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United States Government Accountability Office:

Washington, DC 20548:

May 6, 2005:

The Honorable Bill Thomas: 
Committee on Ways and Means: 
House of Representatives:

Subject: Options for Social Security Reform:

Dear Mr. Chairman:

As you requested during my testimony before your committee on March 9, 
2005,[Footnote 1] this report provides a list of the various options 
available to reform the Social Security program. Following this 
introduction is a table that lists a wide range of provisions that 
various proposals have used in some form. Following the table is a list 
of such proposals, all of which have been scored by the Social Security 
Administration's Office of the Chief Actuary (SSA/OCACT).[Footnote 2]

Our list of provisions is intended to be generic and conceptual in 
nature. The list attempts to reflect, in general terms, all provisions 
that have appeared in SSA-scored proposals in the past few years. For 
each generic provision, a variety of approaches and parameters could be 
applied and have been proposed. For example, provisions to raise the 
retirement age take a variety of forms, including simply speeding up 
the currently scheduled increase from age 65 to 67, increasing the full 
retirement age to 68 or 70, indexing the retirement age to improvements 
in longevity, and even combinations of these. All of these variations 
have been consolidated into one general provision for increasing the 
retirement age.

The table also briefly discusses each reform option in general terms 
according to GAO's framework for evaluating Social Security reform 
proposals, which is described below. Our observations draw on GAO's 
extensive body of work evaluating various aspects of Social Security 
reform.[Footnote 3]

The Social Security program is so deeply woven into the fabric of our 
nation that any proposed reform should be considered as a package and 
with respect to all of the major elements of the Social Security 
program (e.g., retirement, disability, and survivors). The provisions 
of any particular reform proposal can interact with one another. In 
addition, every proposal will have pluses and minuses, and no plan will 
satisfy everyone on all dimensions. As a result, Social Security reform 
proposals should be evaluated as a package of reform options designed 
to meet certain stated objectives.

Furthermore, any analyses of reform proposals should reflect the fact 
that the program faces a long-term actuarial deficit and that benefit 
reductions and/or revenue increases will be necessary to restore 
solvency. Therefore, it is important to establish the appropriate 
comparisons or benchmarks against which reforms should be measured. 
This requires looking at proposed reforms from at least two benchmarks-
-one that raises revenue to fund currently scheduled benefits (promised 
benefits) and one that adjusts benefits to a level supported by current 
tax financing (funded benefits).

GAO's framework for evaluating reform proposals considers not only 
solvency but other aspects of the program as well. Specifically, the 
framework uses three basic criteria:

* the extent to which a proposal achieves sustainable solvency and how 
it would affect the economy, including overall savings rates, and the 
federal budget;

* the relative balance struck between the goals of individual equity 
(rates of return on individual contributions) and income adequacy 
(level and certainty of benefits); and:

* how readily a proposal could be implemented, administered, and 
explained to the public.

The weight that different policy makers may place on different criteria 
will vary, depending on how they value different attributes. For 
example, if policy makers determine that offering individual choice and 
control is a primary concern, then a reform proposal emphasizing 
individual equity considerations might be preferred. Alternatively, if 
policy makers determine that benefit certainty and security are of 
primary concern, then reform proposals that stress adequacy and 
sustainable solvency might be preferred. As the Congress fashions a 
comprehensive proposal, however, it will ultimately have to consider 
the relative importance it places on each of these criteria.

Financing Sustainable Solvency:

Our sustainable solvency standard encompasses several ways of looking 
at the Social Security program's financing needs. While 75-year 
actuarial balance is generally used in evaluating the long-term 
financial outlook of the Social Security program and reform proposals, 
it is not sufficient in gauging the program's solvency after the 75th 
year. For example, under the trustees' intermediate assumptions, each 
year the 75-year actuarial period changes, and a year with a surplus is 
replaced by a new 75th year that has an increasingly significant 
deficit. As a result, changes made to restore trust fund solvency only 
for the 75-year period can result in future actuarial imbalances almost 
immediately. Reform plans that lead to sustainable solvency would be 
those that consider the broader issues of fiscal sustainability and 
affordability over the long term. Specifically, a standard of 
sustainable solvency also involves looking at (1) the balance between 
program income and costs beyond the 75th year and (2) the share of the 
budget and economy consumed by Social Security spending.

Balancing Adequacy and Equity:

The current Social Security system's benefit structure attempts to 
strike a balance between the goals of retirement income adequacy and 
individual equity. From the beginning, benefits were set in a way that 
focused especially on replacing some portion of workers' pre-retirement 
earnings. Over time other changes were made that were intended to 
enhance the program's role in helping ensure adequate incomes. Income 
adequacy, therefore, is addressed in part through the program's 
progressive benefit structure, providing proportionately larger 
benefits to lower earners and certain household types, such as those 
with dependents. Income adequacy may pose special concerns for Social 
Security's disability and survivor beneficiaries. Such beneficiaries 
generally have lower benefits than old-age beneficiaries; shorter work 
histories may contribute to those lower benefit levels. In addition, 
since they generally start collecting benefits earlier in their lives 
than old-age beneficiaries, they may collect benefits over longer 
periods of time, so benefit reductions may affect them more, especially 
if the reductions have a compounding effect.

In contrast to income adequacy, individual equity refers to the 
relationship between contributions made and benefits received. This can 
be thought of as the rate of return on individual contributions. 
Individual equity concerns can also include equity effects between 
generations and how much choice and control individuals have over their 
program contributions.

Balancing the seemingly conflicting objectives of adequacy and equity 
through the political process has resulted in the design of the current 
Social Security program and should still be taken into account in any 
proposed reforms. Moreover, proposals can have a range of effects that 
vary by income level and other characteristics, and this variation may 
reflect interactions among various provisions. For example, some 
proposals reduce promised benefits overall while simultaneously 
enhancing benefits for low earners or widows, who face greater risks of 
poverty.[Footnote 4]

Implementing and Administering Proposed Reforms:

Any reforms will require time and resources to implement, and those 
demands will depend on the complexity of the changes. Moreover, greater 
program complexity makes implementation and administration more costly 
and harder to explain to the public. Continued public acceptance of and 
confidence in the Social Security program requires that any reforms and 
their implications for benefits be clearly communicated and well 
understood. This means that the American people must understand why 
change is necessary, what the reforms are, how they are to be 
implemented and administered, and how they will affect workers' own 
retirement, disability, or survivors' income. All reform proposals will 
require some additional outreach and assistance to the public so that 
future beneficiaries can adjust their retirement and other financial 
planning accordingly. The more transparent the implementation and 
administration of reform, and the more carefully such reform is phased 
in, the more likely it will be understood and accepted by the American 

As you know, the Social Security system faces serious solvency and 
sustainability challenges in the longer term. While the Social Security 
program does not face an immediate crisis, it does have a $4 trillion 
gap between promised and funded benefits in current dollar terms over 
the next 75 years. This gap is growing as time passes, and given this 
and other major fiscal challenges, including expected growth in federal 
health spending, it would be prudent to act sooner rather than later to 
reform the Social Security program.

Furthermore, Social Security's finances have important implications for 
the overall federal budget. The current Social Security surpluses will 
begin to decline in 2009, thereby putting additional pressure on the 
balance of the federal budget. In addition, Social Security will start 
running a cash flow deficit in 2017, which will require the federal 
government to either increase federal taxes, cut other federal 
spending, or borrow additional funds from the public in order to redeem 
bonds in the Social Security trust funds.

Social Security is not the only challenge we face in addressing the 
economic security needs of our elderly and disabled populations. Any 
changes to Social Security should be considered in the context of the 
problems currently facing our nation's private pension system. These 
include the chronically low levels of pension coverage of the private 
sector workforce; the continued decline in the number of defined 
benefit plans, coupled with the termination of large underfunded plans 
by bankrupt firms; and the shift by employers to defined contribution 
plans, where workers face the potential for greater return but also 
assume greater financial risk. Health care and long-term care needs 
will also place growing demands on the government, employers, 
beneficiaries, and their families. At the same time, our nation's 
personal savings rate is low by international standards.

Failure to take steps to address our large and structural long-range 
fiscal imbalance, which is driven in large part by projected increases 
in Medicare, Medicaid, and Social Security spending, will ultimately 
have significant adverse consequences for our future economy and the 
quality of life of our children, grandchildren, and future generations 
of Americans. As a result, the federal government needs to engage in a 
fundamental review, reassessment, and reprioritization that will 
ultimately have to span all major spending programs and tax policies.

We look forward to continuing to work with your committee and the 
Congress to address Social Security and other important issues.

Signed by: 

David M. Walker: 
Comptroller General of the United States:

Table 1: Options for Social Security Reform and Examples of Potential 

Options: Changing benefits; 
Balancing adequacy and equity: 
* Effects can vary by earnings and other characteristics; 
* Some proposals reduce benefits overall while enhancing benefits for 
low earners and/or widows; 
Additional considerations: 
* Choosing benefit reductions instead of increases to payroll tax 
revenues implies a societal choice that workers will have less income 
during retirement and more during working years.

Options: Changing the formula for initial benefits: Adjusting formula 
factors[Footnote 5]; e.g., reducing 15% factor to 10%, or, 
alternatively, reducing all factors proportionally by x percent; 
Sustainable solvency: 
* Can range from small to very large reductions in Social Security's 
actuarial deficit; 
* Sustainability might require further reductions as longevity 
continues to improve; 
Balancing adequacy and equity: 
* Reductions can be either proportional or nonproportional; 
* Nonproportional reductions could be targeted toward benefit adequacy 
for lower earners but might raise equity concerns: 
-Progressive benefits not the same as adequate benefits[Footnote 6]; 
-To avoid unintended benefit effects, disability and survivor benefits 
might require other changes; 
Implementation and administration: 
* Relies on existing administrative framework; 
* Disability applications might increase because annual formula 
reductions create incentive to qualify for benefits in earliest 
possible year; 
Additional considerations: 
* Provides flexibility; 
* Can be used, in effect, to implement other types of reductions for 
some or all covered workers, e.g., indexing benefits to prices instead 
of wages.

Options: Changing the formula for initial benefits: Indexing formula to 
prices instead of wages; 
Sustainable solvency: 
* Could largely or completely eliminate actuarial deficit by itself, 
depending on specifics; 
* Ongoing indexing could result in benefit reductions greater than 
needed to achieve sustainable solvency; 
Balancing adequacy and equity: 
* If applied across the board, would be a type of proportional 
* Results in gradually and perpetually declining replacement rates; 
that is, benefits would replace smaller and smaller percentage of pre-
retirement earnings; 
* In effect, fixes benefit levels relative to the standard of living of 
a particular year (e.g., 2005)[Footnote 7]; 
* Effect may be smaller on disabled and young survivor beneficiaries, 
given shorter work histories; 
* Could be applied differently according to earnings level to minimize 
adequacy effects (e.g. progressive indexing); 
Implementation and administration: 
* Could be implemented with changes to existing benefit formula, using 
existing administrative framework[Footnote 8]; 
* Disability applications might increase because annual formula 
reductions create incentive to qualify for benefits in earliest 
possible year.

Options: Changing the formula for initial benefits: Indexing formula to 
Sustainable solvency: 
* Small to moderate reduction in actuarial deficit, depending on 
Balancing adequacy and equity: 
* A type of proportional reduction; 
* Benefits would replace smaller and smaller percentage of pre-
retirement earnings; 
* To avoid unintended benefit effects, disability and survivor benefits 
might require other changes; 
Implementation and administration: 
* Could be implemented with proportional reduction to formula factors, 
using existing administrative framework[Footnote 9]; 
* Disability applications might increase because annual formula 
reductions create incentive to qualify for benefits in earliest 
possible year.

Options: Changing the formula for initial benefits: Increasing benefit 
computation period, e.g., from 35 to 38 or 40 years; 
Sustainable solvency: 
* Relatively small reduction in actuarial deficit; 
Balancing adequacy and equity: 
* Would parallel existing increase in Full Retirement Age; 
* Might create additional incentive to work longer; 
* Increase to 38 years would reduce benefits by roughly 3%-6% depending 
on earnings pattern; 
* Largest reductions for those groups more likely to have intermittent 
work histories, e.g., women with children; 
Implementation and administration: 
* Relies on existing administrative framework.

Options: Changing the formula for initial benefits: Increasing benefits 
for widow(er)s, e.g., pay 75% of couples' benefit; 
Sustainable solvency: 
* Very small increase in actuarial deficit; 
Balancing adequacy and equity: 
* Enhances benefit adequacy for widows; 
Implementation and administration: 
* Relies on existing administrative framework.

Options: Changing the formula for initial benefits: Enhancing benefits 
for lower income workers, e.g., minimum benefit amounts as percentage 
of poverty for qualifying workers; 
Sustainable solvency: 
* Small increase in actuarial deficit, depending on proposal; 
Balancing adequacy and equity: 
* Enhances benefit adequacy for low-wage full-career workers; 
* Qualifications for years of work could be scaled for workers who 
become disabled or die before retirement; 
* Proposals so far generally do not provide enhanced benefit for those 
groups more likely to have intermittent work histories, e.g., women 
with children; 
Implementation and administration: 
* Proposed provisions have involved fairly complicated formulas.

Options: Changing the formula for initial benefits: Increasing 
actuarial adjustment factors for early or delayed retirement; 
Sustainable solvency: 
* On balance, small reduction in actuarial deficit; 
* Increasing delayed retirement credit would slightly increase 
actuarial deficit; 
Balancing adequacy and equity: 
* Currently, earnings after retirement have small effect on benefit 
* Increasing reductions for early retirement may affect adequacy; 
Implementation and administration: 
* Relies on existing administrative framework; 
Additional considerations: 
* Would increase incentives to work longer, which could help reduce 
overall fiscal pressures on federal budget.

Options: Changing the formula for initial benefits: Modifying annual 
cost-of-living adjustments (COLAs) to benefits, e.g., reducing by 0.5 
or 1.0 percentage points; 
Sustainable solvency: 
* Moderate to large reduction in actuarial deficit; 
Balancing adequacy and equity: 
* Would have increasing cumulative effect over additional years 
benefits are received; 
* Greatest potential adverse effect on oldest, disabled, and survivors, 
who are at higher risk of poverty; 
Implementation and administration: 
* Relies on existing administrative framework; 
Additional considerations: 
* Adjustment could more accurately reflect inflation.

Options: Changing the formula for initial benefits: Increasing full 
retirement age, e.g., eliminating hiatus in current increase, increase 
to age 68 or 70; 
Sustainable solvency: 
* Depending on provision, small to moderate reduction in actuarial 
Balancing adequacy and equity: 
* Largely the same, in effect, as proportional benefit reduction, 
especially if early retirement age remains at 62; 
* Workers in certain occupations (e.g., construction) may not be able 
to work longer and have to take benefit reductions, though other 
program changes could address this concern; 
Implementation and administration: 
* Relies on existing administrative framework; 
* Increasing full retirement age could increase disability 
Additional considerations: 
* Would reflect increasing longevity, which is primary contributor to 
* Raises question of whether to also increase early retirement age (now 
62), which would encourage individuals to work longer.

Options: Changing revenues; 
Sustainable solvency: 
* May have adverse labor supply and growth effects, depending on amount 
and design; 
Balancing adequacy and equity: 
* Distributional effects depend on approach to increase; 
Additional considerations: 
* Choosing increases to payroll tax revenues instead of benefit 
reductions implies a societal choice that workers will have less income 
during working years and more during retirement.

Options: Raising payroll tax revenues: Increasing payroll tax rate; 
Sustainable solvency: 
* Effect on actuarial deficit depends on size of increase; 
* Increase of 1.92 percentage points would achieve 75-year solvency, 
but 76th year would lead back to an actuarial deficit; 
Balancing adequacy and equity: 
* The sooner it applies, the greater the intergenerational equity, 
since earlier birth groups enjoy higher implicit returns; 
* Would help avoid benefit reductions; 
* Regressive nature of tax falls more heavily on low wage workers and 
their employers[Footnote 10]; 
Implementation and administration: 
* Relies on existing administrative framework.

Options: Raising payroll tax revenues: Raising cap on taxable earnings 
(with or without retaining cap for benefit calculation); 
Sustainable solvency: 
* Effects range from small to more than eliminating actuarial deficit; 
* If higher earnings would also be used in benefit computations, would 
also increase long-term benefit payouts, but at lowest replacement rate 
(15 percent); 
Balancing adequacy and equity: 
* Increase could make percentage of earnings covered more comparable to 
historical levels; 
* Diminishes equity because earnings above the cap are replaced at 
lower rate than lower earnings levels; 
* Burden falls on those 6 percent of covered workers with earnings 
above present cap, especially those who are self-employed or small 
business owners, who effectively pay both employer and employee share; 
Implementation and administration: 
* Relies on existing administrative framework; 
Additional considerations: 
* Would increase incentives for higher earners to structure more of 
their compensation as nonwage income, (e.g., other benefits, stock 

Options: Raising payroll tax revenues: Expanding coverage to all state 
and local government workers; 
Sustainable solvency: 
* Small reduction in actuarial deficit; 
* Would also increase long-term benefit levels as newly covered 
earnings would entitle affected workers to associated benefits; 
Balancing adequacy and equity: 
* Would improve equity in the sense that all workers would be treated 
the same; 
* Social Security may offer employees additional protections compared 
with their current benefit packages, depending on how those packages 
Implementation and administration: 
* Would simplify administration and, in long run, address equity 
concerns arising from GPO and WEP[Footnote 11]; 
* Affected state and local governments and employees would need time to 
adjust and to implement complementary changes; 
Additional considerations: 
* May impose additional costs on state and local governments.

Options: Other revenue options: Tapping other revenue sources, e.g., 
general fund transfers, dedicated revenue sources; 
Sustainable solvency: 
* Effect on actuarial balance depends upon the size and use of 
* General fund transfers raise government's need for cash, which must 
be raised with spending cuts, tax increases or borrowing from the 
* Would compete with other programs or tax reductions in the general 
* Could worsen long-range fiscal imbalance; 
Balancing adequacy and equity: 
* Could change equity of program significantly but in ways that are 
hard to quantify; 
* Given current and projected budget deficits, transfers likely to 
result in additional tax burdens in future years; 
* Difficult to determine who bears burden of transfers; 
Additional considerations: 
* Dilutes principle that program is self-financed, which; 
* imposes discipline that benefits cannot expand beyond what dedicated 
revenues can pay for; 
* since benefits are "paid for," avoids stigma that they are welfare; 
* Introduction of general fund transfers could lead to incremental 
enhancement of benefits; 
* Could increase political risk of future benefit reductions.

Options: Other revenue options: Change taxation of Social Security 
benefits, e.g., tax them in a manner similar to private pension income, 
that is, tax benefits that exceed contributions; 
Sustainable solvency: 
* Small reduction in actuarial deficit; 
Balancing adequacy and equity: 
* Would parallel treatment of other retirement income; 
* Given other existing tax provisions, roughly a third of Social 
Security beneficiaries would still not pay income tax on their 
Implementation and administration: 
* Administration may be manageable with phase-in.

Options: Other revenue options: Increasing investment returns, either 
by government investing or through individual accounts; 
Sustainable solvency: 
* Potential effect depends on size of trust funds, extent of advanced 
funding, portfolio, and fees; 
* Investing trust fund surplus would increase government borrowing 
needs and debt held by the public; 
Balancing adequacy and equity: 
* Increasing returns improves equity; 
* Effect on adequacy depends on how risk is distributed; 
Implementation and administration: 
* Administration is likely manageable, depending on approach; 
Additional considerations: 
* Could be done either by trust funds or through individual accounts; 
* Trust fund investment raises concern about role of government in 
investment markets, though some approaches may mitigate that concern.

Options: Changing the program structure with individual accounts; 
Sustainable solvency: 
* Would not achieve solvency unless coupled with other changes; 
* Would move system toward more advance funding; 
* Effect on national saving depends on a variety of factors, including 
how the accounts are funded; 
increases in personal saving may be offset by increases in government 
or personal borrowing or reductions in other personal savings; 
Balancing adequacy and equity: 
* Would generally improve equity; 
* With higher returns, might help make up for benefit reductions used 
to achieve solvency; 
* Shifts system from social insurance to individual responsibility for 
* Shifts program from an exclusively defined-benefit structure; 
* Redistributes risk; 
* If market returns are poor, would raise adequacy risks; 
Implementation and administration: 
* By adding new system, involves more complexity and cost, including 
services for: 
-collection of deposits; 
-account administration; 
-investment management; 
-distribution in retirement; 
-educational efforts relating to all phases; 
* Posting contributions to individuals' accounts in real time might be 
expected but much more difficult than current record keeping; 
Additional considerations: 
* Depending on approach, government, employers, financial institutions, 
and individuals could play various roles in contribution, accumulation, 
and distribution phases; 
* Provides additional saving vehicle for those without a pension.

Options: Contribution phase: A voluntary approach would (in comparison 
to a mandatory one); 
Sustainable solvency: 
* Raise question of whether incentives are desired; 
* Possibly pose adverse selection issues; 
Balancing adequacy and equity: 
* Give greater choice; 
Implementation and administration: 
* Require greater level of educational effort; 
* Require additional administrative complexity and cost.

Options: Contribution phase: Account contribution rate; 
Balancing adequacy and equity: 
* Contribution rates can be proportional or progressive; 
Additional considerations: 
* Size of contribution rate determines relative role of DC vs. DB 
portion of program.

Options: Contribution phase: Add-on vs. carve-out[Footnote 12]; 
Sustainable solvency: 
* Add-ons require additional revenue; 
* Carve-outs pose transition costs, which are typically financed with 
general revenue transfers (see above); 
* Either, if using general revenues, would raise government's need for 
cash, and without compensating elements, compound fiscal challenges; 
Balancing adequacy and equity: 
* Carve-outs divert revenues from current system, involve commensurate 
offsets to Social Security defined benefit, while offering ownership of 
new account; 
Implementation and administration: 
* Add-ons or carve-outs could build on existing IRA, 401(k), 403(b), 
457, Thrift Savings Plan, and other defined contribution systems; 
* Carve-outs require additional, potentially complicated, calculations 
for benefit offsets.

Options: Accumulation phase: Investment options; 
Balancing adequacy and equity: 
* For workers who become disabled or die, less time to accumulate 
compound earnings; 
also, some proposals limit their access to accounts before retirement 
Implementation and administration: 
* Limiting investment alternatives may minimize administrative costs, 
promote diversification (by limiting ability to concentrate), and 
simplify individual decision making while also reducing individual 
choice and control.

Options: Distribution phase: Draw down alternatives, e.g., annuities 
vs. phased withdrawal; 
Sustainable solvency: 
* Any government role in annuitization or other distributions could 
affect its cash position; 
Balancing adequacy and equity: 
* Mandatory annuity effectively transfers income from the shorter-lived 
to the longer-lived; 
* Mandatory annuity might be limited to amount necessary to avoid 
* For workers who become disabled, if allowed access to accounts before 
retirement, may need to stretch assets over more years; 
* Concern is preserving assets to meet adequacy needs for rest-of-life 
and avoid leakages; 
Implementation and administration: 
* Annuitization incurs additional costs, e.g. risk premia, unless 
government annuitizes; 
* Mandatory annuitization could minimize adverse selection[Footnote 
* Phased withdrawal could mirror minimum distribution requirements for 
IRAs while adding maximum distributions; 
* Would require new rules to handle cases of survivors, divorced 
beneficiaries, and other situations; 
Additional considerations: 
* Once purchased, annuities might not provide for any bequest (or 
having bequest feature would cost more and in turn reduce benefit); 
* Annuities involve risk premia paid to insurers while phased 
withdrawal amounts to self-insuring.

Options: Distribution phase: Guarantees; 
Sustainable solvency: 
* Could create risk to taxpayers through contingent liability and moral 
hazard issues[Footnote 14]; 
Balancing adequacy and equity: 
* Help ensure provision of specified benefit level; 
Implementation and administration: 
* Some guarantee provisions require maintaining alternative benefit 
Additional considerations: 
* Offer incentive to participate.

Options: Distribution phase: Pre-retirement access; 
Balancing adequacy and equity: 
* Risks leakage that diminishes adequacy in retirement; 
* Enhances individual sense of ownership and control; 
Implementation and administration: 
* Would involve additional administrative services; 
Additional considerations: 
* Greater incentive to participate.

Options: Administration: Centralized vs. decentralized; 
Balancing adequacy and equity: 
* Decentralized offers greater choice and control to individuals; 
Implementation and administration: 
* Centralized would be much less costly.

[End of table]

Proposals That Include the Various Options Listed in Table 1:

The following proposals include one or more of the options listed in 
table 1. All of these proposals have been scored by the Social Security 
Administration's Office of the Chief Actuary:[Footnote 15]

* Ball:

* Commission to Strengthen Social Security (CSSS):

* DeFazio:

* DeMint:

* Diamond-Orszag:

* Ferrara:

* Graham:

* Hagel:

* Johnson:

* Kolbe-Stenholm:

* Pozen:

* Ryan-Sununu:

* Shaw:

* Smith:

In addition, many of the options listed in table 1 appear in the 
proposals of the 1994-1996 Advisory Council on Social Security, the 
Center for Strategic and International Studies, and the Committee for 
Economic Development. Also, the Social Security Advisory Board recently 
asked the Social Security actuaries to score a number of provisions, 
all of which are included in the list in table 1.

[End of section]

Related GAO Products:

Social Security Reform: Early Action Would Be Prudent. GAO-05-397T. 
Washington, D.C.: March 9, 2005.

Social Security: Distribution of Benefits and Taxes Relative to 
Earnings Level. GAO-04-747. Washington, D.C.: June 15, 2004.

Social Security Reform: Analysis of a Trust Fund Exhaustion Scenario. 
GAO-03-907. Washington, D.C.: July 29, 2003.

Social Security: Issues Relating to Noncoverage of Public Employees. 
GAO-03-710T. Washington, D.C.: May 1, 2003.

Social Security and Minorities: Earnings, Disability Incidence, and 
Mortality Are Key Factors That Influence Taxes Paid and Benefits 
Received. GAO-03-387. Washington, D.C.: April 23, 2003.

Social Security Reform: Analysis of Reform Models Developed by the 
President's Commission to Strengthen Social Security. GAO-03-310. 
Washington, D.C.: January 15, 2003.

Social Security Reform: Information on Using a Voluntary Approach to 
Individual Accounts. GAO-03-309. Washington, D.C.: March 10, 2003.

Social Security: Program's Role in Helping Ensure Income Adequacy. GAO-
02-62. Washington, D.C.: November 30, 2001.

Social Security Reform: Potential Effects on SSA's Disability Programs 
and Beneficiaries. GAO-01-35. Washington, D.C.: January 24, 2001.

Social Security Reform: Information on the Archer-Shaw Proposal. GAO/
AIMD/HEHS-00-56. Washington, D.C.: January 18, 2000.

Social Security: Evaluating Reform Proposals. GAO/AIMD/HEHS-00-29. 
Washington, D.C.: November 4, 1999.

Social Security Reform: Implications of Raising the Retirement Age. 
GAO/HEHS-99-112. Washington, D.C.: August 27, 1999.

Social Security: Issues in Comparing Rates of Return With Market 
Investments. GAO/HEHS-99-110. Washington, D.C.: August 5, 1999.

Social Security: Criteria for Evaluating Social Security Reform 
Proposals. GAO/T-HEHS-99-94. Washington, D.C.: March 25, 1999.

Social Security: Implications of Extending Mandatory Coverage to State 
and Local Employees. GAO/HEHS-98-196. Washington, D.C.: August 18, 1998.

Social Security: Different Approaches for Addressing Program Solvency. 
GAO/HEHS-98-33. Washington, D.C.: July 22, 1998.

Social Security Financing: Implications of Government Stock Investing 
for the Trust Fund, the Federal Budget, and the Economy. GAO/AIMD/HEHS-
98-74. Washington, D.C.: April 22, 1998.

Social Security: Restoring Long-Term Solvency Will Require Difficult 
Choices. GAO/T-HEHS-98-95. Washington, D.C.: February 10, 1998.


[1] GAO, Social Security Reform: Early Action Would Be Prudent. GAO-05-
397T. Washington, D.C.: March 9, 2005.

[2] These actuarial scorings can be found at

[3] A list of GAO reports on Social Security is included at the end of 
this report. In these reports, you can find more detailed discussions 
about more specific proposals than the generic options listed in this 
report. All of the reports are available at

[4] GAO, Social Security: Distribution of Benefits and Taxes Relative 
to Earnings Level. GAO-04-747. Washington, D.C.: June 15, 2004.

[5] When workers retire, become disabled, or die, Social Security uses 
their lifetime earnings records to determine their Primary Insurance 
Amount (PIA), on which initial monthly benefits are based. The PIA is 
determined by applying the Social Security benefit formula to a 
worker’s Average Indexed Monthly Earnings (AIME). The AIME is 
determined by taking the lifetime earnings record, indexing it to 
average wage growth, and taking the average. For workers who become 
eligible for benefits in 2005, PIA equals 90 percent of the first $627 
dollars of AIME plus 32 percent of AIME over $627 through $3,779 
dollars of AIME plus 15 percent of AIME above $3,779.

[6] Under some reform scenarios, Social Security could distribute 
benefits more progressively than current law yet provide lower, less 
adequate benefits.

[7] When wages grow faster than prices, workers can afford to consume 
more goods and services, their purchasing power increases, and the 
standard of living improves. Historically, wages have grown faster than 
prices, on average. Since Social Security’s current benefit formula is 
indexed to wages, increases in initial benefits keep pace with 
improvements in the standard of living. Indexing benefits to prices 
instead of wages would make the purchasing power of benefits remain 
constant even if wage growth were improving purchasing power for the 
rest of society.

[8] In its scorings, SSA/OCACT implements this provision using changes 
to the PIA benefit formula.

[9] In its scorings, SSA/OCACT implements this provision using a 
proportional reduction to the benefit formula factors.

[10] The payroll tax is regressive due to the cap on taxable earnings 
even though the tax rate is itself proportional.

[11] The Government Pension Offset (GPO) and the Windfall Elimination 
Provision (WEP) are existing Social Security provisions that reduce 
Social Security benefits for those who also receive pensions from 
employment that is not covered by Social Security. Noncovered workers 
do not pay Social Security taxes on their noncovered earnings. These 
provisions are intended to treat such beneficiaries in a manner that 
parallels treatment of beneficiaries who paid Social Security taxes on 
all their lifetime earnings. See GAO, Social Security: Issues Relating 
to Noncoverage of Public Employees. GAO 03 710T. Washington, D.C.: May 
1, 2003.

[12] In GAO’s work to date, we have used the term “add-on” accounts to 
refer to accounts that would have no effect on Social Security 
benefits, would supplement those benefits, and would draw contributions 
from new revenue streams. In contrast, we have used the term “carve-
out” accounts to refer to accounts that would result in some reduction 
or offset to Social Security benefits because contributions to those 
accounts would draw on existing Social Security revenues. Others have 
used these terms in different manners. For example, some have used “add-
ons” in connection with new individual accounts funded from new revenue 
sources that result in a reduction or offset to some or all Social 
Security benefits. In the final analysis, there are two key dimensions: 
first, whether individual accounts are funded from existing or new 
revenue sources; second, whether individual accounts result in some 
reduction or offset to Social Security benefits.

[13] Adverse selection occurs, for example, when only healthy people 
buy annuities and on average live longer than nonbuyers, driving up the 
cost of annuities.

[14] Moral hazard would occur if account holders faced an incentive to 
take more investment risk than they would otherwise as a result of 
having guarantee to fall back on.

[15] These actuarial scorings can be found at