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Kolbe, Boyd, Bipartisan Retirement Security Act of 2005 (HR 440)Summary
Under the Kolbe/Boyd proposal, every worker under the age of 55 beginning in the year 2006, would redirect 3 percent of the first $10,000 of taxable earnings and 2 percent of the remaining taxable earnings to individual accounts. Proposal allows workers to additionally contribute up to $2,000 per year to their accounts with government matching up to $600 for low earners. A gradual increase in the age for collecting full Social Security retirement benefits was phased in by the 1983 Amendments where the retirement age would increase from 65 to 67 over a 22-year period, with an 11-year hiatus at which the retirement age will remain at 66. This proposal would continue to increase NRA by two months a year until it reaches 67 for individuals reaching age 62 in 2011, hence eliminate the haitus under current law. This proposal would also gradually increase the benefit and contributions base over two years so that 87 percent of all covered earnings would be taxable. After that period, the benefit and contributions base would be determined to stay at 87 percent (vs. 83 percent under current law). While this proposal modifies benefit level calculations in several ways, it guarantees workers, with at least 30 years of earnings, a minimum benefit equal to 100% of poverty level (subject to scaling).
Details
| Voluntary |
No, everyone under age 55 by 2006 participates. |
| Account Size/Source |
Carve out: 3% of the first $10,000 (indexed to wage growth) and 2% of the remaining taxable earnings. |
| Additional Contribution |
Voluntary contribution up to $2,000 (indexed to inflation) per year. For workers earning less than $30,000 a year, government matches $150 for the first $1 dollar of additional voluntary contribution and 50% for each additional dollar up to a cap of $600. Also a portion of EITC can be diverted to accounts and qualify for the additional tax credit.
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| Benefits from Current System |
There is no relation between the account accumulation and benefits from the traditional system.
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| Investment Structure |
TSP-Plus model initially. Once account balance reaches $7,500, workers would have the option to choose a private investment institution.
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| Inheritability |
Account balance is inheritable
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| Withdrawal Options |
Workers would have a choice between different annuity options. If the annuity plus the defined benefit from Social Security is at least 185% of poverty level, the rest could be taken out as lumpsum. Retirees are not required to withdraw non-annuitized balances upon retirement.
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| Minimum Benefit |
~120% of poverty level for newly eligible beneficiarys with 40 years of work, scaled down to 80% for 20 years. ~For disabled workers and survivors of workers who died before 62 would be similar except the quarters of coverage requirement would be scaled to the number of epalsed years.
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| Changes to Benefit Formula |
~Change in calculation of AIME. Number of years used in the numerator would gradually be increased, reaching all years by in 2013. Number of years used in the denominator would be gradually increased to 40 years during the same period. For two-earner couples, benefit computation period would be capped at 35 years for the lower wage earner.~Establish a fourth bendpoint equal to 183.3% of the first one. By 2015, the factors would equal 90, 70, 20, and 15%. ~Reduce the 32 and 15% PIA factors by 2.5% a year 2012-2030. Reduce all three by 1.5% a year 2031-2060. ~Longevity indexing. Starting in 2012, adjust the the benefit level for newly eligibles to reflect changes in life expectancy.
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| Retirement Age |
~Eliminate the hiatus in NRA. ~Increase early retirement reduction factors and delayed retirement credits.
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| Other Benefit Changes |
~For COLAs, reduce CPI by 0.22% in order to correct for the bias identified by BLS. This applies to all government programs indexed to CPI. ~Limit spousal benefits so combined benefits of couples never exceed the maximum benefit of a worker retiring at age 62.
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| Disability/Survivors |
~No changes to disability before retirement. A disabled worker would be able to make voluntary contributions to the account. When a disabled worker converts to retired worker status, the benefit changes as a result of changes to PIA formula would be modified by a "disability factor" reflecting the years the worker was able to contribute to an individual account. ~Increase widow benefits to 75% of couple's benefit from 50-67% under current law.
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| Transition Funding Mechanism |
~Increase benefit and contribution base to cover 87% of total earnings, and index to maintain covered share. ~Credit revenue from taxation of OASDI benefits to Social Security gradually 2010-2019. ~General revenue transfers equal to the amount saved through on-budget programs due to the adjusted CPI.
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