A practical solution for Social Security may need both sugar and medicine…

But the GOP candidates so far are giving us only one or the other, says Jed Graham at Investors Business Daily:

“[Romney and Gingrich’s] vastly different proposals for the direction of Social Security — long seen as the third rail of American politics — may be their sharpest policy dispute of all.”

“Romney has proposed erasing the program's financing gap with a hike in the official retirement age and other income-based cuts. Gingrich has expressly disavowed "an austerity path" that cuts Social Security benefits. Instead, he favors reforming the system by allowing people to deposit their 6.2% payroll tax contribution in personal investment accounts.”

You can read the whole article here.

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Will the payroll tax cut alter how we view Social Security?

Bill Shipman says yes, in this Washington Times op-ed:

“It may be difficult to stop this train because both parties, for different reasons, want it to keep chugging along. This may embolden them to extend or lower the payroll tax further, exacerbating the delinking. If this happens, the government could then argue that workers are only entitled to lower Social Security benefits because they’re provided by the now lower payroll tax. Another outcome may be means-testing benefits, thus morphing Social Security into a welfare program. A third may be to finance Social Security benefits largely or entirely through the income tax, resulting in a significant redistribution of wealth.”

Check it out here.

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New papers from the Social Science Research Network

"Pensions, Privatization and Poverty: The Gendered Impact"
Canadian Journal of Women and the Law, Vol. 23, No. 2, pp. 661-685, 2011

CLAIRE YOUNG, University of British Columbia - Faculty of Law
Email: young@law.ubc.ca

This article focuses on the disparate impact of Canadian pension policy on women as compared to men, which in turn contributes to the poverty experienced by elderly women in retirement. The major contributing factor is the increasing privatization of the responsibility for economic security in Canada, with a preference for reliance on the private market or private family rather than on the state to provide for the welfare of its citizens. The article discusses the negative impact on women of issues such as the trend towards the establishment of defined contribution workplace pension plans rather than defined contributions plans, the increasing use of tax expenditures to encourage private retirement savings, and pension income splitting. The analysis takes place against the backdrop of the socio-economic realities of women’s lives and concludes that public pensions such as the Old Age Security pension and the Canada Pension Plan must be strengthened if women’s economic inequality in retirement is to be redressed.

"I Do...Want to Save: Marriage and Retirement Savings in Young Households"
Journal of Marriage and Family, Vol. 74, pp. 86-100, 2012

MELISSA KNOLL, Social Security Administration - Office of Retirement Policy
Email: melissa.knoll@ssa.gov
CHRISTOPHER R. TAMBORINI, U.S. Social Security Administration
Email: Chris.Tamborini@ssa.gov
KEVIN WHITMAN, U.S. Social Security Administration
Email: Kevin.Whitman@ssa.gov

Increased policy and academic attention has been placed on promoting retirement savings early in the life course. This study investigates the extent to which retirement savings behavior among young persons, a population for which retirement savings is important but typically low, differs by marital status. We draw national survey data on young adult households (ages 22–35; N = 3,894) from the U.S. Federal Reserve Board's Survey of Consumer Finances (SCF). Results reveal considerable differences by marital status. Controlling for important characteristics, young adults who were married were more likely than all other groups (including cohabitors) to perceive retirement as an important savings goal and to have an individual retirement account. Married persons were more likely than their single counterparts to participate in a defined contribution pension plan. Single women fared particularly poorly on retirement savings outcomes. A range of possible theoretical links between marriage and retirement savings at young adulthood are discussed.

"Portfolio Restriction to Impose on Defined Benefit Pension Plans"

KATARZYNA ROMANIUK, Université de Paris 1 Panthéon-Sorbonne, Universidad de Santiago de Chile
Email: romaniuk@univ-paris1.fr

When a firm sponsoring a defined benefit pension plan approaches financial distress, the Pension Benefit Guaranty Corporation (PBGC) insurance effect materializes and the optimal pension portfolio policy becomes aggressive. In this configuration, a regulation restricting the pension investment strategy is needed. We suggest that the restriction imposed should follow asset-liability management principles. A low risk investment policy, as defined by the preference-independent liability hedge only, should be the regulator's benchmark. We recommend that the risky asset proportion maximum limit is fixed at 30%.

 

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New paper: "Understanding the Growth in Federal Disability Programs”

"Understanding the Growth in Federal Disability Programs: Who are the Marginal Beneficiaries and How Much Do They Cost?"
Center for Retirement Research at Boston College Working Paper No. 2012-1

ADELE KIRK, University of Maryland, Baltimore County
Email: amkirl@ucla.edu

SSI and SSDI, the two work disability programs administered by the Social Security Administration (SSA), have been marked by concerns about target efficiency since their inception. This study uses SSA administrative data linked with National Health Interview Survey data (NHIS) to examine health status, labor force participation at time of NHIS interview, and linked mortality data to examine mortality during the period following NHIS interview. The self-reported health status data present two strong and consistent patterns: denied applicants report being in considerably worse health than non-applicants, and beneficiaries appear to be sicker yet. In logit models among disability beneficiaries, women are significantly less likely to report excellent/very good health, but race has no significant effect. While being female decreased the probability of good health, it has no significant effect on the probability of reporting no work limitation at time of interview among beneficiaries. Although race was not significant in the model of self-reported health, both Hispanics and non-Hispanic blacks are significantly more likely to report no work limitation at time of interview. This study has important limitations. NHIS respondents who link to the SSA administrative data may not be representative of all individuals with disability application histories. In addition, individuals must live long enough after disability determination to be drawn into an NHIS sample, and these results reflect the experience of that subsample of disability applicants who do not die during the determination process or soon thereafter.

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New issue brief: “Why Do State Disability Application Rates Vary Over Time?”

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

Why Do State Disability Application Rates Vary Over Time? by Norma B. Coe, Kelly Haverstick, Alicia H. Munnell, and Anthony Webb

The brief’s key findings are:

• Application rates for federal Disability Insurance (DI) have risen since the late-1990s.

• The economy is a key driver: rising unemployment and declining labor force participation lead to higher DI application rates.

• Interestingly, states with strict health insurance regulations have lower application rates, a finding that merits further exploration.

The brief is available here.

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Jennifer Rubin on the Gingrich-Santorum debate

Washington Post political blogger Jennifer Rubin weighs in on the confrontation over Social Security reform in the other night’s GOP presidential debate. In it, Santorum criticized Gingrich’s “big account” reform plan for Social Security – which would allow individuals to divert roughly half their payroll taxes to personal accounts – as a budget buster, given that Social Security is no longer running surpluses and the rest of the budget is in deficit.

Rubin notes:

“Gingrich had two responses, neither of which was credible. First, he promised to “take 185 different federal bureaucracies that deal with low-income Americans. Think about this, there are 185 separate bureaucracies with separate regulations, all dealing with low-income Americans. We can consolidate them into a single block grant.” That’s gong to pay for a huge outflow from Social Security? It’s preposterous. Next, he claimed that in the long run, “if you have a personal savings account model, you increase the size of the economy by $7 to $8 trillion over a generation because of the massive reinvestment.” Perhaps that is true, but we have a huge, nagging debt right now and he’s going to make it worse with his plan. And while Santorum was certainly right on substance, Gingrich’s glibness may have successfully concealed how really silly is his policy proposal.”

I agree, and this highlights one of the interesting differences between Gingrich and Gov. Mitt Romney.

Gingrich is heavy on vision, on historical sweep and on fundamental change. GOP voters like that, and I think that in many ways public policy needs that. Gov. Romney, by contrast, sometimes comes across as something of a bean-counter.

On the other hand, though, when you pick through some of Gingrich’s proposals – in particular his Social Security plan – it seems to me that the beans haven’t been counted. This is where I think Romney would have an advantage in office, of getting his ducks in a row and making sure that the numbers actually, you know, add up.

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Three views of Social Security reform in GOP debate

Writing for Forbes, University of Illinois finance professor Jeffrey Brown reviews the discussion of social security reform in last night’s GOP presidential debate in Myrtle Beach, SC.

“In response to a question by Gerald Seib of Wall Street Journal, three of the candidates weighed in on Social Security reform.  Their responses revealed strikingly different approaches to economic policy.”

Mitt Romney, Rick Santorum and New Gingrich all have ideas on how to fix Social Security. Romney takes a more conservative (small C) approach, looking at incremental ways to fix the current system. Gingrich wants a complete overhaul and shift to personal retirement accounts, though with the government backing things up if the accounts fall short. Santorum pointed out that there’s no money to fund Gingrich’s plan, then argued for means-testing benefits for high earners. All had their points. See what Jeff had to say over at Forbes.

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