Social Security Reform: Implications for Women's Retirement Income

Published by the Government Accountability Office on 1997-12-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Ranking Minority Member,
                 Subcommittee on Social Security,
                 Committee on Ways and Means, House
                 of Representatives

December 1997
                 SOCIAL SECURITY
                 Implications for
                 Women’s Retirement

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division


      December 31, 1997

      The Honorable Barbara Kennelly
      Ranking Minority Member
      Subcommittee on Social Security
      Committee on Ways and Means
      House of Representatives

      Dear Ms. Kennelly:

      Increasing longevity and falling birth rates over the past 50 years have led
      to a growth in the elderly’s share of the U.S. population. The share that is
      65 and older is expected to continue to increase from 13 percent of the
      total U.S. population today to 20 percent by 2050. This demographic
      change has led to a serious long-term financing problem for the Social
      Security system. Although Social Security currently has more revenue than
      expenditures, over the next 75 years revenues are projected to be about
      14 percent less than total projected expenditures.

      Several different reform plans have been proposed to address the
      financing problem, and all would affect the financial well-being of current
      and future beneficiaries. Some current beneficiaries, especially older
      unmarried women, are already experiencing higher poverty rates than
      other groups in the aged population and may be increasingly vulnerable if
      particular options are selected.

      On April 10, 1997, we testified before the House Ways and Means
      Subcommittee on Social Security on the issue of Social Security reform
      and women’s retirement income. Subsequently, you asked us to extend
      our analysis of the effect of the various reform proposals on women.
      Specifically, you asked us to evaluate (1) why women’s benefits are lower
      than men’s under the current Social Security system, (2) the possible
      differential effects on women of the new privatization reform proposals,
      and (3) what can be done to minimize the possibly negative effect on
      women of certain elements of the Social Security reform proposals.

      To evaluate these issues, we reviewed the literature on women’s labor
      force participation and earnings, spoke with Social Security and insurance
      industry analysts, analyzed data on individual annuity benefits for men and
      women, and conducted an econometric analysis to estimate the relative
      levels of risk aversion of men and women. We performed our work
      between April and October 1997 in accordance with generally accepted

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                   government auditing standards. For more details about our methodology,
                   see appendix I.

                   Women’s average Social Security benefits are currently lower than men’s
Results in Brief   for a number of reasons, most of which relate to women’s lower rates of
                   labor force participation and lower earnings levels.1 Both years of earnings
                   and earnings levels enter into the calculation of Social Security benefits.
                   Although the labor market differences between men and women have
                   narrowed over time, the Bureau of Labor Statistics does not project that
                   they will disappear entirely, even in the long term.

                   The reform proposals that would create individual private savings
                   accounts and change the way benefits would be distributed from those
                   accounts are the most likely to affect women and men differently. A
                   retirement income system that is based in large part on mandatory
                   contributions of a fixed percentage of earnings and on individuals’ making
                   their own investment decisions could lead to women’s receiving relatively
                   lower benefits than men. Working women earn less than men, on average,
                   and therefore would have fewer funds to invest in their individual
                   accounts. Researchers have found that women in general are more
                   risk-averse investors than men. Our analysis of women in their prime
                   earning and saving years suggests that they are less likely than men to
                   invest in potentially higher yielding, though riskier, assets such as stocks,
                   which would generally leave them at risk of having accumulated relatively
                   less in their accounts at retirement. Moreover, even if men and women
                   enter retirement with equal amounts in their individual accounts, women
                   may receive a lower monthly benefit if they buy an individual annuity—a
                   monthly benefit for the life of the worker or the worker and a
                   spouse—because it is adjusted for their greater longevity.

                   Changes over time in women’s labor force behavior and experience are
                   projected to reduce, but not completely eliminate, the differences in men’s
                   and women’s labor force participation rates and earnings. Thus, any
                   reform of the system that bases benefits on earnings will continue to
                   produce different benefit levels for men and women. If a reformed Social
                   Security system were to rely largely on individual investments, better
                   education about investment strategies and general financial principles
                   might help women workers increase their retirement benefits. In addition,
                   requiring that retirement savings be annuitized would better protect

                    The rate of labor force participation is defined as the percentage of all women aged 16 and older who
                   are working or actively seeking employment.

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             dependent spouses. Finally, annuities purchased with individual account
             balances might give rise to differential benefit levels for men and women
             with the same level of lifetime earnings because women are charged
             higher annuity prices, based on their longer average lifespan. One possible
             option for addressing this concern is the use of the same unisex annuity
             tables that are currently required for employer-provided group annuities.

             Social Security is a retirement income program whose benefits are based,
Background   in part, on an individual’s earnings. Social Security is also
             gender-neutral—that is, a man and a woman whose labor force
             participation and earnings are identical, in terms of both extent and
             timing, will receive the exact same Social Security benefit. When
             calculating actual benefits, Social Security employs a progressive benefit
             formula that replaces a relatively larger portion of lifetime earnings for
             people with low earnings than for people with high earnings. Because
             women tend to have lower lifetime taxable earnings than men, they
             generally benefit from this provision.2 The program also provides benefits
             to retirees’ dependents (such as spouses, ex-spouses, children, and
             survivors).3 Many more women than men receive dependent benefits as
             spouses or survivors. Unlike some pension benefits, these benefits are
             automatic for all eligible dependents and do not depend on the worker’s
             electing to include them. In general, a retired worker’s spouse who is not
             entitled to benefits under his or her own work record will receive a benefit
             up to as much as 50 percent of the retired worker’s benefit, and a surviving
             spouse will receive up to as much as 100 percent of the deceased worker’s
             benefit.4 A spouse’s receiving dependent benefits does not reduce the size
             of the worker’s own benefit.

             Social Security has helped reduce poverty rates for the elderly, from
             35 percent in 1959 to less than 11 percent in 1996. Nevertheless, some
             subgroups of the elderly population are at a greater risk of living in
             poverty than others. Unmarried women make up more than 70 percent of
             poor elderly households, although they constitute only 45 percent of all
             elderly households. Single, divorced, and widowed women aged 65 or
             older have a poverty rate of 22 percent, compared with 15 percent for

              Taxable earnings are earnings on which Social Security taxes are paid.
              The program also provides benefits for disabled workers and their dependents.
              A spouse or survivor who is entitled to benefits on his or her own work record and on the record of a
             spouse (dually entitled) receives his or her own retired-worker benefit or the spouse or survivor
             benefit, whichever is higher.

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unmarried men and 5 percent for married couples older than 65.5 In
addition, some researchers expect the current level of poverty among
widows to persist over the next 20 years because there will still be a
substantial number of women with a history of low earnings and
intermittent labor force attachment whose own worker benefit will not be
greater than their widow’s benefit.

In part, because of the anticipated increase in the size of the elderly
population and the growing proportion of the total population that the
elderly will constitute over the next 33 years, Social Security’s trust funds
are projected to be depleted by 2029. A number of proposals have emerged
to resolve this difficulty, with a great deal of variety in terms of both how
the Social Security program would be structured and who would be
eligible for benefits. Appendix II summarizes the key features of the major

Among the various proposals for restoring long-term financial balance to
the Social Security system are several that call for some degree of
privatization.6 Some of these privatization proposals would redesign the
Social Security system, patterning it, in part, after some private sector
pension plans, such as 401(k) plans. Under such a system, a portion of
workers’ Social Security taxes would be deposited in an investment
account that they would then control. By investing in stocks or other
assets, workers could increase their retirement savings and potentially
increase their retirement benefits. However, they could also lose some
portion of their savings for retirement if, for example, stock prices fell.
While the data indicate that the U.S. stock market has historically
outperformed the implicit return expected from Social Security for today’s
and future retirees, there is always a risk of loss. The uncertainty of
market gains or losses would be borne by the individual, and the
individual’s retirement income would not be guaranteed by the
government as it currently is under Social Security.7

Retirees could use the payout from individual accounts to buy an annuity,
or they could receive a lump-sum distribution of the accumulated savings
to manage or spend as they saw fit. In most cases, an annuity lasts for the

 Data are from the U.S. Bureau of the Census and Susan Grad, Income of the Population 55 or Older,
1994 (Washington, D.C.: Social Security Administration, Office of Research and Statistics, 1996).
 Elements of other proposals that would affect women particularly are discussed later in this report.
 In addition to worker’s benefits, people receive benefits as spouses or survivors. Issues related to the
provision of dependent benefits under the privatization proposals are discussed below under “Costs of
and Rules on Annuitization and the Effect on Women’s Benefits” and “Other Proposed Changes Could
Differentially Affect Women.”

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                          life of the recipient, removing the risk that retirees will outlive their
                          savings. With a lump sum, retirees may make other choices about the
                          distribution of their assets, including, at their death, bequeathing any
                          remaining funds to their heirs.

                          Women’s Social Security benefits are currently lower, on average, than
Women’s Benefits          men’s because their labor force participation rates and earnings are lower.
Differ From Men’s         These gaps are narrower than in past years yet still large enough to affect
Because of Labor          retirement income benefits. The gaps are not expected to disappear
                          entirely, even in the long term.
Market Differences
Labor Force Attachment    Women’s labor force participation rates continue to be lower than men’s at
and Earnings Differ for   every age, despite substantial increases in women’s rates in the past 35
Men and Women             years. On average, the labor force participation rate for women aged 16
                          and older in 1996 was 59 percent, compared with 75 percent for men. As
                          seen in figure 1, this represents a significant increase for women from 35
                          years ago, when their labor force participation rate was only 38 percent,
                          compared with 83 percent for men.

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Figure 1: Labor Force Participation Rates, 1950-96


80                                                    Men





 1950        1955   1960     1965     1970        1975       1980        1985       1990       1995     1996

                                             Source: Department of Labor, Bureau of Labor Statistics.

                                             Figure 2 shows the change in labor force participation rates for women
                                             born in different 5-year intervals as they move through their prime-age
                                             years (25 to 54). Women born more recently have higher labor force
                                             participation rates than older women had at the same age. The labor force
                                             participation rates of the younger women do not drop off during their
                                             child-bearing years as the older women’s did, but the rate of increase in
                                             labor force participation for the younger women has slowed. Women
                                             today are much more likely to participate in the labor force than in
                                             previous generations, but their rate of participation is still below the rate
                                             for men.

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Figure 2: Labor Force Participation Rates of Women for 5-Year Age Groups


                   -70       1961-65     1956-6
               1966                                                            194
          1951-5                                                                             19
  60       1946-50





       20-24         25-29       30-34       35-39        40-44        45-49         50-54        55-59       60-64        65-69
       Age Group


                                                     Note: Interior years are birth years.

                                                     Source: Theresa J. Devine, “Demographics, Social Security Reform and Labor Supply,”
                                                     forthcoming in Social Security Reform: Links to Savings, Investment and Growth, Conference
                                                     Series No. 41 (Boston, Mass.: Federal Reserve Bank of Boston, 1997).

                                                     The difference in labor force participation has implications for women’s
                                                     level of Social Security benefits relative to men’s, since under the current
                                                     rules Social Security calculates monthly benefits on the basis of lifetime
                                                     taxable earnings averaged over a worker’s 35 years of highest earnings.

                                                     Page 7                                       GAO/HEHS-98-42 Women and Social Security Reform

Women generally spend more time out of the labor force than men and
have fewer years of taxable earnings, so the calculation of their benefit
includes more years with zero earnings. The median number of years with
zero earnings for workers turning 62 in 1993 was 4 for men and 15 for
women. This results in lower monthly benefits for women relative to men.

Women also earn lower wages than men, although some of this difference
can be explained by the fact that women more often work part-time.
However, even in a comparison of year-round, full-time workers, median
earnings for women are still only about 70 percent of men’s. This
difference further narrows when differences in education, work effort,
age, and other relevant characteristics are accounted for, but even then
the gap does not close completely, with women earning wages that are 15-
to 20-percent lower than men’s. These differences in earnings lead to
lower Social Security benefits for women relative to men. In 1995, the
average monthly benefit for retired workers was $621.30 for women and
$810.00 for men; women’s average benefit was 77 percent that of men’s.
Even if earnings for men and women and their labor force participation
behavior were equalized starting today, women would continue to have
lower benefits than men until the 2030s because earnings are averaged
over 35 years; it would take that long for benefits to be equalized.

Neither the difference between men’s and women’s labor force
participation rates nor the gap in their earnings is expected to disappear in
the foreseeable future. As figure 2 shows, the long-term upward trend in
women’s labor force participation rates has flattened out in recent years.
The decline in men’s labor force participation is also leveling off, making it
less likely that women will have the same rate as men. Because a
15-to-20-percent gap in earnings between men and women remains even
after accounting for demographic and labor force characteristics, it is
likely that the gap will not close completely. Since retirement income
benefits are based on both amount of earnings and number of years in the
labor force, the gap will continue to produce lower benefits, on average,
for women than for men. Over the course of their retirement, women
might receive benefits for a longer period of time than men because they
live longer, but they will not necessarily receive more in total lifetime
benefits, and in any case, it is the monthly benefit that is most important to
the retiree’s standard of living.

Page 8                           GAO/HEHS-98-42 Women and Social Security Reform

                            Establishing individual savings accounts for every worker and providing
Some Elements of            benefits in a lump-sum are two of the most important proposed reforms
Privatization               that could affect women and men differently. Other elements of the reform
Proposals Could Have        proposals might also affect men and women differently, although the
                            effects may be relatively small or may pertain only to certain subgroups,
a Differential Effect       such as divorced women.
on Women
With Individual Accounts,   Many of the reform proposals call for the creation of mandatory savings
Women May Fare Worse        accounts that allow workers to make their own investment decisions. One
Than Men Because They       consequence of this move might be that individuals would decide to take
                            on more risk in order to earn potentially higher rates of return.
Are More Risk Averse        Economists have found evidence suggesting that women are generally
                            more risk averse than men in financial decisionmaking. Compared with
                            men, they might choose an investment strategy for their retirement income
                            accounts that earns them lower rates of return. Although proponents
                            argue that privatization could allow for higher retirement benefits for both
                            men and women, a too-conservative investment strategy could leave
                            women with lower final account balances than men, even if both make the
                            same contributions to their accounts. In reality, women’s lower average
                            earnings will result in their making smaller average contributions to their
                            accounts than men will make. Thus, even though women could be better
                            off under a privatized system, compared to the current Social Security
                            system, the gap between men’s and women’s benefits could increase.

                            We attempted to calculate the difference in risk aversion between men and
                            women by looking specifically at the differences in how men and women
                            invest their assets.8 We found that women aged 51 to 61 in 1992 had a
                            lower percentage of their total assets in stocks, mutual funds, and
                            investment trusts than men did. These assets are riskier, but potentially
                            higher yielding, than others, such as certificates of deposit, savings
                            accounts, or government bonds.9 On average, we found that the ratio of
                            riskier assets to total assets held by men was 8 percentage points higher
                            than the same ratio for women. Other researchers, looking at participants
                            in the federal Thrift Savings Plan, have also found that women invest less

                            We used data from the Health and Retirement Study and controlled for demographic characteristics,
                            wealth, and income. See appendix I for a discussion of our methodology.
                             Total assets included nonhousing equity from checking and savings accounts, money market funds,
                            certificates of deposit, government bonds, Treasury bills, individual retirement accounts (IRA),
                            KEOGHs, stocks, mutual funds, investment trusts, business equity, bonds, bond funds and other
                            assets, and housing equity.

                            Page 9                                    GAO/HEHS-98-42 Women and Social Security Reform

                        in stocks than men do.10 Our analysis, using different data and focusing on
                        individuals in their prime working and saving years, increases the
                        robustness of this conclusion. By investing less in these riskier assets,
                        women benefit less from the potentially greater rates of return that, in the
                        long run, stocks could generate. At the same time, they are not as exposed
                        to large losses from riskier assets. While it is true that in the past U.S.
                        stocks have almost always posted higher returns than less-risky assets,
                        there is no guarantee that they will always do so.

Costs of and Rules on   Some proposals for reforming Social Security would not require retirees to
Annuitization and the   purchase an annuity with the funds in their retirement income accounts.
Effect on Women’s       At retirement, workers could choose to receive their account balance as a
                        lump-sum payment, as some pension plans now allow, to spend as they see
Benefits                fit. If retirees and their spouses do not accurately predict their remaining
                        lifespans or make poor investment choices, they may end up with very
                        small incomes from assets late in life.

                        Most married women with little work history of their own currently
                        receive a Social Security benefit as a dependent, based on their husband’s
                        earnings. Under Social Security, the distribution of benefits to dependents
                        does not reduce a worker’s benefit and they are mandatory, so that no
                        worker can opt out of providing them. In contrast, some of the
                        privatization proposals do not automatically provide dependent benefits
                        from the investment portion of the retirement income accounts. Workers
                        may choose not to purchase an annuity at all, or they may choose a single
                        life annuity that ends at the worker’s death. Either of these options would
                        put dependent wives at greater risk of having little to live on should their
                        husbands die first.

                        While some retirees might prefer to avoid the cost of an annuity, receiving
                        their account balance as a lump-sum payment to manage as they see fit,
                        others might prefer the security of a guaranteed monthly income for life
                        that an annuity provides and therefore choose to purchase one. However,
                        a man and a woman could retire with similar amounts in their personal
                        accounts under a privatized social security system and still end up with

                          Richard P. Hinz, David D. McCarthy, and John A. Turner, “Are Women Conservative Investors?
                        Gender Differences in Participant Directed Pension Investments,” in Positioning Pensions for the
                        Twenty First Century, ed. by Michael S. Gordon, Olivia S. Mitchell, and Marc M. Twinney (Philadelphia:
                        University of Pennsylvania Press, 1997); Vickie L. Bajtelsmit, Alexandra Bernasek, and Nancy A.
                        Jianakoplos, “Gender Differences in Pension Investment Allocation Decisions,” Working Papers in
                        Economics and Political Economy, Department of Economics, Colorado State University, October
                        1996; James M. Poterba and David A. Wise, “Individual Financial Decisions in Retirement Saving Plans
                        and the Provision of Resources for Retirement,” National Bureau of Economic Research Working
                        Paper No. 5762, September 1996.

                        Page 10                                     GAO/HEHS-98-42 Women and Social Security Reform

                                      very different monthly benefits if they were to purchase an annuity.11
                                      Annuities sold to individuals are usually based on gender-specific life
                                      tables. That is, insurance companies take into account women’s longer life
                                      expectancy and either provide a lower monthly benefit to women or
                                      charge women more for the same level of benefits given to men.12
                                      Insurance companies also pay lower benefits for a joint and survivor
                                      annuity that covers both husband and wife than for a single life annuity
                                      that covers only the worker during his or her lifetime, again because the
                                      total time in which the benefits are expected to be paid is longer. Women
                                      are more likely to receive the survivor portion of this type of annuity, since
                                      they are more likely to outlive their husbands. Thus, while men’s and
                                      women’s total lifetime benefits may be similar, the monthly benefit women
                                      receive, either as retirees or as survivors, will likely be lower.13

                                      Table 1 shows the average monthly benefit paid to men and women at
                                      different ages, based on a $100,000 premium, for both single life and joint
                                      and full survivor options.14 At every age, a man’s monthly benefit under a
                                      single life option is between 8 and 13 percent higher than a woman’s.

Table 1: Individual Single Life and
Joint and Full Survivor Monthly                                                                                     Joint and full survivor
Benefits on a $100,000 Premium                                                    Single life                             Man and woman at
Annuity                               Age                                          Man                  Woman                     same age
                                      60                                          $697                      $643                            $590
                                      65                                            772                      700                              631
                                      70                                            880                      781                              690
                                      Source: Data are the average of benefits from 111 insurance companies listed in A.M. Best
                                      Company, Best’s Policy Reports, Single Premium Immediate Annuities, Special Edition: 1997
                                      (Oldwick, N.J.: 1997).

                                      This comparison of average benefits masks significant differences
                                      between insurance companies. Table 2 shows for men and women
                                      separately, at each age, the highest and lowest monthly benefit paid for a
                                      $100,000 premium in a single life plan. While men and women differ little
                                      in terms of the variation in monthly benefits, the lowest possible benefit

                                       An annuity can be single life, for the lifetime of the worker only, or joint and survivor, for the lifetime
                                      of the annuitant and his or her designated survivor.
                                       In the case of employer-provided group annuities, unisex life tables must be used in the calculation of
                                      monthly benefits, which ensures equal benefits for men and women with the same lifetime earnings.
                                       Some demographers believe that life expectancy will continue to increase in the future, affecting
                                      annuity values. However, it is unclear whether the gap between the life expectancy of men and women
                                      will narrow in the future as well.
                                        Under a full survivor option, the survivor receives 100 percent of the annuitant’s monthly benefit for
                                      Page 11                                       GAO/HEHS-98-42 Women and Social Security Reform

                                     paid to a woman is still lower than the lowest benefit paid to a man of the
                                     same age, and the highest possible benefit paid to a woman is also lower
                                     than the highest paid to a man.

Table 2: Range in Monthly Benefits
From an Individual Single Life                                                       Men                            Women
$100,000 Premium Annuity             Age                                      Highest          Lowest          Highest         Lowest
                                     60                                          $771             $577             $722              $522
                                     65                                            856             653              796               579
                                     70                                            988             734              871               646
                                     Source: Data taken from 111 insurance companies listed in A.M. Best Company, Best’s Policy
                                     Reports, Single Premium Immediate Annuities, Special Edition: 1997 (Oldwick, N.J.: 1997).

                                     The difference in annuity benefits for men and women exists only for
                                     individual annuities. A 1983 Supreme Court ruling requires that
                                     employer-provided pension plans use a unisex life table in calculating
                                     annuities, so that women and men receive the same monthly benefit.15
                                     Federal, state, and local pension plans also use unisex life tables in
                                     calculating monthly annuity benefits. The market for individual annuities,
                                     however, is not covered by the Supreme Court ruling, and it is unclear
                                     whether or not annuities purchased from retirement savings accounts in a
                                     reformed Social Security system would be covered by the Court ruling.16

Other Proposed Changes               Other proposed changes in various Social Security reform proposals
Could Differentially Affect          would differentially affect women, although the effects might not be as
Women                                far-reaching and in some cases could even be beneficial. Some reform
                                     proposals require Social Security to extend the computation period for
                                     benefits from 35 years to 38 or 40 years. For women, with their lower rates
                                     of labor force participation giving them fewer years of taxable earnings
                                     than men, increasing the computation period would increase the number
                                     of zero years used in the calculation of benefits, lowering their average
                                     benefit. The Social Security Administration (SSA) forecasts that fewer than
                                     30 percent of women retiring in 2020 will have 38 years of taxable
                                     earnings, compared with almost 60 percent of men. However, SSA has also
                                     calculated that the difference in additional benefit reductions for men and
                                     women would be relatively small: a 3.1-percent reduction for men
                                     compared with a 3.9-percent reduction for women if the computation

                                       Arizona Comm. for Deferred Compensation Plans v. Norris, 463 U.S. 1073 (1983).
                                      There is some concern about whether insurance companies would offer individual annuities for
                                     women if they were required to use unisex tables.

                                     Page 12                                    GAO/HEHS-98-42 Women and Social Security Reform

period were 38 years, and a 5.2-percent reduction for men compared with
a 6.4-percent reduction for women if the computation period were
extended to 40 years.17

Another of the reform proposals includes a provision designed to improve
the status of survivors, who are predominantly widows. This provision
decreases the spousal benefit while a retired worker is alive (from
50 percent to 33 percent of the worker’s benefit) and increases the
survivor’s benefit to 75 percent of the couple’s combined benefit or
100 percent of the worker’s benefit, whichever is greater.18 Another feature
of this particular proposal, however, would change the benefit formula for
retired workers in a way that would reduce the monthly benefit for most
retired workers, disabled workers, spouses, survivors, and children. Thus,
the net effect of these changes in spouse and survivor benefits will vary by
individual circumstances. While mandatory savings accounts are intended
to replace these lost benefits, it is not clear whose total benefits would be
maintained and whose would increase or decrease.

The effect of individual changes in the reform proposals could be
relatively minor. However, several taken together could interact
substantially. For example, cuts in spouse benefits and in the benefit
formula, combined with increases in years of taxable earnings included in
the computation period and increases in the normal retirement age, could
potentially add up to a large effect on women relative to men.

Some groups of women may be at risk of receiving lower retirement
income benefits under some of the Social Security reform proposals, and
other groups may lose their eligibility for benefits entirely. Under current
Social Security law, divorced spouses are entitled to a benefit based on the
work record of their former spouse, if they are aged 62 or older, had been
married at least 10 years, and have not remarried. Divorced survivors are
entitled to a benefit based on the work record of their former spouse if
they are aged 60 or older and had been married at least 10 years.19 Under
several of the reform proposals that create mandatory savings accounts,
divorced spouses and divorced survivors are not acknowledged as having
any claim at all on the mandatory savings accumulated by their former

  These percentages are based on a current sample of new awards in 1993.
 Whether or not individuals benefit from this provision depends on whether women receive benefits
based on their own work record or their spouse’s.
 Women are much more likely than men to receive benefits as a divorced spouse or divorced survivor.
As of December 1996, approximately 425,000 women received benefits as a divorced spouse or
surviving divorced spouse.

Page 13                                    GAO/HEHS-98-42 Women and Social Security Reform

                            spouse during the period of their marriage. Under these proposals, the
                            current automatic provision of benefits would be eliminated. While this
                            money may become part of the settlement upon divorce, it is not
                            guaranteed under these proposals.

                            The differential effects, both large and small, that many of the Social
Differential Effects        Security reform proposals would create could be mitigated. In some cases,
Could Be Mitigated          participants in the program would simply need help in understanding the
                            new system and how to make it work for them. In other cases, different
                            policy options with regard to annuitization would to varying degrees
                            protect women as a whole or some subgroups, such as dependent spouses.

Investor Education Might    To the degree that women are more risk averse than men, they might be
Narrow the Differences in   less likely to take full advantage of the potential benefits from Social
Investment Behavior         Security privatization. Some pension specialists believe that education is a
                            critical factor in helping individuals make the most of their retirement
                            investments. Preliminary evidence from a study of 401(k) participants
                            suggests that people who are given information about their investment
                            choices and potential returns are more likely to participate in a 401(k) and
                            to contribute a higher proportion of their salaries than those who do not
                            receive such information.20 However, few, if any, studies have examined
                            how education affects the allocation decisions of 401(k) participants.
                            Nevertheless, investor education that covers general investment principles
                            and financial planning advice might help both men and women to better
                            manage their investments. While employers have provided this type of
                            education in the case of 401(k) accounts, it is not clear who the provider
                            would be in the case of individual retirement savings accounts under a
                            privatized Social Security system.

Government Role in          A variety of policy options may help preserve the protective aspects of
Annuities Provision Could   annuities, especially for women who are receiving dependent benefits.
Mitigate Differences        These range from mandatory annuitization of all individual accounts at
                            retirement to partial annuitization, where some minimum level of annuity
                            purchase is mandatory but the balance of an individual’s account can be
                            paid in a lump sum, to voluntary annuitization with some government
                            regulation of the market, such as requiring the use of unisex life tables in
                            calculating annuities.

                             Robert L. Clark and Sylvester J. Schieber, Factors Affecting Participation Rates and Contribution
                            Levels in 401(k) Plans (Washington, D.C.: Watson Wyatt Worldwide, May 1996).

                            Page 14                                     GAO/HEHS-98-42 Women and Social Security Reform

Mandatory annuitization simply means that the balance in each
individual’s account must be used to purchase an annuity at retirement.
Because everyone is in the same risk pool for insurance purposes, the cost
of annuities should be lower than if they were purchased individually, and
monthly benefit levels should be higher for all annuitants. If annuities
were also purchased under the auspices of the federal government,
gender-neutral life tables could be used, so that men and women with the
same account balance at retirement would receive the same monthly
benefit from their annuity. In addition, by requiring married workers to
purchase a joint and survivor annuity, unless a spouse signs a waiver, a
mandatory annuity could protect women whose minimal work histories
might make them ineligible for a retired-worker benefit of their own.

Partial annuitization means that some portion of each individual’s account
balance would be used to purchase an annuity, but the rest of the money
in the account could be paid out in a lump sum and spent as the individual
wished. Partial annuitization might also lead to the use of gender-neutral
life tables in the calculation of monthly benefits, leading to equal benefits
for women and men with comparable lifetime earnings. And again, since
all retirees would be in the same risk pool, the cost of an annuity would
probably be lower than when purchased by an individual. The monthly
benefits from these annuities would be lower than under a full
annuitization plan, since they would not be using the entire account
balance, but dependent spouses would still benefit from the protection of
having some portion of their retirement income in the form of a joint and
survivor annuity.

Voluntary annuitization would leave the decision of whether to purchase
an annuity, and what type of annuity to purchase, up to each individual.
Under this plan, dependent spouses could lose the protection that a
mandatory joint and survivor annuity would provide.

Finally, under Social Security, the government ensures that men and
women retiring at the same age with the same earnings history receive the
same monthly benefits, despite the fact that women are expected to live
longer and will therefore receive benefits over a longer period of time. The
current approach provides equal living standards for equal contributions.
If individual annuities were provided under gender-specific life tables, men
and women with the same earnings history would receive different
monthly benefits but equivalent expected lifetime benefits. The result
would be that women’s living standards would be lower than men’s
despite the same contributions. One option for mitigating this outcome is

Page 15                          GAO/HEHS-98-42 Women and Social Security Reform

                     to use the same unisex life tables that are currently required for
                     employer-provided group annuities for all annuitants.

                     While the Social Security system is gender neutral in the way it calculates
Conclusions          benefits, women generally receive lower Social Security benefits than men
                     because they work fewer years and earn lower wages. Some of the
                     proposals to reform the Social Security system could exacerbate the
                     differences between men’s and women’s average benefits. In particular,
                     the creation of individual mandatory savings accounts, and the change
                     from an annuity to a lump-sum payout of account balances at retirement,
                     might decrease women’s benefits relative to men’s. An awareness of these
                     implications is important in assessing these proposals.

                     However, there may be ways to mitigate some of these effects.
                     Information about investment principles and financial planning might help
                     minimize the differences in investment behavior between men and women
                     and improve retirees’ ability to manage their assets. Mandatory or partial
                     annuitization might reduce the risk that some wives will have little to live
                     on when they outlive their husbands. The use of unisex life tables could
                     ensure equal monthly benefits for men and women with comparable
                     lifetime earnings.

                     We received written comments from SSA on a draft of this report. SSA staff
Agency Comments      also submitted technical comments, which we incorporated in the report
and Our Evaluation   as appropriate. In its overall comments, SSA commended GAO for outlining
                     some of the concerns about the differential effects on women of the new
                     privatization reform proposals. SSA expressed concern, however, that by
                     focusing primarily on women as retired workers, we had missed the effect
                     of privatization on women as dependents. We agree that the Social
                     Security reform proposals have important implications for dependent
                     benefits, and we discuss their impact in several places in the report. We
                     paid special attention to the effect of reform proposals on women
                     receiving worker benefits of their own, however, because under some
                     privatization proposals, dependent benefits may be a less important part of
                     their retirement income package. Women’s lower rates of labor force
                     participation and earnings, the proposed changes in the calculation of the
                     basic worker’s benefit, and risks related to the creation of individual
                     retirement accounts all have major implications for women’s standard of
                     living in retirement relative to men’s.

                     Page 16                          GAO/HEHS-98-42 Women and Social Security Reform

Three reviewers who are experts in the fields of social security and
pensions also made comments on a draft of this report, and we
incorporated them as appropriate.

As we arranged with your office, unless you announce its contents earlier
we plan no further distribution of this report until 30 days after the date of
this letter. We will then send copies to the Commissioner of Social
Security and make copies available to others on request.

This report was prepared under my direction. Please contact Francis P.
Mulvey, Assistant Director, at (202) 512-3592 or Alicia Puente Cackley,
Senior Economist, at (202) 512-7022 if you or your staff have any

Sincerely yours,

Jane L. Ross
Director, Income Security Issues

Page 17                          GAO/HEHS-98-42 Women and Social Security Reform

Letter                                                                                               1

Appendix I                                                                                          20

Scope and
Appendix II                                                                                         25

Elements of Social
Security Reform
Proposals That Affect
Appendix III                                                                                        30

Comments From SSA
Tables                  Table 1: Individual Single Life and Joint and Full Survivor                 11
                          Monthly Benefits on a $100,000 Premium Annuity
                        Table 2: Range in Monthly Benefits From an Individual Single Life           12
                          $100,000 Premium Annuity
                        Table I.1: Regression Results for the Determinants of Investment            22
                        Table II.1: Features of Social Security Under Current Law and               26
                          Reform Proposals

Figures                 Figure 1: Labor Force Participation Rates, 1950-96                           6
                        Figure 2: Labor Force Participation Rates of Women for 5-Year                7
                          Age Groups

                        Page 18                         GAO/HEHS-98-42 Women and Social Security Reform


ERA        early retirement age
HRS        Health and Retirement Study
IRA        individual retirement account
OASI       Old Age and Survivors Insurance
NRA        normal retirement age
PIA        primary insurance amount
PIP        Personal Investment Plan
PRA        personal retirement account
PTA        Personal Thrift Account
SSA        Social Security Administration

Page 19                       GAO/HEHS-98-42 Women and Social Security Reform
Appendix I

Scope and Methodology

                   This appendix provides more detail about our analysis of gender
                   differences in the percentage of total assets invested in risky assets and in
                   individual annuity benefits. To conduct our work on asset investment, we
                   analyzed the first round of interviews from the Health and Retirement
                   Study (HRS), a longitudinal survey prepared by the University of Michigan
                   Survey Research Center. To conduct our work on individual annuity
                   benefits, we analyzed data from Best’s Policy Reports, an insurance
                   information publication. We also reviewed the relevant technical
                   literature. We did not independently verify the accuracy of HRS because it
                   is commonly used by researchers. We also did not independently verify the
                   annuity data, which are from a common source of information for the
                   insurance industry.

                   The first wave of HRS was conducted in 1992. The sample was composed of
Health and         families in which at least one family member was between the ages of 51
Retirement Study   and 61. The survey asked the primary respondent and his or her spouse
                   questions regarding their current and past employment, family asset
                   holdings and debt, and demographic characteristics. From the total sample
                   of 12,652 respondents interviewed, we selected a subsample of 2,371 single
                   respondents (that is, never-married, separated, divorced, or widowed). We
                   excluded married couples from our sample because we were particularly
                   interested in differences across gender, and within married couples we
                   could not distinguish which member of a couple was the decisionmaker on
                   financial issues.21 We used sample weights throughout our analysis. The
                   final sample size was 1,414 individuals, after we deleted cases with missing
                   data. The advantage of using HRS is the detail of the data on assets held by
                   the individual, as well as the demographic and household information. The
                   major caveat to our analysis is that it cannot be generalized to the
                   population as a whole; it applies only to the single population between the
                   ages of 51 and 61 in 1992. However, people of this age are particularly
                   relevant for a study of investment behavior since they are passing through
                   their prime earning and saving years and closing in on retirement age. We
                   also recognize that our results for this population may not accurately
                   predict the investment behavior of future cohorts.

                   The estimated model examines the effects of individual characteristics,
                   including gender, on the ratio of risky assets to total assets held by the
                   individuals. The multivariate regression estimation technique used is a
                   tobit model. The tobit model takes into account the fact that the

                     In the case of persons who are separated, divorced, or widowed, we do not know which spouse made
                   the initial investment decision. However, since this group’s investment pattern is different from that of
                   married couples, we are attributing the decisionmaking to the individuals.

                   Page 20                                      GAO/HEHS-98-42 Women and Social Security Reform
                     Appendix I
                     Scope and Methodology

                     dependent variable is a ratio that is bounded by 0 and 1. The model will
                     not predict a ratio of risky assets that is outside this range. Formally, the
                     model can be expressed as

                     Y* = β/ X + ε

                     where the X vector contains independent variables; the β vector contains
                     the parameters to be estimated; and ε is the error term, assumed to be
                     random, that captures the unobserved factors influencing the dependent
                     variable. The dependent variable, the ratio of risky assets to total assets, is

                     Y = Y* if 0 ≥ Y* ≥ 1

                     Y = 0 if Y* < 0

                     Y = 1 if Y* > 1

                     The dependent variable is the ratio of risky assets to total assets held by
Construction of      the respondent. Total assets included housing equity and nonhousing
Variables            equity such as checking and savings accounts, money market funds,
                     certificates of deposit, government bonds, Treasury bills, IRAs, KEOGHs,
                     stocks, mutual funds, investment trusts, business equity, bonds, bond
                     funds, and other assets. Our definition of risky assets includes stocks,
                     mutual funds, and investments trusts only. The independent variables used
                     in the analysis are a constant term, age, age squared, education, race,
                     gender, number of children living at home or away at school, the natural
                     log of annual income, and the natural log of total net worth.

                     The coefficient estimates from the model of the investment in risky assets
Regression Results   are shown in table I.1. The coefficient estimates indicate the effect of a
                     change in an independent variable on an individual’s percentage of total
                     assets that are classified as risky, holding constant the values of all other
                     independent variables. For example, the coefficient estimate of 0.08 for
                     the gender variable indicates that men’s ratio of risky assets to total assets
                     is 8 percentage points higher than women’s.

                     Page 21                           GAO/HEHS-98-42 Women and Social Security Reform
                                        Appendix I
                                        Scope and Methodology

Table I.1: Regression Results for the
Determinants of Investment Behavior     Independent variable                             Coefficient estimate       Standard error
                                        Constant                                                          .89                 4.59
                                        Age (in years)                                                  –.10                    .16
                                        Age squared (in years)                                        .00092                 .0015
                                        Education (in years)                                              .03a                .006
                                        Race (nonwhite = 1)                                             –.09b                   .04
                                        Gender (male = 1)                                                 .08                   .03
                                        Number of children                                             –.006                    .02
                                        Natural log of annual income (dollars)                          .007                    .02
                                        Natural log of net worth (dollars)                                .10a                  .01
                                        σ   c
                                                                                                          .36  a
                                        Log likelihood function                                      –487.95
                                            Significant at the 1-percent level.
                                            Significant at the 5-percent level

                                        σ is the standard deviation of the error term.

                                        The coefficient on the gender variable was positive and significant,
                                        indicating that male respondents held a significantly higher percentage of
                                        risky assets than female respondents. The coefficients on the education
                                        and natural log of net worth variables were also positive and significant.
                                        These results indicate that as respondents’ levels of education and net
                                        worth increase, the ratio of risky assets to total assets that they hold
                                        increases as well. The coefficient on the race variable was negative and
                                        significant, indicating that nonwhite respondents held significantly lower
                                        percentages of risky assets than white respondents. The other independent
                                        variables were insignificant, indicating that there was no significant
                                        correlation between these variables and the ratio of risky assets to total
                                        assets held by the individuals.

                                        Page 22                                     GAO/HEHS-98-42 Women and Social Security Reform
                        Appendix I
                        Scope and Methodology

                        We constructed two other versions of the dependent variable, each of
Other Specifications    which included other types of assets in the definition of risky assets. Our
                        second model included business equity, bonds and bond funds in the risky
                        category of assets, along with stocks, mutual funds, and investment trusts.
                        Our third model included IRAs, KEOGHs, and other assets as well. Using
                        the same set of independent variables as in model one, we got very similar
                        results from a tobit estimation of each of these new specifications. In both
                        cases, the coefficient on the gender variable was positive, significant, and
                        actually of greater magnitude than our initial specification. The other
                        independent variables that were significantly correlated with the
                        dependent variable in model one were still significant in models two and
                        three. We report only the results of model one, however, because we
                        recognize that these broader definitions of risky assets include some
                        saving vehicles that cannot be easily classified as either risky or safe.
                        Assets such as IRAs and KEOGHs could fall into either category, and
                        without more information we cannot be sure that we are labeling them
                        accurately. By reporting only the results from the estimation that uses our
                        narrowest definition of risky assets—that is, stocks, mutual funds, and
                        investment trusts—we have greater assurance that we are adequately
                        measuring a true difference in the level of risk that individuals are
                        choosing as they allocate their portfolios of assets.

                        We took the data on monthly annuity benefits for men and women from a
Annuities Information   recent edition of Best’s Policy Reports that provided data from 111
                        insurance companies that offer single premium immediate annuities. The
                        report lists the monthly benefit generated by a $100,000 single premium,
                        for men and women, under both qualified (or tax-deferred) and
                        nonqualified plans. The benefits are also differentiated by the age of the
                        annuitant, ranging in 5-year increments from 55 to 80 for nonqualified
                        plans and from 55 to 70 for qualified plans. Both a lifetime-only option and
                        a joint and full survivor option are reported.

                        Page 23                          GAO/HEHS-98-42 Women and Social Security Reform
Appendix I
Scope and Methodology

We report the annuity information for nonqualified plans only, since they
constitute two-thirds of all immediate annuities purchased. We calculated
the average monthly benefit across all 111 firms, separately for men and
women, and for each age. We also calculated the range, within each age
and gender category, between the largest and smallest monthly benefit

Page 24                         GAO/HEHS-98-42 Women and Social Security Reform
Appendix II

Elements of Social Security Reform
Proposals That Affect Women

               Several different reform plans have been proposed to address Social
               Security’s long-term financing problem. Three plans put forth by members
               of the 1994-96 Advisory Council on Social Security have received the most
               attention, but other plans by members of the Congress, research
               organizations, and advocacy groups have also been proposed.

               The three Advisory Council proposals are the Maintain Benefits plan, the
               Individual Accounts plan, and the Personal Security Accounts plan. At
               least two other plans have been proposed in legislation in the Congress,
               including S. 321 (105th Congress) and S. 2176 (104th Congress), and two
               more plans that have received serious attention were proposed by the
               Committee for Economic Development, a research organization, and the
               National Taxpayers Union Foundation, an advocacy group. All seven plans
               are compared to current Social Security law in table II.1.

               Page 25                        GAO/HEHS-98-42 Women and Social Security Reform
                                                 Appendix II
                                                 Elements of Social Security Reform
                                                 Proposals That Affect Women

Table II.1: Features of Social Security Under Current Law and Reform Proposals
                                                          Reform proposals of 1994-96 Advisory Council on Social Security
                                                                                                                  Personal Security
Type of beneficiarya           Social Security             Maintain Benefits          Individual Accounts         Accounts
Retired worker                 — Benefit computation is    Extends computation        — Extends computation       — Creates two-tier            —
                               based on 35 years of        period from 35 years to    period from 35 years to     system with a tier I flat
                               highest taxable earnings    38 years of taxable        38 years of taxable         benefit based on years
                               — Progressive formula       earnings                   earnings                    of taxable earnings and
                               leads to redistribution                                — Changes benefit           a tier II personal security
                               — Benefits reduced                                     formula by lowering         account based on              —
                               actuarially if taken                                   conversion factors          defined contribution
                               between 62 and normal                                  — Accelerates increase      pension                       —
                               retirement age (NRA);                                  of NRA and indexes to       — Accelerates increase        —
                               increased if taken after                               longevity                   of NRA and indexes to
                               NRA                                                    — Creates individual        longevity
                               — NRA to increase to 67                                account based on            — Increases early             —
                               years for persons born                                 defined contribution        retirement age to 65
                               after 1959                                             pension                     years                         —

Spouse                         — Benefit is 50% of the     Same as current law        Benefits are lowered        50% of full tier I benefit
                               retired worker’s benefit                               from 50% to 33% of
                               — Benefit is actuarially                               retired worker’s benefit
                               reduced if taken
                               between 62 and NRA
Survivor                       — Benefit is equal to       Same as current law        — Higher of own basic       75% of benefit payable
                               amount deceased                                        benefit or deceased         to couple plus eligibility
                               spouse would be                                        spouse’s basic benefit or   to inherit balance of
                               receiving but not less                                 75% of couple’s             deceased spouse’s
                               than 82-1/2% of                                        combined benefit            personal security
                               deceased spouse’s                                      — Joint and survivor        account
                               benefit                                                annuity with individual
                               — Benefit is actuarially                               account balance
                               reduced if taken
                               between 62 and NRA
Dually entitled beneficiaryc   Receives own retired        Same as current law        — Own individual            Tier II own
                               worker benefit plus                                    account benefit             accumulations plus
                               difference (if positive)                               — Higher of own basic       higher of own tier I
                               between spouse or                                      benefit or 33% of           benefit or 50% of full tier
                               survivor benefit and his                               spouse’s benefit            I benefit
                               or her retired worker

                                                 Page 26                               GAO/HEHS-98-42 Women and Social Security Reform
                                              Appendix II
                                              Elements of Social Security Reform
                                              Proposals That Affect Women

                                                                                                                National Taxpayers Union
Committee for Economic Development                Gregg billb                    Kerry-Simpson billb            Foundation
— Creates two-tier system with basic benefit      — Adds to the current          — Adds to the current          — Converts current system
based on years of taxable earnings and a          system by establishing a       system by establishing a       to a system of Personal
personal retirement account (PRA) based on        mandatory 1% payroll           mandatory 2% payroll           Thrift Accounts (PTA),
defined contribution pension, financed by an      deduction Personal             deduction. PIP to be used      based on payroll
additional mandatory 3% contribution              Investment Plan (PIP) to be    in a similar fashion to the    contribution of 5%
— Gradually lowers replacement rate for two       used in a similar fashion to   Thrift Savings Plan            (designed to replace other
higher-income brackets                            the Thrift Savings Plan        — Reduces factors used for     benefits of Old Age and
— Favors annuitization of PRA at retirement       — Reduces factors used for     calculation of PIA, based on   Survivors Insurance (OASI)
— NRA increases to 70, beginning in 2000,         calculation of PIA, based on   age of worker                  — PTAs can be passed
by 2 months per year and indexed to life          age of the worker                                             down after death of worker
expectancy thereafter                             — NRA gradually increases                                     or owner of PTA
— Early retirement age (ERA) remains at 62        to 70 (and beyond) in 2029                                    — Mandatory (minimum)
but with additional actuarial reduction           for both workers and                                          annuitization at retirement
— Taxes all benefits in excess of contributions   widows older than 62                                          (joint and survivor annuity if
— Increases years of taxable earnings in          beginning in 2000                                             applicable)
primary insurance amount (PIA) calculation        — ERA gradually increases                                     — Fund balances in excess
from 39 to 40 years                               to 65 (and beyond) in 2017                                    of minimum annuity
                                                  for both workers and                                          purchase are unrestricted
                                                  widows older than 62
                                                  beginning in 2000
Reduces benefits from 50% to 33% of retired       Unless otherwise decided,      Unless otherwise decided,      PTA is transferred to
worker’s benefit for nonworking spouses           transfers PIP balance to       transfers PIP balance to       spouse at death of owner
                                                  spouse at death                spouse at death

100% of deceased worker benefit or own            Balance of PIP is              Balance of PIP is              Retains all OASI child
benefit, whichever is larger                      transferrable at death of      transferrable at death of      benefits
                                                  retired worker (if agreed to   retired worker (if agreed to
                                                  in writing; otherwise spouse   in writing; otherwise,
                                                  receives it)                   spouse receives it)

No mention                                        Spouse receives PIP            Spouse receives PIP            PTA is transferred at death
                                                  balance at death of retired    balance at death of retired    of owner
                                                  worker                         worker


                                              Page 27                                   GAO/HEHS-98-42 Women and Social Security Reform
                                             Appendix II
                                             Elements of Social Security Reform
                                             Proposals That Affect Women

                                                           Reform proposals of 1994-96 Advisory Council on Social Security
                                                                                                             Personal Security
Type of beneficiarya       Social Security             Maintain Benefits          Individual Accounts        Accounts
Divorced and surviving     — Must have been            Same as current law        No mention                 No mention
divorced spouse            married for at least 10
                           years and currently be
                           unmarried (for divorced
                           spouse only)
                           — Must be at least 62
                           years old for divorced
                           spouse, 60 years old for
                           divorced survivor
                           — Benefit actuarially
                           reduced if younger than
                           — Divorced spouse
                           benefit is 50% of retired
                           worker’s benefit
                           — Surviving divorced
                           spouse benefit is 100%
                           of retired worker’s benefit
Mother or father and       — Have eligible child in    Same as current law        Same as for spouse or      Same as for spouse or
widowed mother or father   care                                                   survivor plus child’s      survivor plus child’s
plus child                 — Younger than 65                                      benefit (same as current   benefit (same as current
                           — 50% of retired                                       law)                       law)
                           worker’s benefit plus
                           50% of child’s benefit
                           — 75% of deceased
                           worker’s benefit plus
                           75% of child’s benefit

                                             Page 28                               GAO/HEHS-98-42 Women and Social Security Reform
                                     Appendix II
                                     Elements of Social Security Reform
                                     Proposals That Affect Women

                                                                                                            National Taxpayers Union
Committee for Economic Development       Gregg billb                     Kerry-Simpson billb                Foundation
No mention                               If there is no current          If there is no spouse, then        In the event of a divorce,
                                         spouse, then benefits           benefits devolve to the            divides evenly all PTA
                                         devolve to the individual’s     individual’s last surviving        assets attributable to wages
                                         last surviving divorced         divorced spouse but not if         earned during the marriage
                                         spouse but not if that former   that former spouse is
                                         spouse is currently married     currently married

No mention                               No mention                      No mention                         Retains all OASI nonaged
                                                                                                            survivor benefits

                                     Beneficiary categories are based on Social Security definitions.
                                      Both Gregg (S. 321, 105th Congress) and Kerrey-Simpson (S. 2176, 104th Congress) contain
                                     provisions that allow them to operate in a two-tier system. The first tier pays traditional Social
                                     Security benefits that are lowered because of the reduction in the payroll tax. The second tier
                                     consists of the PIP account balances that are a percentage deducted from payroll.
                                     Entitled to benefits as both retired worker and spouse or survivor of retired worker.

                                     Page 29                                      GAO/HEHS-98-42 Women and Social Security Reform
Appendix III

Comments From SSA

               Page 30   GAO/HEHS-98-42 Women and Social Security Reform
           Appendix III
           Comments From SSA

(207450)   Page 31             GAO/HEHS-98-42 Women and Social Security Reform
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