Staying Fit
In 2016, AARP launched its Innovation Challenge to identify policy solutions to strengthen Social Security. AARP received an overwhelming number of responses to the Challenge from thought leaders across the country. After a review by AARP staff for technical compliance, applications that met the innovation criteria were shared with an expert panel for blind review. The panel included the directors of the Retirement Research Centers at the University of Michigan, Boston College, and the National Bureau of Economic Research.
We are pleased to share that AARP selected five policy innovations from 15 authors for further development and financial support. All proposals were reviewed by blind panels using a consistent scoring rubric. The slate of awardees reflects the concepts that ranked the highest under the blind review.
With AARP’s support, the selected authors will develop their innovation and work with The Urban Institute to assess the financial and distributional impact of their policy proposals. The blind review also surfaced two additional proposals co-authored by AARP staff that were deemed poised for further development. These ideas will be developed and modeled, but no AARP staff will receive financial support to do so. All seven fully developed proposals, including the modeling results, will be released in the fall of 2017. The seven proposals are described briefly below.
AARP is committed to investing in surfacing and developing policy innovations. AARP does not necessarily support any of the policy proposals identified as innovative, other than for further development.
Policy Innovation Challenge Awardees
Catch-Up Contributions: A Voluntary, Equitable, and Affordable Solution to the Retirement Savings Crisis
This proposal would allow workers to make “catch-up” contributions via increased payroll deductions starting at age 40 or 50. At age 40, the contribution would constitute an additional 1.86% of salary in payroll taxes; at age 50, the contribution would be 3.1% of salary. Workers would be defaulted into the program with the ability to opt out because the authors wanted the program to be viewed as a purchase of valuable future benefits and not a mandate. The employer contribution would remain unchanged so as not to disadvantage older workers seeking employment from facing additional age discrimination.
Innovators: Teresa Ghilarducci, Director, Schwartz Center for Economic Policy Analysis (SCEPA), The New School, New York, and Anthony Webb with The New School for Social Research, The New School, New York.
Delayed Social Security Claiming: How to Enhance Economic Security and Potentially Enhance System Solvency
This proposal would provide beneficiaries with a lump-sum payment in lieu of higher monthly benefits as a way to entice people to delay claiming retirement benefits. Under this plan, those who delayed claiming beyond the early eligibility age (62) would receive monthly benefits as though they claimed benefits at 62 in addition to a lump-sum payment reflecting the delayed retirement credit. Those claiming after their full retirement age (66 or 67) would receive monthly benefits as though they claimed benefits at the full retirement age in addition to a lump-sum payment actuarially equivalent to the present value of the delayed retirement credit. The authors suggest that the lump sum will encourage people to delay claiming and work longer, and could enhance their retirement benefits.
Innovators: Olivia S. Mitchell, THe Wharton School of the University of Pennsylvania and Raimond Maurer, Goethe University of Frankfurt
Expanding Qualifying Credit Options for Social Security Benefits
This proposal would allow workers to receive credits for three categories that currently are not used to compute Social Security benefits: caregiving, unemployment, and job training. People could obtain a maximum of three years of credit for each individual category and no more than five years of credit cumulatively across the three categories. Adults caring for those under the age of six, older adults and the disabled for at least 20 hours a week would receive a credit linked to the average wage index (AWI), with those earning more than 60% of the AWI eligible for a larger credit. Those people receiving unemployment insurance would be eligible for credits – up to six months per unemployment spell – calculated around the AWI and the length of unemployment. Finally, workers over 21 years of age participating in unpaid or low-paid training programs such as Job Corps would be eligible for credit equal to substantial earnings for the time they spent in training.
A second component of the proposal would be aimed at paying for these changes by applying a 6.2% tax to investment income, including interest and dividend income as well as realized capital gains, above $200,000 annually.
Innovators: Christian Weller, Professor of Public Policy, McCormack Graduate School of Policy and Global Studies, University of Massachusetts Boston, and Darrick Hamilton, Associate Professor of Economics and Urban Policy, Milano School of International Affairs, Management and Urban Policy, and Department of Economics, New School for Social Research, The New School, New York
A Targeted Minimum Benefit Plan (MBP): A New Proposal to Reduce Poverty among the Elderly
This proposal would create a new Minimum Benefit Plan (MBP) for low-income retirees that would examine sufficiency of retirement income in lieu of calculating years of low earnings. The authors posit this would be more administratively efficient than Supplemental Security Income (SSI) and the existing special minimum benefit. The MBP, payable at full retirement age (66 or 67), would be available to those workers with at least 20 years of residency in the United States with 40 quarters (10 years) of payroll tax contributions whose income fell below 100% of the poverty level. (Single retirees would be measured at the poverty level for single-person households, while married retirees would be measured at the poverty level for two-person households.) A general income exclusion of $125 per month for all other income sources would be set aside from computations as it relates to income eligibility for the MBP. Beneficiaries would receive this benefit automatically through one monthly payment that includes both the MBP and traditional Social Security income. They would be required to file an income tax return to qualify in a manner similar to the earned income tax credit (EITC) so that the Internal Revenue Service (IRS) could coordinate with the Social Security Administration (SSA) to determine eligibility. Finally, eligibility for the MBP would not create an “automatic passport” making the retiree eligible for Medicaid (which currently exists under SSI); however, beneficiaries would not be barred from receiving Medicaid because their MBP puts their income above SSI limits.
The proposal would be paid for via general revenue, similar to Medicare Part B. To offset additional costs, the proposal would gradually reduce auxiliary spousal benefits. Those who could see reduced earnings due to this change would likely qualify for the MBP, and those who would not would likely be relatively high earners who have their own earnings record from which they could claim.
Innovators: Pamela Herd, Principal Investigator, Wisconsin Longitudinal Study, University of Wisconsin-Madison; Melissa Favreault, Senior Fellow in the Income and Benefits Policy Center at the Urban Institute; Tim Smeeding, Professor, La Follette School of Public Affairs at the University of Wisconsin–Madison; and Madonna Harrington Meyer, Professor of Sociology and Senior Research Associate at the Center for Policy Research at the Maxwell School of Syracuse University
A Revised Minimum Benefit Can Better Meet the Adequacy and Equity Standards in Social Security
This proposal revises Social Security's minimum benefit to assure that eligible retired workers avoid impoverishment. It adopts an augmented poverty threshold linked to employment history. At the full retirement age, beneficiaries with 20+ years of covered employment and annual household incomes below 125% of the poverty threshold would receive a supplement raising their income to that level. Beneficiaries with 10–19 years of covered employment would be assured incomes of at least 112% of poverty. At age 80 all eligible workers would be guaranteed an income of at least 125% of poverty, in recognition of the financial stresses accompanying advanced age.
To offset the cost of the initiative, employers not contributing at least 3% of an employee's earnings to a qualified pension account would pay a FICA tax of 7% for that worker rather than the prevailing 6.2%. The proposal would raise the taxable income threshold from $127,200 to $200,000.
Innovators: Kimberly J. Johnson, Indiana University School of Social Work, and Elizabeth Johns, independent scholar, Orono, Maine
AARP Innovates
As mentioned in the outset, two proposals co-authored by AARP staff also ranked highly in a blind review by a panel of experts. As a result, the concepts will be further developed and modeled by The Urban Institute. Although the proposals are consistent with AARP’s Policy Principles on Social Security, AARP is not endorsing these innovations, only further developing the concepts. Additionally, Innovation Challenge funds will NOT be awarded to AARP staff.
Add Pre-Retirement Education Benefits Into Social Security
This proposal would provide income support for workers who seek to acquire new skills through additional educational opportunities. Under this proposal, workers who are fully insured under Social Security would be eligible to draw benefits before age 62 for up to two years if they attended an accredited educational institution. A variety of financing options will be explored including having the beneficiary pay back the additional benefits through higher contributions or delayed retirement claiming.
Innovators: Debra Whitman, EVP/Chief Public Policy Officer, AARP; Marc Freedman, Founder & CEO, Encore.org; and Jim Emerman, Executive Vice President, Encore.org
Supplemental Transition Accounts for Retirement
This proposal would establish mandatory add-on accounts known as Supplemental Transition Accounts for Retirement (START) that each worker would be required to exhaust before receiving Social Security retirement benefits. STARTs are designed to allow workers to delay claiming Social Security benefits, thereby mitigating the effects of actuarial reductions for claiming early.
Employees and employers would make contributions to STARTs based on workers’ earnings. The federal government also would make progressive contributions to STARTs funded from the Social Security program. Beneficiaries could claim START benefits at early eligibility age (currently 62) limited to the Social Security benefits they would have received under today’s early-claiming rules. At full retirement age (66 or 67), beneficiaries face no restrictions on usage of START assets, including receiving them as a lump-sum payment. Any money remaining in a START at the time of the account owner’s death would go to a designated beneficiary.
Innovators: Gary Koenig, Vice President, Financial Security, Public Policy Institute, AARP; Jason Fichtner, Senior Research Fellow at the Mercatus Center at George Mason University; and William G. Gale, Senior Fellow - Economic Studies, Director - Retirement Security Project, Co-Director - Urban-Brookings Tax Policy Center, The Brookings Institute
Innovators: Olivia S. Mitchell, The Wharton School of the University of Pennsylvania and Raimond Maurer, Goethe University of Frankfurt
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