By Diane M. Wilson CFP® January 20, 2020 The Social Security 2100 Act was introduced in Congress by Rep. John Larson (D-Conn.). The suggested modifications provide the kind of changes we need to address the solvency of the program. The Act also looks to insure that we pay adequate benefits. The Social Security 2100 Act increases the support Social Security provides to low- and middle-class wage workers while extending the life of the program.
My clients consistently express a high level of concern on whether Social Security will be there for them in the future. Their concerns are valid. The trust fund will only be able to pay 80% of promised benefits by the year 2035, unless changes are made.
Overcoming solvency issues ensures that the program is around for those that are paying into the system now.
Let’s review the proposed changes to the Social Security system and the impact of those changes.
The Social Security 2100 Act Expands Benefits
- Benefit bump for current and new beneficiaries – Provides an increase for all beneficiaries that is the equivalent of 2% of the average benefit. The United States faces a retirement crisis and a modest boost in Social Security benefits strengthens the one leg of the retirement system that that is universal and the most reliable. [Sec. 101]
- Protection against inflation – Improves the annual cost of living adjustment (COLA) formula to better reflect the costs incurred by seniors through adopting a CPI-E formula. This provision will help seniors who spend a greater portion of their income on health care and other necessities. Improved inflation protection will especially help older retirees and widows who are more likely to rely on Social Security benefits as they age. [Sec. 102]
- Protect low income workers – No one who paid into the system over a lifetime should retire into poverty. The new minimum benefit will be set at 25% above the poverty line and would be tied to wage levels to ensure that the minimum benefit does not fall behind. [Sec. 103]
- Cut taxes for beneficiaries – Over 12 million Social Security recipients would see a tax cut[ii]. Presently, your Social Security benefits are taxed if you have non-Social Security income exceeding $25,000 for an individual or $32,000 for couples. This would raise that threshold to $50,000 and $100,000 respectively. [Sec. 104]
- Holding SSI, Medicaid, and CHIP Beneficiaries Harmless – Ensures that any increase in benefits from the bill do not result in a reduction in SSI benefits or loss of eligibility for Medicaid or CHIP. [Sec. 105]
The Social Security 2100 Act Strengthens the Trust Fund
- Have millionaires and billionaires pay the same rate as everyone else – Presently, payroll taxes are not collected on wages over $132,900. This legislation would apply the payroll tax to wages above $400,000. This provision would only affect the top 0.4% of wage earners. [Sec. 201, 202]
- 50 cents per week to keep the system solvent – Gradually phase in an increase in the contribution rate beginning in 2020 so that by 2043, workers and employers would pay 7.4% instead of 6.2% today. For the average worker this would mean paying an additional 50 cents per week every year to keep the system solvent. [Sec. 203]
- Social Security Trust Fund Established – Social Security provides all-in-one retirement, survivor, and disability benefits funded through the dedicated FICA contribution paid by workers. There are technically two trust funds, Old-Age and Survivors (OASI) and Disability Insurance (DI), and that are usually referred to as the Social Security Trust Fund. This provision combines the OASI & DI trust funds into one Social Security Trust Fund, to ensure that all benefits will be paid. [Sec. 204]
All of us must work together to ensure older adults and their families will have a safe and secure retirement. The Social Security 2100 Act represents a fair, reasonable solution that continues the promise of the Social Security program for the seniors of today and tomorrow.