WASHINGTON – Today, U.S. Senators Bill Cassidy, M.D. (R-LA) and Tim Kaine (D-VA) introduced the Protecting Benefits for Retirees Act, legislation that would protect the annual retirement benefits of those set to receive Social Security in a few years. The Social Security Administration uses the Average Wage Index (AWI) in the year the worker turns 60 to adjust past earnings and calculate a worker’s retirement benefits. The AWI is meant to account for wage growth over time; however, due to a flaw in how the formula is calculated, the historic unemployment numbers amid the COVID-19 pandemic will result in a sharp decline in AWI, thereby unintentionally depressing the retirement benefits of those born in 1960. The Protecting Benefits for Retirees Act would ensure the AWI can never go negative and would prevent workers from seeing such benefit reductions in this and future recessions.
“Workers who were born in 1960 should not see their Social Security arbitrarily lowered because of Covid-19. This bill prevents that benefit cut, protecting those nearing retirement
,” said Dr. Cassidy.
“Americans across the country are facing unprecedented financial uncertainty right now. Among them are workers born in 1960, who, without congressional action, will potentially see thousands of dollars in lower Social Security benefits each year of their retirement because of a glitch in how the Social Security Administration calculates the Average Wage Index,” said Kaine. “We need to ensure that these Americans do not have their financial security undermined simply because they happened to turn 60 in the year that a global pandemic struck.”
Estimates of how far the AWI will drop this year are uncertain, but a 5 percent drop in the AWI in 2020 would result in the average worker born in 1960 seeing $1,200 less in annual benefits than they would if there was no change in the AWI. The lower benefits will persist for their entire retirement, substantially reducing their lifetime retirement income and financial security simply because they turned 60 in the year that a global pandemic hit.
With the Protecting Benefits for Retirees Act, if the AWI measurement would otherwise be negative, the Social Security Administration would be instructed to calculate benefits as if the AWI held flat, similar to how Cost-of-Living Adjustments and the taxable maximum can never go negative. This would prevent retirees from facing permanently lower benefits simply because they turned 60 in the wrong year. The AWI would then resume its normal course once the AWI surpasses its previous level.
The full text of the legislation is available here.