Urban InstituteRetirement Policy Center

Minimum Benefits

Enhancing Social Security’s minimum benefits could improve retirement income security for low-wage workers with long careers and reduce old-age poverty. The costs and effectiveness of this approach hinges on how the policy is designed.


Background

Social Security currently contains a “Special Minimum PIA” for workers with long careers at low wages.

  • The Primary Insurance Amount (PIA) is the monthly benefit that workers receive when they start collecting benefits at the normal retirement age, and is based on lifetime earnings. The special minimum PIA is designed to set a floor below which the full monthly benefit may not fall for beneficiaries with substantial work experience.
  • However, few workers now qualify for higher benefits under this provision.
    • Only about 95,500 people—less than one-fifth of one-percent of Social Security beneficiaries—received benefits based on the special minimum PIA in December 2007.
  • Actuaries project that within a few years no new beneficiaries will qualify for benefits under the special minimum, because its parameters do not keep up with wage growth (Feinstein 2000).


Why Enhance Social Security Minimum Benefits?

  • Many people believe that a worker with a long career in covered employment should be able to retire with a decent standard of living.
    • Workers with 40 years of full-time employment at the minimum wage born in 1943 qualify for benefits equal to only 76 percent of the federal poverty level of they begin collecting at age 62 and just less than the poverty level if they begin collecting at age 65 (Favreault and Steuerle 2007).
  • Poverty remains substantial among older beneficiaries, especially among women and people of color.
    • In 2006, 11.5 percent of women ages 65 and older were poor, compared with 6.6 percent of men (U.S. Census Bureau 2007).
    • The 2006 poverty rate was 26.6 percent for black women ages 65 and older and 16.6 percent for black men (U.S. Census Bureau 2007).
  • The Supplemental Security Income program (SSI) is a social assistance program designed to provide a minimum income for adults ages 65 and older (as well as younger people with significant disabilities that prevent substantial work effort). To qualify for SSI, individuals must complete a complex application process and pass a stringent asset test.
    • Administrative and compliance costs are higher for means-tested programs like SSI than for near-universal programs like Social Security.
    • Take-up for SSI is relatively low, with about one-third of eligible older adults lacking benefits (e.g., Davies et al. 2002).
    • Stringent asset tests can discourage saving.


How Would a Minimum Benefit be Structured?

  • Proposed eligibility and benefit levels for minimum benefits typically depend on the poverty threshold and the number of years an individual has worked.
    • Many proposals base work years on Social Security covered quarters.  In 2009, a worker has to earn $1,090 to receive credit for a covered quarter. Gaining four covered quarters in 2009 thus requires earnings of $4,360.
    • How a work year is defined can determine the minimum benefit’s reach (Favreault and Steuerle 2008).
    • Other important design issues include whether the minimum credits partial work years, how it treats disabled workers, whether it confers spousal rights, and how benefit levels grow over time (whether based on price changes or average wage changes).


Would Enhancing Social Security Minimum Benefits Cause any Problems?

  • Most minimum benefit plans would make the benefit formula slightly more progressive, thus weakening the relationship between earnings and benefits, a source of Social Security’s political support.
  • Some proposals would direct subsidies to people who are not needy (for example, workers with some uncovered employment or secondary earners in families with high-wage primary earners).
  • Some policy analysts prefer to help low-income retirees with means-tested assistance like SSI.


What Would Be the Impact on Social Security’s Long-Term Fiscal Deficit?

The generosity of minimum benefit proposals varies widely.  A minimum benefit’s effects on the system’s long-term fiscal deficit depends on how it is designed.


Who Has Proposed Minimum Benefits?

Several groups have advanced reform proposals that contain a minimum benefit within a larger Social Security package, including the following:

  • The bipartisan National Commission on Retirement Policy (1998);
  • A commission set up by President George W. Bush (President’s Commission to Strengthen Social Security 2001);
  • Diamond and Orszag (2004);
  • Liebman, MacGuineas, and Samwick (2005);
  • Numerous congressional proposals;
  • The National Commission on Fiscal Responsibility and Reform.


See the Following Reports to Learn More:

Favreault, Melissa M. and Nadia S. Karamcheva. 2011. "How Would the President’s Fiscal Commission’s Social Security Proposals Affect Future Beneficiaries?" Washington, DC: The Urban Institute.

Favreault, Melissa M. and C. Eugene Steuerle.  2008. “The Implications of Career Lengths for Social Security.” Retirement Policy Discussion Paper No. 08-03. Washington, DC: The Urban Institute.

Favreault, Melissa M. and C. Eugene Steuerle.  2007. “Minimum Benefits in Social Security.” full report | related brief | related brief.

Other References:

Davies, Paul S., Minh Huynh, Chad Newcomb, Paul O’Leary, Kalman Rupp, and Jim Sears. 2002. “Modeling SSI Financial Eligibility and Simulating the Effect of Policy Options.” Social Security Bulletin 64(2): 16–45.

Diamond, Peter A. and Peter R. Orszag. 2004.  Saving Social Security:  A Balanced Approach.  Washington, DC:  Brookings Institution Press. Summary available at: http://www.brookings.edu/views/papers/orszag/
200504security.pdf.

Feinstein, Craig A.  2000.  “Projected Demise of the Special Minimum PIA.”  Actuarial Note Number 143.  Baltimore, MD:  Social Security Administration, Office of the Chief Actuary. http://www.ssa.gov/OACT/NOTES/note2000s/note143.html.

Liebman, Jeffrey, Maya MacGuineas, and Andrew Samwick. 2005.  “Nonpartisan Social Security Reform Plan.” http://www.ksg.harvard.edu/jeffreyliebman/
lms_nonpartisan_plan_description.pdf.

National Commission on Retirement Policy. 1998. The 21st Century Retirement Security Plan. Washington, DC: Center for Strategic and International Studies.

President’s Commission to Strengthen Social Security.  2001.  Strengthening Social Security and Creating Personal Wealth for all Americans:  Report of the President’s Commission.  Washington, DC: Author. http://csss.gov/reports/Final_report.pdf.

U.S. Census Bureau. 2007. “Current Population Survey, 2007 Annual Social and Economic Supplement.” http://pubdb3.census.gov/macro/032007/pov/new01_100_05.htm.

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