BENEFIT DESIGN REFORMS IN DISABILITY AND SURVIVOR PENSIONS Gary Hendricks Regional Pension Workshop Majuro, Republic of the Marshall Islands April 25-29, 2016

Social Security Disability Insurance: Objective Social Security insures workers and their families against permanent loss of earnings due to Old Age, Disability and Death. Like death and old age, disability is insurable if it is immutable and results in total loss of earnings capacity. Disabilities that are temporary or only partially limit ability to work are not covered. These may be covered under private or separate public programs.

Assessing Total Permanent Disability Assessment should be based on remaining capacities, not on capacities lost ability to perform any gainful activity Social Security is not an occupational disability program. Ability to perform same/similar jobs as before is not relevant. Assessment should be holistic nature of medicinal condition general health status employability Assessment process must be uniform. Disability status requires periodic review.

Programs for Partial and Temporary Disabilities Some countries offer on-going benefits based on percent of disability. Panels of doctors to determine percent disabled. Percent may not be related directly to loss of capacity to work. Ratings are based on the “lost capacity” approach, rather than the remaining capacity approach. Uniform rules are applied for the amount of benefit associated with the disability and amounts granted often not related to earnings. Countries are generally satisfied, except perhaps with cost. Use of medical panels tends to result in uniform assessment. Temporary disabilities are often dealt with through unemployment insurance.

Computing Social Security Disability Pensions Disability pensions are computed using same basic benefit formula as retirement benefits with modified factors. Additional years of service are usually granted. The averaging period for earnings is shortened based on the age of disability onset. No fixed rules for computing disability pensions.

Cyclical Elasticity of Applications Applications for disability benefits are sensitive to exogenous evens. Examples: Changes in the retirement age. When retirement age increases, disability uptake also increases. Rate of disability uptake is closely related to changes in unemployment rate. Assessments must be uniform and tight enough that disability does not become an escape route for unemployed. Extended unemployment affects health status.

Encouraging Reintegration Re-integration: important determinant of program and social cost Lowers cost by lowering or eliminating benefits of those who work again Lower social cost by raising GDP off setting cost of social support to disabled Government needs clear strategy that begins as soon as someone is enrolled Longer disabled out of labor force, less likely to ever work again Government can: Increase labor demand with modest wage subsidies Incentivize disabled by reducing benefits gradually as earnings increase Insure access to public places and services Governments must work to de-stigmatize disabilities though its own employment and conscious public relations

Rigorous Standards Rigorously Applied Results in a Kinder Program Non-uniform administration and loose controls result in higher costs and widespread inequities. Tighter standards, more uniform control and greater re-integration mean higher benefits for those who need them most.

Disability Reform A Final Note Beware of Disability Reform. Legislative discipline is difficult. Many legislators know or are related to disabled individuals. Pressure from groups representing the disabled can be substantial. Particular chronic diseases can be singled out for costly special benefits. Post-reform costs may be higher, not lower.

Social Security Survivor Benefits Old School Euro-American Approach Social Security copied civil service schemes, which were older. The deceased worker’s spouse received 50% of worker’s pension. Recent trend: for spouses adequacy seems to have become greater concern If there were children, they the first 2 or 3 received 25% of worker’s pension until they were 16 and then later until 18 and still later up to 21 if still in school.

Survivor Benefits (cont.) Overtime these benefits have become complicated and idiosyncratic. Today rules governing survivor benefits lack uniformity, and there are no best or standard practices. Cultural differences Marriage customs have changed Divorce creates families with children of several different parents and eligibility under multiple workers’ accounts Temporary/transitional benefits (young wives)