Although Social Security was designed to create a benefits floor for lifetime low-income earners, a design flaw has made that protection largely obsolete. Two innovations below are aimed at enhancing minimum benefits to ensure with low income throughout their careers are not stuck in poverty in retirement.
The first proposal creates 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. To qualify for the MBP, workers would have to meet certain work, income and U.S. residency requirements. The MBP would more effectively target low-income retirees than the current Supplemental Security Income program and the existing special minimum benefit, and, like the Earned Income Tax Credit, work through the income tax system.
The second innovation revises Social Security's minimum benefit to assure that eligible retired workers avoid impoverishment. It adopts an augmented poverty threshold linked to employment history. 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.