Notch Bulletin: Why were we singled out?

Notch Bulletin: Why were we singled out?

Q: I turn 84 this year and am having problems making ends meet. Still, I’m very interested in NOTCH reform. Why were we singled out for less Social Security ?

A: In 1977 Congress changed the formula for computing Social Security benefit amounts — a change that led to seniors who were born 1917 through 1926 receiving lower benefits than seniors having similar work and earnings histories born outside the “Notch” years. The legislation was necessary to repair a faulty benefit formula. Social Security, was facing exhaustion.

In implementing any new legislation Congress must make choices about when provisions become effective. Congress chose to make the new benefit formula effective for everyone who would attained retirement age (62) starting in 1979 and thereafter, only two years after enactment. This created a sharp break by date of birth between those who would come under the new law, and those who had their benefits computed using the pre-1977 rules.

To alleviate the drop in benefits that would occur under the new law and to allow for a phase-in, Congress provided a second benefit computation called the “transitional guarantee,” for seniors born from 1917 through 1921. At the time, it was broadly intended to guarantee that benefits for those under the new law would not be lower than would have been received at age 62 (first eligibility for benefits) under the old law at the time of implementation.

Under the transitional formula seniors born from 1917 through 1921 had their benefits calculated under both the transitional formula and the new benefit and received the higher of the two benefits. But the transitional formula didn’t yield a higher benefit for a most retirees, and the new benefit formula was used for almost everyone. The benefit cuts went into effect with almost no phase-in.

The term “Notch” describes the “V” that forms when benefits are charted on a graph. Benefits plunged for those born 1917 and reached the lowest point around 1921. Benefits then gradually started to climb again until they started to level out with seniors born after 1926.

TSCL continues to meet with Members of Congress and to build support for “The Notch Fairness Act,” H.R. 1067 introduced by U.S. Representative Ralph Hall (TX) and S. 81 introduced by Senator David Vitter (LA). The legislation would allow Notch Babies born from 1917 through 1926 to choose either a $5,000, payable in four annual installments or an improved monthly benefit. Through the end of 2009 the bill has garnered over 89 co-sponsors.

Sources: “The Notch Issue,” U.S. General Accounting Office, March 1988.