Notch Reform Bulletin: Why Congress Should Reconsider Notch Reform

Send this article to a friend.

Printer friendly version.

Notch Reform Bulletin: Why Congress Should Reconsider Notch Reform

Many in the government have long held that “no injustice was done” to Notch Babies. But a new study on the Notch by noted economist Dr. John Haldi has found that the 1977 Social Security law changes “can scarcely be considered fair.”

Take, for example, the transitional benefit formula. Persons who were born from 1917 through 1921 had their benefits calculated two ways—using the transitional benefit formula, and by using the new 1977 benefit formula. They received the higher of the two benefits. A 1988 General Accounting Office report states that “it was generally anticipated that the phase-in (provided by the transitional formula) would prevent a significant drop in benefit levels of retirees in the transition period.” Dr. Haldi’s study found, however, that the transitional benefit formula “provided virtually no protection. Multiple features acted like loaded dice against many retirees.”

The transitional benefit formula excluded the retiree’s earnings after reaching age 62. If a person did not retire until age 65, for example, the final three years of earnings were not counted under the transitional formula.
Despite the above earnings exclusion, the transitional formula failed to reduce the number of years used to compute average earnings. This meant that earnings from earlier years, often with lower earnings, had to be used.
Under the transitional formula, COLAs used in the initial benefit calculation were eliminated from June 1978 until the year in which the retiree turned age 62. However, the inflation that followed the passage of the 1977 Amendments far exceeded economic forecasts—undermining the benefit.

Because the transitional benefit formula offered almost no protection, most retirees received benefits calculated under the new 1977 benefit formula. There was no phase-in. This is one reason why the Notch affects more than just persons born from 1917 through 1921.

Dr. Haldi notes, “One would be hard pressed to conclude that the transition formula functioned as a meaningful remedy as must have been intended.” TSCL firmly agrees. Congress should re-examine the factors behind the Notch. We urge you to contact your Members of Congress and ask them to revisit the Notch issue in light of this new study. Then urge them to co-sponsor “The Notch Fairness Act,” H.R. 97.

April 2003