Why We Must Enhance Social Security Instead Of Cutting It

     From an opinion piece (subscription required) by Teresa Ghilarducci in the New York Times:

I work on retirement policy, so friends often want to talk about their own retirement plans and prospects. While I am happy to have these conversations, my friends usually walk away feeling worse — for good reason. 

Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. ...

To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security. If you have an income-producing partner and a paid-off house, you need less. This number is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in retirement accounts and thus will rely solely on Social Security.  ...

If we manage to accept that our investments will likely not be enough, we usually enter another fantasy world — that of working longer. After all, people hear that 70 is the new 50, and a recent report from Boston College says that if people work until age 70, they will most likely have enough to retire on. Unfortunately, this ignores the reality that unemployment rates for those over 50 are increasing faster than for any other group and that displaced older workers face a higher risk of long-term unemployment than their younger counterparts. If those workers ever do get re-hired, it’s not without taking at least a 25 percent wage cut....

The chance to work into one’s 70s primarily belongs to the most well off. Medical technology has helped extend life, by helping older people survive longer with illnesses and by helping others stay active. The gains in longevity in the last two decades almost all went to people earning more than average. It makes perfect sense for human beings to think each of us is special and can work forever. To admit you can’t, or might not be able to, is hard, and denial and magical thinking are underrated human coping devices in response to helplessness and fear.  ...

Basing a system on people’s voluntarily saving for 40 years and evaluating the relevant information for sound investment choices is like asking the family pet to dance on two legs. 

Not yet convinced that failure is baked into the voluntary, self-directed, commercially run retirement plans system? Consider what would have to happen for it to work for you. First, figure out when you and your spouse will be laid off or be too sick to work. Second, figure out when you will die. Third, understand that you need to save 7 percent of every dollar you earn. (Didn’t start doing that when you were 25 and you are 55 now? Just save 30 percent of every dollar.) Fourth, earn at least 3 percent above inflation on your investments, every year. (Easy. Just find the best funds for the lowest price and have them optimally allocated.) Fifth, do not withdraw any funds when you lose your job, have a health problem, get divorced, buy a house or send a kid to college. Sixth, time your retirement account withdrawals so the last cent is spent the day you die. 

Payment Of Social Security Benefits By Debit Card Popular

     From the American Banker:

Nearly all senior citizens and others who receive monthly Social Security benefits on government-issued debit cards are satisfied with their cards and would recommend them to other seniors who are still receiving paper checks, a new survey has found.


The Treasury Department has been issuing the prepaid cards since 2008 primarily to give recipients easier access to their Social Security funds. The MasterCard-branded cards have been issued to more than 3 million Americans, two-thirds of whom did not have access to traditional banking services when they signed up, according to the Treasury.


In a survey conducted in June by KRC Research and commissioned by MasterCard, 95% of recipients who use the cards said they are happy with them and 93% said they would recommend them to others. Also, 97% said that the debit cards are safer than paper checks and 93% said that the card is more convenient than cash for making purchases, the Treasury said Tuesday.

Processing Time Report

     Below is a recent Social Security hearing office average processing time report published in the newsletter of the National Organization of Social Security Claimants Representatives (NOSSCR). Click on each page to see full size.

Congressional Hearing On SSI Technology

     From a press release:

Congressman Geoff Davis (R-KY), Chairman of the Subcommittee on Human Resources of the Committee on Ways and Means, announced today that the Subcommittee will hold a hearing on the use of technology to improve the administration of the Supplemental Security Income (SSI) program’s financial eligibility requirements.  The hearing will take place on Friday, July 20, 2012 in 1100 Longworth House Office Building, beginning at 9:30 A.M.

      Update: This hearing has been postponed to July 25 at 2:00 p.m.

Fighting To Keep Field Office From Closing

     Local officials are still trying hard to keep the Clinton, IA Social Security field office open.

     Just think of how many field offices get closed if the House Republican appropriation for the Social Security Administration becomes law. Now, that I think of it, maybe Social Security should be putting out a press release on this subject now.

Death Master File Remains A Headache For Social Security

     Social Security's Death Master File is drawing more media attention, now with an article about the use of the Death Master File for fraudulent purposes titled Social Security Selling Dead Peoples' Identities For $10 A Pop.      

     If you are just encountering this issue for the first time, please note that Social Security would strongly prefer that no one outside the agency have access to the Death Master File but the Freedom of Information Act (FOIA) requires them to allow this access. Amending the FOIA to keep the Death Master File secret would not be easy. There are plenty of legitimate uses of the Death Master File, some of them of significant importance in preventing fraud. There are no easy answers and the Social Security Administration is caught in the middle.

Private Equity And Binder and Binder

     In June of last year, I posted that Binder and Binder, the largest entity representing Social Security claimants, had been acquired in 2010, at least in part, by HIG, a private equity firm based in Miami, in a leveraged buyout.

     At the time I knew essentially nothing about private equity firms. Since then, the publicity about Mitt Romney's involvement in Bain Capital, another private equity firm, has educated me a tiny bit on private equity companies. It appears that Bain was, in the main, acquiring troubled companies and trying to turn them around for resale at a tidy profit. Sometimes they were unable to turn the companies around and the companies were closed -- usually with Bain making a tidy profit despite the closure. 

     I suppose that there are different private equity models than those employed by Bain. Bain's operations were surely a good deal more complex than what has been described in the press. I have no idea how HIG operates or what triggered this acquisition or what has happened since HIG acquired at least part of Binder and Binder. Still, the involvement of a private equity firm in representing Social Security claimants still seems awfully weird and somewhat troubling to me.

     I am somewhat amused by the thought of HIG's MBAs digging deep into the guts of the business of representing Social Security claimants and being confronted again and again with roadblocks imposed by the Social Security Act and Social Security's regulations and policies. I have trouble imagining them actually reading client files and attending client hearings to truly educate themselves about this messy business. I wonder what those MBAs thought about those Wall Street Journal articles about Binder and Binder. Did they think they didn't matter since few Social Security claimants read the Wall Street Journal? Did they realize the problems those articles could cause Binder and Binder with Administrative Law Judges and Social Security in general -- problems that would inevitably affect the company's bottom line?As I say, the involvement of a private equity company in this business just seems awfully weird to me.

CBO Swings And Misses

     The Congressional Budget Office has put out a report on Policy Options for the Social Security Disability Insurance Program. The report deals mostly with the fact that the Disability Insurance Trust Fund is predicted to run out of money in about four years and how this fact might be dealt with.
     The CBO has a great reputation but I don't think this is one of their better efforts. Somehow, they fail to mention the option put forward by Social Security's Chief Actuary of temporarily raising the Disability Insurance program’s share of the FICA payroll tax rate from 1.8 to 2.2 percent for 2012 through 2024 and to 2.0 percent for 2025 through 2029. You would think that they would be aware of this proposal but it isn't mentioned. They list the people they consulted in producing the report and the Office of the Chief Actuary is not mentioned, which I find amazing. That should have been where they started.

     Here are some of the ideas that did make it into the report:

• Permanently raise the FICA tax by 0.2% -- which couldn't possibly solve the Disability Trust Fund problem in the short term
• Reduce all disability benefits by 15%
• Reduce disability benefits dramatically for those age 53 and older, an idea which is discussed at length
• Eliminate Social Security disability benefits entirely for those 62 and older, an idea which is linked with reducing disability benefits for those 53 and older.  CBO needs a reality check. Louie Gohmert may be the craziest member of Congress but I don't think even Gohmert would endorse this!
• Increase the waiting period from 5 months to 12-- another sign of a need for a reality check
• Introducing government representation -- indicating that CBO is unaware that this was tried in the past and did not reduce the number of people approved for Social Security disability benefits. By the way, as I have pointed out before, I can only link to an interim report on the government representative project. The experiment was such an embarrassing failure that Social Security quietly terminated it without ever writing up a final report! And yet, this idea keeps turning up in Very Serious Reports like this CBO study.

     By the way, the CBO estimated the effects of increasing the age ranges in the grid regulations by two years. That would only reduce disability benefit payments by 0.5% by 2022. This doesn't sound like something even worth considering since it would generate a ton of controversy and wouldn't save much money.
     The more you look at this, the more it looks like Steve Goss, Social Security's Chief Actuary, has a good handle on what is economically and politically feasible, regardless of who wins the 2012 and 2014 elections. CBO ought to be talking with him.