Lack of urgency lamented in repairing Social Security

The financial perils facing Social Security are not new, with the latest report from the program's trustees projecting that the retirement trust fund will be depleted in 2034 — and neither is the lack of urgency from lawmakers tasked with tackling the issue, sources said.

"We've lost a year by continuing to ignore the issue," said Marc Goldwein, senior vice president and senior policy director for the bipartisan Committee for a Responsible Federal Budget in Washington. "As the crisis gets closer, the willingness of policymakers to address it seems to be waning, and that's exactly backwards."

The trustees' report, which projected that Social Security's two trust funds — one that covers retirees and their families and one that covers disabled workers and their families — will be out of money by 2035. On the retirement side, if no changes are made by 2034, Social Security revenue will cover only 77% of benefits promised, the report said.

"It shows that we are one year closer to this nightmare scenario of across-the-board cuts if Con- gress doesn't take action," said Shai Akabas, director of economic policy at the Bipartisan Policy Center in Washington, who added that he's cautiously optimistic that scenario will be averted. "But the longer we wait, the more difficult those changes become," he said.

Industry impact

If action isn't taken and benefit cuts go into effect, plan sponsors would likely see their costs go up, said Will Hansen, chief governmental affairs officer at the American Retirement Association, a retirement industry trade group in Washington.

Older workers, who typically earn the highest salaries, could stay on the job longer if they have a reduced Social Security benefit. That would lead to increased health insurance and retirement plan contribution costs in addition to higher salary payouts, Mr. Hansen said.

With no action on Social Security, it could lead to uncertainty for the plan sponsors, Mr. Akabas said.

"We already see that a lot of people are lacking confidence and struggling to save and secure enough money for retirement," he said. "If we get to the point in 2030 where nothing's been done and we're four years out from the trust fund being exhausted, obviously the political pressure will be increased but the ability for people to plan for their retirements is almost impossible."

Following a special commission formed by the BPC that spent 2014 and 2015 looking at the U.S. retirement system, Mr. Akabas said he thinks a major Social Security reform should focus on retirement security as whole. Increasing benefits for vulnerable populations and improving other elements of the American retirement system, including defined contribution accounts, lifetime income options and tax credits, such as expanding the IRS' saver's credit for low- and moderate-income earners, among other ideas, should be at the center, he added.

He's a proponent of the Setting Every Community up for Retirement Enhancement Act of 2019, referred to as the SECURE Act, which will likely get a vote in the House this month, and the Retirement Enhancement Savings Act, which has been reintroduced in the Senate. Both bills would make it easier for smaller employers to join open multiple employer plans and add a safe harbor for selecting lifetime income providers in defined contribution plans, among other provisions.

More work will be needed

But Mr. Akabas said more work will be needed to improve retirement security. "Once you make real improvements that people can feel on the private-sector side … then it's much easier to have the conversation about the tougher choices that are necessary for Social Security," Mr. Akabas said.

Last Congress, the now-retired Rep. Sam Johnson, R-Texas, who chaired the House Ways and Means Subcommittee on Social Security, proposed a bill to match benefit payments to the revenue collected from payroll taxes by cutting benefits three ways: raising the full retirement age to 69, trimming benefit levels for higher-income people, and imposing smaller cost-of-living adjustments for all, with no COLAs for people who now earn more than $85,000. The bill never received a vote.

In February, Sen. Bernie Sanders, I-Vt., and Rep. Peter DeFazio, D-Ore., introduced legislation that expands Social Security benefits. The Social Security Expansion Act would further tax people earning more than $250,000 a year. Current law caps the amount of income subject to payroll taxes at $132,900.

But the bill that has garnered the most attention on this issue is the Social Security 2100 Act, introduced by Rep. John B. Larson, D-Conn., current chairman of the Ways and Means Subcommittee on Social Security, that aims to shore up Social Security while implementing an across-the-board benefit increase for current and new beneficiaries and improving cost-of-living adjustments, among other provisions. The added benefits would be paid for by gradually increasing the contribution rate beginning in 2020 so that by 2043, workers and employers each would pay 7.4% toward Social Security, instead of the 6.2% today, according to the congressman's website. The bill would also tax payroll income above $400,000 at a 12.4% clip.

Mr. Larson said in an interview he was confident the bill will get a vote in the House and ultimately pass the chamber before the summer recess. "When you introduce a bill and it has 204 original co-sponsors, that's usually a pretty good indication that it's going to pass," he said.

While a Democratic bill passing in the House is one thing, getting through a Republican-controlled Senate would be much more difficult. Many Republicans and moderate Democrats in both chambers will likely take issue with the bill's tax increases, Mr. Akabas said.

Mr. Larson said it's time Congress faces the reality with respect to Social Security and it's their responsibility to ensure the program remains solvent.

"If you never have to vote on something, then you can kick the can down the road and profess concern for the elderly, and Social Security, and say all the right things … but what this bill will do is provide a moment of reckoning for when people are going to have to decide where they are on the issue," Mr. Larson said.

What's needed

Arun Muralidhar, co-founder of Mcube Investment Technologies LLC, in Great Falls, Va., and a longtime proponent of reforming Social Security, said Social Security reform presents a golden opportunity for bipartisanship because the solution sits somewhere in the middle of conventional Republican and Democratic proposals.

He has suggested converting Social Security into a partially funded pension system — much like traditional pension funds — and have assets invested in the market under the oversight of a blue-ribbon board — much like the C$368.5 billion ($273.8 billion) Canada Pension Plan — and with a clear target return.

"Let's raise the money, let's invest it efficiently, let's continue to pay the benefits we've promised, and let's prevent our kids from having to take it on the chin," Mr. Muralidhar said.

Mr. Akabas of the BPC said any solution is going to need bipartisan support — likely a combination of adjusting benefits and raising revenues — and leadership from the executive branch. President Donald Trump campaigned on protecting Social Security benefits, but thus far "has not shown an interest" in taking on the challenge, he added.

"Inevitably, getting something across the finish line will take that leadership from the executive, so until we have an executive that prioritizes this, I don't see much likelihood of anything happening," Mr. Akabas said.

Mr. Goldwein said he's not confident about the chances of Congress averting disaster: "I think we can flip this thing on its head and use Social Security reform as an opportunity to strengthen retirement security and expand economic growth but I'm not optimistic the political system is interested in this at the moment and time is running out."