Kill Two Pension Birds with One Stone

Senate Majority Leader, Harry Reid, spoke to MSNBC about Social Security and said: “Two decades from now, I’m willing to take a look at it, but I’m not willing to take a look at it right now. It is not in crisis at this stage. Leave Social Security alone. We have a lot of other places we can look that is in crisis. But Social Security is not.” He said this when, for the first time in Social Security’s history, benefit payments are now coming out of the Social Security trust fund at a faster pace than contributions are coming into the trust fund. Republicans will have to pull Senator Reid’s head out of the sand to address the fact that assets that that should be in the Social Security trust are “going, going, … gone.”
Senator Reid’s remarks may kill the hopes that Social Security reforms will occur any time soon. But, maybe there is a compromise that could bring the Democrats and Republicans together and kill two pension birds with one stone. Republicans want to balance the budget with Social Security on the table. Democrats apparently want to keep it off the table, but they have an ongoing mission to improve conditions for the lowest paid workers and tax the highest paid workers.

Here are the two retirement birds that that need to be killed and the stone that can kill them:

1. Democrats Want to Kill Pension Bird 1:

The lowest paid workers cannot afford to save enough for retirement in their 401 (k)s and IRAs. Social Security does not provide sufficient benefits to meet minimum poverty levels for many long term workers. The 2011 poverty guidelines for the 48 Contiguous States and the District of Columbia, developed by Department of Health and Human Services, are:
– $10,890/yr. for one person in the family, and
– $14,710/yr. for two persons in the family.
Minimum Social security benefits in 2011 for the lowest paid workers, after 30 years of work, are: – $9,158.40 for one person in the family, and
– $13,749.6/yr. for two persons in the family.
I believe that Democrats may want to kill this discrepancy and increase minimum Social Security benefits beyond the poverty level.

The highest paid workers do not currently pay social security taxes on pay over the $106,800.

2. Republicans Want to Kill Bird 2:

Republicans want to balance the budget including Social Security. Because the federal government has borrowed against the Social Security trust fund’s surplus for so long, all that’s left are IOUs and to redeem them would mean more borrowing. Republicans will want to kill efforts by Democrats, like Senator Reid, who do not want to address the issue any time soon.

3. The Stone That Can Kill the Two Birds:

Here is a four step Social Security proposal that could kill both of the pension birds described above and restore financial stability to the Social Security system:

a.) Increase the minimum Social Security benefit for workers with 30 years of work to:
– $12,000/yr. for one person in the family, and
– $17,000/yr. for two persons in the family.

These benefits should be reduced proportionately for workers with less than 30 years of contributions to the Social Security system. Also, automatic adjustments should be made annually to keep these benefits in excess of poverty levels in the future.

b.) Change the way annual Social Security adjustments for inflation are determined so that a retirees benefit adequately reflect the cost-of-living increases that retirees are experiencing (including increases in Medicare premiums, deductibles and co-insurance payments.)

c.) Phase in an increase in the age for unreduced Social Security to age 70 over 5 years.

d.) Require Social Security contributions on all earnings above the current cap of $106,800.

Retirement security is often described as a three-legged stool, supported by:
– Social Security,
– employer-provided pension plans, and
– personal savings.

For millions of Americans, however, the retirement stool has begun to wobble as (1.) traditional pension plans are waning and employer-sponsored 401(k) plans have been hit hard by sagging stock market, and (2.) personal savings have declined because of the recession and unemployment. Social Security is the only remaining leg of the retirement stool that provides guaranteed, lifelong, inflation-protected benefits for America’s working families. But, funding for Social Security is at a critical stage. Issues must be addressed now, not in 20 years, to stabilize the Social Security leg for all Americans.