SSA Benefit Estimate Statement

Congress is considering whether to require Social Security to include an individual rate of return estimate on the Personal Earnings and Benefit Estimate Statement that each worker will begin receiving in 2000. The goal would be to enable workers to compare the current Social Security program with other investments, including alternatives being discussed in the congressional debate about how to restore Social Security's long-term solvency. GAO found that substantial disagreement exists about whether the rate of return concept should be applied to Social Security. Supporters point out that providing this information would educate people about the return that they will receive on their contributions. 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 guaranteeing low-wage earners an adequate income in their old age or providing for dependent survivors. In addition, actual rates of return can vary substantially from the estimates because of various uncertainties, such as a worker's retirement age and future earnings. To be clearly understood, the underlying assumptions and their effect on the estimates should be explained in any presentation of rate of return information. Moreover, comparing rate of return estimates for Social Security with estimates for private investments could be difficult for several reasons. For example, the comparisons would need to indicate whether the estimates for other investments include the transaction and administrative costs and the differences in risk associated with Social Security and private investments. Finally, providing rate of return information on the statements could further complicate and lengthen an already complex and difficult-to-understand document.

GAO noted that: (1) there is substantial disagreement about whether the rate of return concept should be applied to the Social Security program; (2) 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; (3) 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; (4) in addition, calculations for rates of return rely on a number of assumptions that affect the resulting estimates; (5) 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; (6) to be clearly understood, the underlying assumptions and their effect on the estimates should be explained in any presentation of rate of return information; (7) furthermore, comparing rate of return estimates for social security with estimates for private investments could be difficult for various reasons; (8) for example, the comparisons would need to indicate whether the estimates for other investments include the transaction and administrative costs and the differences in risk associated with the social security trust funds and private investments; (9) providing rate of return information on the PEBES could further complicate and lengthen an already complex and difficult-to-understand statement; (10) in GAO's previous work, it concluded that the current PEBES is too long and its explanations of social security's complex programs are not easy for the public to understand; and (11) adding rate of return estimates to the PEBES would require detailed explanations about how the calculations were made and what assumptions were used about comparing a rate of return for social security with rates for private investments.