New legislation sponsored by Sen. Patty Murray, D-Wash., ranking member of the Health, Education, Labor and Pensions Committee, would increase Social Security benefits for widows and widowers.
The Stronger Safety Net Act would create an alternative benefit for surviving spouses in marriages where both spouses paid into Social Security.
The proposed legislation comes just weeks after a report from the Social Security Administration’s Inspector General showing widows and widowers have been shorted about $140 million in benefits.
But the timing of the SSN Act to the IG’s report is coincidental. Sen. Murray and others have sponsored similar legislation in previous sessions of Congress.
The SSN Act creates an alternative benefit for surviving spouses equal to the sum of 75% of the survivor’s retirement benefit and the full retirement age benefit of the deceased spouse.
Under current law, survivor benefit calculations are subject to some complexity. Surviving spouses that have an established benefit are entitled to the survivor benefit when it is larger than their own.
One factor on existing calculations is whether the deceased spouse had begun collecting benefits at full retirement age.
If the deceased spouse was receiving full benefits under full retirement age at death, then the surviving spouse is entitled to all of those benefits if they too delay claiming until full retirement age. If the surviving spouse elects to collect the survivor’s benefit early, it is subject to reductions.
If the deceased spouse was collecting benefits before they reached full retirement age at death, then the surviving spouse is entitled to at least 82.5% of the full retirement age benefit.
Under Sen. Murray’s plan, the new formula could be used if it provides higher benefits than under current calculations.
The existing survivor’s benefit was designed when far fewer women worked full-time, a press release from Sen. Murray’s office noted.
“It is time to modernize the system to account for a changing society in which both men and women spend their working years paying into the Social Security system,” according to a fact sheet on the SSN Act.
“Because women, on average, earn less than men, accumulate less in savings, and receive smaller pensions, nearly three in 10 women over 65 depend only on Social Security for income in their later years,” the fact sheet adds. Women account for 65% of Social Security beneficiaries over age 85.
Under current law, women married less than 10 years are ineligible for survivor benefits. The SSN Act would change that, allowing incremental benefits under former spouses’ benefits. Those with nine years of marriage would be eligible for 90% of their spouse’s benefits; those with seven years of marriage would be allowed 70% of spouse’s benefits.
The SSN Act would also increase the benefits for children of retired, disabled or deceased workers. Under existing law, minor benefits end at age 18 or after high school graduation. Sen. Murray’s bill would extend benefits to age 23.
New tax on higher earners
“For generations, our seniors and families facing hardship have benefited from the safety net provided by Social Security,” said Sen. Murray in a statement. “We owe it to current workers and future generations to make sure that net remains strong by modernizing it to address the needs of today’s workforce, enhancing it to better support those at risk of falling through the cracks, and protecting it for future generations.”
The SSN Act would be funded with a 2% payroll tax on earnings over $400,000. The fact sheet does not say whether the additional tax would be split between employers and earners.
Social Security is funded by a 12.4% payroll tax on earnings up to $127,200—earnings after that are not subject to payroll taxes.
In 2015, about 1.32 million tax returns reported an adjusted gross income over $500,000, according to the IRS. The fact sheet to the SSN Act does not estimate revenues the bill would raise.
— Check out Future Retirees Will Be More Vulnerable to Market Shocks: CRR on ThinkAdvisor.