Response to Moderator's Question on Kolbe-Stenholm
Maureen asked us to look at the Kolbe-Stenholm bill and think about whether it meets the needs of women. She suggested that the provision to increase elderly survivors benefits to 75 percent of what the couple would have received might become a part of this bill. At the moment, this provision is not in Kolbe-Stenholm. However, the Congressmen did improve this year's version of their bill over the version they introduced last year by eliminating a provision to reduce the dependent spouse benefits from 50 percent of the worker's benefit to 33 percent. The elimination of this measure helps women. Another measure, the minimum benefit, has the potential to help some women, but many others will not qualify for it. To be eligible for the full minimum benefit, which would equal 100 percent of the poverty level, a worker must have 40 years of covered work. On average, women spend almost 12 years fewer years in the labor market than men, often caring for their families. Consequently, many women will not have 40 years of work. (Individuals who have worked at least 20 years can qualify for a minimum benefit equal to 60 percent of the poverty level and there is a one percentage point increase for each additional year they worked). Other provisions of the bill would have an adverse effect on women in general.
The central feature of the bill is the diversion of two percentage points of payroll taxes from the Social Security trust funds into individual accounts. Social Security is primarily a pay-as-you-go program - payroll taxes contributed by current workers pay for the benefits of current beneficiaries. If we are going to keep our commitment to pay benefits to current beneficiaries, proposals that divert payroll taxes from the trust funds have to make up for this loss of revenue from the trust funds by increasing taxes, borrowing or reducing benefits. The Kolbe-Stenholm bill reduces benefits. Two of the proposed reductions will lower benefits, on average, for women.
The bill would reduce the Cost of Living Adjustment by 0.33 percentage points. Because this reduction would occur each year, the percentage of the cut in benefits, compared to what individuals would have received under current law, will grow over time. This is an across-the-board benefit cut that affects all beneficiaries, but women would be affected more than men since women live longer.
Additionally, the bill proposes to increase the number of years used to determine benefit levels. Currently, the 35 highest years of earnings are used to determine a worker's average wage. The average wage is then used to calculate benefit levels. Kolbe-Stenholm would increase the number of years from 35 to 40. Since women spend nearly 12 fewer years in the labor market than men, on average, increasing the number of years used to determine average earnings will reduce their benefit levels (because some of the years included in the average will have zero earnings).
The protections within the Social Security program that benefit women (e.g., progressive benefit formula, dependent spouse benefit and survivors benefit) make the program particularly favorable to women. Women pay 38 percent of the payroll taxes and receive 53 percent of the benefits. By contrast, women will get back from their individual account only what they pay in with earnings or losses. Depending on the design of the individual account plan, these protections for women could be lost. For example, the Kolbe-Stenholm plan does not appear to require married workers to purchase a joint annuity that pays benefits until both spouses die. The bill offers the option of monthly payments calculated to cover the worker's expected life span. The surviving spouse (usually the wife) would receive the remainder of the account if there are any funds left. If there are not, then it appears income from the individual account for the surviving spouse would end. Without joint annuity protection, the reduced Social Security benefit may not provide sufficient income for the surviving spouse.
While there are some provisions in the bill that could be beneficial to women, the proposed individual account plan creates a need for greater benefit reductions. Diverting payroll taxes from the trust funds makes the long-term imbalance about twice as large. Consequently, larger benefit reductions are needed than would otherwise be necessary. Additionally, some of the protections of the Social Security program would be lost. The net effect of these measures appears to be a loss of benefits for women.
