NOW Foundation Testimony at Congressional Briefing on Social Security and Women

Statement of Latifa Lyles, Vice President
NOW Foundation and National Organization for Women

Co-Chair, Older Women's Economic Security Task Force of the
National Council of Women's Organizations (NCWO)

Congressional Briefing on Social Security and Women
November 6, 2007

Social Security Improvements Women Need

You have heard today from panel members that Social Security as a guaranteed, inflation-proofed retirement and disability insurance system is essential for women. The National Organization for Women Foundation, our sister organization NOW, and our more than 200 allied National Council of Women's Organization member organizations believe that, by and large, Social Security as presently structured is sound and that with modest adjustments the program can be strengthened and improved to meet the needs of women in retirement.

We oppose privatizing Social Security, in whole or in part, as a highly risky experiment in which most women and low-income workers likely would be the losers.

Financing according to the Social Security Trustees' analysis this year for the Old Age, Survivors and Disability Insurance Fund (OASDI) is sufficient to pay all scheduled annual benefits up through about 2041, when the Fund will be able to finance only 75 percent of scheduled annual benefits. This projection is based on very conservative assumptions and depending upon a continued strong economy, Social Security's solvency could be sustained decades into the future well beyond 2041.

Trustees suggest that to bring the OASDI Trust Fund into actuarial balance over the next 75 years, a change in the payroll tax rate of less than one percentage point for each of the employers' and employees' contributions would be sufficient to generate a 16 percent increase in revenues over the long term. Alternatively, the trustees suggest a modest reduction of benefits, or some combination of the two.

The National Organization for Women Foundation and many of our allies oppose benefit cuts for the purpose of addressing the system's long-term financing challenge. Cutting benefits would primarily and unfairly hurt women, and fairer solutions to long-term solvency must be found.

It is our sincere hope that a new Congress will confront this important challenge and make necessary adjustments to protect and strengthen this valuable program that so many women depend upon.

In order to do this, NOW Foundation urges that a future Congress consider a modification of the payroll tax cap, presently set at maximum of $97,500. With the tremendous increase in income to the highest few percent of taxpayers over the last 10 to 15 years, a review of the maximum on personal taxable income is in order.

The Social Security payroll tax or FICA tax is a flat 12.4 percent on personal income, with employees and employers sharing equally in contributions. Lower-earning workers are taxed heaviest by this flat rate. Lifetime low-income workers do receive a comparatively higher retirement benefit though.

To address concerns about Social Security's long-range financing, a reduction in the spousal benefit has been proposed. The spousal benefit is paid to wives or husbands in a marriage that has lasted for at least ten years and is equal to half of the benefit of the Primary Insurance Amount that is paid under the worker's retirement benefit. We vigorously oppose this move for several reasons: first, many women are and will continue to be heavily dependent upon on the spousal benefit because their own work careers were low-paying (partly because of pay discrimination) and/or of insufficient duration because of caregiving responsibilities. The average number of paid work years for women is 27 -- eight years less than the standard for Social Security's benefit calculations, which are based on the highest 35 years of covered earnings.

Secondly, the spousal benefit provides a future benefit to women in recognition of their unpaid work raising children and caring for ill family members. The spousal benefit can be seen as partial compensation for years women are essentially forced to drop out of the paid workforce because of scarce and unaffordable child care or eldercare programs. Additionally, women are almost exclusively the caregivers for aging parents, a responsibility that can also demand full time attention. We are a long way from when the overwhelming majority of women will be entitled to their own worker's benefit, having earned an adequate income for the requisite number of years.

Demographics for marriage, divorce, workforce participation, income, and poverty have changed considerably for women in recent decades. Women's workforce participation has increased to about 75 percent for women ages 25 to 54. Women have made huge strides in education in the past 35 years, but these gains have not been matched by a commensurate gain in their earnings. There is still a stubborn pay gap of about 24 percent, despite many women having reached pay parity and even excelling in educational attainment when compared to men.

The cumulative effect of sex-based wage discrimination is that women reach retirement age short-changed by hundreds of thousands of dollars that should have been available to them for retirement savings and investments. The Institute for Women's Policy Research estimated the impact of sex-based pay description over a 15 year time frame. Taking into account women's lower work hours and their years with zero earnings, the study found that women workers in their prime earning years, 26 to 59, make a total of only 38 percent of what men are paid. Across the 15 years (1983-1998), the average prime age working woman earned only $273, 592 while the average working man earned $722,693 (1999 dollars). A shocking difference!

These losses are a major factor in older women's poverty and certainly make Social Security's guaranteed retirement benefits even more critical as women have less in savings and investments at retirement. Additionally, only about one-third of older women workers are covered by private pensions, although closer to half of younger women workers now have private pension coverage.

A persistent fact of life for women is the amount of time that they devote as the nation's unpaid care-givers. On average, it is estimated that women spend an estimated eight years -- and often many more years -- raising children, caring for aging parents and tending to ill partners. Their contribution to society as a whole can be estimated in the trillions of dollars. Yet, our formal economy does not recognize and value this work. The Social Security system, as presently structured, does not recognize those years out of the paying workforce, which brings us to some recommendations that would improvement benefits for women and reduce old age poverty.

*** Our first recommendation, included in a 1999 report by the National Council of Women's Organizations, would add a "Family Service Credit," which could include an 'earnings credit' that would recognize the number of 'drop out years' in calculating benefits, and an expansion of eligibility for the Special Minimum to include years of care-giving. To better target lower-income families, the credit could be an expansion of the Special Minimum Benefit (The Special Minimum is intended to help raise benefits for workers with longtime low-paying jobs). A Family Service Credit could equal up to $5,000 credited to the Social Security account of the lower earner of a married couple or single head of household for each applicable year. The credit could be granted up to ten care-giving years toward earning the Special Minimum Social Security benefit.

Although Social Security has been critical in reducing poverty among older individuals, older women live at or below the poverty level at a much higher rate than older men. A recent analysis of 2006 Census Bureau income and poverty data shows that 11.5 percent (more than one in ten) of women aged 65 and older live at or below the poverty level -- almost twice the rate of men 65 and older. Many of these women have exhausted their savings and do not have other sources of income. The same condition is often true for older disabled women and divorced women -- for whom lifetime earnings are modest.

Unmarried elderly women have a significantly higher poverty rate than married elderly women (15 percent as opposed to 3 percent). Elderly, unmarried women get 51 percent of their total income from Social Security - and for at least 25 percent of elderly unmarried women, Social Security is their only source of income.

*** Our second recommendation, to assist many of these unmarried elderly women, is an increase in the widow's benefit to 75 percent of the couple's combined benefit (capping the maximum benefit). The widow's (or survivor's) benefit is currently the higher of a deceased spouse's retired-worker benefit or the wodow's own benefit as a worker. The average monthly benefit for widows (or widowers) currently is $995 -- not much to live on as a single source of income.

*** Our third recommendation, because in recent years there has been a significant increase in the number of divorced women and shorter duration of many marriages, is an expansion in the eligibility for divorced spouse benefits by reducing the minimum length of marriage to seven instead of ten years (the current threshold) and a total of 10 years in marriage and work history combined. Additionally, we advocate an increase in the benefits for divorced spouses from 50 percent to 75 percent of the worker's benefit.

*** Lastly, for disabled women in retirement, we believe that there needs to be an improvement in the access to benefits for disabled widows and divorced disabled spouses. Their needs for sufficient retirement income are obvious.

The new Census data also indicate that the poverty rate overall is 12.3 percent -- higher than in 2000 when it was 11.3 percent. Women, all ages, were 41 percent more likely to be in poverty than men in 2006, but older women experienced a 74 percent higher incidence of poverty than older men. The persistence of older women's poverty underlines the importance of other improvements that we recommend for Social Security, including increasing the benefits for very low-earning workers and improvements in the Special Minimum provision.

We believe that these improvements for women can be achieved with only a modest impact on financing. A preliminary estimate placed the cost of additional improvements in benefits at less than a one percentage point increase for each of the employee and employer FICA payroll tax, in combination with investment of a larger proportion of the Social Security Trust Fund in stocks. Additionally, some adjustments to the payroll tax cap may be necessary to meet both the improvements in retirement benefits for women and to assure the long-term solvency of Social Security for an aging population.

Read more about NOW's work on Social Security