Book Review: Report of the 1994-1996 Advisory Council on Social Security

by R. H. Herchenroether, E.A., M.A.A.A., F.S.A.

Volume I: Findings and Recommendations 261 pages
U.S. Government Printing Office: 1996 -- 417-586/60026
Contact Social Security Administration at (410) 965-7700 or view the report at http://www.ssa.gov/policy/adcouncil/toc.htm

OK, OK, this report is not really a book in the curl up at night and unwind sense. It is written by a committee. Writing ability was not the first qualification on the resumes of those who worked on this project. Those negatives aside, the final result is a comprehensive look at the United States Social Security system as it is and as it will be. If you spend a few hours with this report (say a morning), you can follow, and possibly join, the debate on what the system will be for those born after World War II.

My principal criticism with the report is that it does not stress that all the options affect younger citizens. The opening summary should have made clear that all citizens age 55 or older will basically continue under the current rules. Lip service is made to the sharing the burden of change by not exempting older Americans. We all know that any tax or entitlement is at some danger while Congress is in session. But fundamentally the message to older Americans is this: We understand you planned your life based on current rules and it is wrong to make major changes without due notice. It is younger Americans who will feel the gain or pain of changes made, or not made. Older Americans will little notice the final resolution of this debate.

Furthermore, exactly this point is why changes MUST be debated and decided NOW. The post World War II "boomer" generation reaches 55 in 2001. Regardless of how the deficit is to be resolved, dividing this cohort into an "old way/new way" notch will threaten the success of the solution.

The report presents three options for the future of Social Security benefits in the United States. The summarizing of the volume of deliberations was undoubtedly made more difficult by the lack of a single recommendation. A straight through reading is not easy. But there is a wealth of important information compiled here. I will present a map to the report that allows you the opportunity to become rapidly familiar with the debate. Those who wish to enter the fray will need to plow through the entire report in detail. While not every page enlightens, valuable information and informed arguments appear throughout the book.

Volume I contains the final report (January, 1997) of the advisory council chartered in March, 1994. The report consists of findings and recommendations plus statements by Council members. In addition there are three Appendices and copies of the Executive Summary from two technical panels. Including the two technical panels, 40people served on the Council (13), technical panel on trends and issues in retirement savings (14) and the technical panel on assumptions and methods (13). The work of these official members was supported by staff employees and the Office of the Actuary of the Social Security Administration. In addition, presentations from other interested parties were made to the Council. Volume II contains the full reports of the two technical panels as well as presentations made to the Council.

The Council agreed on many things while in the end disagreeing on the appropriate next step. The report starts in earnest on page 11 and first covers basic findings, principles and recommendations in the next 14 pages. The three options for the future are presented at pages 25 through 33. One hundred thirty pages of statements by various Council members and groups of members follow to support or criticize the findings and options.

But don't start with page 11. Set the stage by starting with Appendix I on page 163. Two pages briefly reconcile the actuarial balance measured in the 1983 Trustees report with the 2.17% of payroll deficit of the 1995 Trustees report. The "what do we do about this deficit" is the reason for the Council's study. Some clues as to how we need a new consideration of major changes only twelve years after the previous "fixes" are given. The Council's deliberations were based primarily on the actuarial calculations presented in the 1995 Trustees report.

Next turn back to the three page statement by Carolyn Weaver at page 160. Ms. Weaver does a fine job of briefly explaining what number crunchers can and cannot do. Her claim is that Social Security will not be "fixed" this time by choosing numbers from tables. The numbers are necessary to the job, but not sufficient. (She's right, but I will leave the policy critique for another article.)

As a third preparatory step turn ahead to page 241 and read the executive summary of the technical panel on trends and issues. This report covers the background for much of the agreement and debate.

You have covered just sixteen pages of easy reading. Move on to the four page overview, recommendations on which there was general concurrence by the Council (pg. 15-24) and then the description of the three options (pg. 25-33) where the Council agreed to disagree.

The middle part of this opening summary is a list of principles and recommendations. All told, there are 29 and they are easily picked out in bold print. Read the supporting detail if you are interested, but many are self evident. Try reorganizing them into common categories; act now, older retirement age, social adequacy, individual equity, three or four legged stool.

The Overview is a good summary of the Council's work. But do not pass up footnote 4 at the end of the overview on page 14. The Council split as to whether radical changes are necessary or not. The six members mentioned in the footnote believe the structure of the Social Security system is sound and that adjustments in the benefit and taxation rules will restore financial viability and citizen confidence. The other seven members believe major changes are not only necessary, but desirable to achieve the principles stated in the next section of the report. The minority comments take away from the positive tone of the opening, but their honest disagreement reveals the heart of the debate on this public policy issue.

The options I, II and III are briefly described in the third section and given names: Maintain Benefits (MB), Individual Accounts (IA) and Personal Savings Accounts (PSA). The passive reader really can stop after reading these summaries. You will be equipped to listen to others debating the future of Social Security and understand what the issues are. To enter the debate you will need to continue reading, at least skimming for the well-written parts (and there are many), the supporting statements. Further insights on the numerical presentations are covered in Appendices II and III that draw on the work of the Office of the Actuary.

The statements, excluding Weaver's, cover pages 34 through 159. Because they are written by different committees and dip into the explanation of charts and tables, the text can be difficult. You probably had many questions or comments about the issues or conclusions presented in the findings and recommendations part of the report. The statements are where these are fleshed out both in support and in disapproval.

Recall the basic disagreement revealed in footnote 4 of the Overview. The majority advocates structural changes although they disagree, five to two, over the IA or PSA proposal. The minority advocates tax and benefit changes similar to actions taken several times since Social Security was established. The majority opinion is set forth in the first statement (Bok, plus six others) and supplemented by the fourth statement (PSA option proponents), and finally the sixth and seventh statements by (IA option proponents). The minority option is described in the second statement (Ball, plus five others) and supplemented by the third and fifth statements. I recommend reading these statements as a majority opinion (1,4,6,7) and then on to the minority opinion (2,3,5.)

In many ways the best parts of these statements are the arguments presented in criticism of the opposing views. The Council has prepared an excellent field of play for this debate on retirement income policy. This effort will be wasted unless large numbers of us involved in retirement income industry do not at least become familiar with this field of views. The debate is joined. A morning's review of this report will allow you to bring the key issues to the attention of those you serve.

© 1997, R. H. Herchenroether, but reproduction with proper attribution is permitted and encouraged.

Dick Herchenroether's practice is primarily pension consulting. He is affiliated chiefly with MMC&P-Retirement Benefit Services of Pittsburgh, PA. He earned his Master of Science in Actuarial Science degree from Northeastern University in 1975, his E.A. and M.A.A.A. credentials in 1979, and his F.S.A. in 1982. He currently monitors investment and medical practice issues as well as defined benefit plan valuation issues. His email address is HrknrthrRH@aol.com.