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Social Security: Recommendations of the 1994-1996 Advisory Council on Social Security

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Publication Date: May 1997

Publisher(s): Library of Congress. Congressional Research Service

Series: 97-81

Topic: Government (Public finance)

Abstract:

In 1994, the Secretary of Health and Human Services (HHS) appointed the last quadrennial Advisory Council on Social Security. At that time, the Social Security Act stipulated that every 4 years the Secretary of HHS appoint an Advisory Council on Social Security for the purpose of reviewing the status of the Old-Age, Survivors and Disability Insurance (OASDI -- usually regarded as “Social Security”) Trust Funds, as well as the Hospital Insurance and Supplementary Medical Insurance (Medicare) Trust Funds. When announcing the appointment of the Advisory Council, the Secretary asked the Council to focus only on the Social Security program, and specifically requested that it examine the program’s long-range financial status, as well as the adequacy and equity of its benefits and the relative roles of the public and private sectors in providing retirement income. Although not stated as such, this charge reflected a general concern about Social Security’s long-range solvency and the growing loss of public confidence in the system.

These problems are reflected in the long-range projections of Social Security’s income and outgo. Although currently Social Security’s income exceeds its outgo, its board of trustees projects that over the next 75 years its expenditures will exceed its income on average by 16%. The primary reasons are demographic: an aging post-World War II “baby boom” generation, declining birth rates, and increasing life expectancies are creating an older society. It is projected that by 2029 the program’s trust funds would be fully depleted and the system would be technically insolvent.

On January 6, 1997, the 1994-1996 Advisory Council on Social Security issued its report on ways to solve the program’s long-range financing problems. As the Council could not reach a consensus on a particular approach, the report contains three different proposals that are intended to attain the goal of restoring long-range solvency to the Social Security system. The first proposal, labeled the “maintain benefits” plan, keeps the program’s benefit structure essentially the same by addressing most of the long-range deficit through revenue increases, including an eventual rise in the payroll tax, and minor benefit cuts. To close the remaining gap, it recommends that investing part of the Social Security trust funds in the stock market be considered. The second, labeled the “individual account” plan, restores financial solvency mostly with reductions in benefits, and in addition imposes mandatory employee contributions to individual savings accounts. The third, labeled the “personal security account” plan, achieves long-range financial balance through a major redesign of the system that gradually replaces a major portion of the Social Security retirement benefit with individual private savings accounts.