POINTS TO PONDER
Issue 02-08
from your Federation President
NARFE Members of California:
NOTCH BABIES: During my visits to Chapters, I have been asked by
several members, "What is Congress or NARFE doing for us Notch Babies?"
My research into this issue disclosed the following:
At one time the "notch" was part of NARFE's legislative program. In 1988 a
national convention resolution was adopted to support efforts to eliminate any
inequities that might exist in Social Security benefits due to the so-called "notch."
In 1992, however, convention delegates voted to no longer support this issue.
The primary reason for the decline in support was that the solution was so costly,
estimated at $324 billion in 1991, and NARFE needed to concentrate its lobbying
efforts more on issues like the Government Pension Offset (GPO) and the Windfall
Elimination Provision (WEP) which were far less expensive. The $324 billion would
equate to the amount of back monies to pay notch babies in order to equal the
monies paid to individuals born in the 1910-1916 era.
WHAT IS THE "NOTCH"?
The 1972 Social Security Amendments included an unintended error in the benefit
computation formula which caused many individuals born in 1910-1916 to receive
higher benefits than they should have. The 1977 Social Security Amendments
corrected this computation flaw beginning with individuals born in 1917 and later but
took no action to reduce the benefits of those who were receiving more than Congress
intended. For people born in 1917-1921 (the notch years) a special transitional
computation method was designed to soften the effect of immediately going to the
new method.
In 1992 Congress created The Commission on the Social Security "Notch" Issue to
examine whether there were inequities and whether legislative action should be taken.
The Commission's 1994 report states, "considering the value of their benefits relative
to the Social Security taxes which they paid, those born in the 'notch' years are, in
general, receiving a greater return from Social Security than will subsequent generations
of beneficiaries. In addition, their 'replacement rate' -- the percentage of pre-retirement
earnings replaced by benefit payments -- is equal to that of retirees who follow them, which
was also the intent of the 1977 amendments. In this sense they are 'doing well' as
beneficiaries of the system, although not as 'well' as those who came before them."
"To the extent that disparities in benefit levels do exist, they exist not because those born
in the 'notch' years received less than their due; they exist because those born before the
'notch' years (who were 'grandfathered' under the old law's more generous computational
method) continue to receive substantially inflated benefits. This disparity has created an
understandable perception of unfairness."
The final conclusions reached by the Commission were that the 1977 legislation creating
the "notch" was proper, no legislative remedy is in order, and benefit increases for people
born after January 1, 1917, are neither justified nor appropriate. The Commission
considered recommending a reduction in benefits for those who had been grandfathered in
under the old law, but decided it would be inappropriate due to the advanced age of the
recipients.
The House Ways and Means Committee, in 1991, put it this way, "people born in 1917
through 1921 get as much or more than those who come after them," and "because of an
earlier flawed benefit formula, a few lucky people -- the bonanza babies (born from
1910-1916) -- get a lot more." The Committee also points out that the "notch" does not
extend to 1926, that it applies only to those born in 1917-1921.
Whether or not you agree with the foregoing dissertation, it appears that the issue of
"Notch Babies" is a dead one. It is highly unlikely that Congress would pass any extensive
"Notch" corrective legislation because of the cost involved and because it apparently is
not warranted.
Till next time ....
Your California Federation President, Lea Zajac
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