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entitled 'Retirement Security: Women Face Challenges in Ensuring 
Financial Security in Retirement' which was released on October 11, 
2007. 

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Report to the Ranking Member, Special Committee on Aging, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

October 2007: 

Retirement Security: 

Women Face Challenges in Ensuring Financial Security in Retirement: 

Retirement Security: 

GAO-08-105: 

GAO Highlights: 

Highlights of GAO-08-105, a report to Ranking Member, Special Committee 
on Aging, U.S. Senate. 

Why GAO Did This Study: 

Women aged 65 and over will account for a growing segment of the U.S. 
population over the next several decades. Despite increases in women’s 
workforce behavior in the past 65 years, elderly women have 
persistently high rates of poverty. Thus, it is important to understand 
the differences between men’s and women’s retirement income, and how 
women may fare given future reforms to Social Security and pensions. 
GAO was asked to examine (1) how women's retirement income compares 
with men’s and the reasons for differences; (2) how certain life events 
such as divorce, widowhood, and workforce interruptions affect women’s 
retirement income; and (3) the possible effect on women’s retirement 
income of certain changes to Social Security and pensions that seek to 
mitigate the effects of differences in workforce participation 
patterns. 

To address these objectives, GAO reviewed the relevant literature, 
interviewed academics and other retirement experts, and used a 
microsimulation model to project future retirement income. GAO provided 
a draft of this report to the departments of Labor and Treasury, the 
Internal Revenue Service, and the Social Security Administration. 
Cognizant agency officials provided technical comments which were 
incorporated as appropriate. 

What GAO Found: 

In general, women have less retirement income than men, largely because 
of women’s lower labor force attachment and lower earnings, on average. 
Fewer women than men have income from most major retirement sources, 
and women have less income from these sources. Women’s median Social 
Security income is 70 percent of men’s. Also, fewer women than men have 
pensions. Among the population age 65 and over who continue to work, 
women earn just over half of what men earn. Women also have somewhat 
smaller income than men from assets, such as interest and dividends. 
Accordingly, rates of poverty among those 65 and over are substantially 
higher for women than for men. Although their participation has 
increased substantially in the last century, women still spend fewer 
years in the labor force than men, and they more often work part-time. 
Also, women tend to earn less than men, despite increases in their 
wages over time relative to men. Although work patterns are key in 
earnings differences, in prior work, we found that even after 
accounting for behavioral differences such as education or labor force 
participation, women still earn less than men. 

Certain life events—including changes in marital status, labor force 
interruptions, and long-term care needs—can significantly reduce the 
amount of pension income and Social Security benefits women receive—and 
leave women with fewer financial resources at retirement than men. 
Social Security divorced spousal benefits are available only if the 
marriage lasted at least 10 years. Furthermore, pension benefits are 
available to a divorced spouse only under certain circumstances. 
Women’s role as primary family caregiver for children and elderly 
relatives can reduce their career earnings, on which retirement income 
is based. Because women tend to live longer than men, widowhood and 
costly long-term care assistance may further reduce their retirement 
resources. 

GAO’s simulations of some Social Security changes that would compensate 
for low earnings or time out of the workforce showed that those changes 
tend to increase benefits for beneficiaries overall, and particularly 
those in lower income quintiles. Alternatively, changes that focus on 
shifts in family structure, such as increases in two-earner couples and 
increased incidence of divorce, tend to increase the benefits of groups 
targeted by the change, but produce mixed results for others. Some 
pension changes that have been proposed in the past several years take 
into account the changing labor force and norms of employer-provided 
retirement plans; while these changes are gender-neutral, they may 
provide important new opportunities for women to increase their 
retirement income. For example, decreased vesting requirements may 
provide additional pension income to those with intermittent workforce 
participation who would not qualify for pension benefits under a longer 
vesting schedule. 

What GAO Recommends: 

GAO is making no recommendations. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-08-105]. For more information, contact 
Barbara Bovbjerg at (202) 512-7215 or bovbjergb@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Women Have Less Retirement Income than Men Largely because of 
Differences in Labor Force Participation and Lifetime Earnings: 

Certain Life Events May Reduce Women's Retirement Resources More Than 
Men's: 

Specific Changes to Social Security and Employer-Sponsored Pensions 
Will Affect Women Differently than Men Because of Differences in 
Lifetime Work Histories: 

Implement Dependent Care Credits: 

Increase Minimum Benefit: 

Increase Survivor Benefits: 

Reduce Spousal Benefits and Increase Survivor Benefits: 

Reduce Duration of Marriage Requirement for Divorced Spouse Benefit 
Eligibility: 

Lowering Vesting Requirements: 

Automatic Rollover upon Leaving Employment Prior to Retirement Age: 

Concluding Observations: 

Agency Comments: 

Appendix I: Methodology: 

Assumptions and Limitations: 

Description of Simulated Social Security Modifications: 

Description of Simulated Pension Modifications: 

Data Reliability: 

Benchmark Policy Scenarios: 

Appendix II: Simulation Results for Social Security Modifications: 

Appendix III: Low Benefit Avoidance Rates: 

Appendix IV: Effect of Simulated Reform on Social Security System 
Solvency: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Median Percentage Change in Benefits for Individuals Whose 
Benefits Changed after Addition of the Dependent Care Credit--Promised 
Benefits Benchmark: 

Table 2: Percentage of Total Simulation Population Whose Benefits 
Changed after Addition of the Dependent Care Credit--Promised Benefits 
Benchmark: 

Table 3: Median Percentage Change in Benefits for Individuals Whose 
Benefits Changed after Addition of the Increased Minimum Benefit-- 
Promised Benefits Benchmark: 

Table 4: Percentage of Total Simulation Population Whose Benefits 
Changed after Addition of the Increased Minimum Benefit--Promised 
Benefits Benchmark: 

Table 5: Median Percentage Change in Benefits for Individuals Whose 
Benefits Changed after Addition of Increased Survivor Benefits-- 
Promised Benefits Benchmark: 

Table 6: Percentage of Total Simulation Population Whose Benefits 
Changed after Addition of Increased Survivor Benefits--Promised 
Benefits Benchmark: 

Table 7: Median Percentage Change in Benefits for Individuals Whose 
Benefits Changed after Addition of Decreased Spousal Benefits Paired 
with Increased Survivor Benefits--Promised Benefits Benchmark: 

Table 8: Percentage of Total Simulation Population Whose Benefits 
Changed after Addition of Decreased Spousal Benefits Paired with 
Increased Survivor Benefits--Promised Benefits Benchmark: 

Table 9: Median Percentage Change in Benefits for Individuals Whose 
Benefits Changed after Reduction in Marriage Requirement from 10 to 7 
Years--Promised Benefits Benchmark: 

Table 10: Percentage of Total Simulation Population Whose Benefits 
Changed after Reduction in Marriage Requirement from 10 to 7 Years-- 
Promised Benefits Benchmark: 

Table 11: Median Percentage Change in Pension Benefits for Individuals 
Born in 1985 Whose Benefits Changed After Lowered Vesting Schedules46: 

Table 12: Percentage of Total Simulation Population Whose Benefits 
Changed after Implementation of Lowered Vesting Schedules: 

Table 13: Median Percentage Change in Pension Benefits for Individuals 
Born in 1985 Whose Benefits Changed after Implementation of 100 Percent 
Automatic Rollover: 

Table 14: Percentage of Total Simulation Population Whose Benefits 
Changed after Implementation of 100 Percent Automatic Rollover: 

Table 15: Summary of Benchmark Policy Scenarios: 

Table 16: Summary of Benchmark Policy Scenario Parameters: 

Table 17: Simulation Results of the Dependent Care Credit under 
Alternative Benchmark Scenarios, for the 1950 and 1985 Birth Cohorts: 

Table 18: Simulation Results for Dependent Care Credit by Income 
Quintile under Alternative Benchmark Scenarios, for the 1950 and 1985 
Birth Cohorts: 

Table 19: Simulation Results for Dependent Care Credit by Marital 
Status under Alternative Benchmark Scenarios, for the 1950 and 1985 
Birth Cohorts: 

Table 20: Simulation Results for Increased Survivor Benefit Only under 
Alternative Benchmark Scenarios, for the 1950 and 1985 Birth Cohorts: 

Table 21: Simulation Results for Increased Survivor Benefit Only by 
Income Quintile under Alternative Benchmark Scenarios, for the 1950 and 
1985 Birth Cohorts: 

Table 22: Simulation Results for Increased Survivor Benefit Only by 
Marital Status under Alternative Benchmark Scenarios, for the 1950 and 
1985 Birth Cohorts: 

Table 23: Simulation Results for Increased Survivor Benefit and 
Decreased Spouse Benefit under Alternative Benchmark Scenarios, for the 
1950 and 1985 Birth Cohorts: 

Table 24: Simulation Results for Increased Survivor Benefit and 
Decreased Spouse Benefit by Income Quintile under Alternative Benchmark 
Scenarios, for the 1950 and 1985 Birth Cohorts: 

Table 25: Simulation Results for Increased Survivor Benefit and 
Decreased Spouse Benefit by Marital Status under Alternative Benchmark 
Scenarios, for the 1950 and 1985 Birth Cohorts: 

Table 26: Simulation Results for Reduced Marriage Requirement for 
Divorced Spouse Benefits under Alternative Benchmark Scenarios, for the 
1950 and 1985 Birth Cohorts: 

Table 27: Simulation Results for Reduced Marriage Requirement for 
Divorced Spouse Benefits by Income Quintile under Alternative Benchmark 
Scenarios, for the 1950 and 1985 Birth Cohorts: 

Table 28: Simulation Results for Reduced Marriage Requirement for 
Divorced Spouse Benefits by Marital Status under Alternative Benchmark 
Scenarios, for the 1950 and 1985 Birth Cohorts: 

Table 29: Simulation Results for Increased Minimum Benefit under 
Alternative Benchmark Scenarios, for the 1950 and 1985 Birth Cohorts: 

Table 30: Simulation Results for Increased Minimum Benefit by Income 
Quintiles under Alternative Benchmark Scenarios, for the 1950 and 1985 
Birth Cohorts: 

Table 31: Simulation Results for Increased Minimum Benefit by Marital 
Status under Alternative Benchmark Scenarios, for the 1950 and 1985 
Birth Cohorts: 

Table 32: Average Low Benefit Avoidance Rates Before and After 
Modifications for Individuals with Less Than 100 Percent Low Benefit 
Avoidance Pre-Modification: 

Table 33: Changes in the 75-year Actuarial Balance as a Percentage of 
Taxable Payroll resulting from Program Modifications, after Achieving 
75-Year Solvency with Benchmark Scenarios: 

Figures: 

Figure 1: Life Expectancy at Age 65, 1940 to 2006 and Projected 2007 to 
2085: 

Figure 2: Men and Women Aged 65 and Over: Number and Percent of the 
Total U.S. Population, Projections 2000 to 2050: 

Figure 3: Percentage of the Population Age 65 and Older Receiving 
Income from Various Sources, 2004: 

Figure 4: Median Annual Income of the Population Age 65 and Older, 
2004: 

Figure 5: Poverty Rates among People Age 65 and Older by Marital 
Status, 2004: 

Figure 6: Overall Labor Force Participation Rate of Men and Women Age 
16 and Older, 1950-2006: 

Figure 7: Women's Median Earnings For Full-time, Year-Round Work as a 
Percentage of Men's, 1960 to 2005: 

Figure 8: Marital Status of the Population Age 65 and Older, 2005: 

Abbreviations: 

AIME: Average Indexed Monthly Earnings: 

CSSS: Commission to Strengthen Social Security: 

DB: defined benefit: 

DC: defined contribution: 

ERISA: Employee Retirement Income Security Act of 1974: 

GEMINI: Genuine Microsimulation of Social Security and Accounts: 

IRA: individual retirement account: 

MTR: Maintain Tax Rates: 

OASDI: Old-Age, Survivors, and Disability Insurance: 

OCACT: Social Security Administration's Office of the Chief Actuary: 

OLC: overlapping cohorts: 

PENSIM: Pension Simulator: 

PIA: Primary Insurance Amount: 

PSG: Policy Simulation Group: 

QDRO: qualified domestic relations order: 

RCS: representative cohort sample: 

REA: Retirement Equity Act: 

SPIA: Special Primary Insurance Amount: 

SSA: Social Security Administration: 

SSASIM: Social Security and Accounts Simulator: 

SSI: Supplemental Security Income: 

United States Government Accountability Office: 

Washington, DC 20548: 

October 12, 2007: 

The Honorable Gordon Smith: 
Ranking Member: 
Senate Special Committee on Aging: 
United States Senate: 

Dear Senator Smith: 

Over the next 40 years women aged 65 and over will account for a 
growing segment of the U.S. population. In 2000, there were about 20 
million women aged 65 and over, more than 7 percent of the U.S. 
population; by 2050 that number is estimated to grow by nearly 28 
million to about 12 percent of the population. Elderly women have 
persistently high rates of poverty, and the major source of income for 
many retired women is Social Security. However, the Social Security 
system is affected by the decrease in the rate of growth of the working 
age population. Under current law, the Social Security Trustees project 
that by 2041 the Social Security Trust Funds could be insufficient to 
pay full benefits.[Footnote 1] 

Demographics as well as rising health care costs are profoundly 
affecting not only the Social Security system, but also Medicare, 
private pension and health benefits, and personal savings in ways that 
will likely present serious challenges to ensuring financial security 
for future retirees and, ultimately, the economic security of the 
nation. In recent years, many proposed reforms of the Social Security 
system have focused on long-term solvency and financing issues, many of 
which could result in decreased benefits for individuals. 
Alternatively, some Social Security proposals developed over the past 
several decades include elements that seek to modify the program and 
address its limitations when applied to nontraditional-family or 
earnings structures. These limitations may be due both to the evolving 
nature of families and to changes in women's labor force participation 
that have emerged since Social Security's creation.[Footnote 2] These 
elements often address the needs of two-earner families as well as 
retirement benefits after divorce. Additionally, recent and ongoing 
changes in employer-sponsored pension plans, most notably the shift 
from defined benefit pension plans to defined contribution plans, may 
complement changes in workforce patterns, but also place greater 
responsibility for prudent savings and investment decisions on workers. 
Given the existing differences in men's and women's incomes, and the 
changes in women's workforce behavior in the later half of the 20th 
century, any future changes to Social Security as well as both proposed 
and ongoing changes to employer-provided pensions could have different 
impacts on women and men. It is important to understand how each will 
fare under various proposals. 

You asked us to help clarify what drives the gap in retirement income 
between men and women and to provide information on the implications of 
different modifications to both Social Security as well as employer- 
provided pensions. Our objectives were to examine (1) how women's 
retirement income compares with men's and describe the reasons for 
differences; (2) how certain life events such as divorce, widowhood, 
and workforce interruptions affect women's retirement income, as 
compared with men's; and (3) the possible effect on women's retirement 
income of certain changes to Social Security and pensions that seek to 
mitigate the effects of differences in workforce participation 
patterns. 

To address these objectives, we reviewed the relevant literature and 
federal laws, interviewed academics and other retirement experts, and 
used a retirement-income microsimulation model to project women's 
future retirement income.[Footnote 3] Specifically, we reviewed and 
summarized government and academic research on women's retirement 
income, life events, and poverty as well as proposed changes to Social 
Security and employer-provided pensions. We used the Policy Simulation 
Group's retirement income microsimulation model to illustrate 
differences in benefit levels by differences in workforce attachment 
and marital status of a simulated population, born in 1985. We also 
used the microsimulation model to project changes in Social Security 
benefit levels for a sample of workers at age 70, from the 1950 and 
1985 birth cohorts, under a variety of possible modifications. The 
results of our analyses reflect outcomes for individuals in the 
simulated populations and do not attempt to estimate outcomes for an 
actual population. Unlike some of our prior work, rather than 
evaluating Social Security reform packages that seek to achieve 
sustainable solvency, we evaluated proposed individual changes targeted 
to enhance benefits for certain groups. We also used the model to 
project changes in pension benefit levels for a sample of workers at 
age 70, from the 1985 birth cohort.[Footnote 4] We used two cohorts in 
order to identify differences in the effects of the changes that could 
be due to variations in labor force participation across generations. 
For some of our analyses, we used a measure of income that adjusts to 
account for household size and economies of scale. The adjustment is 
made by dividing household benefit levels by a "family equivalence 
scale."[Footnote 5] We did this to facilitate comparisons between non- 
married persons and married persons, whose household income includes 
income from both spouses that can vary significantly between 
them.[Footnote 6] We also evaluated the effect of modifications on 
individual benefit levels. In addition to evaluating changes in benefit 
levels resulting from each modification, we assessed changes in a 
variable in the model that serves as a proxy for poverty 
avoidance.[Footnote 7] Consistent with our past work on Social Security 
reform, when simulating benefits we compared benefits under each reform 
to two hypothetical benchmark policy scenarios that would achieve 75- 
year solvency, one by only increasing payroll taxes (which simulates 
"promised benefits") and the other by only reducing benefits (which 
simulates "funded benefits").[Footnote 8] However, unlike prior GAO 
work, for the purposes of this study, we evaluated certain specific 
individual modifications, rather than comprehensive reform packages. We 
did this in order to focus on modifications that account for more 
recent changes in family structure and labor force composition. 
Additionally, to facilitate comparisons across cohorts, we generally 
report the effect of each modification in terms of percent changes in 
benefit levels. Using such a measure, the outcomes from each benchmark 
are largely similar. In the body of the report, in most cases, we 
present output from simulations using the "promised benefits" 
benchmark. Detailed output from both benchmarks is presented in 
appendix II. For this report, we focused on examining the distribution 
of benefits and did not assess equity measures. While our simulations 
provide estimates of future retirement income, there is a considerable 
amount of uncertainty involved with these estimates. Since these 
estimates could change significantly, depending on assumptions used and 
behavioral responses, they should not be considered predictions. 

We conducted our work between January 2006 and August 2007 in 
accordance with generally accepted government auditing standards. A 
more detailed discussion of our scope and methodology appears in 
appendix I. 

Results in Brief: 

Generally, women have less retirement income than men, largely because 
of women's lower labor force attachment and lower earnings, on average. 
Fewer women than men have income from most major retirement sources, 
and those women who do receive income from these sources receive less 
than men. Women's median Social Security benefit is approximately 70 
percent of the median benefit that men receive. Meanwhile, fewer women 
than men have pension incomes, and the median value of their pensions 
is about half that of men's. While only a small proportion of men and 
women aged 65 and over are engaged in the paid labor force, among those 
who are, women earn just over half of what men earn. While there is 
less distinction between the income of men and women from assets such 
as interest, dividends, rents, and royalties, women earn somewhat less 
than men from these sources as well. Not surprisingly, older women are 
more often poor than men. Among those 65 and over, 12 percent of women 
are in poverty, compared to 7 percent of men. Although women's work 
outside the home has increased substantially in the last century--with 
the labor force participation rate of married women aged 16 and over 
increasing from approximately 32 percent in 1960 to 61 percent in 2006-
-they spend fewer years in the labor force than men and they more often 
work part-time. Additionally, they tend to earn less than men during 
their working years, earning only 77 percent of what men earned for 
full-time, year-round work in 2005. Although work patterns are key in 
earnings differences, in prior work we found that even after accounting 
for these and other behavioral differences--such as educational 
attainment--women still earn less than men. 

Certain life events--including changes in marital status, labor force 
interruptions, and long-term care needs--can significantly reduce the 
amount of pension income and Social Security benefits for both men and 
women. However, because of women's lower earnings and labor force 
participation, these events may increase the probability women will 
enter retirement with fewer financial resources than men. Divorce often 
results in economic loss for both men and women, but women tend to 
experience more economic loss than men. Further, at retirement, Social 
Security divorced-spouse benefits are available only if the marriage 
lasted at least 10 years. Women's role as primary family caregiver for 
children and elderly relatives can also reduce their career earnings. 
For example, one study documented that almost half of women who worked 
during pregnancy with their first child took unpaid leave and one- 
quarter quit their jobs. Because women tend to live longer than men, 
they are more likely than men to experience widowhood. Social Security 
income is reduced at the household level upon the death of a spouse, 
and widows do not often retain all of their husbands' pension benefits. 
In part because of their longer average life spans, with age, women are 
also more likely than men to become disabled and need long-term care, 
further increasing demand upon their retirement resources. 

Our simulations of some proposed changes to the Social Security system 
and the employer-sponsored pension system resulted in different effects 
on women and men, and among different subgroups of women, because of 
differences in lifetime work histories. Some of the proposed changes to 
Social Security that we analyzed are in fact designed to increase the 
benefits of targeted groups by taking advantage of differences in 
workforce participation patterns. On one hand, our model results showed 
that modifications that compensate for low earnings or time spent out 
of the workforce for caregiving tend to increase benefits for 
beneficiaries overall, and particularly those in lower income 
quintiles. For example, when we simulated a dependent care credit to 
compensate for zero or low earnings when children are young, benefits 
increased across the board for women in all marital statuses and in all 
income quintiles. On the other hand, the changes that focus on shifts 
in family structure, such as increases in two-earner couples and 
increased incidence of divorce, tend to increase the benefits of groups 
targeted by the change, but produce mixed results for others. For 
example, our simulation of a reduction in Social Security's marriage 
eligibility rule had a narrowly focused impact on a very small number 
of women and almost no men. Some pension rule changes that have been 
proposed or passed into law in the past several years take into account 
changes in the labor force and the changing norms of employer-provided 
retirement plans; while these changes are gender-neutral, they may 
provide important new opportunities for some women to increase their 
retirement income. For example, when we simulated a pension change that 
would ensure that 100 percent of retirement account balances would roll 
over to another qualified account when individuals switched jobs 
(rather than allowing some or all of the balance to be withdrawn or 
spent), among those affected, women had larger median percentage 
changes than men, and among women, never-married and divorced women had 
the largest median percentage changes in pension income. 

The departments of Labor and the Treasury and the Social Security 
Administration provided technical comments which we incorporated as 
appropriate. 

Background: 

The retirement outlook for both men and women in the United States has 
changed significantly in the last 30 years. Like many industrialized 
countries, the United States is undergoing a significant demographic 
shift toward an aging population and is experiencing the increased 
pressures on the social insurance, medical, and private pension systems 
that this shift creates. 

While life expectancy in the United States has steadily increased over 
the last 50 years, birthrates have declined, and both have led to rapid 
growth in the proportion of the population comprised of elderly people: 
in 1950, those aged 65 or older made up 8 percent of the population; in 
2000, this proportion rose to 12 percent and is projected to rise to 
almost 20 percent by 2030. Also, between 1940 and 1980, women's life 
expectancy generally increased faster than men's. During the same time 
period, the difference in life expectancy at age 65 for women and men 
grew from 1.5 years in 1940 to 4.4 years in 1980. (See fig. 1.) 

Figure 1: Life Expectancy at Age 65, 1940 to 2006 and Projected 2007 to 
2085: 

[See PDF for image] 

Source: Social Security Administration. 

Note: Data for 2004 through 2006 are preliminary or estimated. The 
period life expectancy at a given age for a given year represents the 
average number of years of life remaining if a group of persons at that 
age were to experience the mortality rates for that year over the 
course of their remaining lives. 

[End of figure] 

The difference in men's and women's longevity has decreased over the 
past 25 years, and that difference is expected to remain stable 
throughout much of the 21st century. Nevertheless, the ratio of elderly 
women to elderly men increased substantially in the post-World War II 
era, and elderly women will continue to outnumber elderly men both in 
numbers and as a percent of the population for the foreseeable future. 
(See fig. 2.) As a result of these trends, women can expect on average 
to spend more years in retirement than men. 

Figure 2: Men and Women Aged 65 and Over: Number and Percent of the 
Total U.S. Population, Projections 2000 to 2050: 

[See PDF for image] 

Source: U.S. Census Bureau, Demographic Trends of the 20th Century. 

Note: Percentage values over each bar show the total U.S. population 
represented by each bar. 

[End of figure] 

Traditionally, the financial resources that provide retirement security 
have been characterized as a three-legged stool: Social Security, 
pensions, and savings, although increasingly, earnings are also a 
significant source of income for the elderly. Overall, women have been 
more likely than men to rely on Social Security to finance their 
retirement. Moreover, some aspects of the Social Security system 
particularly benefit women. For instance, because women tend to have 
lower lifetime taxable earnings than men, they benefit from the Social 
Security system's progressive benefit formula, which replaces a larger 
portion of lifetime earnings for people with low earnings than for 
people with high earnings. In addition, Social Security is designed 
specifically to accommodate both low-or non-earning spouses, often 
women, by providing them with a dependent benefit based upon their 
spouses' earnings. Social Security was created based upon the model of 
a single-earner married couple family structure, and while many women 
still never enter the paid workforce or choose to reduce their 
workforce participation, at least in part to care for children or other 
family members, the single-earner family model no longer describes the 
typical American household. Nevertheless, this structure has been and 
continues to be extremely beneficial to some women. 

However, Social Security faces a long-term financing shortfall 
resulting largely from longer life spans and lower birthrates. 
According to 2007 Social Security projections,[Footnote 9] absent 
policy changes, Social Security tax revenue is expected to fall short 
of benefit payments for the first time in 2017; by 2041 the system may 
have inadequate resources to pay full benefits. As a result, in the 
future, Social Security's role could change. Reductions in scheduled 
benefits and/or increases in program revenues will be needed to restore 
the long-term solvency and sustainability of the program. Within the 
program's current structure, possible benefit changes might include 
changes to the benefit formula or reductions in cost-of-living 
increases, among other options; revenue increases might include 
increases in payroll taxes or transfers from the Treasury's general 
fund.[Footnote 10] In addition, many proposals have been put forth over 
the past several decades to address the adequacy of Social Security 
benefits for different kinds of workers and their families. These 
proposals often address the needs of spouses, survivors, and low 
earners as well as those with significant workforce interruptions. 

Additionally, many workers bear greater risk and responsibility for 
their retirement savings than in the past. About half of U.S. workers 
do not have a pension plan through their employer, and those who do are 
less likely than in the past to be covered by defined benefit (DB) 
plans. Among those who offer plans, employers have increasingly shifted 
from traditional DB to defined contribution (DC) plans, such as 
401(k)s, which are based on contributions to and investment returns on 
individuals' accounts. While private sector DB plans must offer a 
guaranteed lifetime income in the form of an annuity, DC plans more 
often provide the beneficiary with a lump sum as the only 
option.[Footnote 11] While individuals could take the proceeds of their 
lump sum and purchase an annuity, the cost of purchasing a private 
annuity may make this option unattractive to many households. In 
addition, the private equity market charges women a higher premium for 
a life annuity than it charges men of the same age, because on average 
women live longer than men.[Footnote 12] 

Personal savings have traditionally been an important source of 
retirement income. Unfortunately, despite the challenges facing both 
public and private benefit systems for the elderly, relatively few 
Americans are currently saving, and some research suggests that women 
have less in savings than men. According to some measures, America has 
the lowest overall saving rate of any major industrialized nation. The 
U.S personal saving rate as a percentage of disposable personal income 
has recently reached levels not seen since the Great Depression, 
falling below 1 percent in 2005 and 2006.[Footnote 13] A variety of 
proposals seeking to encourage more individuals to save have been 
introduced in the past several years. Many of these proposals target 
low-and moderate-income workers who are least likely to have access to 
employer-sponsored pension plans. Some of these proposals create added 
incentives or ease access for individuals to save through existing 
savings vehicles, such as 401(k) plans or individual retirement 
accounts (IRA). Other plans would create new vehicles for savings, such 
as 401(k) type plans for those not currently covered by a plan. One 
mechanism that already exists to encourage individuals to save is the 
so-called spousal IRA offered to non-earning spouses, who are most 
often women, as a way to build retirement income. A spousal IRA, allows 
non-earning spouses to accumulate retirement savings in their own 
retirement accounts.[Footnote 14] 

Finally, health care coverage and rising health costs have added to the 
financial burden for retirees. Retired Americans often rely on employer-
sponsored health benefits to provide health coverage until they become 
eligible for Medicare or to supplement their Medicare coverage. In 2005 
about 37 percent of retirees were covered by such plans.[Footnote 15] 
However, retirees are paying more for these benefits, and the number of 
private employers offering them has declined considerably.[Footnote 16] 
The rate of growth of health care costs has generally outpaced the rate 
of U.S. economic growth, and this trend is likely to continue, 
jeopardizing the availability of employer- sponsored insurance for 
many. Rapidly rising health care costs may be particularly burdensome 
for retirees with limited financial resources. Additionally, the odds 
of having a disability or chronic illness increase with age; since, on 
average, women live longer, dealing with the cost of declining health 
may be a particular concern for women. 

Women Have Less Retirement Income than Men Largely because of 
Differences in Labor Force Participation and Lifetime Earnings: 

Generally, women have less retirement income than men, largely because, 
on average, women have lower labor force attachment and lower earnings 
than men. While about 90 percent of men and women aged 65 and older 
receive Social Security benefits, fewer women than men have income from 
most other major sources of retirement income,[Footnote 17] and they 
receive less than men from those sources, according to a Congressional 
Research Service analysis of Census Bureau data.[Footnote 18] 
Additionally, women aged 65 and older have higher rates of poverty than 
men of the same age. While women's labor force participation has 
increased substantially in the last half century, it has flattened out 
in recent years and remains more intermittent than men's. Women also 
tend to earn less than men during their working years. 

Women Have Less in Total Retirement Income than Men: 

While Social Security provides retirement income to almost 90 percent 
of all elderly people, a smaller percentage of women than men age 65 
and older have additional income from pensions, assets--such as 
interest or dividends from lifetime savings, or earnings, according to 
the Congressional Research Service analysis of Census Bureau 
data.[Footnote 19] For example, in 2004, the percentage of men with 
income from pensions was almost twice that of women and 44 percent more 
men than women had wage and salary income. (See fig. 3.) 

Figure 3: Percentage of the Population Age 65 and Older Receiving 
Income from Various Sources, 2004: 

[See PDF for image] 

Source: Congressional Research Service analysis of the Census Bureau's 
Current Population Survey data. 

[End of figure] 

Moreover, women's median incomes from each of the various retirement 
sources are lower than men's. As shown in figure 4, men's median annual 
Social Security income was $12,583 in 2004, while women's was $8,799. 
Nevertheless, Social Security is an important financial resource for 
women, many of whom receive spousal, divorced spousal, or survivor 
benefits. According to the Social Security Administration (SSA), while 
Social Security is the largest single source of income for most of the 
elderly population age 65 and older, it represents 53 percent of total 
income for elderly unmarried women--including divorced, widowed, and 
never married women, compared to 38 percent for unmarried men. 
Moreover, Social Security was nearly the only source of income for 
close to half of all elderly unmarried women who received it in 2004, 
compared to a little more than a third of elderly unmarried men. 
Importantly, Social Security can become a growing fraction of total 
retirement income over time since it is indexed to offset the effects 
of inflation. In contrast, private pensions and income from assets are 
rarely indexed. Unlike Social Security, pension income may end upon the 
death of the spouse if the retired worker elects to receive a single 
life annuity,[Footnote 20] in which payments cease at the time of the 
worker's death.[Footnote 21] 

The difference between men's and women's pension income is larger than 
for Social Security. In 2004, men's median pension income was nearly 
twice women's, $12,000 and $6,141, respectively. Asset income is 
relatively low for both women and men compared to Social Security and 
pensions. Nevertheless, women's median asset income was $750, while 
men's was slightly higher at $964. Finally, while less than a fifth of 
the elderly had wage and salary earnings in 2004, men's median earnings 
were $20,800, while women's were $12,000. (See fig. 4.) 

Figure 4: Median Annual Income of the Population Age 65 and Older, 
2004: 

[See PDF for image] 

Source: Congressional Research Service analysis of the Census Bureau's 
Current Population Survey data. 

[End of figure] 

Additionally, rates of poverty among those 65 and over are higher for 
women than for men.[Footnote 22] Over time, overall poverty rates among 
the elderly have declined from 35 percent in 1959 to 10 percent in 
2005, according to Census Bureau data. This is in part due to Social 
Security benefits for the aged. Here, too, gender differences remain. 
In 2004, 12 percent of women and 7 percent of men age 65 and older had 
incomes below the federal poverty level, with more pronounced variation 
among individuals of different marital status. For example, never- 
married elderly men and women had the highest rates of poverty, while 
the next highest rates were among divorced and widowed elderly women. 
Married couples had significantly lower rates than all other marital 
statuses. (See fig. 5.) Moreover, almost 21 percent of women age 65 and 
older who lived alone were poor, in comparison to almost 15 percent of 
men who lived alone. 

Figure 5: Poverty Rates among People Age 65 and Older by Marital 
Status, 2004: 

[See PDF for image] 

Source: Social Security Administration. 

[End of figure] 

Women Have More Intermittent Work Histories and Lower Earnings than 
Men: 

Women's labor force participation increased substantially in the latter 
half of the 20th century, although women continue to work fewer total 
years than men and more often work part-time. While women's 
participation in the labor force increased from the mid-1960s through 
the late 1990s, men's labor force participation has steadily decreased, 
most significantly between the mid-1950s and the early-1970s.[Footnote 
23] (See fig. 6.) 

Figure 6: Overall Labor Force Participation Rate of Men and Women Age 
16 and Older, 1950-2006: 

[See PDF for image] 

Source: U.S. Department of Labor, Bureau of Labor Statistics. 

[End of figure] 

Much of the change in women's participation rates is due to higher 
labor force participation rates among married women. According to 
Census Bureau statistics, between 1960 and 1995 married women's labor 
force participation increased from almost 32 to 61 percent and has not 
changed significantly in the past decade. As a result, there are now 
more married couple households with two earners than when Social 
Security was first established. These overall trends have recently 
stabilized, and in 2006 the Bureau of Labor Statistics predicted that 
women's labor force participation rate will not change significantly in 
the near future.[Footnote 24] 

Despite the overall increases in women's labor force participation, 
women continue to have more intermittent labor force participation than 
men. As we reported in 2003, women have fewer years of work experience, 
work fewer hours per year, are less likely to work a full-time 
schedule, and leave the labor force for longer periods of time than 
men.[Footnote 25] For example, 25 percent of women and almost 11 
percent of men age 16 and older usually worked part-time in 
2005.[Footnote 26] 

In addition to their spending less time in the workforce overall, women 
earn less than men when they are working.[Footnote 27] Although women's 
earnings have risen relative to men's over time, women nevertheless 
continue to earn less than men. According to Census Bureau data, in 
2005, women earned 77 percent of what men earned for full-time, year- 
round work. (See fig. 7.) 

Figure 7: Women's Median Earnings For Full-time, Year-Round Work as a 
Percentage of Men's, 1960 to 2005: 

[See PDF for image] 

Source: U.S. Census Bureau. 

Note: Based on median earnings of full-time, year-round workers 15 
years old and over. Before 1989 earnings are for civilian workers only. 

[End of figure] 

This difference may be due, in part, to the fact that women continue to 
take primary responsibility for family care and those who work outside 
the home may trade some career advancement for schedule flexibility. In 
fact, in prior work we found that work patterns are a key factor in 
explaining the differences in men's and women's earnings. However, even 
after accounting for these and other behavioral factors--such as 
educational attainment--unexplained differences remained.[Footnote 28] 

Changes in women's labor force participation have also increased their 
participation in employer-provided pension plans, according to one 
study,[Footnote 29] though, as noted earlier, their overall rates of 
participation are still lower than men's. Women who worked full-time 
throughout the year actually had higher pension participation rates 
than men with similar work schedules in 2005,[Footnote 30] but women's 
overall rates remain lower because, in part, of their lower rate of 
full-time work and lower earnings, according to the Employee Benefit 
Research Institute. While the increase suggests that a larger share of 
women in younger cohorts will likely qualify for pensions based on 
their own earnings, many women may continue to receive spousal or 
survivor benefits through their husbands' pensions. In addition, the 
general shift from DB to DC plans may have both positive and negative 
consequences for women. Women may especially benefit from the greater 
portability afforded by DC plans because of their more intermittent 
labor force participation. However, another consequence of this general 
shift is that with many DC plans, individuals have a greater 
responsibility to make prudent investment decisions and to make their 
retirement savings last over their lifetimes, which for women, on 
average, are longer than for men. 

Changes in women's labor force participation have also increased the 
percentage of women who are insured under Social Security based on 
their own work history, even though many women continue to receive 
dependent benefits as spouses. According to SSA, women who were 
eligible to receive benefits based on their own work records increased 
from 22 percent to 84 percent between 1950 and 2006. Nevertheless, in 
December of 2005, approximately 60 percent of retired women received 
Social Security benefits based, at least in part, on their marital 
history.[Footnote 31] Moreover, nearly all spousal and survivor 
beneficiaries were women in 2005. Further, as women's labor force 
participation increases, many will find that benefits based on their 
own work records are more generous than the spousal benefit. However, 
when many of these same women become widows, they will likely begin to 
collect benefits based on their marital status, as the survivor's 
benefit, at 100 percent of their deceased spouse's benefit, is likely 
to be greater than their own. 

Data on current retirees reflect the fact that those retirees comprise 
older generations of workers, in which women's labor force 
participation rates were lower than those of current workers. In the 
future, data that include later generations of women, with greater 
labor force participation rates, may show greater percentages of women 
eligible for and collecting benefits based on their own work records. 
Nevertheless, the key factor contributing to the difference in men's 
and women's Social Security income levels will continue to be the 
difference in their lifetime work histories and earnings. Women's 
continued intermittent labor force participation and lower median 
earnings than men's result in lower benefit amounts, even though Social 
Security replaces a greater percentage of preretirement earnings for 
lower-wage workers.[Footnote 32] 

Certain Life Events May Reduce Women's Retirement Resources More Than 
Men's: 

Certain life events--including changes in marital status, labor force 
interruptions, and long-term care needs--can significantly reduce the 
amount of pension income and Social Security benefits for both men and 
women. However, because of women's lower earnings and labor force 
participation, these events may exacerbate the deficiency of women's 
financial resources in retirement. Divorce often results in economic 
loss for both men and women, but women tend to experience more economic 
loss than men. In addition, women are most often the family members who 
provide unpaid care, which can reduce their career earnings as well. 
The death of a spouse can also reduce retirement income for the 
survivor, and because they generally live longer, women have higher 
rates of widowhood than men at older ages. While declining health at 
older ages has significant implications for both men's and women's 
financial security, because of life expectancy differences, women more 
often require costly long-term care assistance. 

Divorce May Reduce Women's Retirement Income: 

Research has shown that married couples generally have greater 
household wealth than nonmarried men and women and that marital 
disruption negatively affects both men's and women's economic 
statuses.[Footnote 33] While divorce may result in a reduced standard 
of living for both men and women, divorced women, as a group, 
experience more economic loss than divorced men.[Footnote 34] For 
example, the Census Bureau reported that in 2001, 23 percent of 
recently divorced women, in comparison to nearly 8 percent of recently 
divorced men, had income below the poverty level.[Footnote 35] One 
study found that marital disruption, including divorce, resulted in a 
substantial drop in women's income and loss of assets.[Footnote 36] 
Another study projected in 2000 that most divorced women are more 
likely than never-married, married, and widowed women to be in the 
bottom 40 percent of the income distribution at age 67.[Footnote 37] As 
shown in figure 5, elderly divorced women have higher rates of poverty, 
at over 20 percent, than elderly divorced men, at 12 percent. 

In retirement, divorce has the potential to reduce Social Security 
benefits because Social Security's eligibility rules require that the 
marriage last at least 10 years for a divorced spouse to claim benefits 
from an ex-spouse's earnings record.[Footnote 38] However, Census 
Bureau data from 2001 show that more than half of first and second 
marriages that ended in divorce lasted less than 10 years.[Footnote 39] 

Unlike Social Security benefits, divorced spouses can, under certain 
circumstances, receive all or part of their former spouses' private 
pension benefits, regardless of the marriage's duration. Although the 
Employee Retirement Income Security Act of 1974 (ERISA)[Footnote 40] 
generally does not allow workers to assign their benefits to another 
person in this way, Congress amended the law in 1984 through the 
Retirement Equity Act (REA)[Footnote 41] to permit the payment of 
pension benefits to a worker's former spouse under a qualified domestic 
relations order (QDRO). A QDRO, which meets certain statutory 
requirements, including approval by a court and the plan administrator, 
may be used to satisfy certain obligations, such as child support, 
alimony, or the division of marital property.[Footnote 42] However, the 
worker's pension benefits may be reduced. Additionally, women often 
forgo the protection provided by QDRO's. This may happen for a variety 
of reasons, in some cases women may be unaware that their spouses are 
covered by a pension, while others may not know that they can receive 
benefits while their spouses are alive. 

Family Caregiving, Which Can Reduce Lifetime Earnings, Is More Common 
for Women Than for Men: 

Family caregiving, which encompasses important child care and elder 
care responsibilities, is more often provided by women. In order to 
meet these family needs, some caregivers reduce work hours or leave the 
labor force altogether. For example, one Census Bureau study shows that 
45 percent of women who worked during pregnancy with their first child 
between 1996 and 2000 took unpaid leave and one-quarter quit their 
job.[Footnote 43] Bureau of Labor Statistics data indicate that, among 
parents with children under age 6, almost 92 percent of fathers, 
compared to over 58 percent of mothers, were employed in 2005.[Footnote 
44] Research shows that in addition to caring for children, women 
provide unpaid care for a family member or friend more often than men. 
In 2002, daughters or daughters-in-law provided care to frail, older 
adults living in the community more often than sons or sons-in-law, 
according to one study.[Footnote 45] Similarly, another study found 
that employed women were more likely than employed men to provide care 
for a child, spouse, or partner with a disability.[Footnote 46] 
Finally, one study reported that wives tend to reduce their work hours 
when a husband experiences a severe health shock, such as a 
stroke.[Footnote 47] 

Caregiving can negatively affect the provider's career earnings and, 
consequently, retirement income. Although many caregivers are employed, 
research shows that caregivers can experience substantial losses in 
career development and workforce earnings as well as significant out- 
of-pocket expenses.[Footnote 48] For example, one study showed that 
women age 46 and older who began caregiving for elderly relatives 
between 1987 and 1992 experienced an average of over $3,000 loss in 
annual earnings.[Footnote 49] Another study showed that over half of 
caregivers who worked while providing care reported that this role 
required them to adjust their work schedules, such as arriving late, or 
even quit work. Furthermore, years spent out of the paid labor force 
can reduce a worker's Social Security benefit amount. Moreover, one 
study found that caregiving for adult parents can raise women's risk of 
poverty in later years.[Footnote 50] 

Women Are More Likely to Experience Widowhood, Which Puts Them at Risk 
for Poverty: 

Older women are several times more likely than older men to experience 
widowhood. For example, in 2004 women age 65 and older were as likely 
to be widowed as married, while men were 5.5 times more likely to be 
married than widowed. (See fig. 8.) 

Figure 8: Marital Status of the Population Age 65 and Older, 2005: 

[See PDF for image] 

Source: U.S. Census Bureau. 

Note: "Married" refers to now married, except separated. 

[End of figure] 

Despite changes to the Social Security system in the 1970s that 
improved widows' financial outcomes, research shows that widows 
continue to be at risk for poverty in old age.[Footnote 51] As noted 
earlier, widows age 65 and older had over three times the poverty rate 
of married women or men in 2004. Widowhood may cause Social Security 
and pension income to decrease at the household level, which can be a 
hardship if certain fixed costs, such as housing, remain the same. More 
specifically, household Social Security income is reduced by one-third 
if the couple's benefits had been based on one spouse's work history 
and by up to 50 percent if both spouses had been receiving retired 
worker benefits.[Footnote 52] In addition, pension income is likely to 
be reduced for the surviving spouse. 

The REA helped protect spouses and widows by requiring employers to 
obtain a spouse's written consent in order for a worker to decline the 
joint and survivor annuity default option. A common default for the 
joint and survivor annuity provides a 50 percent benefit level to the 
surviving spouse. However, the shift from DB pension plans to DC 
pension plans has the potential to provide even less income security 
for widows who rely on a spouse's pension income. Although DC plans 
generally must provide that an employee's vested account balance is 
payable in full on death to the surviving spouse, the employee may, 
during his or her lifetime, make withdrawals from the account or roll 
over the balance into an IRA without spousal consent. 

Figure: Simulated Retirement Income for Women with Varying Workforce 
Attachment and Marital Status: 

To illustrate the potential impact of workforce attachment and marital 
status on women’s retirement income, we used the Policy Simulation 
Group’s retirement income models to estimate Social Security and 
pension income for individuals in a sample of a simulated 1985 birth 
cohort at ages 67 and 85. The Policy Simulation Group's model 
incorporates information on the estimated effects of various factors on 
retirement income and is useful for illustrating potential differences 
in outcome under the current policy environment. (For a discussion of 
limitations of the model, see app. I.) 

The simulation projected that women who worked full-time for 36 or more 
years would have median annual Social Security benefits of nearly 
$25,000 at age 67, while those who worked full-time between 1 and 5 
years had a median annual benefit of about $13,000. In another example, 
median annual pension benefits for women who worked full-time for 36 or 
more years were almost $21,000, while median pension benefits among 
women with 1 to 5 years of full-time work were less than $900. 

The simulation also projected that among those who had worked for at 
least 36 years, married women’s median Social Security benefits were 
over $26,000 at age 67 and widow’s benefits were slightly lower. Median 
benefit levels for divorced women were nearly $22,000 and for never 
married women, just over $20,000. Also, median Social Security benefit 
levels for women in our simulated sample who were married and worked 
between 1 and 5 years were nearly $17,000, while those of never married 
women with similar work histories were not quite $9,000. 

Among women who worked for at least 36 years, the simulation projected 
that married women’s median pension benefits were about $19,000 at age 
67 and widow’s benefits were just over $24,000. Median benefit levels 
for divorced women were over $21,000, and for never married women, over 
$20,000. In addition, median pension benefit levels for women in our 
simulated sample who were married and worked full-time between 1 and 5 
years were over $2,000, while those of never married or divorced women 
who had worked full-time between 1 and 5 years in general did not have 
any pension income.Source: GAO analysis of GEMINI and PENSIM data.Note: 
All dollar values are in 2007 dollars.

[See PDF for image] 

Source: GAO analysis of GEMINI and PENSIM data. 

Note: All dollar values are in 2007 dollars. 

[End of figure] 

Health Care Costs May Deplete Elderly Women's Retirement Resources: 

Declining health at older ages has significant implications for women's 
financial security. At least in part because women have longer average 
life spans than men, women are more likely than men to become disabled 
and need long-term care as they age. In 2003, among Medicare enrollees 
age 65 and older, more women than men reported an inability to perform 
at least one of five certain physical functions, such as the ability to 
walk two to three blocks.[Footnote 53] Women are significantly more 
likely than men to develop severe disabilities, and one study estimated 
that women age 65 have a 44 percent chance of entering a nursing home, 
compared to 27 percent for men.[Footnote 54] Women represented 72 
percent of all nursing home residents in 1999 and 70 percent of home 
care consumers in 2000.[Footnote 55] Research shows that nursing home 
entry has important financial consequences for the elderly, especially 
for unmarried women.[Footnote 56] In 2006, Genworth Financial estimated 
that the average annual cost for nursing home care was $70,912 and for 
assisted living facilities, $32,294.[Footnote 57] In addition, out-of- 
pocket medical costs during the last years of a spouse's life can 
deplete the couple's resources substantially and contribute to poverty 
among surviving spouses, who are most often widows.[Footnote 58] 

Specific Changes to Social Security and Employer-Sponsored Pensions 
Will Affect Women Differently than Men Because of Differences in 
Lifetime Work Histories: 

The specific changes to Social Security and pensions that we modeled 
had different effects on women and men, and among different subgroups 
of women, because of differences in lifetime work histories. Some of 
the proposed modifications to Social Security that we analyzed are in 
fact designed to increase the benefits of targeted groups by accounting 
for differences in workforce participation patterns. On one hand, our 
model results showed that modifications that compensate for low 
earnings or time spent out of the workforce for caregiving tend to 
increase benefits for beneficiaries overall, and particularly those in 
lower income quintiles. On the other hand, our results showed that 
modifications that focus on changes in family structure, such as more 
two-earner couples and an increased incidence of divorce, tend to 
increase the benefits of groups targeted by the change, but produce 
mixed results for others. A number of pension modifications proposed in 
the last several years take into account changes in the labor force and 
the changing norms of employer-provided retirement plans; while these 
reforms are gender-neutral, they may provide important new 
opportunities for women to increase their retirement income. 

While the costs associated with each of the Social Security program 
modifications modeled in this report vary, all but one[Footnote 59] 
would have a negative effect on trust fund solvency regardless of the 
benchmark used. Because we have analyzed each modification in 
isolation, we present the solvency impact for each modification in 
isolation; as part of a larger package of reforms, the solvency impact 
of each change may vary. For a summary of the solvency impact of each 
simulated change under both the "promised benefits" and "funded 
benefits" benchmarks, see appendix IV. For more information on both the 
"promised benefits" and the "funded benefits" benchmark, see appendix 
I. 

System Modifications Designed to Increase Social Security Benefits for 
Specific Populations Do So, but Sometimes Only Marginally: 

Using the Policy Simulation Group's GEMINI and SSASIM models,[Footnote 
60] we assessed the effects of certain specific modifications that were 
designed to enhance Social Security benefits for specific subgroups of 
beneficiaries at age 70.[Footnote 61] We used both a family equivalence 
scale and individual level analysis to be able to both compare between 
married and unmarried individuals and to assess the impact of 
modifications on individuals alone. Each of the changes discussed below 
increases benefits for the targeted group, but the size of the increase 
projected varies with the number of people affected; generally, the 
smaller the population that was targeted by the reform, the larger the 
change in benefits and vice versa. While some of the individual 
modifications modeled below have no benefit impact outside of the 
targeted group, for those that do have broader effects, the impact on 
other beneficiaries can vary. The results of our analyses reflect 
outcomes for individuals in the simulated populations and do not 
attempt to estimate outcomes for an actual population. 

Implement Dependent Care Credits: 

Dependent care credit proposals seek to compensate those who spend some 
years out of the workforce to care for dependents or those with low or 
reduced earnings while attending to caregiving responsibilities. Fewer 
years in the workforce or reduced earnings during caregiving years tend 
to lower a caregiver's average lifetime earnings and, thus, his or her 
Social Security benefit levels in retirement. Many advocates have 
proposed dependent care proposals that either modify Social Security's 
traditional benefit formula, which uses a 35-year span of time to 
average lifetime earnings or credit caregivers with additional 
earnings. These proposals vary in design and do not necessarily produce 
similar results. Either option would require data collection and 
computation beyond SSA's current practices, a potential administrative 
complication. 

* Specified earnings credit: This approach would assign to the 
caregiver one half of average earnings for each year in which there was 
a child in care and the actual earning was zero or reduced from prior 
earnings for a fixed number of years. Those who already earn the credit 
amount would not benefit. Research has shown that a caregiver credit 
model based on crediting earnings does a better job of targeting lower 
earners than excluding care years from earning averages.[Footnote 62] 

* Excluding care years from earning averages: This approach would 
reduce the standard 35-year basis for determining a worker's average 
indexed monthly earnings by subtracting the number of years spent 
providing care. It generally also specifies a limit for the number of 
years that can be dropped from the calculation of average earnings. 
Because the design specifies years of zero earnings, this approach may 
not target financially needy populations who lack sufficient resources 
to take full years off from work. High-income caregivers may be more 
likely to benefit from such an approach if economic necessity drives 
low-income caregivers back to the workforce, while those in high-income 
families are able to stay out of the workforce longer. 

GAO Simulation of a Dependent Care Credit: 

We simulated the effect of a dependent care credit similar to one 
evaluated by the Urban Institute[Footnote 63] that would credit a 
worker's earnings record with one-half of average wages in years in 
which there was a child under 5 years of age[Footnote 64] in the 
household and the worker's earnings were less than one half of average 
wages.[Footnote 65] We evaluated the impact on the Social Security 
benefits of two simulated populations--one cohort born in 1950 and 
another born in 1985.[Footnote 66] 

Using the GEMINI model, we found that this particular dependent care 
credit resulted in positive median benefit changes for both women and 
men, though it provided a larger increase in median benefits for women. 
The credit was more beneficial for those born in 1950 than in 1985. As 
shown in table 1, its outcome was progressive for those affected by the 
change, with women in the lowest earnings quintile showing the highest 
proportionate gain in their Social Security benefits. In both cohorts, 
never-married women had the largest median change in benefits.[Footnote 
67] The effect of this change was also broad; for both birth cohorts, 
it affected the largest number of beneficiaries, both men and women, of 
any of our simulations. 

Table 1: Median Percentage Change in Benefits for Individuals Whose 
Benefits Changed after Addition of the Dependent Care Credit--Promised 
Benefits Benchmark: 

Numbers in percent. 

Birth cohort: 1950; 
All men: 2.60; 
All women: 3.24. 

Birth cohort: 1985; 
All men: 2.06; 
All women: 2.63.

Women by income quintile: Birth cohort: 1950;  
Women by income quintile: Lowest quintile: 7.96;  
Women by income quintile: Quintile 2: 4.16; 
Women by income quintile: Middle quintile: 2.80; 
Women by income quintile: Quintile 4: 1.68; 
Women by income quintile: Highest profile: 0.92. 

Women by income quintile: Birth cohort: 1985;  
Women by income quintile: Lowest quintile: 6.88;  
Women by income quintile: Quintile 2: 3.50; 
Women by income quintile: Middle quintile: 2.12; 
Women by income quintile: Quintile 4: 1.14; 
Women by income quintile: Highest profile: 0.72.

Women by marital status: Birth cohort: 1950; 
Women by marital status: Never married: 7.95; 
Women by marital status: Divorced: 5.05; 
Women by marital status: Married: 2.64; 
Women by marital status: Widowed: 2.87. 

Women by marital status: Birth cohort: 1985; 
Women by marital status: Never married: 6.69; 
Women by marital status: Divorced: 4.18; 
Women by marital status: Married: 2.19; 
Women by marital status: Widowed: 2.43. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 
Income quintiles are based on the distribution of the present value of 
family lifetime earnings for the whole population (male and female). 
For percentage of population affected and results using the "Funded 
benefits" benchmark, see appendix II. 

[End of table] 

Table 2: Percentage of Total Simulation Population Whose Benefits 
Changed after Addition of the Dependent Care Credit--Promised Benefits 
Benchmark: 

All men; 
Birth Cohort: 1950: 28.43; 
Birth Cohort: 1985: 35.06. 

All women; 
Birth Cohort: 1950: 30.93; 
Birth Cohort: 1985: 30.99. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 

[End of table] 

Increase Minimum Benefit: 

Minimum benefit proposals aim to ensure Social Security benefit 
adequacy for low earners. Under current law, Social Security includes a 
Special Primary Insurance Amount (also referred to as the Special 
Minimum Benefit) intended to reduce poverty among retired lifetime low- 
wage workers. The Special Primary Insurance Amount targets retirees 
with a low benefit based on a steady, long-time, low wage work record, 
rather than on those with a low benefit based on intermittent workforce 
attachment;[Footnote 68] the Special Primary Insurance Amount makes 
this distinction by basing the calculation on years worked rather than 
earnings level. Very few people currently receive benefits based on the 
Special Primary Insurance Amount; however, the majority of those who do 
are women. Additionally, the benefit provided by the Special Primary 
Insurance Amount is less than the official poverty level for aged 
persons, and because the benefit is indexed to price inflation rather 
than wage growth, it has provided a less generous benefit over time 
relative to the traditional wage-indexed Social Security benefit. 
Because of this, SSA has projected that the Special Primary Insurance 
Amount will phase out as early as 2013. A newly designed minimum 
benefit could expand benefits for low earners across all demographic 
groups, including women, who are more likely than men to be at the 
bottom of the income distribution. Expanded minimum benefits may also 
be of renewed importance to benefit adequacy as part of a broad Social 
Security reform scenario that reduces benefits for all beneficiaries, 
including low earners. 

Several Social Security reform proposals include a new minimum benefit 
that would guarantee a benefit equal to a set percentage of the poverty 
level, dependent on the number of years worked across a lifetime. For 
example, Estimated OASDI Financial Effects of the "Bipartisan 
Retirement Security Act of 2005"--legislation introduced as H.R. 440 by 
Representative Jim Kolbe and Representative Allen Boyd would provide 
low earners who had 40 years of minimum wage earnings a benefit equal 
to 120 percent of the federal poverty level when fully phased 
in.[Footnote 69] 

GAO Simulation of an Increased Minimum Benefit: 

To simulate the effect of an increased minimum benefit, we modeled a 
change to set a minimum benefit of 120 percent of the federal poverty 
level for 30-year workers, linearly phased to zero for workers with 20 
years or less of covered employment. Slightly fewer men than women in 
the simulation were affected by the change, and those who were had a 
slightly lower median benefit changes than women affected by the 
change. As expected, the outcome of this change was largely 
progressive. In both cohorts, a larger share of women in the lower two 
income quintiles had benefit changes resulting from this modification 
than women in the upper three income quintiles.[Footnote 70] Moreover, 
the median percentage changes in benefits for women in the bottom 
quintile was much larger than those for women in the higher quintiles. 
(See table 3.) 

Table 3: Median Percentage Change in Benefits for Individuals Whose 
Benefits Changed after Addition of the Increased Minimum Benefit-- 
Promised Benefits Benchmark: 

Numbers in percent. 

Birth Cohort: 1950; 
All men: 8.47;  
All women: 9.89. 

Birth Cohort: 1985; 
All men: 6.20; 
All women: 6.70. 

Women by income quintile: Birth cohort: 1950;  
Women by income quintile: Lowest quintile: 22.83;  
Women by income quintile: Quintile 2: 9.65; 
Women by income quintile: Middle quintile: 5.21; 
Women by income quintile: Quintile 4: 3.51; 
Women by income quintile: Highest profile: 2.55. 

Women by income quintile: Birth cohort: 1985;  
Women by income quintile: Lowest quintile: 8.26;  
Women by income quintile: Quintile 2: 2.46; 
Women by income quintile: Middle quintile: 2.27; 
Women by income quintile: Quintile 4: 0.09; 
Women by income quintile: Highest profile: 0.

Women by marital status: Birth cohort: 1950; 
Women by marital status: Never married: 22.80; 
Women by marital status: Divorced: 17.13; 
Women by marital status: Married: 7.43; 
Women by marital status: Widowed: 8.34. 

Women by marital status: Birth cohort: 1985; 
Women by marital status: Never married: 19.01; 
Women by marital status: Divorced: 14.50; 
Women by marital status: Married: 4.55; 
Women by marital status: Widowed: 6.48. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 
Income quintiles are based on the distribution of the present value of 
family lifetime earnings for the whole population (male and female). 
For percentage of population affected and results using the "Funded 
benefits" benchmark, see appendix II. 

[End of table] 

Table 4: Percentage of Total Simulation Population Whose Benefits 
Changed after Addition of the Increased Minimum Benefit--Promised 
Benefits Benchmark: 

Numbers in percent. 

All men; 
Birth Cohort: 1950: 7.71; 
Birth Cohort: 1985: 8.77. 

All women; 
Birth Cohort: 1950: 1.18; 
Birth Cohort: 1985: 1.28. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 

[End of table] 

While the share of women affected by the minimum benefit was fairly 
similar across marital statuses (never-married, divorced, married and 
widowed) in each cohort (for data, see app. II, table 30), never- 
married and divorced women had much larger percent changes in median 
benefits. For never married women affected by the modification, the 
percent change in median benefits was more than double under the 
minimum benefit than under any other modification.[Footnote 71] 

The impact of the minimum benefit is larger in the 1950 cohort versus 
the 1985 cohort because the minimum benefit is linked to the poverty 
line, which is indexed to prices, while Social Security initial 
benefits are indexed to wages; over time, this results in a lower 
minimum benefit relative to Social Security benefits. This effect could 
be reduced by indexing the poverty level to wages rather than prices, 
as was done in the Kolbe-Boyd proposal. 

A minimum benefit following parameters such as we simulated may 
increase benefits for both part-time and full-time workers. Because 
Social Security only tracks annual earnings rather than wages or hours 
worked, a higher-earning, part-time worker could receive the same 
benefit as a full-year, low-income worker; enhanced benefits may 
therefore also be provided to individuals who work part-time by 
choice.[Footnote 72] 

Increase Survivor Benefits: 

One way that some proposals address the vulnerability of widows or 
widowers to poverty is by raising survivor benefits to a set percentage 
of a married couple's prior combined benefit (for example, two-thirds 
or three-fourths of the level of benefits received by the couple while 
both were living). Under current law, a survivor receives the larger of 
his or her own benefit or the benefit of the deceased spouse. Thus, 
survivor benefits for many dually entitled women or women receiving 
only spousal benefits would replace approximately 67 percent of the 
couple's prior total benefit level. Researchers have expressed concern 
about whether this decline in total household benefits is too large to 
maintain the survivor's previous standard of living. On the other hand, 
for survivors of two-earner couples where both spouses received retired 
worker benefits on their own record, a widow's benefit under current 
law may range between 50 percent and 67 percent of the couple's prior 
total benefits upon the death of a spouse, causing an even greater 
decline in total household benefit income. 

GAO Simulation of an Increased Survivor Benefit: 

GAO modeled a survivor benefit that would provide a surviving spouse 
with the higher of 75 percent of the couple's previous combined benefit 
level, capped at the average benefit level for all new retirees, or the 
current law survivor benefit. We did not simulate the effect of the 
current provision ensuring surviving spouses a minimum of 82.5 percent 
of the deceased worker's PIA; had this been included, results may be 
slightly higher. This simulation resulted in increased benefits for 
both men and women. (See table 5.) While about three times the number 
of women as men were affected, the magnitude of the benefit change was 
larger for men who were affected by the program modification; their 
median percentage change in benefits was nearly 29 percent in both 
cohorts. This is attributable to the increased survivor benefit 
modification compared to current law. Current law allows survivors the 
greater of their own benefit or their spouse's benefit. As most men 
receive a larger benefit than their spouses, a survivor benefit of the 
larger of 75 percent of the couple's combined benefit (capped at the 
average benefit level for all new retirees) or the husband's benefit 
would provide a higher benefit level than current law to lower-earning 
men who outlive their wives. 

Table 5: Median Percentage Change in Benefits for Individuals Whose 
Benefits Changed after Addition of Increased Survivor Benefits-- 
Promised Benefits Benchmark: 

Numbers in percent. 

Birth cohort: 1950; 
All men: 28.78; 
All women: 15.71. 

Birth cohort: 1985; 
All men: 28.98; 
All women: 18.36.

Women by income quintile: Birth cohort: 1950;  
Women by income quintile: Lowest quintile: 14.81;  
Women by income quintile: Quintile 2: 16.28; 
Women by income quintile: Middle quintile: 15.77; 
Women by income quintile: Quintile 4: 13.69; 
Women by income quintile: Highest profile: 24.44. 

Women by income quintile: Birth cohort: 1985; 
Women by income quintile: Lowest quintile: 19.39;  
Women by income quintile: Quintile 2: 18.36; 
Women by income quintile: Middle quintile: 16.00; 
Women by income quintile: Quintile 4: 16.00; 
Women by income quintile: Highest profile: 8.67.

Women by marital status: Birth cohort: 1950; 
Women by marital status: Never married: 0; 
Women by marital status: Divorced: 16.67; 
Women by marital status: Married: 0; 
Women by marital status: Widowed: 15.58. 

Women by marital status: Birth cohort: 1985; 
Women by marital status: Never married: 0; 
Women by marital status: Divorced: 18.42; 
Women by marital status: Married: 0; 
Women by marital status: Widowed: 18.35. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 
Income quintiles are based on the distribution of the present value of 
family lifetime earnings for the whole population (male and female). 
For percentage of population affected and results using the "Funded 
benefits" benchmark, see appendix II. 

[End of table] 

Table 6: Percentage of Total Simulation Population Whose Benefits 
Changed after Addition of Increased Survivor Benefits--Promised 
Benefits Benchmark: 

All men; B
Birth Cohort: 1950: 0.78; 
Birth Cohort: 1985: 0.46. 

All women; 
Birth Cohort: 1950: 2.11; 
Birth Cohort: 1985: 1.13. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 

[End of table] 

In both the 1985 and 1950 cohorts, the increased survivor benefit 
modification increased the number of women who never fell below the 
microsimulation model's low benefit threshold by about 6 percentage 
points versus current law. For those women affected by the benefit in 
our simulation, the median percentage change in benefits was about 16 
percent in the 1950 cohort and about 18 percent in the 1985 
cohort.[Footnote 73] As expected, for both cohorts, the majority of 
women with benefit changes resulting from this change are widows and 
divorced women. Additionally, in terms of number of people affected, 
the impacts of this change were concentrated primarily in the bottom 
two income quintiles.[Footnote 74] 

By capping this program modification at the level of average benefits, 
this modification targets the increased survivor's benefit to lower- 
earning widows and widowers. Although exempting wealthier beneficiaries 
from this benefit enhancement creates fiscal savings, it may limit many 
survivors from two-earner couples from benefiting from the change. 

Reduce Spousal Benefits and Increase Survivor Benefits: 

An increase in survivor benefits is sometimes paired with a decrease in 
spousal benefits, from one-half the retired worker's benefit to one- 
third. This pairing provides nearly the same average percentage change 
in benefits to widows as the modification above, but contains costs by 
reducing the spousal benefit while the worker is still living. 

GAO Simulation of a Reduction in Spousal Benefits with Increased 
Survivor Benefits: 

Our simulation of this modification resulted in nearly the same benefit 
changes for widows as the "Increase survivor benefits" projection 
described above, while the benefits of affected married women and 
divorced women--recipients of spousal benefits--had a generally 
negative change. When all women affected by this modification are 
sorted into quintiles by lifetime household income, the median 
percentage change in benefit levels is similar across quintiles, and is 
in all cases negative. (See table 7.) Despite this, the low benefit 
avoidance rates were quite similar to those produced by the survivor 
benefit increase modification for all cohorts, indicating that both 
modifications have nearly the same positive impact on our proxy for 
poverty avoidance (see app. III). 

Table 7: Median Percentage Change in Benefits for Individuals Whose 
Benefits Changed after Addition of Decreased Spousal Benefits Paired 
with Increased Survivor Benefits--Promised Benefits Benchmark: 

Numbers in percent. 

Birth cohort: 1950; 
All men: -2.81; 
All women: -2.66. 

Birth cohort: 1985; 
All men: -9.14; 
All women: -8.78. 

Women by income quintile: Birth cohort: 1950;  
Women by income quintile: Lowest quintile: -2.55;  
Women by income quintile: Quintile 2: -2.55; 
Women by income quintile: Middle quintile: -2.66; 
Women by income quintile: Quintile 4: -2.67; 
Women by income quintile: Highest profile: -2.67. 

Women by income quintile: Birth cohort: 1985;  
Women by income quintile: Lowest quintile: -9.82;  
Women by income quintile: Quintile 2: -8.06; 
Women by income quintile: Middle quintile: -8.21; 
Women by income quintile: Quintile 4: -8.45; 
Women by income quintile: Highest profile: -9.27.

Women by marital status: Birth cohort: 1950; 
Women by marital status: Never married: 0; 
Women by marital status: Divorced: -8.00; 
Women by marital status: Married: -2.67; 
Women by marital status: Widowed: 15.58. 

Women by marital status: Birth cohort: 1985; 
Women by marital status: Never married: 0; 
Women by marital status: Divorced: -24.11; 
Women by marital status: Married: -9.01; 
Women by marital status: Widowed: 18.91. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 
Income quintiles are based on the distribution of the present value of 
family lifetime earnings for the whole population (male and female). 
For percentage of population affected and results using the "Funded 
benefits" benchmark, see appendix II. 

[End of table] 

Table 8: Percentage of Total Simulation Population Whose Benefits 
Changed after Addition of Decreased Spousal Benefits Paired with 
Increased Survivor Benefits--Promised Benefits Benchmark: 

All men; 
Birth Cohort: 1950: 11.45; 
Birth Cohort: 1985: 11.58. 

All women; 
Birth Cohort: 1950: 11.78; 
Birth Cohort: 1985: 11.31. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 

[End of table] 

This proposal would both smooth household benefit levels before and 
after widowhood and provide savings to the Social Security system to 
offset costs of the increased survivor benefit.[Footnote 75] 

Reduce Duration of Marriage Requirement for Divorced Spouse Benefit 
Eligibility: 

Proposals to shorten the current requirement for 10-year marriage 
duration to be eligible for divorced spouse and survivor benefits would 
expand eligibility for benefits to divorced spouses from marriages that 
do not meet the 10-year milestone.[Footnote 76] Timing of divorce can 
have a large impact on retirement benefits, as an individual divorced 
one day before the 10 year anniversary would not be eligible for 
benefits, while another individual who waited one more day would be 
eligible for a full spousal or survivor benefit. Reducing the 10-year 
marriage requirement would make more divorced individuals eligible for 
divorced spouse and survivor benefits but would also increase the 
probability that an individual with several former spouses could have 
several spouses receive benefits on one worker's earnings record. 

GAO Simulation of a Reduced Marriage Requirement: 

GAO simulated a modification that would reduce the duration of marriage 
requirement for receiving divorced spouse benefits from 10 to 7 
years.[Footnote 77] In the 1950 and 1985 cohorts, among women who had a 
benefit change due to the reduced marriage requirement, the median 
percentage change in benefits was about 65 percent and 45 percent 
respectively (see table 9), the largest median change in benefits for 
women among all reforms modeled. The scope of impact, however, was 
extremely small: In both cohorts, those affected made up less than 1 
percent of the model sample. 

The changes in this simulation also resulted in a handful of newly 
eligible beneficiaries: In the 1950 cohort, three individuals who were 
not previously eligible for Social Security benefits became eligible 
under the reform scenario, and in the 1985 cohort, 43 individuals 
became eligible. Among the seven simulations that we ran, this was the 
only one that resulted in new beneficiaries. This is because 
individuals who were not eligible on their record became eligible as 
spouses or survivors under the shorter duration of marriage 
requirement. These newly eligible beneficiaries are not included in the 
median percent change measures. 

Table 9: Median Percentage Change in Benefits for Individuals Whose 
Benefits Changed after Reduction in Marriage Requirement from 10 to 7 
Years--Promised Benefits Benchmark: 

Birth cohort: 1950; 
All men: 0.85; 
All women: 65.32. 

Birth cohort: 1985; 
All men: 37.22; 
All women: 45.05.

Women by income quintile: Birth cohort: 1950;  
Women by income quintile: Lowest quintile: 85.18;  
Women by income quintile: Quintile 2: 54.66; 
Women by income quintile: Middle quintile: 162.36; 
Women by income quintile: Quintile 4: 33.33; 
Women by income quintile: Highest profile: 0. 

Women by income quintile: Birth cohort: 1985;  
Women by income quintile: Lowest quintile: 53.99;  
Women by income quintile: Quintile 2: 34.41; 
Women by income quintile: Middle quintile: 33.33; 
Women by income quintile: Quintile 4: 36.31; 
Women by income quintile: Highest profile: 25.14. 

Women by marital status: Birth cohort: 1950; 
Women by marital status: Never married: 0; 
Women by marital status: Divorced: 65.32; 
Women by marital status: Married: 0; 
Women by marital status: Widowed: 0. 

Women by marital status: Birth cohort: 1985; 
Women by marital status: Never married: 0; 
Women by marital status: Divorced: 45.05; 
Women by marital status: Married: 0; 
Women by marital status: Widowed: 0. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 
Income quintiles are based on the distribution of the present value of 
family lifetime earnings for the whole population (male and female). 
For percentage of population affected and results using the "Funded 
benefits" benchmark, see appendix II. 

[End of table] 

Table 10: Percentage of Total Simulation Population Whose Benefits 
Changed after Reduction in Marriage Requirement from 10 to 7 Years-- 
Promised Benefits Benchmark: 

All men; 
Birth Cohort: 1950: 0; 
Birth Cohort: 1985: 0.03. 

All women; 
Birth Cohort: 1950: 0.04; 
Birth Cohort: 1985: 0.51. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 

[End of table] 

Pension Modifications That Address the Changing Pension Landscape and 
Changing Workforce Patterns May Serve Women Better than Traditional 
Pension Models: 

In addition to the Social Security proposal elements above, we 
simulated two pension modifications that address challenges related to 
the shift to DC plans and changing workforce patterns.[Footnote 78] 
Both modifications modeled by GAO generally resulted in higher pension 
benefits, and address issues that may be of particular concern to 
women. In particular, in DC plans,[Footnote 79] contributing early and 
maintaining an account over time has a significant positive impact on 
the balance of that account and the resulting retirement benefit. 
Decreasing vesting requirements would allow workers who change jobs 
more frequently to attain increased benefits from pension plans. 
Automatically rolling over accounts at a job's end increases the 
probability that accrued retirement balances will in fact be saved for 
retirement. The GEMINI/PENSIM models do not account for behavioral 
responses to program changes; therefore, data do not take into account 
possible employer or employee responses to the program modifications 
below. 

Lowering Vesting Requirements: 

Under current law, eligible employees must be allowed to participate in 
a plan as of age 21 and after completing 1 year of service, subject to 
certain exceptions. An employee's own contributions to their pension 
plan are nonforfeitable, as are employer contributions once an 
employee's benefits have vested. ERISA, as amended, requires cliff 
vesting[Footnote 80] in DBs within 5 years and full vesting under a 
graduated vesting[Footnote 81] schedule within 7 years. cash balance 
plans ("hybrid" plans) generally will require vesting within 3 years. 
Beginning in 2008 employer contributions to DC plans[Footnote 82] must 
vest in either a 3-year cliff or 6-year phased schedule (includes 
service prior to 2007).[Footnote 83] 

GAO Simulation of Lowered Vesting Requirements for Employer-Provided 
Pensions: 

Using the PENSIM microsimulation model, we projected the impact of a 
reduced vesting schedule on retirement benefits. For DB plans we 
specified 2-year cliff vesting, and for DC plans we specified 2-year 
cliff, and 3-year graduated vesting schedules. For the 1985 cohort, the 
median percentage change in benefit levels for women who were affected 
by the change was an increase of 6.29 percent. Similarly, men's median 
percentage change in benefits for those affected was of 5.74 
percent.[Footnote 84] (See table 11.) While the number of women 
affected by this change was fairly evenly distributed across the top 
four income quintiles with fewer in the lowest, the median percentage 
change in benefits is much larger for the women in the lowest quintile 
than in higher quintiles; for those in the lowest quintile, the median 
percentage change in benefit levels was more than four times the change 
for women in the highest quintile and nearly twice that of women in the 
second lowest income quintile. This suggests that increases in pension 
benefits gained as a result of this change represent a larger portion 
of total pension accumulation for less affluent women. Similarly, while 
the number of married women affected was larger than the number 
affected in other marital classifications, the median percentage change 
in benefits for never married and divorced women was almost twice the 
median percentage change in benefits for married and widowed women. 

Table 11: Median Percentage Change in Pension Benefits for Individuals 
Born in 1985 Whose Benefits Changed After Lowered Vesting Schedules: 

All men: 5.74; 
All women: 6.29; 

Women by income quintile: Lowest quintile: 16.37; 
Women by income quintile: Quintile 2: 8.90; 
Women by income quintile: Middle quintile: 6.18; 
Women by income quintile: Quintile 4: 5.11; 
Women by income quintile: Highest quintile: 3.51. 

Women by marital status: Never married: 11.14; 
Women by marital status: Divorced: 11.30; 
Women by marital status: Married: 5.35; 
Women by marital status: Widowed: 6.81. 

Source: GAO analysis based on the PENSIM model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 
Income quintiles are based on the distribution of the present value of 
family lifetime earnings for the whole population (male and female). 
For percentage of population affected and results using the "Funded 
benefits" benchmark, see appendix II. 

[End of table] 

Table 12: Percentage of Total Simulation Population Whose Benefits 
Changed after Implementation of Lowered Vesting Schedules: 

All men; 
Birth Cohort: 1985: 14.34. 

All women; 
Birth Cohort: 1985: 12.62. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 

[End of table] 

Automatic Rollover upon Leaving Employment Prior to Retirement Age: 

"Automatic rollover" proposals would maintain the level of accrued 
retirement benefits in DC plans when an individual switches jobs before 
retirement by automatically contributing retirement balances to a 
qualified retirement savings account. According to research conducted 
by the Employee Benefit Research Institute in 2003, under 50 percent of 
recipients of lump sum distributions between the ages of 30 and 50 
reported using the entire portion for reinvestment into a qualified 
account.[Footnote 85] For those aged 21 to 30, the percentage using the 
entire distribution for tax-qualified financial savings drops to under 
35. This modification would provide greater retirement income for men 
and women. However, some research shows that women roll over a lower 
percentage of their accrued balances than men do;, because of this, 
requiring automatic rollover may have a larger effect on women overall. 

GAO Simulation of 100 Percent Automatic Rollover for Employer-Provided 
Pensions: 

GAO used the GEMINI microsimulation model to determine what the impact 
could be on retirement benefit levels if 100 percent of accrued 
retirement balances were reinvested into qualified accounts after every 
job change until retirement. For the 1985 cohort, the median percentage 
change in benefits for those affected was quite similar for men and 
women, 7.3 percent and 7.63 percent, respectively. (See table 13.) This 
assumes that those affected would not make any changes in their savings 
or spending behavior to offset the requirement. Among women who were 
affected by the change, those who were never married or who were 
divorced had the largest percentage median increases in benefits. 
Additionally, while the number of women affected by this change again 
was fairly evenly distributed across the top four income quintiles with 
fewer in the lowest, those in the lowest two income quintiles had 
substantially larger median percentage changes in benefits than those 
in the highest two quintiles. 

Table 13: Median Percentage Change in Pension Benefits for Individuals 
Born in 1985 Whose Benefits Changed after Implementation of 100 Percent 
Automatic Rollover: 

Numbers in percent. 

All men: 7.30; 
All women: 7.63. 

Women by income quintile: Lowest quintile: 16.94; 
Women by income quintile: Quintile 2: 11.85; 
Women by income quintile: Middle quintile: 8.50; 
Women by income quintile: Quintile 4: 5.97; 
Women by income quintile: Highest quintile: 3.62. 

Women by marital status: Never married: 15.04; 
Women by marital status: Divorced: 11.85: 
Women by marital status: Married: 12.09; 
Women by marital status: Widowed: 6.74; 

Source: GAO analysis based on the PENSIM model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 
Income quintiles are based on the distribution of the present value of 
family lifetime earnings for the whole population (male and female). 
For percentage of population affected and results using the "Funded 
benefits" benchmark, see appendix II. 

[End of table] 

Table 14: Percentage of Total Simulation Population Whose Benefits 
Changed after Implementation of 100 Percent Automatic Rollover: 

Numbers in percent. 

All men; 
Birth Cohort: 1985: 12.26. 

All women; 
Birth Cohort: 1985: 11.21. 

Source: GAO analysis based on the GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70 and 
were based on benefits adjusted for household size (for more 
information, see discussion of Family Equivalence Scale in appendix I). 

[End of table] 

Concluding Observations: 

Despite the increases in women's labor force participation over the 
past 55 years, certain groups of women will continue to be vulnerable 
to economic insecurity in retirement. While women are working more than 
in the past, they remain the primary source of family caregiving and 
are more likely than men either to reduce their workforce participation 
or never to enter the paid workforce. Consequently, despite elements of 
the Social Security and employer-sponsored pension systems that provide 
retirement income for low-or non-earning spouses, the remaining gaps 
between women's and men's labor force participation, earnings, and 
pension participation will continue to leave many women with fewer 
financial resources in retirement than men. In addition to the choices 
many women make to stay out of the workforce or to reduce the amount of 
their work, certain life events (such as divorce and widowhood) are 
likely to exacerbate this disparity. Ultimately, women's roles in the 
workplace and within a family may hinder them from building sufficient 
retirement resources, leaving them at greater risk of poverty in old 
age. 

Other trends can exacerbate the vulnerability of women in retirement. 
Many proposed reforms for Social Security and employer-provided 
pensions have focused on long-term solvency and financing issues. 
Research has shown that many of these types of reforms have the 
potential to reduce retirement income from levels scheduled in current 
law for a large number of beneficiaries. This is of particular concern 
for women because of their reliance on Social Security as a main source 
of retirement income. Changes in the structure of employer-sponsored 
pensions, which can have some benefits for women, may also have some 
negative consequences. Although the shift to DC type plans can have a 
positive impact on people who change jobs frequently or work 
intermittently, such plans can transfer more of the responsibility to 
make prudent investment decisions and to manage longevity risk to 
individuals. While this is true for both men and women, it is of 
particular concern for women because of their greater longevity. 
Moreover, the original design of the Social Security system was based 
on a particular household structure--single earner families--and that 
structure is no longer the norm in America. If policy makers wish to 
design a system that adequately and equitably compensates all retirees, 
then it will be necessary to design a system that reflects the 
diversity of employment patterns and family structure within the 
population it serves. In fact, several past reform proposals included 
modernization elements that would target benefit enhancements to 
various subgroups. 

In contemplating modifications to Social Security or employer-provided 
pensions, it is helpful to understand all possible effects, including 
the impact on Social Security solvency or costs to employers. Each of 
the Social Security changes that we modeled would have small, but 
negative, effects on program solvency. Small effects such as these, 
when included in a larger package of reforms, could be overwhelmed by 
the effects of other changes. Nevertheless, the trade-offs between 
enhanced benefits and costs are always important to consider. It is 
also helpful to understand how changes may affect different types of 
individuals with different work and earnings histories--for example, 
women who never enter the workforce or choose to reduce their work, 
possibly to care for children or other family members. Changes to 
benefit structures may also have different effects on individuals 
within different family structures, such as single-earner married 
couples, dual-earner households, or unmarried heads of household. 
Recognizing these differences is important not only in terms of 
improving adequacy and equity in the benefit structure, but also in 
understanding how different benefit structures might affect the choices 
individuals make regarding their own workforce attachment. With such 
knowledge, policy makers have the potential to mitigate both existing 
disparities in retirement income as well as the differential effects of 
reforms. 

Agency Comments: 

We provided a draft of this report to the departments of Labor and the 
Treasury, the Internal Revenue Service, and the Social Security 
Administration. The departments of Labor and the Treasury and the 
Social Security Administration provided technical comments, which we 
incorporated where appropriate. 

We are sending copies of this report to the Secretary of Labor, the 
Commissioner of Internal Revenue, the Commissioner of Social Security, 
the Secretary of the Treasury, and appropriate congressional 
committees, and other interested parties. We will also make copies 
available to others upon request. In addition, the report will be 
available at no charge on GAO's Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-7215 or at bovbjergb@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. GAO staff who made major 
contributions to this report are listed in appendix V. 

Signed by: 

Barbara D. Bovbjerg: 

Director: 
Education, Workforce, and Income Security Issues: 

[End of section] 

Appendix I: Methodology: 

To identify the effects of individual reform elements on Social 
Security and pension benefit levels for women, we used the Policy 
Simulation Group's (PSG) microsimulation models to simulate Social 
Security benefits and pension income. 

For our simulations, we used PSG's Social Security and Accounts 
Simulator (SSASIM), Genuine Microsimulation of Social Security Accounts 
(GEMINI), and Pension Simulator (PENSIM) simulation models. GEMINI 
simulates Social Security benefits and taxes for large representative 
samples of people born in the same year. GEMINI simulates all types of 
Social Security benefits including retired workers', spouses', 
survivors', and disability benefits. It can be used to model a variety 
of changes to Social Security. GEMINI uses inputs from SSASIM, which 
has been used in numerous GAO reports, and PENSIM, which was developed 
for the Department of Labor. GEMINI relies on SSASIM for economic and 
demographic projections and relies on PENSIM for simulated life 
histories of large representative samples of people born in the same 
year and their spouses.[Footnote 86] Life histories include educational 
attainment, labor force participation, earnings, job mobility, 
marriage, disability, childbirth, retirement, and death. Life histories 
are validated against data from the Survey of Income and Program 
Participation, the Current Population Survey, Modeling Income in the 
Near Term (MINT3),[Footnote 87] and the Panel Study of Income Dynamics. 
Additionally, any projected statistics (such as life expectancy, 
employment patterns, and marital status at age 60) are, where possible, 
consistent with intermediate cost projections from the Social Security 
Administration's Office of the Chief Actuary (OCACT). At their best, 
such models can provide only very rough estimates of future incomes. 
However, these estimates may be useful for comparing future incomes 
across alternative policy scenarios and over time. 

GEMINI can be operated as a free-standing model or it can operate as a 
SSASIM add-on. When operating as an add-on, GEMINI is started 
automatically by SSASIM for one of two purposes. GEMINI can enable the 
SSASIM macro model to operate in the Overlapping Cohorts (OLC) mode or 
it can enable the SSASIM micro model to operate in the Representative 
Cohort Sample (RCS) mode. The SSASIM OLC mode requests GEMINI to 
produce samples for each cohort born after 1934 in order to build up 
aggregate payroll tax revenues and (Old-Age, Survivors, and Disability 
Insurance) OASDI benefit expenditures for each calendar year, which are 
used by SSASIM to calculate standard trust fund financial statistics. 
In either mode, GEMINI operates with the same logic, but typically with 
smaller cohort sample sizes in OLC mode than in the RCS or stand-alone- 
model mode. 

Using the GEMINI model, we estimated Social Security benefits at age 70 
for approximately 2 percent of individuals born in each of two 
illustrative birth cohorts, 1950 (resulting in a sample of 63,813 
individuals) and 1985 (resulting in a sample of 78,857 individuals). We 
also used the PENSIM model to estimate pension income for those born in 
1985.[Footnote 88] We simulated Social Security benefits for two 
cohorts in order to identify differences in the effects of 
modifications that could be due to variations in labor force 
participation across generations. We also used the microsimulation 
models to simulate Social Security benefits, pension income, and the 
earnings of spouses not yet retired, in order to explore the 
relationships between benefit levels and workforce attachment and 
marital status. For this analysis we simulated benefit levels at ages 
67 and 85 for the 1985 birth cohort. These models do not include 
measures of personal savings, earnings in retirement, health benefits, 
or income from other income support programs. 

Additionally, we evaluated the effect of Social Security modifications 
on a "low benefit avoidance rate," a measure produced by the model that 
proxies for poverty avoidance. However, it does not include pension 
income or savings, and so cannot be called a poverty avoidance measure. 
The low benefit avoidance rate is expressed as the percentage of 
retirement years in which an individual's Social Security benefits 
(plus any earnings) are above a low-benefit threshold in the GEMINI 
model (the thresholds are $9,669 for individuals and $12,186 for 
couples, in 2007 dollars). Both income and the threshold are based on 
individual data when unmarried and on couple data when married. 

Benefits and taxes were simulated under our tax increase only (promised 
benefits) and proportional benefit reduction (funded benefits) 
benchmarks (described below) and certain specific individual 
programmatic changes. These simulations are based on the Social 
Security Trustees' 2007 intermediate economic and actuarial 
assumptions. While our simulations provide projections of future 
retirement income, there is a considerable amount of uncertainty 
involved with these estimates. Since these estimates could change 
significantly, depending on assumptions used and behavior responses, 
they should not be considered predictions. Furthermore, because 
simulations are sensitive to economic and demographic assumptions, it 
is generally more appropriate to compare benefits across the scenarios 
than to focus on the actual estimates themselves. Therefore, to avoid 
inappropriate comparisons, we evaluated the effects of modifications 
based on the changes in benefit levels rather than comparing actual 
benefit levels. 

In general, GAO has suggested that policy makers should consider three 
basic criteria when evaluating reform proposals[Footnote 89] 

* the extent to which the proposal achieves sustainable solvency and 
how the proposal would affect the economy and the federal budget; 

* the balance struck between the goals of individual equity[Footnote 
90] (rates of return on individual contributions) and income 
adequacy[Footnote 91] (level and certainty of monthly benefits); and: 

* how readily such changes could be implemented, administered, and 
explained to the public. 

Moreover, changes to the system should be evaluated as packages that 
strike a balance among the individual elements of the proposal and the 
interactions among these elements. The overall evaluation of any 
particular reform proposal depends on the weight individual policy 
makers place on each of the above criteria. 

However, for the purposes of this study we evaluated only specific 
individual modifications. We looked at certain specific changes in 
order to focus on those that account for more recent shifts in family 
structure and labor force composition. In particular, we wanted to 
identify the direction of the impact of modifications that might be 
used to mitigate the effects of broad reform packages likely to reduce 
benefits. Nevertheless, we recognize that there could be important 
interaction effects with any set of reforms and maintain the importance 
of considering all possible effects of any reform package as a whole. 
The solvency impact of any single programmatic change may be marginal 
and, as part of a package, could be overwhelmed by other changes. 
Nevertheless, in appendix IV, we have provided the impact of each 
change on the Social Security Trust Fund balance, after achieving 75- 
year solvency with the benchmark scenarios. Additionally, because we 
simulated programmatic changes in isolation we could not calculate 
traditional equity measures, which relate benefits received to taxes 
paid. Because we simulated programmatic changes in isolation on top of 
solvent benchmark scenarios, the results did not achieve long-term 
solvency. We did not speculate on how the changes would be paid for in 
the context of overall reform. Without information on total 
contributions or benefits under each simulation, traditional equity 
measures would not be meaningful. Finally, given the limited scope of 
the changes we simulated, we did not address issues of implementation, 
administration, or public comprehension. 

Assumptions and Limitations: 

Simulating retirement income almost 50 years into the future requires 
many assumptions and simplifications, and consequently, our simulations 
have a number of limitations. A primary limitation of our analysis is 
that it does not include important components of retirement income such 
as personal savings, earnings in retirement, health benefits, and other 
public assistance programs such as Supplemental Security Income (SSI). 
To facilitate our modeling analysis, we made a variety of assumptions 
regarding economic and demographic trends. In choosing our assumptions, 
we focused our analysis to illustrate relevant points about 
distributional effects and hold equal as much as possible any variables 
that were either not relevant to or would unduly complicate that focus. 
As a result of these assumptions, as well as issues inherent in any 
modeling effort, our analysis has some key limitations. 

2007 Social Security Trustees' Assumptions: 

The simulations are based on economic and demographic assumptions from 
the 2007 Social Security Trustees' report.[Footnote 92] We used the 
Trustees' intermediate assumptions for inflation, real wage growth, 
mortality decline, immigration, labor force participation, and interest 
rates. 

Family Equivalence Scale: 

For some of our analyses, we used a measure of income adjusted to 
account for household size and economies of scale. We did this to 
facilitate comparisons between nonmarried persons and married persons 
whose household income includes income from both spouses that can vary 
significantly between them. For instance, although a married couple may 
need approximately twice as much for food and clothing as a single 
person, other needs, such as housing and transportation, are not 
additive in the same way. However, the effect of using data adjusted 
for household size on a reform targeted at married couples, such as a 
change in spousal benefits, is that the change in benefits resulting 
from the program modification is shared by both the husband and the 
wife. Thus, population data based on the adjusted measure describe the 
number of people whose household had a benefit change resulting from 
the modification. For example, in the "Decreased Spousal Benefit and 
Increased Survivor Benefit" modification, the family equivalence data 
indicate that a nearly equal percent of men and women are affected by 
the modification because the effect of the benefit change is shared by 
both spouses. Therefore, in order to identify just the percent of men 
and women who had changes to their own benefit as a result of the 
program change, percentages are also calculated based on benefits not 
adjusted for household size. 

The adjustment is made by dividing household benefit levels by a 
"family equivalence scale."[Footnote 93] This equivalence scale 
reflects both differences in consumption by adults and children under 
18 and the economies of scale that benefit families. The family 
equivalence scale in the GEMINI model (shown below) and its default 
parameters are based on the recommendations of the National Academy of 
Sciences' Panel on Poverty and Family Assistance. 

Family equivalence scale = (A + P*k)F: 

where A is the number of adults in the family, 

k is the number of children, each of whom is treated as a proportion P 
of an adult, and: 

f is the scale economy factor. 

Thus, the formula calculates the number of adult equivalents (A + P*k) 
and raises the result to a power f that reflects economies of scale for 
families. We used the default parameters in the model, so that both P 
and f are 0.70. 

Description of Simulated Social Security Modifications: 

Dependent Care Credit--Analyzing Impact of Inserting a "Credit" 

To simulate a dependent care credit we provided a "credit" in the OASDI 
work record that would top off a year's earnings to the level of half 
of average wages. In a given year, the OASDI work records of 
individuals with a child 5 years of age or under and who had earnings 
less than one-half of average wages were credited with one half of 
average wages (as measured by the Average Wage Index used by the Social 
Security Administration). A lifetime maximum of five credits was 
allowed. If both parents met these criteria in any given year, only the 
lower-earning parent received the credit; if both parent's earnings 
were identical in any given year, the credit was split evenly. Credits 
were not counted toward benefit eligibility. In our simulation the 
reform went into effect in 2010. 

This change as specified has not been scored publicly by OCACT. Using 
the OLC mode of SSASIM that mimics the intermediate assumptions of the 
2007 Trustees' report, we estimated this modification as increasing the 
size of the long-range actuarial deficit by 0.19 percent under the 
"promised benefits" benchmark and by 0.17 under the "funded benefits" 
benchmark. 

Decrease Spousal Benefit/Increase Survivor Benefit: 

To simulate the effects of a decrease in spousal benefits paired with 
an increase in survivor benefits, we reduced spousal benefits from one- 
half to one-third of the retired worker's benefit. We also increased 
the survivor benefit to 75 percent of the couple's previous combined 
benefit level, if higher than the survivor benefit available under 
current law. The benefit of this reform is capped at the average PIA 
for all new retirees. Our simulation of the reform went into effect in 
2010. 

These changes as specified have not been scored publicly by 
OCACT.[Footnote 94] Using the OLC mode of SSASIM that mimics the 
intermediate assumptions of the 2007 Trustees' report, we estimated 
this modification as decreasing the size of the long-range actuarial 
deficit by 0.02 percent under the "promised benefits" benchmark and 
increasing the size of the long range actuarial deficit by 0.06 under 
the "funded benefits" benchmark. 

Increased Survivor Benefit Only: 

We also simulated the effects of an increase in survivor benefits 
independently. To do this, as above, we increased the survivor benefit 
to 75 percent of the couple's previous combined benefit level, if 
higher than the survivor benefit available under current law. The 
benefit of this reform is capped at the average PIA for all new 
retirees. Our simulation of the reform went into effect in 2010. 

This change is similar to one scored by OCACT as part of the OASDI 
Financial Effects of the Social Security Guarantee Plus Act of 2005 
(May 12, 2005), which estimated a 0.08 percent increase to the long- 
range actuarial deficit, and Estimated OASDI Financial Effects of the 
Bipartisan Retirement Security Act of 2005 (November 4, 2005), which 
also estimated a 0.08 percent increase to the long-range actuarial. 
Using the OLC mode of SSASIM that mimics the intermediate assumptions 
of the 2007 Trustees' report, we estimated this modification as 
increasing the size of the long-range actuarial deficit by 0.07 percent 
under the "promised benefits" benchmark and by 0.14 percent under the 
"funded benefits" benchmark. 

Reduce 10-Year Marriage Requirement: 

To simulate the effects of a reduced marriage requirement to qualify 
for divorced spouse benefits, we reduced duration of marriage 
requirements from 10 to 7 years. In our simulation, this reform took 
effect in 2010. 

This change as specified has not been scored publicly by OCACT. Using 
the OLC mode of SSASIM that mimics the intermediate assumptions of the 
2007 Trustees' report, we estimated this change as increasing the size 
of the long-range actuarial deficit by 0.02 percent under the "promised 
benefits" benchmark and increasing the size of the long-range actuarial 
deficit by 0.06 under the "funded benefits" benchmark. 

Increase/Strengthen Minimum Benefit: 

To simulate an increased minimum benefit, we provided a partial benefit 
enhancement for workers with more than 80 quarters of coverage and 
provide a full benefit enhancement to workers with 120 quarters of 
coverage. It would equal 120 percent of the aged poverty threshold for 
workers with 120 quarters of coverage and be linearly prorated to zero 
for workers with 80 quarters of coverage. These provisions would also 
apply in determining the PIA levels used for calculating auxiliary 
benefits and DI benefits. The first year of full implementation is 
2010. 

This modification as specified has not been scored publicly by OCACT. 
Using the OLC mode of SSASIM that mimics the intermediate assumptions 
of the 2007 Trustees' report, we estimated this change as increasing 
the size of the long-range actuarial deficit by 0.05 percent under the 
"promised benefits" benchmark and increasing the size of the long range 
actuarial deficit by 0.13 percent under the "funded benefits" benchmark 
as well. 

Description of Simulated Pension Modifications: 

Decrease Vesting Requirements: 

In our modeling of this modification, we reduced maximum allowable 
vesting periods to 2 years for all pension programs with cliff vesting 
and 3 years for all pension programs with graduated vesting. If plans 
within the model already used shorter vesting schedules, those vesting 
schedules remained unchanged. In our simulation, this change took 
effect in 2010. 

Automatic Rollover: 

In order to consider the potential upper bound of impact for a 
modification that would ensure full rollover of retirement assets at 
preretirement job terminations, we modeled a full rollover of 
retirement balances into qualified accounts. In our simulation, this 
change took effect in 2010. 

Data Reliability: 

To assess the reliability of simulated data from GEMINI, we reviewed 
PSG's published validation checks, examined the data for reasonableness 
and consistency, and compared our solvency estimates, where applicable, 
with published results from the actuaries at the Social Security 
Administration. 

PSG has published a number of validation checks of its simulated life 
histories. For example, simulated life expectancy is compared with 
projections from the Social Security Trustees; simulated benefits at 
age 62 are compared with administrative data from SSA; and simulated 
educational attainment, labor force participation rates, and job tenure 
are compared with values from the Current Population Survey. We found 
that simulated statistics for the life histories were reasonably close 
to the validation targets. 

Benchmark Policy Scenarios: 

According to current projections of the Social Security Trustees for 
the next 75 years, revenues will not be adequate to pay full benefits 
as defined by the current benefit formula. Therefore, estimating future 
Social Security benefits should reflect that actuarial deficit and 
account for the fact that some combination of benefit reductions and 
revenue increases will be necessary to restore long-term solvency. 

To illustrate a full range of possible outcomes, we developed 
hypothetical benchmark policy scenarios that would achieve 75-year 
solvency either by only increasing payroll taxes or by only reducing 
benefits.[Footnote 95] In developing these benchmarks, we identified 
criteria to use to guide their design and selection. Our tax-increase- 
only benchmark simulates "promised benefits," or those benefits 
promised by the current benefit formula, while our benefit-reduction- 
only benchmark simulates "funded benefits," or those benefits for which 
currently scheduled revenues are projected to be sufficient. Under the 
latter policy scenario, the benefit reductions would be phased in 
between 2010 and 2040 to strike a balance between the size of the 
incremental reductions each year and the size of the ultimate 
reduction. 

Social Security Administration (SSA) actuaries scored our original 2001 
benchmark policies and determined the parameters for each that would 
achieve 75-year solvency.[Footnote 96] Table 8 summarizes our benchmark 
policy scenarios. For our benefit reduction scenario, the actuaries 
determined these parameters assuming that disabled and survivor 
benefits would be reduced on the same basis as retired worker and 
dependent benefits. If disabled and survivor benefits were not reduced 
at all, reductions in other benefits would be greater than shown in 
this analysis. 

Table 15: Summary of Benchmark Policy Scenarios: 

Benchmark policy scenario: Tax increase only (promised benefits); 
Description: Increases payroll taxes in 2008 by amount necessary to 
achieve 75-year solvency (0.98 percent of payroll each for employees 
and employers); 
Phase-in period: Immediate; 
Ultimate new benefit reductions[A] (percent): 0. 

Benchmark policy scenario: Proportional benefit reduction (funded 
benefits); 
Description: Reduces benefit formula factors proportionally across all 
earnings levels; 
Phase-in period: 2013-2043; 
Ultimate new benefit reductions[A] (percent): 27. 

Source: GAO. 

[A] These benefit reduction amounts do not reflect the implicit 
reductions resulting from the gradual increase in the full retirement 
age that has already been enacted. 

[End of table] 

Criteria: 

According to our analysis, appropriate benchmark policies should 
ideally be evaluated against the following criteria: 

1. Distributional neutrality: The benchmark should reflect the current 
system as closely as possible while still restoring solvency. In 
particular, it should try to reflect the goals and effects of the 
current system with respect to redistribution of income. However, there 
are many possible ways to interpret what this means, such as: 

a. producing a distribution of benefit levels with a shape similar to 
the distribution under the current benefit formula (as measured by 
coefficients of variation, skewness, kurtosis, and so forth); 

b. maintaining a proportional level of income transfers in dollars; 

c. maintaining proportional replacement rates; and: 

d. maintaining proportional rates of return. 

2. Demarcating upper and lower bounds: These would be the bounds within 
which the effects of alternative proposals would fall. For example, one 
benchmark would reflect restoring solvency solely by increasing payroll 
taxes and therefore maximizing benefit levels, while another would 
solely reduce benefits and therefore minimize payroll tax rates. 

3. Ability to model: The benchmark should lend itself to being modeled 
within the GEMINI model. 

4. Plausibility: The benchmark should serve as a reasonable alternative 
within the current debate; otherwise, the benchmark could be perceived 
as an invalid basis for comparison. 

5. Transparency: The benchmark should be readily explainable to the 
reader. 

Tax-Increase-Only or "Promised Benefits," Benchmark Policies: 

Our tax-increase-only benchmark would raise payroll taxes once and 
immediately by the amount of Social Security's actuarial deficit as a 
percentage of payroll. It results in the smallest ultimate tax rate of 
those we considered and spreads the tax burden most evenly across 
generations; this is the primary basis for our selection. The later 
that taxes are increased, the higher the ultimate tax rate needed to 
achieve solvency, and in turn the higher the tax burden on later 
taxpayers and lower on earlier taxpayers. Still, any policy scenario 
that achieves 75-year solvency only by increasing revenues would have 
the same effect on the adequacy of future benefits in that promised 
benefits would not be reduced. Nevertheless, alternative approaches to 
increasing revenues could have very different effects on individual 
equity. 

Benefit-Reduction-Only, or "Funded Benefits," Benchmark Policies: 

We developed alternative benefit reduction benchmarks for our analysis. 
For ease of modeling, all benefit reduction benchmarks take the form of 
reductions in the benefit formula factors; they differ in the relative 
size of those reductions across the three factors, which are 90, 32, 
and 15 percent under the current formula. Each benchmark has three 
dimensions of specification: scope, phase-in period, and the factor 
changes themselves. For our analysis, we apply benefit reductions in 
our benchmarks very generally to all types of benefits, including 
disability and survivors' benefits as well as old-age benefits. Our 
objective is to find policies that achieve solvency while reflecting 
the distributional effects of the current program as closely as 
possible. Therefore, it would not be appropriate to reduce some 
benefits and not others. If disabled and survivor benefits were not 
reduced at all, reductions in other benefits would be deeper than shown 
in this analysis. 

Phase-in Period: 

We selected a phase-in period that begins with those becoming initially 
entitled in 2013 and continues for 30 years. We chose this phase-in 
period to achieve a balance between two competing objectives: (1) 
minimizing the size of the ultimate benefit reduction and (2) 
minimizing the size of each year's incremental reduction to avoid 
"notches," or unduly large incremental reductions. Notches create 
marked inequities between beneficiaries close in age to each other. 
Later birth cohorts are generally agreed to experience lower rates of 
return on their contributions already under the current system. 
Therefore, minimizing the size of the ultimate benefit reduction would 
also minimize further reductions in rates of return for later cohorts. 
The smaller each year's reduction, the longer it will take for benefit 
reductions to achieve solvency, and in turn the greater the eventual 
reductions will have to be. However, the smallest possible ultimate 
reduction would be achieved by reducing benefits immediately for all 
new retirees by 13 percent; this would create a notch. 

In addition, we feel it is appropriate to delay the first year of the 
benefit reductions for a few years because those within a few years of 
retirement would not have adequate time to adjust their retirement 
planning if the reductions applied immediately. The Maintain Tax Rates 
(MTR) benchmark in the 1994-1996 Advisory Council report also provided 
for a similar delay.[Footnote 97] 

Finally, the timing of any policy changes in a benchmark scenario 
should be consistent with the proposals against which the benchmark is 
compared. The analysis of any proposal assumes that the proposal is 
enacted, usually within a few years. Consistency requires that any 
benchmark also assumes enactment of the benchmark policy in the same 
time frame. Some analysts have suggested using a benchmark scenario in 
which Congress does not act at all and the trust funds become 
exhausted.[Footnote 98] However, such a benchmark assumes that no 
action is taken, while the proposals against which it is compared 
assume that action is taken, which is inconsistent. It also seems 
unlikely that a policy enacted over the next few years would wait to 
reduce benefits until the trust funds are exhausted; such a policy 
would result in a sudden large benefit reduction and create substantial 
inequities across generations. 

Defining the PIA Formula Factor Reductions: 

When workers retire, become disabled, or die, Social Security uses 
their lifetime earnings records to determine each worker's PIA, on 
which the initial benefit and auxiliary benefits are based. The PIA is 
the result of two elements--the Average Indexed Monthly Earnings (AIME) 
and the benefit formula. The AIME is determined by taking the lifetime 
earnings record, indexing it, and taking the average of the highest 35 
years of indexed wages.[Footnote 99] To determine the PIA, the AIME is 
then applied to a step-like formula, shown here for 2007. 

PIA =90%ź (AIME1 $680) + 32%ź (AIME2 > $680 and $4100) + 15%ź (AIME3 > 
$4100): 

where AIMEi is the applicable portion of AIME. 

All of our benefit-reduction benchmarks are variations of changes in 
PIA formula factors. 

Proportional reduction: Each formula factor is reduced annually by 
subtracting a constant proportion of that factor's value under current 
law, resulting in a constant percentage reduction of currently promised 
benefits for everyone. That is, 

FIt+1 = FIt - (FI2008 ź x): 

where: 

FIt represents the three PIA formula factors in year t and: 

x = constant proportional formula factor reduction. 

The value of x is calculated to achieve 75-year solvency, given the 
chosen phase-in period and scope of reductions. 

The formula for this reduction specifies that the proportional 
reduction is always taken as a proportion of the current law factors 
rather than the factors for each preceding year. This maintains a 
constant rate of benefit reduction from year to year. In contrast, 
taking the reduction as a proportion of each preceding year's factors 
implies a decelerating of the benefit reduction over time because each 
preceding year's factors get smaller with each reduction. To achieve 
the same level of 75-year solvency, this would require a greater 
proportional reduction in earlier years because of the smaller 
reductions in later years. 

The proportional reduction hits lower earners harder than higher 
earners because the constant x percent of the higher formula factors 
results in a larger percentage reduction over the lower earnings 
segments of the formula. For example, in a year when the cumulative 
size of the proportional reduction has reached 10 percent, the 90 
percent factor would then have been reduced by 9 percentage points, the 
32 percent factor by 3.2 percentage points, and the 15 percent factor 
by 1.5 percentage points. As a result, earnings in the first segment of 
the benefit formula would be replaced at 9 percentage points less than 
the current formula, while earnings in the third segment of the formula 
would be replaced at only 1.5 percentage points less than the current 
formula.[Footnote 100] 

Table 9 summarizes the features of our benchmarks. 

Table 16: Summary of Benchmark Policy Scenario Parameters: 

Benchmark policy scenario: Tax increase only (promised benefits); 
Phase-in period: 2008; 
Annual PIA factor reduction (percentage point): 90 percent factor: 0; 
Annual PIA factor reduction (percentage point): 32 percent factor: 0; 
Annual PIA factor reduction (percentage point): 15 percent factor: 0; 
Ultimate PIA factor (2043) (percent): 90 percent factor: 90.00; 
Ultimate PIA factor (2043) (percent): 32 percent factor: 32.00; 
Ultimate PIA factor (2043) (percent): 15 percent factor: 15.00. 

Benchmark policy scenario: Proportional benefit reduction (funded 
benefits); 
Phase-in period: 2013-2043; 
Annual PIA factor reduction (percentage point): 90 percent factor: 
0.80; 
Annual PIA factor reduction (percentage point): 32 percent factor: 
0.28; 
Annual PIA factor reduction (percentage point): 15 percent factor: 
0.13; 
Ultimate PIA factor (2043) (percent): 90 percent factor: 65.28; 
Ultimate PIA factor (2043) (percent): 32 percent factor: 23.21; 
Ultimate PIA factor (2043) (percent): 15 percent factor: 10.88. 

Source: GAO's analysis as scored by SSA actuaries. 

Note: Annual PIA factor reductions rounded to the nearest hundredth of 
a percent. 

[End of table] 

[End of section] 

Appendix II: Simulation Results for Social Security Modifications: 

To account for differences in household size and economies of scale 
associated with larger households, we based our analyses on benefit 
levels adjusted for household size (see app. I for more information). 
However, the effect of using data adjusted for household size on a 
reform targeted at married couples, such as a change in spousal 
benefits, is that the change in benefits resulting from the program 
modification is shared by both the husband and the wife. Thus, 
population data based on the adjusted measure describe the number of 
people whose household had a benefit change resulting from the 
modification. For example, in the "Decreased Spousal Benefit and 
Increased Survivor Benefit" modification, the family equivalence data 
indicate that a nearly equal percent of men and women are affected by 
the modification because the effect of the benefit change is shared by 
both spouses. Therefore, in order to identify only the percent of men 
and women who had changes to their own benefit as a result of the 
program change, percentages are also calculated based on benefits not 
adjusted for household size. 

Table 17: Simulation Results of the Dependent Care Credit under 
Alternative Benchmark Scenarios, for the 1950 and 1985 Birth Cohorts: 

Benchmark: Promised benefits; 
Dependent care credit: Cohort: Percentage change in median benefits for 
individuals whose benefits changed, benefits adjusted for household 
size: 1950; 
Dependent care credit: All men: Percentage change in median benefits 
for individuals whose benefits changed, benefits adjusted for household 
size: 2.60; 
Dependent care credit: All women: Percentage change in median benefits 
for individuals whose benefits changed, benefits adjusted for household 
size: 3.24. 

Benchmark: Promised benefits; 
Dependent care credit: Cohort: Percentage change in median benefits for 
individuals whose benefits changed, benefits adjusted for household 
size: 1985; 
Dependent care credit: All men: Percentage change in median benefits 
for individuals whose benefits changed, benefits adjusted for household 
size: 2.06; 
Dependent care credit: All women: Percentage change in median benefits 
for individuals whose benefits changed, benefits adjusted for household 
size: 2.63. 

Dependent care credit: Benchmark: Funded benefits; 
Dependent care credit: Cohort: Percentage change in median benefits for 
individuals whose benefits changed, benefits adjusted for household 
size: 1950; 
Dependent care credit: All men: Percentage change in median benefits 
for individuals whose benefits changed, benefits adjusted for household 
size: 2.58; 
Dependent care credit: All women: Percentage change in median benefits 
for individuals whose benefits changed, benefits adjusted for household 
size: 3.24. 

Dependent care credit: Benchmark: Funded benefits; 
Dependent care credit: Cohort: 1985; 
Dependent care credit: All men: Percentage change in median benefits 
for individuals whose benefits changed, benefits adjusted for household 
size: 2.07; 
Dependent care credit: All women: Percentage change in median benefits 
for individuals whose benefits changed, benefits adjusted for household 
size: 2.61. 

Dependent care credit: Benchmark: Promised benefits; 
Dependent care credit: Cohort: Percentage of specified subpopulation of 
simulated sample whose benefits changed, benefits adjusted for 
household size: 1950; 
Dependent care credit: All men: Percentage of specified subpopulation 
of simulated sample whose benefits changed, benefits adjusted for 
household size: 60.71; 
Dependent care credit: All women: Percentage of specified subpopulation 
of simulated sample whose benefits changed, benefits adjusted for 
household size: 57.98. 

Dependent care credit: Benchmark: Promised benefits; 
Dependent care credit: Cohort: Percentage of specified subpopulation of 
simulated sample whose benefits changed, benefits adjusted for 
household size: 1985; 
Dependent care credit: All men: Percentage of specified subpopulation 
of simulated sample whose benefits changed, benefits adjusted for 
household size: 57.05; 
Dependent care credit: All women: Percentage of specified subpopulation 
of simulated sample whose benefits changed, benefits adjusted for 
household size: 60.52. 

Dependent care credit: Benchmark: Funded benefits; 
Dependent care credit: Cohort: Percentage of specified subpopulation of 
simulated sample whose benefits changed, benefits adjusted for 
household size: 1950; 
Dependent care credit: All men: Percentage of specified subpopulation 
of simulated sample whose benefits changed, benefits adjusted for 
household size: 60.47; 
Dependent care credit: All women: Percentage of specified subpopulation 
of simulated sample whose benefits changed, benefits adjusted for 
household size: 58.04. 

Dependent care credit: Benchmark: Funded benefits; 
Dependent care credit: Cohort: Percentage of specified subpopulation of 
simulated sample whose benefits changed, benefits adjusted for 
household size: 1985; 
Dependent care credit: All men: Percentage change in median benefits 
for individuals whose benefits changed, benefits adjusted for household 
size: 56.94; 
Dependent care credit: All women: Percentage change in median benefits 
for individuals whose benefits changed, benefits adjusted for household 
size: 60.25. 

Dependent care credit: Benchmark: Promised benefits; 
Dependent care credit: Cohort: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 1950; 
Dependent care credit: All men: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 28.43; 
Dependent care credit: All women: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 30.83. 

Dependent care credit: Benchmark: Promised benefits; 
Dependent care credit: Cohort: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 1985; 
Dependent care credit: All men: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 35.06; 
Dependent care credit: All women: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 30.99. 

Dependent care credit: Benchmark: Funded benefits; 
Dependent care credit: Cohort: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 1950; 
Dependent care credit: All men: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 28.32; 
Dependent care credit: All women: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 30.86. 

Dependent care credit: Benchmark: Funded benefits; 
Dependent care credit: Cohort: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 1985; 
Dependent care credit: All men: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 27.79; 
Dependent care credit: All women: Percentage of total simulation 
population whose benefits changed, benefits adjusted for household 
size: 30.84. 

Dependent care credit: Benchmark: Promised benefits; 
Dependent care credit: Cohort: Percentage of specified subpopulation of 
simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 1950; 
Dependent care credit: All men: Percentage of specified subpopulation 
of simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 47.85; 
Dependent care credit: All women: Percentage of specified subpopulation 
of simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 52.56. 

Dependent care credit: Benchmark: Promised benefits; 
Dependent care credit: Cohort: Percentage of specified subpopulation of 
simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 1985; 
Dependent care credit: All men: Percentage of specified subpopulation 
of simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 44.21; 
Dependent care credit: All women: Percentage of specified subpopulation 
of simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 55.59. 

Dependent care credit: Benchmark: Funded benefits; 
Dependent care credit: Cohort: Percentage of specified subpopulation of 
simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 1950; 
Dependent care credit: All men: Percentage of specified subpopulation 
of simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 47.83; 
Dependent care credit: All women: Percentage of specified subpopulation 
of simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 52.60. 

Dependent care credit: Benchmark: Funded benefits; 
Dependent care credit: Cohort: Percentage of specified subpopulation of 
simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 1985; 
Dependent care credit: All men: Percentage of specified subpopulation 
of simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 44.13; 
Dependent care credit: All women: Percentage of specified subpopulation 
of simulated sample whose benefits changed, individual benefits not 
adjusted for household size: 55.27. 

Dependent care credit: Benchmark: Promised benefits; 
Dependent care credit: Cohort: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 1950; 
Dependent care credit: All men: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 22.11; 
Dependent care credit: All women: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 28.27. 

Dependent care credit: Benchmark: Promised benefits; 
Dependent care credit: Cohort: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 1985; 
Dependent care credit: All men: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 21.38; 
Dependent care credit: All women: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 28.71. 

Dependent care credit: Benchmark: Funded benefits; 
Dependent care credit: Cohort: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 1950; 
Dependent care credit: All men: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 22.11; 
Dependent care credit: All women: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 28.29. 

Dependent care credit: Benchmark: Funded benefits; 
Dependent care credit: Cohort: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 1985; 
Dependent care credit: All men: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 21.34; 
Dependent care credit: All women: Percentage of total simulation 
population whose benefits changed, individual benefits not adjusted for 
household size: 28.54. 

Source: GAO analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. 

[End of table] 

Table 18: Simulation Results for Dependent Care Credit by Income 
Quintile under Alternative Benchmark Scenarios, for the 1950 and 1985 
Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. Income 
quintiles are based on the distribution of the present value of family 
lifetime earnings for the whole population (male and female). 

[End of table] 

Table 19: Simulation Results for Dependent Care Credit by Marital 
Status under Alternative Benchmark Scenarios, for the 1950 and 1985 
Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. 

[End of table] 

Table 20: Simulation Results for Increased Survivor Benefit Only under 
Alternative Benchmark Scenarios, for the 1950 and 1985 Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. 

[End of table] 

Table 21: Simulation Results for Increased Survivor Benefit Only by 
Income Quintile under Alternative Benchmark Scenarios, for the 1950 and 
1985 Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. Income 
quintiles are based on the distribution of the present value of family 
lifetime earnings for the whole population (male and female). 

[End of table] 

Table 22: Simulation Results for Increased Survivor Benefit Only by 
Marital Status under Alternative Benchmark Scenarios, for the 1950 and 
1985 Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. 

[End of table] 

Table 23: Simulation Results for Increased Survivor Benefit and 
Decreased Spouse Benefit under Alternative Benchmark Scenarios, for the 
1950 and 1985 Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. 

[End of table] 

Table 24: Simulation Results for Increased Survivor Benefit and 
Decreased Spouse Benefit by Income Quintile under Alternative Benchmark 
Scenarios, for the 1950 and 1985 Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. Income 
quintiles are based on the distribution of the present value of family 
lifetime earnings for the whole population (male and female). 

[End of table] 

Table 25: Simulation Results for Increased Survivor Benefit and 
Decreased Spouse Benefit by Marital Status under Alternative Benchmark 
Scenarios, for the 1950 and 1985 Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. 

[End of table] 

Table 26: Simulation Results for Reduced Marriage Requirement for 
Divorced Spouse Benefits under Alternative Benchmark Scenarios, for the 
1950 and 1985 Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. 

[End of table] 

Table 27: Simulation Results for Reduced Marriage Requirement for 
Divorced Spouse Benefits by Income Quintile under Alternative Benchmark 
Scenarios, for the 1950 and 1985 Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. Income 
quintiles are based on the distribution of the present value of family 
lifetime earnings for the whole population (male and female). 

[End of table] 

Table 28: Simulation Results for Reduced Marriage Requirement for 
Divorced Spouse Benefits by Marital Status under Alternative Benchmark 
Scenarios, for the 1950 and 1985 Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. 

[End of table] 

Table 29: Simulation Results for Increased Minimum Benefit under 
Alternative Benchmark Scenarios, for the 1950 and 1985 Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. 

[End of table] 

Table 30: Simulation Results for Increased Minimum Benefit by Income 
Quintiles under Alternative Benchmark Scenarios, for the 1950 and 1985 
Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. Income 
quintiles are based on the distribution of the present value of family 
lifetime earnings for the whole population (male and female). 

*Contrary to the pattern for the 1950 cohort, the median change for the 
highest income quintile of the 1985 cohort among women who had a 
simulated benefit change is larger than the median change for some of 
the other income quintiles. The median change in this quintile, 
however, is consistent with our assessment from both cohorts that 
higher median changes occur in lower income quintiles. Also, it is 
worth noting that in the highest income quintile, women who had 
simulated benefit changes accounted for less than 0.25 percent of the 
population in each cohort. 

[End of table] 

Table 31: Simulation Results for Increased Minimum Benefit by Marital 
Status under Alternative Benchmark Scenarios, for the 1950 and 1985 
Birth Cohorts: 

[See PDF for image] 

Source: GAO Analysis of GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. 

[End of table] 

[End of section] 

Appendix III: Low Benefit Avoidance Rates: 

The low benefit avoidance rate is expressed as the percent of 
retirement years in which an individual's Social Security benefits 
(plus any earnings) are above a low-benefit threshold (set at $9,669 
for individuals and $12,186 for couples, in 2007 dollars). Both income 
and the threshold are based on individual data when unmarried and on 
couple data when married. 

Table 32: Average Low Benefit Avoidance Rates Before and After 
Modifications for Individuals with Less Than 100 Percent Low Benefit 
Avoidance Pre-Modification: 

[See PDF for image] 

Source: GAO analysis based on GEMINI model. 

Note: Simulations calculated benefits for individuals at age 70. 

[End of table] 

[End of section] 

Appendix IV: Effect of Simulated Reform on Social Security System 
Solvency: 

Table 33: Changes in the 75-year Actuarial Balance as a Percentage of 
Taxable Payroll resulting from Program Modifications, after Achieving 
75-Year Solvency with Benchmark Scenarios: 

Modification: Dependent care credit; 
Promised benefits (tax increase only): -0.17; 
Funded benefits (proportional benefit reduction only): - 0.19. 

Modification: Increased survivor benefit only; 
Promised benefits (tax increase only): -0.07; 
Funded benefits (proportional benefit reduction only): -0.14. 

Modification: Increased survivor benefit with decreased spousal 
benefit; 
Promised benefits (tax increase only): 0.02; 
Funded benefits (proportional benefit reduction only): -0.06. 

Modification: Reduced marriage requirement (from 10 years to 7 years); 
Promised benefits (tax increase only): -0.02; 
Funded benefits (proportional benefit reduction only): -0.06. 

Modification: Increased minimum benefit; 
Promised benefits (tax increase only): -0.05; 
Funded benefits (proportional benefit reduction only): -0.13. 

Source: GAO analysis of SSASIM model. 

[End of table] 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Barbara D. Bovbjerg, Director (202) 512-7215: 

Acknowledgments: 

Alicia Puente Cackley, Assistant Director; Mindy Bowman, Analyst-in- 
Charge; Jennifer Cook, Analyst; and Meaghan Muldoon Mann, Senior 
Analyst, made significant contributions to all phases of this report. 
In addition, Melinda Cordero, Nagla'a El-Hodiri, and Walter Vance 
provided data analysis; Joseph Applebaum, Michael Collins, Chuck Ford, 
Gene Kuehneman and Ken Stockbridge provided methodological assistance; 
Sheila McCoy provided legal assistance; Marc Goldwein and Emily 
Pickrell assisted with data collection and analysis; and Sue Bernstein, 
Kim Granger, Kevin Kumanga, Lise Levie, and Beth Morrison assisted in 
report development. 

[End of section] 

Footnotes: 

[1] The Board of Trustees, Federal Old-Age and Survivors Insurance and 
Disability Insurance Trust Funds, The 2007 Annual Report of the Board 
of Trustees of the Federal Old-Age and Survivors Insurance and 
Disability Insurance Trust Funds (Washington, D.C.: Apr. 23, 2007). 

[2] Family structure changed substantially during the later part of the 
20th century. According to the Census Bureau, in 1970, about 70 percent 
of all households were composed of married couple families. By 2003, 
this had fallen to less than 52 percent. In addition, the proportion of 
families with children that were headed by a single parent increased 
from 13 percent in 1970 to 32 percent in 2003. 

[3] We used the GEMINI model under a license from the Policy Simulation 
Group, a private contractor. GEMINI estimates individual effects of 
policy scenarios for a representative sample of future beneficiaries. 
GEMINI can simulate different reform features for their effects on the 
level and distribution of benefits. See appendix I for more detail on 
the modeling analysis, including a discussion of our assessment of the 
data reliability of the model. 

[4] We did not simulate pension benefits for the 1950 birth cohort 
because the current version of PENSIM does not have a realistic 
characterization of pre-1996 employer pension offerings, and therefore 
should not be used to simulate lifetime pension accumulation for 
cohorts born before 1975. 

[5] There are both advantages and disadvantages of using such measures. 
For additional information on the development, use, and limitations of 
equivalence scales see, Constance F. Citro and Robert T. Michael 
(eds.), Measuring Poverty: A New Approach, Washington, DC: National 
Academy Press, 1995 and GAO, Social Security: Program's Role in Helping 
Ensure Income Adequacy, GAO-02-62 (Washington, D.C.: Nov 30, 2001). 

[6] For more information on our adjustment of income, see appendix I. 

[7] This variable is called the "low benefit avoidance rate." It is 
produced by the model and is expressed as a percentage of retirement 
years in which Social Security benefits (plus any earnings) are above a 
predetermined low benefit threshold. The threshold is measured 
separately for married couples and for unmarried individuals. It does 
not include pension income or savings, and so cannot be called a true 
poverty-avoidance measure. 

[8] See appendix I for a complete description of our benchmark policy 
scenarios. 

[9] The Board of Trustees, Federal Old-Age and Survivors Insurance and 
Disability Insurance Trust Funds, The 2007 Annual Report of the Board 
of Trustees of the Federal Old-Age and Survivors Insurance and 
Disability Insurance Trust Funds. 

[10] Also, some proposals would change the structure of the program to 
incorporate a system of individual accounts. Many such proposals would 
reduce benefits under the current system and make up for those 
reductions to some degree with income from the individual accounts. 

[11] Although DC plans generally are not required to have an annuity 
option, certain DC plans, known as money purchase plans, are required 
to make an annuity payout option available to participants. In 
addition, lump sum distributions from DB plans are becoming more 
common. 

[12] The difference in annuity benefits for men and women exists only 
for private annuities. In 1983, the U.S. Supreme Court held that an 
employer's use of sex-segregated actuarial tables to calculate 
retirement benefits is unlawful, whether or not the tables reflect an 
accurate prediction of the longevity of women as a class. Arizona 
Governing Comm. for Tax Deferred Annuity and Deferred Compensation 
Plans v. Norris, 463 U.S. 1073, 1084 (1983). 

[13] GAO analysis of National Income and Product Accounts (NIPA) data 
from the Bureau of Economic Analysis (BEA). Personal saving, as 
measured in the NIPA, does not include capital gains on existing assets 
because capital gains reflect a revaluation of the nation's existing 
capital stock and do not provide resources for financing investment 
that adds to the capital stock. In other words, although an individual 
household can tap its wealth by selling assets to finance consumption 
or accumulate other assets, the sale of an existing asset merely 
transfers ownership; 
it does not generate new economic output. 

[14] In 2006 and 2007, an individual may make a contribution of up to 
$4,000 annually to a spousal IRA. The contribution amount increases to 
$5,000 in 2008 and will be adjusted based on inflation after that. In 
addition, those over age 50 are permitted to contribute an additional 
$1,000 per year. 

[15] The Kaiser/HRET Employer Health Benefits 2001 to 2006 Annual 
Surveys found that between 2001 and 2006 the share of employers with 
200 or more workers offering retiree health benefits remained 
relatively steady, with about 35 percent offering retiree health 
benefits in 2006. Survey data also show that retiree health benefits 
are most likely offered by large or unionized firms. 

[16] People aged 85 or more are much more likely to be covered only by 
Medicare than those in the 65-74 age category. 

[17] However, women make up the majority of the poor elderly recipients 
of the Supplemental Security Income program--a joint federal-state 
poverty program designed to help the elderly (and the blind and 
disabled of all ages), who have little or no income, meet their basic 
needs for food, clothing, and shelter. 

[18] Patrick Purcell, Topics in Aging: Income of Americans Age 65 and 
Older, 1969 to 2004 (Washington, D.C.: Congressional Research Service, 
2006). 

[19] The Census Bureau's Current Population Survey, measures the 
sources and amount of income people receive. It does not, however, 
measure a person's wealth, which would include the total amount of 
lifetime savings. Consequently, in this report, asset income refers to 
income received from interest or dividends earned on savings, as well 
as rents and royalties from other types of property. 

[20] If the worker is covered by a DB plan or by certain DC plans, such 
as a money purchase plan, the pension plan is required to obtain the 
written consent of the worker's spouse if the worker declines the 
qualified joint and survivor annuity option. 

[21] A joint and survivor annuity provides income to the surviving 
spouse should the retired worker die first. However, one study found 
that 28 percent of married men and 69 percent of married women opted 
for single life annuities instead of joint and survivor annuities. See 
Richard W. Johnson, Cori E. Uccello, and Joshua H. Goldwyn, Single Life 
vs. Joint and Survivor Pension Payout Options: How Do Married Retirees 
Choose? The Urban Institute, September 2003. 

[22] People and families are classified as poor if their income is less 
than the federal poverty level. The official weighted average poverty 
threshold in 2005 for a single person age 65 or older was $9,367. For a 
two-person household in which at least one member was at least 65 years 
old, the poverty threshold was $11,815. 

[23] While the decline in men's labor force participation occurred in 
most age groups, it was more rapid among those aged 55 years and older. 

[24] Mitra Toossi, "A New Look at Long-Term Labor Force Projections to 
2050," Monthly Labor Review, vol. 129, no.11 (November 2006). 

[25] GAO, Women's Earnings: Work Patterns Partially Explain Difference 
between Men's and Women's Earnings, GAO-04-35 (Washington, D.C.: Oct. 
31, 2003). 

[26] U.S. Department of Labor, Bureau of Labor Statistics, Women in the 
Labor Force: A Databook, Report 996 (Washington, D.C.: September 2006). 

[27] U.S. Department of Labor, Bureau of Labor Statistics, Women in the 
Labor Force: A Databook. 

[28] GAO-04-35. 

[29] Alicia Munnell and Pamela Perun, "An Update on Private Pensions," 
Issue Brief No. 50 (Center for Retirement Research, Boston College: 
August 2006). 

[30] Employee Benefit Research Institute, "Employment-Based Retirement 
Plan Participation: Geographic Differences and Trends, 2005," Issue 
Brief No. 299, November 2006. 

[31] More than 19 million women aged 65 and older received benefits for 
December 2005. About 39 percent were entitled solely to a retired 
worker benefit. Almost 30 percent were dually entitled to a retired 
worker benefit and a wife's or widow's benefit. About 31 percent were 
receiving wife's or widow's benefits only. 

[32] Benefit levels are determined by averaging the highest 35 years of 
indexed covered earnings. Years spent out of the labor force are 
represented by zeros. Consequently, an intermittent work history and 
lower wages result in a lower benefit level. 

[33] Janet Wilmoth and Gregor Koso, "Does Marital History Matter? 
Marital Status and Wealth Outcomes among Pre-Retirement Adults," 
Journal of Marriage and Family 64 (February 2002): 254-268; 
Patricia A. McManus and Thomas A. DiPrete, "Losers and Winners: The 
Financial Consequences of Separation and Divorce for Men," American 
Sociological Review 66, no. 2 (April 2001): 246-268; 
Richard W. Johnson, Gordon B.T. Mermin, and Cori E. Uccello, When the 
Nest Egg Cracks: Financial Consequences of Health Problems, Marital 
Status Changes, and Job Layoffs at Older Ages, (Urban Institute: 
January 2006). 

[34] Rose M. Kreider, "Number, Timing, and Duration of Marriages and 
Divorces: 2001," Current Population Reports P70-97, (U.S. Census 
Bureau, Washington, D.C.: February 2005); 
Richard Peterson, "A Re- Evaluation of the Economic Consequences of 
Divorce," American Sociological Review 61, no. 3 (June 1996): 528-536; 
Jay D. Teachman and Kathleen M. Paasch, "Financial Impact of Divorce on 
Children and Their Families," The Future of Children 4, no. 1, (Spring 
1994): 63-83; 
Karen C. Holden and Pamela J. Smock, "The Economic Costs of Marital 
Dissolution: Why Do Women Bear a Disproportionate Cost?" Annual Review 
of Sociology 17 (1991): 51-78. 

[35] Kreider, "Number, Timing, and Duration of Marriages and Divorces: 
2001," 13. 

[36] Jacqueline L. Angel, Cynthia J. Buckley, Ronald J. Angel and Maren 
A. Jimenez, The Economic Consequences of Marital Disruption for Pre- 
Retirement Age: African-American, Hispanic and Non-Hispanic White 
Women, University of Texas at Austin. Paper presented at the Population 
Association of America Annual Meeting, Minneapolis, Minnesota (May 
2003). 

[37] Barbara A. Butrica and Howard M. Iams, "Divorced Women at 
Retirement: Projections of Economic Well-Being in the Near Future," 
Social Security Bulletin 63, no. 3 (2000): 8. 

[38] While the majority of women receive Social Security retirement 
benefits based, at least in part, on their own work record, among women 
age 65 and older who received Social Security benefits in December 
2005, 31 percent received benefits based exclusively on their marital 
history, and about 30 percent were "dually entitled"; 
i.e., benefits were based on both their own work record and their 
marital history. In comparison, the percentage of women who received 
divorced spousal benefits was relatively small. Whereas close to 15 
million women received benefits as a retired worker in December 2005, 
less than 500,000 received benefits as either a divorced spouse or 
divorced widow. See Social Security Administration, Annual Statistical 
Supplement to the Social Security Bulletin, 2006, SSA Publication No. 
13-11700, Washington, D.C., June 2007, pp. 2, 5.3, 5.10, and 5.17. 

[39] Kreider, "Number, Timing, and Duration of Marriages and Divorces: 
2001," 9. 

[40] The Employee Retirement Income Security Act of 1974, as amended, 
governs areas such as pension coverage, vesting periods, benefit 
accrual and distribution, and survivor's benefits. 

[41] Pub. L. No. 98-397. 

[42] 29 U.S.C. § 1056(d)(3). 

[43] Unpaid leave includes all unpaid maternity, sick, and vacation 
leave, and other unpaid leave. See Julia Overturf Johnson and Barbara 
Downs, "Maternity Leave and Employment Patterns of First-Time Mothers: 
1961-2000," Current Population Reports P70-103, U.S. Census Bureau, 
Washington, D.C., October 2005, p. 9. 

[44] U.S. Department of Labor, Bureau of Labor Statistics, Women in the 
Labor Force: A Databook, Report 996 (Washington, D.C.: September 2006). 

[45] Richard W. Johnson and Joshua M. Wiener, "A Profile of Frail Older 
Americans and Their Caregivers," Occasional Paper 8, Urban Institute: 
(February 2006). 

[46] Institute for Women's Policy Research, "The Widening Gap: A New 
Book on the Struggle to Balance Work and Caregiving," Research in Brief 
C349 (October 2001). 

[47] Courtney C. Coile, "Health Shocks and Couples' Labor Supply 
Decisions," National Bureau of Economic Research Working Paper 10810 
(September 2004). 

[48] Mature Market Institute at Metropolitan Life Insurance Company, 
MetLife Juggling Act Study: Balancing Caregiving with Work and the 
Costs Involved. Findings from a National Study by the National Alliance 
for Caregiving and the National Center on Women and Aging at Brandeis 
University (November 1999); National Alliance for Caregiving and AARP, 
Caregiving in the U.S. (April 2004); Genworth Financial, The Impact of 
Long Term Care on Women-An Analysis of Women as Care Providers and Care 
Recipients, 2006. 

[49] Chizuko Wakabayashi and Katharine M. Donato, "The Consequences of 
Caregiving: Effects on Women's Employment and Earnings," Population 
Research and Policy Review 24, no. 5, (October 2005): 482. 

[50] Other factors, such as education, marital status, and race, appear 
to be correlated with whether the female caregivers live in poverty. 
See Chizuko Wakabayashi and Katherine M. Donato, "Does Caregiving 
Increase Poverty in Later Life? Evidence from the Health and Retirement 
Survey." Journal of Health and Social Behavior 47 (September 2006): 
264. 

[51] Richard W. Johnson, Gordon B.T. Mermin, and Cori E. Uccello, "How 
secure are retirement nest eggs?" Issue in Brief No. 45, Center for 
Retirement Research at Boston College (April 2006); Purvi Sevak, David 
R. Weir, and Robert J. Willis, "The Economic Consequences of a 
Husband's Death: Evidence from the HRS and AHEAD," Social Security 
Bulletin 65, no. 3 (2003/2004): 31-44; and Catherine D. Zick and Karen 
Holden, "An Assessment of the Wealth Holdings of Recent Widows," 
Journal of Gerontology: Social Sciences 55B, no. 2 (2000): S90-S97. 
Note: While research has shown that widowhood increases the incidence 
of poverty among women who were not poor when married, some research 
indicates that many widows in poverty also had poor economic status in 
marriage as well. (See, Sevak, Weir, and Willis, "The Economic 
Consequences of a Husband's Death"; Zick and Holden, "An Assessment of 
the Wealth Holdings of Recent Widows.") 

[52] A widow or widower who meets eligibility requirements is entitled 
to receive a percentage of the deceased spouse's Social Security 
benefits ("survivor benefits") or benefits based on his or her own work 
history--whichever is greater. Generally, the survivor is entitled to a 
benefit in the amount of the deceased spouse's PIA. However, the 
survivor's benefit amount may be reduced if the deceased spouse retired 
before reaching full retirement age, or increased if the deceased 
spouse delayed retirement beyond the full retirement age. 

[53] Federal Interagency Forum on Aging-Related Statistics. Older 
Americans Update 2006: Key Indicators of Well-Being. Federal 
Interagency Forum on Aging-Related Statistics. Washington, D.C.: U.S. 
Government Printing Office, May 2006, p. 29. 

[54] Jeffrey R. Brown and Amy Finkelstein, "Supply or Demand: Why is 
the Market for Long-Term Care Insurance So Small?" National Bureau of 
Economic Research, Working Paper 10782 (September 2004). 

[55] Adrienne Jones, The National Nursing Home Survey: 1999 summary. 
National Center for Health Statistics. Vital Health Stat 13(152). 2002; 
Current Home Health Care Patients. National Center for Health Care 
Statistics, Centers for Disease Control and Prevention, February 2004. 
[hyperlink, 
http://www.cdc.gov/nchs/about/major/nhhcsd/nhhcshomecare3.htm] 

[56] Kathleen McGarry and Robert F. Schoeni, "Medicare Gaps and Widow 
Poverty," Social Security Bulletin 66, no. 1, (2005) and Genworth 
Financial, The Impact of Long Term Care on Women; 
Johnson, Mermin, and Uccello, "When the Nest Egg Cracks." 

[57] Genworth Financial, The Impact of Long Term Care on Women. 

[58] McGarry and Schoeni, "Medicare Gaps and Widow Poverty." 

[59] Under the "Promised Benefits" benchmark, the "increased survivor 
benefits with decreased spousal benefits" modification resulted in a 
positive impact on the 75 year actuarial balance. For all solvency 
results, see appendix IV. 

[60] For more information on the Policy Simulation Group's models, see 
appendix I. 

[61] Outcomes from each reform could be different for individuals at 
ages other than 70, particularly as the incidence of widowhood in the 
population increases at higher ages. 

[62] Melissa Faverault and Eugene Steuerle, Social Security Spouse and 
Survivor Benefits for the Modern Family (Washington DC: Urban 
Institute, 2006). 

[63] Melissa Favreault and Frank Sammartino, The Impact of Social 
Security Reform on Low-Income and Older Women (Washington D.C.: Urban 
Institute, 2002). 

[64] Some dependent care proposals might also provide enhanced benefits 
to individuals caring for dependent adults. However, for ease of 
modeling we simulated a proposal in which the benefits were limited to 
those with young dependent children. Proposals that do include benefits 
for adult caregivers would likely affect a larger number of 
beneficiaries than the version we simulated. 

[65] Individuals in the sample population that met these criteria were 
credited with one-half of average wages (as measured by the Average 
Wage Index used by the Social Security Administration) for up to 5 
years. If both parents meet these criteria in any given year, only the 
lower-earning parent would receive the credit; 
if parents had identical earnings, the credit is split evenly. The 
credit would not contribute to quarters of coverage for eligibility 
purposes. The design of this reform effectively would provide a limited 
minimum benefit for workers with children under 5. 

[66] We used the 1950 and 1985 simulated birth cohorts in all of the 
simulations of Social Security reform elements presented in this 
report. 

[67] This reform would reduce the 75-year solvency achieved by the 
"promised benefits" benchmark by 0.19 percent. The "promised benefits" 
benchmark achieves 75-year solvency by increasing payroll taxes by the 
amount of Social Security's actuarial deficit as a percentage of 
payroll. For more information on this and the "funded benefits" 
benchmark see appendix I. For a summary of the solvency impact of all 
simulated modification under both the "promised benefits" and the 
"funded benefits" benchmarks see appendix IV. 

[68] Previous to the Special Primary Insurance Amount, Social Security 
had a Minimum Benefit that did not target lifetime low earners; 
this benefit was criticized for providing windfall benefits for workers 
with only a minimal attachment to the Social Security system. 

[69] See Office of the Chief Actuary, Social Security Administration, 
Estimated OASDI Financial Effects of the "Bipartisan Retirement 
Security Act of 2005" (Nov. 4, 2005) at [hyperlink, 
http://www.ssa.gov/OACT/ solvency/Kolbe_20051104.pdf]. 

[70] For data, see appendix II, table 30. 

[71] The increased minimum benefit, as we've modeled it, would reduce 
the 75-year actuarial balance achieved by the "Promised benefits" 
benchmark by 0.05 percent. For more information on this and the "Funded 
benefits" benchmark, see appendix I. For a summary of the solvency 
impact of all simulated reforms under both the "Promised benefits" and 
the "Funded benefits" benchmarks see appendix IV. 

[72] A potential unintended consequence of a more generous minimum 
benefit is that higher benefits may disqualify certain individuals from 
Supplemental Security Income (SSI) eligibility. This is significant for 
some beneficiaries living in states that provide automatic Medicaid 
eligibility for SSI recipients. 

[73] For the 1985 cohort, this reform had an impact on twice the number 
of widows in the "Funded benefits" framework than in the "Promised 
benefits" framework; this is because the "Funded benefits" results in 
lower benefit levels and more survivors have incomes below the cap of 
average PIA. 

[74] As simulated, this change would reduce the 75-year solvency 
achieved by the "Promised benefits" benchmark by 0.07 percent. For more 
information on this and the "Funded benefits" benchmark see appendix I. 
For a summary of the solvency impact of all simulated changes under 
both the "Promised benefits" and the "Funded benefits" benchmarks see 
appendix IV. 

[75] Based on our simulation, this change would improve the 75-year 
actuarial balance achieved by the "Promised benefits" benchmark by 0.02 
percent. The "Funded benefits" benchmark does not fully offset; 
the solvency impact of this reform on the "Funded benefits" benchmark 
is - 0.06% 

[76] In 1995, 30 percent of marriages ended in divorce within the first 
10 years. 

[77] Based on our simulation, this change would reduce the 75-year 
solvency achieved by the "Promised benefits" benchmark by 0.02 percent 
of payroll. 

[78] Pension reforms were modeled using only the 1985 cohort, as PENSIM 
model data are not valid for cohorts born before 1975 (per PENSIM 
documentation). 

[79] Defined benefit plans promise to provide a benefit that is 
generally based on an employee's salary and years of service. Defined 
contribution plans have individual accounts to which the employer, 
employees, or both make periodic contributions. For more information, 
see GAO, Answers to Key Questions about Private Pension Plans, GAO-02-
745SP (Washington, D.C.: Sept.18, 2002). 

[80] Plans with cliff vesting have a specified point at which 
participants have a right to benefits accrued to date and benefits 
accrued thereafter. For more information, see GAO-02-745SP. 

[81] Plans with graduated vesting give participants a right to an 
increasing percentage of their total accrued benefit over time. For 
more information, see GAO-02-745SP. 

[82] The Pension Protection Act of 2006 accelerated some vesting 
requirements for DC plans. 

[83] One survey found that the most frequently cited reason for not 
participating in a retirement plan when a plan was offered by employers 
was an insufficient period of employment (39 percent of male employees 
versus 35 percent of female employees). 

[84] We simulated pension income only for the 1985 birth cohort because 
the current version of PENSIM does not have a realistic 
characterization of pre-1996 employer pension offerings and therefore 
should not be used to simulate lifetime pension accumulation for 
cohorts born before 1975. 

[85] "Lump-Sum Distributions," EBRI Notes, Volume 16, no.12 (Employee 
Benefit Research Institute, December 2005). 

[86] While these models use sample data, our report, like others using 
these models, does not address the issue of sampling errors. The 
results of the analysis reflect outcomes for individuals in the 
simulated populations and do not attempt to estimate outcomes for an 
actual population. 

[87] MINT3 is a detailed microsimulation model developed jointly by the 
Social Security Administration, the Brookings Institution, RAND, and 
the Urban Institute to project the distribution of income in retirement 
for the 1931 to 1960 birth cohorts. 

[88] We did not simulate pension benefits for the 1950 birth cohort 
because the current version of PENSIM does not have a realistic 
characterization of pre-1996 employer pension offerings, and therefore, 
should not be used to simulate lifetime pension accumulation for 
cohorts born before 1975. 

[89] See GAO, Social Security: Criteria for Evaluating Reform 
Proposals, GAO/T-HEHS-99-94 (Washington, D.C.: Mar. 25, 1999), and GAO, 
Social Security: Evaluating Reform Proposals, GAO/AIMD/HEHS-00-29 
(Washington, D.C.: Nov. 4, 1999). 

[90] For a discussion of individual equity issues, see GAO, Social 
Security: Issues in Comparing Rates of Return with Market Investments, 
GAO/HEHS-99-110 (Washington, D.C.: Aug. 5, 1999). 

[91] GAO-02-62. 

[92] The Board of Trustees, Federal Old-Age and Survivors Insurance and 
Disability Insurance Trust Funds, The 2007 Annual Report of the Board 
of Trustees of the Federal Old-Age and Survivors Insurance and Federal 
Disability Insurance Trust Funds (Washington, D.C.: Apr. 23, 2007). 

[93] There are both advantages and disadvantages of using such 
measures. For additional information on the development, use, and 
limitations of equivalence scales see, Constance F. Citro and Robert T. 
Michael (eds.), Measuring Poverty: A New Approach, Washington, DC: 
National Academy Press, 1995, and GAO, Social Security: Program's Role 
in Helping Ensure Income Adequacy, GAO-02-62 (Washington, D.C.: Nov 30, 
2001). 

[94] This change is similar to one scored by OCACT as part of the 1994- 
96 Advisory Council Report, which estimates a 0.32 percent increase to 
the long-range actuarial deficit. However, the OCACT scoring of the 
similar change in the 1994-96 Advisory Council Report did not include a 
cap at the level of average benefits, so the impact on long-range 
solvency was greater. A capped version of an increase in survivors' 
benefits was presented as part of Estimates of Financial Effects for 
Three Models Developed by the President's Commission to Strengthen 
Social Security in January 2002; for these outcomes, please see the 
description of "increase survivor benefit" change. 

[95] These benchmarks were first developed for our report GAO-02-62. We 
have since used them in other studies, including GAO-03-310; GAO, 
Social Security Reform: Analysis of a Trust Fund Exhaustion Scenario, 
GAO-03-907 (Washington, D.C.: July 29, 2003); GAO, 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.: Apr. 23, 2003); GAO-04-747; and GAO, Social Security 
Reform: Implications of Different Indexing Choices, GAO-06-804 
(Washington, D.C.: Sept. 14, 2006). 

[96] The Social Security actuaries provided these scorings for a 
previous report and used assumptions from the 2001 trustees' report. 
The actuaries did not believe it was necessary to provide new scorings 
using updated assumptions for the purposes of our study, since the 
assumptions and the estimates of actuarial balance on which they are 
based have changed little from the 2001 report. In particular, they did 
not believe that the differences in assumptions would materially affect 
the shape of the distribution of benefits, which is the focus of our 
analysis. All estimates related to the indexing scenarios and benchmark 
policy scenarios were simulated using the SSASIM OLC mode. 

[97] Advisory Council on Social Security. Report of the 1994-1996 
Advisory Council on Social Security, Vols. 1 and 2. Washington, D.C.: 
Jan. 1997. 

[98] See GAO-03-907, in which we analyzed such a policy scenario under 
a congressional request. 

[99] The highest 35 years of salary are used in the calculation of a 
retired worker benefit. The disabled worker benefit is calculated using 
the number of years between the age of entitlement and age 21, divided 
by 5. 

[100] Other analyses have addressed the concern about the effect of the 
proportional reduction on low earners by modifying that offset to apply 
only to the 32 and 15 percent formula factors. The MTR policy in the 
1994 to 1996 Advisory Council report used this approach, which in turn 
was based on the individual account (IA) proposal in that report. 
However, the MTR policy also reflected other changes in addition to PIA 
formula changes. 

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