, Social Security,
Pension

JEL Classification: J26, J33, J38, K34
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N E W and F O R T H C O M I N G Articles
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"Taxability of Social Security Benefits After the Repeal of the
Earnings Test"
Tax Notes, October 23, 2000

      BY: NATHAN OESTREICH
              San Diego State University
              College of Business Administration

Contact: NATHAN OESTREICH
   Email: Mailto:Drno@sdsu.edu
Postal: San Diego State University
           College of Business Administration
           School of Accountancy
           5500 Campanile Drive
           San Diego, CA 92182-8230 USA
   Phone: (619) 594-2478

ABSTRACT:
Congress recently repealed the provision in the social security
statutes that reduced a beneficiary's benefits when his or her
earnings exceeded certain thresholds, frequently referred to as
the earnings test. This provision was viewed by many as unfair,
and one that provided the wrong incentives, especially since it
did not apply to beneficiaries who were over age 69. More
recently, the House Ways and Means Committee has reported and
the House of Representatives has passed a bill to reduce the
maximum amount of social security benefits subject to income
taxation from 85 percent to 50 percent of the benefit. This
study investigates the marginal tax on social security benefits
under current law so interested parties can evaluate the
marginal tax and its potential effect on retirees' behavior.

For an earlier report by the author on this topic, see Tax
Notes, Oct. 22, 1990, p. 469.

______________________________

"Analysis of Current Social Security Reform Proposals"
National Tax Journal, Vol. LIII, No. 3, Part 1, Sept 2000

      BY: ANDREW B. LYON
              University of Maryland
              Department of Economics
           JOHN L. STELL
              University of Maryland
              Department of Economics

Contact: ANDREW B. LYON
   Email: Mailto:lyon@econ.umd.edu
Postal: University of Maryland
           Department of Economics
           3105 Tydings Hall
           College Park, MD 20742 USA
   Phone: 301-405-3493
     Fax: 301-405-3542
Co-Auth: JOHN L. STELL
   Email: Mailto:Stell@econ.umd.edu
Postal: University of Maryland
           Department of Economics
           College Park, MD 20742 USA

ABSTRACT:
This paper provides an analysis of the long-run actuarial
effects of four significant Social Security reform plans and
their effects on representative workers. The reform plans
include three alternative Congressional plans establishing
private accounts, with each plan differing in the extent to
which the private accounts are funded by general revenue
contributions or redirecting payroll tax revenues. Additionally,
we consider a modification of the Clinton Administration's
FY2001 budget proposal, which provides for significant general
fund revenue transfers to the Social Security Trust Fund and
allows limited Trust Fund investment in equity.

We analyze the long-range actuarial balance of the reform
plans with and without an assumed equity premium; describe the
effects of the plans on retiree benefits (with and without an
assumed equity premium) for workers with different levels of
lifetime earnings; and consider the aggregate general revenue
transfers required under the plans.

In spite of the large general fund revenue transfers required
under three of the four plans considered, in the absence of an
equity premium all reform plans that achieve actuarial balance
result in a lower net benefit for a worker with average
earnings.