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Restoring security to the social security trust fund.

Restoring Security to the Social Security Trust Fund

I am pleased to be here with you to discuss some issues of common concern. I will talk about the application of financial disclosure issues at the federal level and how SSA shares an area of mutual interest with you in employer payroll reporting. I hope to relate to you new insights into how this important service you provide to your clients can have a profound impact on their employees and how you can make a difference in the administration of the Social Security program.

At the federal level, we are concerned with assuring the effective administration of the Social Security program and the integrity of the trust funds. Your work carries a similar degree of importance with your clients in providing appropriate financial services that are technically correct. A significant aspect of those services often includes providing for accurate payroll reporting. This is particularly important because the earnings of employees need to be accounted for properly in order to ensure the correct amount of future Social Security benefits. Your advice and guidance to your clients goes beyond simply the earning of a fee for services rendered. It can and often does impact on the lives of your clients' employees, particularly as it relates to Social Security. Because of this, your fiduciary role and ours need to be linked in effectively carrying out our respective responsibilities in financial management.

In that regard, we share your concerns that accurate payroll information be maintained and reported for each worker. We look to you as a group that can make a difference in how payroll information gets reported which could ultimately touch many lives very personally.

As you know, the scope of the federal financial enterprise is enormous: there are over 1,900 separate budget accounts; over five million civilian and military personnel receiving paychecks; a cash flow that exceeds $2 trillion a year; 900 million payments are made annually ranging from Social Security benefits to office furniture rentals. These staggering figures tell us that effective financial management is not only advisable, it is essential.

Government today has become more complex and, to make matters even more complicated, the public has greater-than-ever expectations of responsible management. Beyond that, the public expects, and rightfully so, that we use sound fiscal fundamentals in anticipating and meeting society's future needs. There are problems that must be examined and addressed, both obvious and subtle. Any breach of stewardship is a clear warning to all federal departments and agencies of what can happen if our fiduciary responsibilities, our public trust, are not given sufficient gravity. We at SSA are sensitive to the public's expectations and are taking the necessary steps to assure sound fiscal security.

We are certainly aware of what has happened at HUD and in the S&L industry and do not wish to see anything of that sort at SSA.

Let me talk about the management of federal financial resources as a whole. Is it financially responsible to use Social Security reserves to disguise the true amount of federal deficit spending? Is it acting within the best standards of fiscal integrity to borrow money from the Social Security trust funds to finance farm subsidies and pothole repair? Is it good financial management to avoid undertaking a complete and accurate assessment of the resources necessary to meet society's economic and health needs in the 21st Century?

The point I'm underscoring with these questions is twofold. I'm stressing again that not only do we need to meet our first public responsibility, to assure that our operations are financially sound, but we also need to use sound management principles to plan adequately for America's future. In SSA, we are especially sensitive to that latter need because we see the challenges that lie ahead.

Ten years from now, at the advent of the next century, there will be 35 million Americans over the age of 65, 10 million more than there were in 1980. After that, the baby boom generation will gradually begin to retire, a development that will see the nation's largest and most productive demographic group become the largest collective recipients of federal Social Security and Medicare dollars, and, as the baby boomers move toward retirement, their retirement needs will be financed by a generation that could best be called the baby bust.

The birth rate in America is dropping and will continue to fall. This will result, as we enter the next century, in a 20% decline in the number of young people entering the workplace. In short, we are moving, like it or not, into a future in which a smaller workforce will be asked to finance the retirement needs of a massive elderly population. And today's healthier lifestyles lend an additional complication. Retirees are living longer, creating greater retirement income needs and increasing the likelihood that some kind of long-term health care will be necessary during the average American's retirement years.

Ostensibly, we will have a huge Social Security trust fund to meet many of these needs. The Social Security system that in 1981 was losing $10,000 per minute is now bringing in $89,000 more per minute than it is paying out. These rapidly-growing Social Security reserves will peak between the years 2025 and 2030 at $9.5 trillion. Twelve cents of every Social Security tax dollar is going into those reserves, the other 88 cents to pay current beneficiaries.

Around the year 2010, according to actuarial projections, revenues coming into the system will no longer be sufficient to cover benefits going out and the reserves and their accumulated interest will have to be deployed to meet Social Security's commitments until the year 2042, when the reserves will finally be exhausted.

That looks good on paper at least for the next 50 years, but, as you all know, the Social Security trust fund holds treasury IOUs, not hard cash. That leaves us with something of a double-edged sword. If this "integrity gap" persists and the Social Security trust funds are still used as a smokescreen to obscure continued deficit spending, then future generations have a serious problem. Because, when it comes time to make good on those trillions of dollars in treasury IOUs, the only available solutions will be massive tax increases, Social Security benefit reductions or draconian cuts in other areas of the federal budget.

Those aren't palatable choices, but if we don't bring greater standards of accountability and management and, yes, integrity--the kind of qualities that are inherent in your work -- to federal policy making, then that is the corner into which we may well be painting ourselves.

Before we can spread the gospel of sound financial management, it's incumbent upon us to make sure that business is taken care of at home, at the Social Security Administration. We're proud of the financial management initiatives we've taken at SSA. Those initiatives were necessary not just because Social Security is big business, with 65,000 employees and 1,300 offices around the country. They were necessary because Social Security is such a fundamental part of our society, paying benefits to approximately 40 million people or one in every six Americans. And let's not forget the over 130 million workers and self-employed persons who pay taxes into the system. They have the right to demand accountability.

With this in mind, one of the recent initiatives undertaken by SSA was the preparation of consolidated financial statements. We believe, as I am sure you do, that the publication of audited financial statements is essential to demonstrate that we are effectively exercising our stewardship role and fiduciary responsibilities.

This now leads me into a segment of our responsibility, the processing of annual wage reporting and payroll matters of which many of you are concerned and familiar. We share similar problems that confront you, since SSA maintains in effect the largest payroll recordkeeping operation in America. In that regard, we share your concerns that accurate payroll information be maintained and reported for each worker. One of SSA's primary missions is to maintain accurate earnings records for workers and self-employed individuals. That job is essential because a Social Security benefit is based, in large measure, on a worker's average monthly earnings.

Since the Social Security Act was passed in 1935, we have maintained more than 300 million earnings records and processed something like $25 trillion in earnings!

For example, in tax year 1988 we received about 95 million paper W-2 reports and about 157 million W-2 reports on magnetic media. In addition, we received another 13 million self-employment tax reports from IRS. In all, we posted more than $2 trillion to the records of more than 130 million American workers. When all added together, 95% of all American workers contribute to Social Security. Considering the numbers involved, we believe we do a remarkable job.

To make this whole process work, we need full cooperation not only from employers and employees, but also from our sister agency at the Internal Revenue Service. We all comprise this tax collection team and are vital ingredients in assuring that employees get the proper amounts recorded to their earnings record. Your organization could and should assume a unique and special role in improving overall accuracy of the process as well.

Since tax year 1978, employers have been required to report wages paid on an annual basis to SSA using W-2s and on a quarterly basis using 941s to IRS. We, along with IRS, identify over one million employer discrepancies in matching SSA records with IRS records.

Additionally, we also have problems recording wage information when the reported names and Social Security numbers (commonly referred to as SSNs), shown on the earnings reports (W-2s) don't match the information in our records. When this happens, we cannot credit the earnings to any record annually. Instead, the information is retained in a "suspense file". This represents around three million earnings records each year. In both instances, SSA goes through a great deal of effort to resolve these reporting problems by contacting employees and employers, where appropriate, to provide additional information.

Some problems that we have observed which have contributed to unidentified and missing wages include:

* Employers either omit or use

incorrect employer

identification numbers. * Individual wage amounts (W-2s)

do not balance to

summary totals (W-3s). * In many instances payroll

practitioners are submitting

wage data (W-2s) for

employers to SSA that are prepared

at different times than the

941 data submitted to IRS

and there is no effort to see

that they agree. * Employers who go out of

business during the year fail

to submit W-2s/W-3s for

employees. * Some employers are sending

W-2s/W-3s to the IRS or the

states rather than to SSA's

Data Operations Center. * A substantial percentage of

our unidentified wages do not

have any SSN at all or

employers are not reporting wages

using the name for an

employee as it appears on the

Social Security card. * Many women fail to report a

name change due to marriage

or divorce. * Many employers are still

unaware of the requirement

to file wage reports on

magnetic media if they had 250

or more documents. * Magnetic media wage reports

are incorrectly formatted and/or


We have initiated a number of activities to correct these problems which include:

* Working with IRS to begin

assessing penalties for late

filers, nonfilers and improper

filers; * Reaching employers with

instructional materials and

other reminders as to how to

report accurately; * Distributing information to

more than 5,500 employer

groups encouraging them to

advise their employees to verify

their name and SSN and to

report any changes--such as

a name change when a woman

gets married; * Co-sponsoring, in cooperation

with IRS, wage-reporting

seminars. We will be happy

to work with your

organization in participating in such

seminars. * Publishing software standards

and editing criteria for users

of magnetic media and

automated payroll systems to be

used in payroll reporting. This

will minimize or eliminate

errors in magnetic media and

paper reporting. * Changing employer reporting

responsibilities which will

require that employers verify

that the earnings amounts

being reported to IRS and

SSA agree. * Encouraging workers to check

their Social Security record

at least once every three years.

We instituted a personal

earnings and benefit estimate

statement, which provides a

complete earnings history and

estimate of future benefits.

You should be advising your

clients to make their

employees aware of this service.

The bottom line is that the principles your organization and you as individuals embrace -- integrity, responsibility, sound management--are the very principles necessary to keep America prosperous and thriving in the year 2000 and beyond.

I am reminded of the story told about child movie star Tatum O'Neal who was making films at the age of nine. Like many underage actors and actresses, she had tutors on location to make sure her education stayed current. During the shooting of one movie, state education officials came to check on her progress and found her seriously lacking in the math area. They asked her what she would do later in life if she ever had to handle a complex financial problem and she replied simply, "I would have my accountant handle it."

The American people can't individually be dependent on professionals like yourselves to handle all of their financial questions, but, collectively, the public does depend upon you to make sure that the finances of the nation are handled correctly, properly and honestly, and together we can make this work.

In closing, let me encourage you to be involved. Your organization can play a special role in improving the effectiveness of our wage reporting process. You can and should have a role in the development of future national policies relative to retirement and creating a better understanding among employers and workers of their responsibilities in this area. I believe that by working together, we can assure that every worker has his/her earnings record properly maintained, and we can provide the foundation for the financial health of future retirees.

Norman Goldstein is the chief financial officer for the Social Security Administration. Following is the text of his presentation before NSPA's recent 1990 National Issues Cnference.
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Author:Goldstein, Norman
Publication:The National Public Accountant
Date:Sep 1, 1990
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