Tuesday, April 14, 2015

Christie Unveils Social Security Reforms

New Jersey Gov. Chris Christie, a probable candidate for president, put forward on Tuesday a set of ideas to reform the Social Security program. These include:

  • Allowing the Social Security retirement age to continue its gradual increase, from the current age of 66 today, to the already-legislated level of 67 in the year 2020s, and eventually on to 69 by 2034.
  • Instituting a mean-test under which retirees with non-Social Security incomes between $80,000 and $200,000 would gradually see their Social Security benefits eliminated; and
  • Eliminating the 12.4% Social Security payroll tax for individuals aged 62 and over.

My take: I’m okay on raising the retirement age along with longevity, though I didn’t include it in the plan I outlined in National Affairs. Also in National Affairs, I wrote against means-testing Social Security benefits. A means-test is an effective tax on work and saving, and those are things we want more of. I also don’t believe any politically-viable mean-test will produce significant savings, so I’m not sure it’s worth the effort. The payroll tax cut for older workers, however, is a good idea that I championed in the Wall Street Journal. Social Security pays very poor returns to workers on the cusp of retirement, but these individuals are very sensitive to changes in after-tax wages. Reducing the payroll tax could significantly increase labor supply from near-retirees, improving both the economy and their own retirement security.

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New paper: “How Will Longer Lifespans Affect State and Local Pension Funding?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“How Will Longer Lifespans Affect State and Local Pension Funding?”

by Alicia H. Munnell, Jean-Pierre Aubry, and Mark Cafarelli

The brief’s key findings are:

  • Rising life expectancy makes defined benefit pension plans more expensive.
  • The question is the extent to which state and local plans have already incorporated rising life expectancy into their cost estimates.
  • The analysis explores how plan liabilities and funded ratios would be affected by using:
    • RP-2014, a new mortality table designed for private plans; and
    • a stricter standard that fully incorporates future mortality improvements.
  • Under the first scenario, liabilities and funding would barely change.  Under the second, the average funded ratio would drop from 73 to 67 percent.
  • Since not even the private sector fully incorporates future improvements, public plans seem to be making a serious effort to keep their assumptions up to date
This brief is available here. Read more!

Wednesday, April 8, 2015

New paper: “Social Security's Disability Insurance Financing Crisis: Why Another "Quick Fix" Funds Transfer May Cost Far More than Advertised”

Social Security's Disability Insurance Financing Crisis: Why Another "Quick Fix" Funds Transfer May Cost Far More than Advertised
By Charles Blahous, Jason J. Fichtner, and Mark J. Warshawsky

Social Security’s trustees have long warned Congress to address the troubled finances of the Disability Insurance (DI) program. Given the DI trust fund’s projected exhaustion date of 2016, legislation will be required during this Congress to prevent large, sudden benefit cuts. Will Congress take this opportunity to begin the critical reforms necessary to put DI on a sustainable fiscal path?

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Monday, April 6, 2015

Fichtner: “Time is running out for policy makers to reform the disability-insurance program”

Over at Marketwatch, Jason Fichtner of the Mercatus Center writes on the pending insolvency of the Social Security Disability Insurance trust fund:

As we await the coming spring release of the 2015 Social Security Trustees report, it's important to recall that the 2014 report showed a continuation of the current trend toward insolvency of both the retirement and disability trust funds. The trustees last estimated that Social Security's combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds will become exhausted in 2033, less than 20 years from now. While the larger retirement fund is estimated to be depleted in 2034, the disability trust fund will run empty in 2016, right in time for the presidential election. It's unlikely that the 2015 report will show much, if any, improvement.

You can check out the whole column here.

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Thursday, April 2, 2015

Delaney and Cole Sponsor Social Security Commission Legislation

The Committee for a Responsible Federal Budget reports that Reps. John Delaney (D-MD) and Tom Cole (R-OK) have introduced the Social Security Commission Act. As the CRFB states:

The commission created by the legislation would be composed of 13 commissioners: three commission members appointed by each of the Democratic and Republican leaders in the House and Senate and a Chair appointed by the President. At least one of the congressional appointees from each party must be non-elected experts, but the other ten commissioners appointed by Congress could be either sitting Members of Congress or unelected officials.

The commission would be directed to report to Congress its recommendations for making the Social Security trust fund solvent for at least 75 years no later than one year after its first meeting. The commission must have a minimum of nine votes in favor of its recommendations to send the plan to Congress for consideration. Achieving that level of support for recommendations will be difficult but will ensure that they have bipartisan support. The legislation sets out a process for expedited consideration of the commission recommendations in the House and Senate for an up-or-down vote without amendments.

Check out the whole story here.

 

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Tuesday, March 31, 2015

New paper: “Are Cognitive Constraints a Barrier to Annuitization?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“Are Cognitive Constraints a Barrier to Annuitization?”

by Jeffrey R. Brown, Arie Kapteyn, Erzo F.P. Luttmer, and Olivia S. Mitchell

The brief’s key findings are:

  • Even though retirees are increasingly responsible for deciding how to draw down their assets, few buy annuities.
  • Researchers have offered a host of explanations for the limited take-up, but the puzzle has never been solved.
  • This analysis finds that valuing annuities is hard for people, so they may only buy one if offered a very good deal.
  • To test this finding, alternative explanations were explored and the results were negative, strengthening the conclusion that people find annuities hard to value.
  • These results suggest that many individuals, on their own, may have difficulty making well-informed choices about managing their money in retirement.
This brief is available here. Read more!

Monday, March 30, 2015

New paper: “Saving Social Security Disability Insurance: Reforms within the Context of Holistic Social Security Reform”

Saving Social Security Disability Insurance: Reforms within the Context of Holistic Social Security Reform

Jason J. Fichtner, Jason S. Seligman | Mar 05, 2015

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The Social Security Disability Insurance (DI) program is running short of money. Under current projections, its trust fund will be exhausted by the end of 2016, causing an automatic benefit reduction of about 20 percent if no legislative action is taken—a significant financial shock for those on the disability rolls.

To prevent these benefit cuts, some have proposed supplementing DI from the larger Social Security retirement trust fund. A new study published by the Mercatus Center at George Mason University argues, however, that policymakers should use this opportunity to adopt much-needed reforms of the Disability Insurance program. DI reform should (1) take account of the current retirement program and (2) not inhibit future retirement program reforms. This strategy has the potential to return DI to its original purpose—providing income support for those who cannot work due to permanent disability—while also putting the program on a path of fiscal sustainability.

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