( PART I ) The Social Security 2100 Act Passed the House last Week - What Do you Think of It ?

[GailL1]

I am posting the (8) points covered in the Act with a short explanation of what it does, as I understand it.  This legislation, as proposed, as scored by the SSA Actuaries does meet the criteria of extending the program over the 75 year projection period.

I have to post this in (2) parts because of the character size of the post.  This is Part I.

Social Security 2100 Act introduced 01/30/2019 - Passed House

(pdf version of the Social Security Actuary scoring of the legislation)

From the Social Security Actuaries:

Assuming enactment of the proposal, we estimate that the combined Social Security Trust Fund would be fully solvent (able to pay all scheduled benefits in full on a timely basis) throughout the 75-year projection period, under the intermediate assumptions of the 2018 Trustees Report. (Note that section 204 of this proposal would combine the currently separate operations and reserves of the OASI and DI Trust Funds into a single Social Security Trust Fund.) In addition, under this proposal the OASDI program would meet the further conditions for sustainable solvency, because projected combined trust fund reserves would be growing as a percentage of the annual cost of the program at the end of the long-range period.

The proposal includes eight provisions with direct effects on the OASDI program. The following list briefly identifies each provision of the proposal:

1.  Section 101. Increase the first PIA formula factor from 90 percent to 93 percent for all benefits payable for months of entitlement January 2020 and later, including benefits for those becoming newly eligible both before and after January 2020.

This is a Benefit bump for current and new beneficiaries – Provides an increase for beneficiaries that is the equivalent of 2% of the average benefit.  I believe that will be about $ 20 - $ 30 bucks a month.

2.  Section 102. Use the Consumer Price Index for the Elderly (CPI-E) increase rather than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increase to calculate the cost-of-living adjustment (COLA), effective for December 2019 and later COLAs. We assume this change would increase the COLA by an average of 0.2 percentage point per year.

This changes the CPI index for figuring the COLA (if there is one in any specific year) to the index which includes medical cost - it does not add much .  Say if the regular COLA for others (and currently SS beneficiaries) comes out to 2.8% like it was for this year - by using this other CPI index it would have come out to 3%

(2.8% + .2% = 3%) 

3.  Section 103. Increase the special minimum PIA, beginning for workers who become newly eligible for retirement or disability benefits or die in 2020 or later. For workers becoming newly eligible or dying in 2020, the minimum PIA for 2020 for workers with 30 or more years of coverage (YOCs) is 125 percent of the annual poverty guideline for a single individual published by the Department of Health and Human Services for 2019, divided by 12. For workers becoming newly eligible or dying after 2020, the minimum PIA for their initial year of eligibility is increased by the growth in the national average wage index (AWI).  For all affected workers, the minimum PIA is increased after their year of initial eligibility by the COLA.

This section sets a new minimum benefit effective after 2020.   It will be set at 25% above the poverty line and would be tied to wage levels to ensure that the minimum benefit does not fall behind.

The minimum benefit is progressive in nature - meaning that those who have made a very low salary during their 30 years of working get an extra bump up in benefits - it has been this way, with this provision it will be more of a bump and is now tied to the wage level index as a measure going forward.

[RobertH489899]

I do not see the hike in costs to the employer to be a big factor.  Your right that highincome earners will get creative with income and take stock options etc. in place of earnings income.  Of course you must consider what the total SSI benefit increase will be for the high wage earner here as well.  It might be to their advantage to pay the tax increase to reap a greater benefit in retirement.  I just cannot see this new bend point being a make or break item.  I see it as a way to give a slight boost to revenues currently and going forward until everyone else catches up to provide slightly added solvency to the system.

I am in favor of the CPI-E increase being used to factor COLA increases to SS benefits.  That more acurately reflects the segment of society being effected.

I also support the increase of the PIA as there are so many whom need that now.  Everyone deserves to be above the poverty level in this country!

[ReTiReD51]

Winners:
Using the CPI-E instead of the CPI-W to calculate the COLA. CPI-E takes into consideration the cost of goods and services seniors use like healthcare, prescription, ect.

Increasing the PIA special minimum benefit to make sure more low-wage workers qualify. In addition by increasing the PIA formula from 93% to 95% current beneficiaries receive increases in benefits.

Raising the base income (MFJ) from 32,000 to 100,000 before having to pay tax on SS benefits. A true low and middleclass benefit and tax break advantage.

Concerns:

Most workers today are not seeing their wages rise like boomers saw their wages rise in the last four or five decades. I know it doesn’t seem like a whole lot raising the payroll taxes .012 % over 24years. Especially when boomers had their ss payroll taxes increased in 1983 so we could shore up ss so our parents could collect it.

Creating the 132,900 to 400,000 doughnut hole might help it pass the republican controlled senate.

Although I can see difficulty passing the senate when it comes to requiring employers to pay their  50% share of the ss tax on the earned income above $400,000.

Good job Gail in your layman's breakdown of the new law.

[GailL1]

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@ReTiReD51 wrote:

Concerns:

Most workers today are not seeing their wages rise like boomers saw their wages rise in the last four or five decades. I know it doesn’t seem like a whole lot raising the payroll taxes .012 % over 24years. Especially when boomers had their ss payroll taxes increased in 1983 so we could shore up ss so our parents could collect it.

Creating the 132,900 to 400,000 doughnut hole might help it pass the republican controlled senate.

Although I can see difficulty passing the senate when it comes to requiring employers to pay their  50% share of the ss tax on the earned income above $400,000.

Good job Gail in your layman's breakdown of the new law.

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I think this is the ONLY way that they could do this part of it - raising the cap in this method and raising the contribution % very slightly.

Remember there is also a new minimum PIA (Section 103) to add to the computation of benefits and this also seems to up the benefits of those on the lower end of the pay scale.

It will be a sort of a hit for employers for those high earned income earners, but there are not that many people who have EARNED income over $ 400,000 and it beats the way all the other proposed plans were trying it - especially the ones that actually fixed the system for the long term.

This may not be the way it turns out.  Like I said, the Senate has to be urged strongly (by us) to take it up if it gets out of their committee.  We do need to follow it to see how it is going.

The only thing about the (over) $ 400,000 earned income contribution figure to me is that sometimes individuals at this level and the companies they work for have ways of reclassifying earnings or a strategy determined when they are hired as to what would be reported as earned income and what could be reported as something else like stock options or better employer provided health insurance or some other type benefit.  Although I am sure that the legislative authors of this proposed legislation thought about this (possible) loophole.

Thank you for the compliment about my layman's interpretation - although I am not too sure that everybody will really understand it - there is only so much "simplicity" when dealing with government stuff - especially Social Security.

[retiredtraveler]

"....The minimum benefit is progressive in nature - meaning that those who have made a very low salary during their 30 years of working get an extra bump up in benefits - it has been this way, with this provision it will be more of a bump and is now tied to the wage level index as a measure going forward....".

I'm ignorant of the details of SS. Does this mean that SS has always had a provision of a minimum benefit?  I ask this thinking of a comment I made some months ago when someone suggested that the rich pay more into the system. I made the comment that once that happens, SS becomes more of a 'welfare' system rather than you pay 'x' amount in, you get 'x' amount out.

[GailL1]

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@retiredtraveler wrote:

"....The minimum benefit is progressive in nature - meaning that those who have made a very low salary during their 30 years of working get an extra bump up in benefits - it has been this way, with this provision it will be more of a bump and is now tied to the wage level index as a measure going forward....".

I'm ignorant of the details of SS. Does this mean that SS has always had a provision of a minimum benefit?  I ask this thinking of a comment I made some months ago when someone suggested that the rich pay more into the system. I made the comment that once that happens, SS becomes more of a 'welfare' system rather than you pay 'x' amount in, you get 'x' amount out.

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There really isn't a minimum benefit. There is a maximum and I believe you understand the basis for the maximum.  

There is a minimum PIA which is also being boosted for the lower wage earner (Section 103).

Perhaps, I worded this incorrectly as a "bump up".  What I am referring to is the bend points used to determine the PIA amount.  A lower wage earner is getting a higher % of their average annual earning because their earning would be calculated within the 1st bend point of the PIA formula.  This % is being increased in Section 101 - that is what I called a "bump up".

Social Security: Primary Insurance Amount (PIA)

From there, the  % goes down in the bend points - (reference the link)

In Section 202, the  proposed legislation adds another bend point for this computation to the proposed highest level of earnings (over $ 400,000) .  This assures that those contributions at the highest level of earning ( in 2020 and beyond - over $ 400,000) will be assured that they will get at least some benefit from their contributions ( a small % but at least something). A small % of a really big number is still a big number.

One of the problems all along with raising or eliminating the (earned) income cap for annual SS contributions was how to handle the benefits.

Some proposals wanted to give these high income earners nothing in benefits because when giving them a benefit under the current computation - it didn't fix the feasibility numbers in SS for the longterm (75 years out forecast) - which was the main purpose of any reform legislation - making the program last for the long term without cutting everybody's benefit.

Accepting the contributions from these higher earned income earners during their working years and NOT giving them any benefit at all would have turned the SS system from an insurance type social program to one of a more welfare type program.  Everybody that contributes enough to be vested and are a citizen (or under an International Agreement) should get some benefit to maintain the program as insurance-like as opposed to a welfare program.

How did I do in explaining it  ?  Complicated, for sure.