1994-96 Advisory Council Report
The 1994-1996 Advisory Council on Social Security was established on March 23, 1994, by the Secretary of Health and Human Services, Donna E. Shalala, under Section 706 of the Social Security Act. That provision required the Secretary to appoint every 4 years such an Advisory Council, composed of representatives of the general public, business, workers, and the self-employed, to review the key programs under the Social Security Act--most importantly, Social Security cash benefits and Medicare--and advise the public, the Administration, and Congress on how best to prepare these programs for the future.
The tradition of using advisory groups started with the Committee on Economic Security in 1935 and the 1938-39 Advisory Council, both of whose recommendations formed the basis of Social Security as it exists today. Advisory Councils were continued on an ad hoc basis until 1965, when Congress enacted Section 706 of the Social Security Act. Since then, there have been several Quadrennial Advisory Councils as well as separate commissions on Social Security.1 The 1994-1996 Social Security Advisory Council is the last one authorized under that provision. In 1994, Congress, as part of the Social Security Independence and Program Improvement Act, repealed section 706 and created a permanent Social Security Advisory Board.
In 1994, Secretary Shalala, in consultation with Commissioner of Social Security Shirley S. Chater, asked this Council to focus specifically on the long-term fiscal imbalance in the Old-Age, Survivors and Disability Insurance (OASDI) program, that is, Social Security cash benefits; to reexamine the benefit structure in OASDI from various distributional perspectives and recommend revisions as appropriate; and to examine and comment on other public and private policies affecting income in retirement.
To assist in its work, the Council created two technical panels. One panel--the Technical Panel on Assumptions and Methods-Cwas composed of economists, actuaries, and demographers. It focused on the key underlying economic and demographic assumptions used by the Social Security Administration=s Office of the Actuary in forecasting the program=s financial condition and other empirical matters. The other panelC-the Technical Panel on Trends and Issues in Retirement SavingsC-was composed of economists and policy analysts. It addressed retirement income provisions generally, analyzed trends in pension and other retirement savings, and focused on the interaction between those sources of retirement income and Social Security.
Although the panels made particular recommendations that depart from the assumptions now used by the Social Security Trustees, their recommendations would in the aggregate not significantly affect the forecasts embedded in the 1995 Trustees Report. Except for the Consumer Price Index (CPI) assumptions, the Council decided to use the intermediate assumptions in the 1995 Trustees Report throughout its deliberations and recommendations. With respect to the CPI assumptions, the Council decided to take account of corrections to the CPI that the Bureau of Labor Statistics made in 1995 and other corrections that were announced in March 1996--resulting in annual Social Security cost-of-living adjustments being 0.21 percentage points lower (on average). In addition, assumptions relating to yield rates on investments in private markets and administrative expenses related to such investments were based on assumptions agreed upon by a majority of Council members.
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1 / Two special commissions on Social Security reported in the early 1980s. The 1977 Social Security amendments established the National Commission on Social Security, which reported in 1981. By Executive Order in 1981, President Reagan established the National Commission on Social Security Reform (Greenspan Commission), which reported in 1983.
Medicare and Disability Insurance
Although by statute it could have addressed Medicare, the Council decided, consistent with its mandate from the Secretary, that it could best contribute by focusing its review on the Social Security cash programs. In addition, in light of several parallel efforts, the Council did not address specific eligibility issues in the Disability Insurance (DI) program. Aspects of the DI program are inseparable from the Old-Age and Survivors= program, however, and where appropriate, the Council addressed the OASDI program as a single entity. The Council expresses its concern about the increasing cost of the Disability Insurance program and urges that the new Advisory Board work with the Social Security Administration and Congress to manage Disability Insurance costs.
Structure of the Report
This report first outlines those principles on which there was broad agreement within the Council. It covers recommendations concerning the overall Social Security system, research and data, and private pensions. The report then details three different Social Security reform packages and includes two separate concluding sections, written by different groups of members. Supplementary statements by members of the Council follow. One of the appendices provides information on the financial effects of the three plans. Also included are executive summaries of the reports of the two technical panels of experts commissioned by the Council.
This volume is followed by a second volume that contains the complete reports of the two technical panels, along with write-ups of many of the presentations given to the Council since the first meeting in June 1994.
The Council wishes to acknowledge and thank the many individuals in the Social Security Administration whose support was crucial to accomplishing the mission of this Council. We wish to thank the Office of the Actuary, which contributed a great many resources to the Council's research and analysis effort. In particular we commend the hard work and dedication of Deputy Chief Actuary Stephen Goss. In addition, the Office of Legislation and Congressional Affairs and particularly the Benefits Staff provided valuable information and analytical support for our meetings and background papers. We also would like to thank the Office of Research and Statistics, and Steven Sandell particularly, as well as Peggy Fisher and other members of the Policy Analysis and Evaluation Staff, for contributing analytical assistance and background information. In assisting with the establishment of the Advisory Council and Technical Panels of experts as well as keeping things running smoothly, the Office of Program Policy and External Communications was very helpful; we wish to thank in particular, for their hard work and efficient administrative and management support, Kathy McCullough, Donna Merritt, and John Sabo. In helping to obtain much of the expertise from outside of the Federal Government, we thank the Office of Acquisition and Grants and, in particular, we thank Wayne McDonald for his efficient management and careful advice on many contracting matters.
Our technical panels of experts provided the Council with invaluable information and thought-provoking discussion of the issues before the Council. We are indebted to all members of the panels, who provided a great deal of time and energy to that effort. We wish to thank, in particular, the Co-Chairs of the Trends and Issues in Retirement Savings Panel, Olivia Mitchell and Joseph Quinn, and the Chair of the Assumptions and Methods Panel, Howard Young.
We received considerable assistance from several talented and hard-working individuals who provided their services to the Council at critical times and helped clarify many important issues. We thank Christopher Bender, Martin Holmer, and Michael Sze for the sophisticated computer modeling and analytical research. We are indebted to Thomas Stanton for the analytical research on the institutional issues surrounding investment of Social Security funds in equity securities. Also on the issue of equity investments, we greatly appreciate and thank Joel Dickson for his time and expertise in examining the financial conditions involved with the investment of individual accounts. We wish to thank Joseph Foote as the editor for the helpful review and many suggestions he provided on the Council's report.
A Council, first and foremost, must rely heavily on a staff to accomplish its goals and objectives. We were quite fortunate to have a staff of hard-working and dedicated individuals. We thank our very able Executive Director, David Lindeman, and the individuals on this staff: Arlene Berger, John Boyle, Nicholas Curabba, Jeanne Hawkins, Wayne Sulfridge, Daniel Wartonick, and Toni Wilson. We particularly thank Timothy Kelley, who served tirelessly as Executive Director in the latter stages of the Council proceedings and the development and printing of this report.
Finally, although we received a great deal of help and support from many people, responsibility for all recommendations, findings, and information contained in this report rests solely with the members of the Council. We have contributed our very best efforts and hope that this report contributes valuable information and offers useful guidance to the rising national debate about improving the Social Security program.