Tuesday, January 29, 2013

Social Security (Anti-Poverty)
Versus SURS (Income Replacement)


      A few comments vis-a-vis the apparently unpopular WEP or social security Windfall Elimination Program.

      Before getting to the explanation of why this provision can be defended, it is important to understand the difference between social security Old Age and Survivors Insurance and our pension system.  Social Security was never intended to be a "pension" program; it was intended as an anti-poverty program for older Americans and in that sense has been wildly successful.  (If you go to their Website or look at the annual statements from them (SS) you will see that they are quite explicit about this not being a pension program).

      SURS is intended as a pension system, i.e., a plan that will provide income replacement in retirement that is more or less directly calibrated or proportional to the income you earned while you worked.  Social security payments are not proportional to your earnings level; they are "bottom-loaded" meaning that people who had average lifetime earnings of $30,000/yr. will get a much higher rate of payout than people averaging $100,000/yr.  This is completely consistent with the goals of an anti-poverty program.

      So, let's come to the case of a typical UIC professor who (until now) had a fairly predictable SURS pension, proportionate to his or her earnings.  But, let's assume that this individual through other employment had somewhat modest levels of income from prior employment, consulting, or whatever that averaged out to $20,000 per year.  If Social Security ignored that individual's SURS pension, she would look like someone who had been a low-wage worker her entire life and who would be very deserving of the inflated pay-out rate that social security provides to people at the bottom of the income scale.  But, this is not the case--the individual is not at risk for old-age poverty and by some definition of fairness ought to get a reduced social security payout.  That is what the WEP attempts to do.

      It is important to recognize that there are folks who  are in between the two worlds imagined by the social security WEP policy.  That is, they have careers that include stints of employment covered by social security and employment with the university.  In many cases, they barely miss the criteria established by social security to escape the WEP, falling just short of the 'years of substantial earnings' requirement, but their university pensions are too small to adequately make up the difference caused by a WEP diminished social security check.  In these instances, I'd say that the WEP policy needs to be modified in way that makes it less dichotomous; perhaps there would be some sensible sliding scale of offsets that would not wreak so much havoc on people in those situations.  I think that social security does something akin to this with regard to adjusting beneficiaries' checks by how much they earn if they are still working.  Absolute cut-offs don't seem to make any sense to me.

      But the bottom line remains that it is very important to be clear in distinguishing an anti-poverty program from an income replacement program.  It is quite alarming in reading the Biss/Nekritz proposal to see that they fall into this very same confusion.  Limiting COLA increases to the first $25,000 of annual retirement stipends makes sense if you are dealing with an anti-poverty program.  However, SURS is not such a program and their COLA restriction is completely nonsensical in this regard, and only can be explained by Willie Sutton logic--we're going after the pensions of higher earning people because that (like a bank) is where the money is.

      And make no mistake, reneging on a deal to provide deferred compensation from a fund which you (the state) have borrowed recklessly from, is a form of theft.

Bill Bridges
Professor Emeritus
Department of Sociology

Originally posted to the academy listserv on January 9, 2013.

1 comment:

  1. The WEP program doesn't apply to people getting pensions via private industry as well as Social Security. So, I would deem WEP as unfair. But, even if Social Security is a secondary pension for some, one must remember that a person can't get it unless they put in enough of their own money into it of the course of a number of years. So, that means it isn't just an anti-proverty program. If a person put in, then a person should receive some benefits. (When Obama was elected, Democrats were supposed to get rid of WEP, but then decided they needed the revenue.)