Testimony by Social Security Commissioner Kenneth S. Apfel
before the House Ways and Means Committee, Subcommittee on Social Security about the Social Security Statement,
April 11, 2000

Mr. Chairman and Members of the Subcommittee:

Thank you for inviting me to discuss one of the Agency's achievements of which I am most proud-the Social Security Statement.


Social Security touches the lives of virtually all Americans. At least 152 million workers pay into Social Security and more than 44.6 million individuals receive monthly Social Security benefits because they are retired, disabled, or dependent family members or survivors of a worker. Social Security is the largest source of income for most elderly Americans and keeps millions of elderly out of poverty.

Throughout its history, Social Security has made a difference in the lives of Americans, and one of our basic responsibilities to the public is to help Americans understand the value of the Social Security programs and their importance to them and their families. The Social Security Statement is the most significant vehicle we have to increase the public's understanding of the basic features of Social Security and enable Americans to prepare for their long-term financial security. As part of our ongoing public education efforts, SSA began in 1988 to issue earnings and benefit estimate Statements to individuals who requested them. Since then, SSA has sent about 3 million of these statements annually.

SSA Initiated Statements

In amendments to the Social Security Act in 1989 and 1990, Congress required SSA to send Personal Earnings and Benefit Estimate Statements (PEBES) to workers. SSA was required to mail a PEBES to all workers aged 60 or over in FY 1995; in FY 1996 through FY 1999 to individuals who reach age 60 in those years; and annually to all covered workers age 25 and older beginning in FY 2000. In addition to the PEBES mailing required by law, SSA sent PEBES to increasingly younger individuals in advance of the schedule in the law. SSA sent a PEBES to workers aged 40 and older--about 73 million people--between September 1995 and March 1999.

Beginning October 1, 1999, the SSA launched the largest customized mailing ever undertaken by a Federal agency when it began sending a newly-designed PEBES, now called the Social Security Statement. SSA staggers the mailing of the Statements throughout the year, with approximately a half million Statements delivered each day, a total of about 10 million mailings delivered each month. The Statements are mailed so that workers will automatically receive their Statements about three months before their birth month.

The Statements provide workers with a list of their yearly earnings on record at SSA, information about their eligibility for benefits, and estimates of these benefits. Estimated retirement benefits at age 62, at normal retirement age (the age at which unreduced benefits are payable) and at age 70 are provided. Thus, the Statements help individuals decide when to retire and claim benefits. The Statement also contains estimated totals of the Social Security taxes that have been paid by the worker and by his/her employer over the individual's working career. The Statements provide workers an opportunity to review the earnings (or self-employment income) posted on their Social Security record to ensure their record of earnings is complete and accurate. This is an important feature because the amount of a worker's future benefits will be based on his or her earnings record. SSA also provides general information and explanations to help individuals understand their personal data and how to contact us if they have any questions.

The new Statement, like its PEBES predecessor, provides estimates of Social Security retirement, disability, and survivors' benefits that workers and their families could be eligible to receive now and in the future. To design the new form and simplify the language, SSA used extensive public and employee input. The new design is based on the results of testing four prototypes with focus groups in three different age groups (ages 25-35, 36-50, and over 50). We also obtained additional public input through a nationwide mail survey of 16,000 randomly selected individuals from the same age groups. We also received comments from agencies and organizations that represent diverse sections of the public. We found that focus group and mail survey participants alike overwhelmingly found the redesigned Statement an improvement over PEBES. Communicating technical and complicated information in a way that is understandable to a diverse public can be difficult, but SSA has worked diligently to ensure that the message in our Social Security Statement is clear. I am proud that the Social Security Statement received Vice President Gore's Plain Language Award.

I am pleased to report that the results of a recent survey, undertaken at SSA's request, revealed that receipt of a Statement has helped in increasing Americans' understanding of Social Security. Sixty-eight percent of the people who recalled receiving a Statement were knowledgeable about Social Security, as compared to 53.3 percent of persons who did not recall receiving a Statement. The survey also found that individuals who have received a Social Security Statement from SSA have a significantly greater understanding of some important basic features of Social Security. Those who have received a Statement are significantly more likely to know that (1) the amount of Social Security benefits depends on how much they earned; (2) Social Security pays benefits to workers who become disabled; (3) Social Security provides benefits to dependents of workers who die; and (4) Social Security was designed only to provide part of total retirement income. The survey validates the performance measures we use to track our progress in meeting our "Public Understanding" strategic goal. We track both the increasing numbers of Statements we send to the public and the increasing public knowledge about our programs. Awareness of the Statement increased from 49.5 percent of the public in 1998 to 62.2 percent (about 125 million Americans) in 1999. SSA's public education activities to announce the Statement appear to have been very successful. This is significant because awareness is the first step to knowledge.

Comments we have received from those who got the new Statements indicate that the Statement not only helps the public understand the Social Security program but assists in financial planning. In fact, 66% of those surveyed said that the Statement would be helpful for that purpose. In addition, the favorable reaction from financial columnists all over the county has reinforced for the public the importance and usefulness of the Statement. I have attached to my testimony a number of such columnists' reactions for inclusion in the record.

Since its release in October, we have made further changes to improve the presentation of the material contained in the Statement. We have added information about Social Security's future, pointing out that Social Security will be there when workers retire, but that changes will be needed in order to resolve the program's long-range financial issues. We have included an explanation that the benefit estimate may be different from the worker's actual benefit amount because of changes in his or her earnings in future years and any changes that could occur in the current laws governing benefit amounts. We have also included information on the long-term challenges faced by the program, including the date when benefits exceed income and the date of the exhaustion of the trust funds.

We will continue to make changes to the Statement as needed. SSA immediately updates the Statement for legislative changes, when a new Trustees Report is issued or if an error is detected. At the end of the calendar year, we update the Statement to reflect changes in the maximum covered earnings amount, retirement test limitations, and changes to the benefit calculations. In conjunction with these necessary end-of-year changes, we review public reaction, Congressional concerns, and employee input to identify and include suggested revisions and additions to the Statement that would make it more useful and understandable for recipients. Of course, in the near future we will be updating the Statement to reflect the 2000 Trustees Report and the enactment of HR5, the bill that abolished the Social Security earnings limit for Social Security beneficiaries at or above the normal retirement age.

As we continue our efforts to educate the public about the value of our programs and their role in family financial planning, SSA will be conducting information campaigns throughout fiscal year 2000 encouraging individuals to use the information in the Statements to prepare for their financial futures.

Last week, we unveiled a new electronic service to help Americans better prepare for their financial future-an online retirement planner. SSA's online retirement planner will allow individuals to compute estimates of their future Social Security retirement benefits online at the SSA Internet website- www.ssa.gov.

Our new Internet service, Social Security Retirement Planner, will assist workers with their retirement planning by helping them understand the amount of Social Security benefits they can expect in retirement. With this information and with information from their employer about private pensions, workers will be able to make better informed decisions about their family savings and investment needs. Social Security is the foundation on which to build a stable financial future; but a comfortable retirement has always rested on a three-legged financial stool-Social Security, pensions and savings.

To maintain privacy and to protect records from unauthorized users, none of the calculators are linked to individual earnings records or any other information in SSA's database. All benefit estimates are based strictly on input from the users.

The Social Security Retirement Planner also walks individuals through the retirement planning and application process. The service offers valuable information on issues to consider when contemplating retirement, what documents are needed when applying for benefits, other potential benefits for the worker or family members, and how and where to apply for benefits.

Cost of Issuing the Statement

The Social Security Statement is completely funded through SSA's administrative budget (from the Social Security Trust Funds). The cost to produce the annual mailing to 125 million individuals is about $70,000,000 about 56 cents per recipient.

Proposal to Revise the Statement

All of us here today are well aware of the recent debates regarding plans to restore long-term solvency for the Social Security program. As part of the discussions, legislation has been proposed that would require SSA to place on the Social Security Statement an individualized estimate of the rates of return workers would receive on their contributions to the Social Security program. The intent of the proposal is to provide information that would enable workers to compare the current Social Security program with other investments. I mentioned earlier in my testimony that SSA conducted extensive surveys to design a Statement that is both useful and responsive to the public. Clearly, our goal has been to provide a Statement that contains necessary information for the public to understand our programs and plan for their financial futures. As part of that effort, SSA considered but rejected including additional information such as an individualized rate of return on the Statements.

In September 1998, the General Accounting Office reported that there was substantial disagreement about whether it is appropriate to apply the rate of return concept to the Social Security program. The GAO report said:

Supporters of such an application point out that a rate of return would provide individuals information about the return they receive on their contributions to the program. However, others contend that it is inappropriate to use rate of return estimates for Social Security because the program is designed to pursue social insurance goals, such as ensuring that low-wage earners have adequate income in their old age or that dependent survivors are adequately provided for. In addition, calculations for rates of return rely on a number of assumptions that affect the resulting estimates. For individuals, the actual rates of return can vary substantially from the estimates due to various uncertainties, such as a worker's actual retirement age and future earnings.

SSA strongly agrees that it is inappropriate to apply individual rate of return estimates to Social Security. Social Security, like other social insurance programs such as Medicare, is not designed in a way that it could be appropriately evaluated by individual rate of return estimates. The program is designed to provide adequate income for workers and their families when the worker retires, becomes disabled, or dies. Historically, the program has been judged by the extent to which benefits replace pre-retirement earnings and how much those benefits help reduce poverty, not by estimates of the individual rate of return on contributions.

Furthermore, the program's full value cannot be accounted for when using individual rate of return estimates. Social Security is more than a social insurance program that protects people when they retire. It also protects workers against other risks over which they have little control. Almost 3 in 10 of today's 20 year-olds will become disabled before age 67 and 1 in 6 Americans will die before reaching age 67. Individuals benefit from Social Security not just through their own worker benefits but through the protection provided to workers' families against these risks. Currently millions of Americans are directly benefiting from that protection: about 1 in 3 beneficiaries is not a retiree but a disabled worker, dependent of a disabled worker or a survivor of a worker who has died.

Our ability to inform workers of the rate of return on their Social Security contributions is limited for several reasons. For example, the Social Security program is a family program that, generally, provides greater benefits to workers with larger families. But our records do not include family linkages until benefit applications have been filed. Similarly, replacement rates for lower income workers are greater than for workers with higher incomes. Without knowing lifetime average earnings or the size of a worker's family, any information provided in the Social Security Statement could significantly misstate many workers' actual rate of return. Moreover, any rate of return estimate would be extremely sensitive to periods of unemployment and other related factors.

In addition, the GAO report concluded that adding rate of return information to the Statement could significantly increase the Statement's length and complexity and undermine SSA's effort to provide a simplified but useful Statement. If rate of return estimates were added to the Statement, detailed explanations would be required about how the calculations were made, and the assumptions that were used about the individual. In addition, comparisons between rates of return estimates for Social Security and private investments would need to include the transaction and administrative costs and acknowledge the additional risk associated with private investments.

We carefully weighed considerations to include individual rate of return estimates when developing the Statement. In addition to finding that individual rate of return estimates are an inappropriate method of representing the benefits' value, we agreed with GAO's findings that adding this information would increase the complexity of, rather than enhance, the Statement. Clearly it would not serve the public to provide them with a tool that misrepresents the value of their benefits and is so complex they would need an accountant or an actuary to translate the information.


Mr. Chairman, SSA is dedicated to provide world class service to all of the people it serves. Social Security will continue to play a key role in the lives of Americans when they retire, or become disabled, or die with dependents or survivors. SSA is committed to ensuring that the public understands Social Security and its importance to them and their families' financial future. The Social Security Statement has been a valuable tool to increase public understanding of our programs, and explain that Social Security is indeed a foundation on which they can, together with other investment options, build their financial future. Thus, the Statement helps people understand not only what Social Security is, but also what it is not. I am very proud of the overwhelmingly positive reaction the Statement has received, and we will continue to monitor the public's reaction to it.

I will be happy to answer any questions you may have.