Don't Worry, Your Check Is In The Mail

Volume V, Number 9 November 2, 1999

Amid much fanfare, the Social Security Administration recently began mailing working Americans a document entitled "Your Social Security Statement." According to SSA, the annual statement will educate workers about Social Security and, by providing estimates of future benefits, help them plan for retirement.

In fact, the statement carefully avoids telling workers what they need to know most about Social Security-that it is a legislated entitlement, not an earned right; that its cost is due to exceed tax revenue starting in 2014; and that, absent reform, it is headed for bankruptcy. Incredibly, when younger Americans open their mail they will read that they are eligible for benefits which, under current law, Social Security cannot pay.

SSA should be focusing the public's attention on the urgency of reform. Unfortunately, by pretending today's benefit promises are sustainable, the new statement does just the opposite: It fosters complacency.

What's Missing

Let's start with some background. The mass mailings are SSA's response to a 1989 law directing it to develop a benefit statement and to start distributing it within ten years. All workers aged 25 and older will receive the four-page document three months before their birthday. In addition to benefit estimates based on each individual's earnings record, it includes a summary of Social Security's general benefit provisions.

What's missing is any indication of how the program's legal status and financial condition may affect future benefits. SSA is careful to point out that workers' actual benefits may differ from its estimates depending on their future earnings. But, apart from an opaque allusion to "long-range financial issues," there is no hint that Social Security is anything but money in the bank.

The statement does not say that Congress can alter-indeed, can cancel-promised benefits at any time. It does not mention that the Supreme Court has ruled that workers accrue no contractual claims by paying FICA taxes. And it does not explain that Social Security is a pay-as-you-go program whose continued existence depends on the willingness of younger generations to have government tax away a rising share of their earnings.

Even more to the point, the statement fails to note that, according to its own Trustees, Social Security will run out of money to pay full benefits in 2034-well within the lifetime of most workers on SSA's mailing list. If the Department of Education were to send out formal notices to schools promising them future grants it has no budget authority to pay, there would be a congressional investigation. With Social Security, apparently, the usual rules don't apply.

So what should younger Americans actually expect? If benefits have to be cut across-the-board upon trust-fund bankruptcy, today's typical thirty year-olds will get just 72 cents of every dollar SSA says they will. And this "intermediate" projection may be a best-case scenario. Under the Trustees' high-cost projection, whose key economic and demographic assumptions are closer to recent experience, today's thirty year-olds would get just 62 cents of every dollar in promised benefits.

Plain English

The biggest problem with the Social Security statement is that it sends the wrong signal.

Americans need to understand that, in its current form, Social Security is unsustainable. A more candid benefit statement would make Americans, as voters, more willing to support timely reform. And it would make Americans, as heads of households, more willing to adjust and prepare-for instance, by saving more or retiring later. By thirteen to one, people reported in a recent poll that they would increase their savings if they knew that Social Security were going to be cut.

Vice President Gore has given the authors of the SSA statement his "Plain English Award." Yes, SSA took much effort making sure the document is not overly technical. Too bad SSA didn't take the same effort making sure it is not fundamentally misleading. It's not enough just to promise that your check is in the mail.