Hiltzik: coronavirus threatens some Social Security benefits


The coronavirus continues to confuse policymakers about its impact on public health, social structures, and the economy. Now Social Security advocates are beginning to grapple with its unannounced impact on millions of older workers

Simply put, anyone turning 60 this year could face a lifetime reduction in Social Security benefits due to a quirk in the program’s benefits formula that makes them vulnerable to this year’s economic downturn.

That is almost certain to happen unless Congress takes action by passing a single solution. The damage could be felt between 3 and 5 million workers and their families.

People should not experience a permanent big drop in their Social Security benefits just because they turn 60, become disabled, or experience the loss of a breadwinner at the start of a deep recession.

Paul Van de Water

Without the solution, preferably in the next coronavirus relief law, “Social Security benefits will be significantly lower for workers turning 60 this year and will be eligible for early retirement benefits in 2022,” wrote Paul Van de Water. , from the Budget Center and Political Priorities in the last siren call on the situation. “Those who are eligible for disability or youth survivor benefits in 2022 will also see lower benefits.”

The first notice of the problem appears to come from economics writer Brenton Smith on the FedSmith.com website, who raised the alarm on March 27.

Conservative commentator Andrew Biggs, a former Social Security official, followed up with an article published by the Wharton School of the University of Pennsylvania in April and an opinion warning in the Wall Street Journal in May.

As Biggs calculated, the failure could cost retirees with average lifetime earnings about $ 3,900 a year in benefits, until the end of their days. That would equal more than 20% of the current average annual Social Security benefit.

By his own assumptions, Biggs puts the gap at roughly 13% of what the 2019 Social Security trustees projected for workers born in 1960, who will turn 60 this year. Either way, it is a considerable success.

Biggs performed a valuable service by sounding the alarm, although his proposed solution will not be endorsed by many in the Social Security advocacy community. More on that in a moment.

The problem is basically technical. Here is a direct explanation (I hope).

Social Security benefits are calculated based on a worker’s average career earnings, producing what is known as average indexed monthly earnings. As Van de Water explains, earnings of workers through age 59 are adjusted to account for wage growth across the economy, using an “average wage index.”

Under normal conditions, this is the correct way to establish benefits: you adjust them more as average wages increase, and since wages tend to rise faster than prices by about 1% per year, that allows benefits to reflect long-term economic progress.

The problem arises if general wages fall sharply. That is likely to happen as a result of the multi-month economic blackout caused by the coronavirus and residual layoffs and leave until the end of the year. Van de Water proposes a fall of at least 5% in average wages in 2020; Biggs bases his calculation on a 15% drop.

As Biggs succinctly explains, referring to the year workers turn 60, “a drop in national average wages in that year reduces the Social Security index measure of all your past earnings. This produces a lower estimate of average career earnings and, therefore, a lower Social Security benefit. “The deficit affects the worker’s lifetime benefits.

This situation is obviously unfair to anyone turning 60 this year. So what to do about it?

Biggs proposes to completely eliminate wage indexation, substituting an inflation index (i.e. based on price increases rather than wage increases) along with some other formula adjustments.

That is unpleasant for Social Security advocates, who value wage indexation because it helps maintain benefit parity, and therefore the relevance of Social Security to recently retired workers, and because the wage failure It occurs only rarely.

But the current problem, which stems from extraordinary conditions, is unprecedented. Smith notes that it last happened in the 2009 recession year, when instead of increasing by more than 4% as expected by the Social Security Administration, the average salary fell 1.5%. Workers born in 1949 anod, therefore, turning 60 in 2009, “paid a very high price on their benefits” that may have reached $ 100 a month or more, Smith writes.

Van de Water and other Social Security experts come up with a simpler solution to the problem: getting Congress to order that changes in the wage index can never generate lower benefits than the year before.

There are two precedents for that. Maximum annual earnings subject to Social Security payroll tax never fall even when wages fall (this year, it’s $ 137,700, up from $ 132,900 last year).

And cost-of-living adjustments to annual benefits can never lead to lower benefits from one year to the next, even if the consumer price index on which they are based falls.

That is the best option for Congress, and one that should be inserted into the next coronavirus relief bill so that the problem is not neglected. The retirement benefits of millions of Americans are at stake.

Social Security, as Franklin Roosevelt observed at the time of its creation, was designed to help Americans cope with the “dangers and vicissitudes of life.”

That phrase aptly defines the current economic outlook. As Van de Water writes, “People should not experience a large and permanent drop in their Social Security benefits just because they turn 60, become disabled, or experience the loss of a breadwinner at the start of a deep recession.”