SECURING THE SOCIAL SAFETY NET
Ken Apfel guides Social Security through the
shoals of reform
By Hudson Sangree
You might not know his name, but Kenneth Apfel, MA'73, commands an organization
that rivals Microsoft or General Motors in size and wealth. He oversees
65,000 employees and 1,300 offices nationwide. He looks after forty-four
million customers. He manages the world's largest investment fund, and
he is ultimately responsible for the hundreds of billions of dollars that
flow through his offices every year. What's more, he acts as a trusted
adviser to President Clinton on issues of great national importance.
But Apfel isn't a corporate titan or billionaire. He's commissioner
of the Social Security Administration and a member of the president's cabinet.
A bearish man with ruddy cheeks and a blond beard going gray, Apfel,
forty-nine, is part CEO, part politician, and part policy wonk. He puts
all these facets of his personality to use directing a mammoth agency and
trying to stay one step ahead of a storm that's building on the horizon
and moving in fast.
For "the Commissioner," as Apfel's employees call him, sits
at ground zero of what promises to be the most important and contentious
political debate of the next two years: the fight to overhaul Social Security,
which faces a looming financial crisis in the early part of the next century.
"Social Security is the most successful social program in the history
of this country," says Apfel, outlining the stakes of the contest.
"It protects the most vulnerable members of society and has drastically
reduced poverty among the elderly. That's why it's vital that we keep the
system strong. That's why this debate over the future of Social Security
is so tremendously important."
Congress enacted social security in 1935 as part of President Franklin
Roosevelt's New Deal program. It was intended to address the plight of
the elderly poor, and it has done so with great success, cutting the percentage
of older Americans who live in poverty by more than two-thirds. In 1959,
thirty-five percent of elderly Americans lived below the poverty line.
Today that figure is about ten percent.
Social Security is largely responsible for this shift. Without it, nearly
half of all elderly U.S. citizens would live in poverty. The program's
benefits provide almost two-thirds of all elderly Americans with the majority
of their retirement income. For a third of the elderly, Social Security
is their only source of income.
While its success is rarely disputed, Social Security's method of financing
its programs is the subject of much criticism and the focus of the building
national debate over reforming the system.
Today Social Security pays out roughly $380 billion in benefits each
year to forty-four million retirees, disabled workers, and surviving children
and spouses of deceased workers. The system takes in about $435 billion
annually, however, through a 12.4 percent payroll tax, of which the employer
and employee each pay half. (On your pay stub, this tax is often combined
with a 1.45 percent Medicare tax and labeled FICA, which stands for Federal
Insurance Contributions Act, the law that authorized payroll deductions
for these programs.)
Social Security deposits the extra money it takes in, more than $55
billion yearly, into several trust funds, which today total nearly $729
billion. These funds are then invested in U.S. Treasury bonds, an extremely
safe but low-yield investment that generates about $49 billion in interest
income yearly.
This might seem a healthy financial picture. But according to government
projections, Social Security will begin to be overwhelmed in 2013 by the
approaching tidal wave of aging baby boomers. The system will start to
pay out more money than it takes in from payroll taxes and will have to
tap into its immense trust fund reserves. By 2032, these trust funds will
be depleted, and, in the absence of reform, Social Security will be forced
to reduce by twenty-five percent the benefits it pays to future generations
of recipients.
"Clearly, tough choices must be made, and the sooner the better,"
Apfel told the Senate committee that in September 1997 approved his appointment
as commissioner, which runs through 2001. "We must act-not because
we are in crisis-but because if we act wisely we can prevent a crisis from
ever occurring."
President Clinton, Apfel, congressional leaders, and interest groups
are trying to work out a preventive to this crisis. The president has made
strengthening Social Security his top priority for the remainder of his
second term. In his State of the Union address in January, he told Congress
that the nation's strong economy gives us an "unsurpassed opportunity
to address a remarkable new challenge, the aging of America. With the number
of elderly Americans set to double by 2030, the baby boom will become a
'senior boom,' " the president said. "So first and above all,
we must save Social Security for the twenty-first century."
To achieve his goals, the president handpicked Apfel to lead the Social
Security Administration, which became an independent agency in 1995.
It's a job for which Apfel is uniquely qualified. During twenty years
in Washington, he has worked as a high-level aide to former Senator Bill
Bradley, served as assistant secretary of the Department of Health and
Human Services, and formulated federal budget policy as an executive in
the White House's Office of Management and Budget.
But Apfel and those who know him say he brings more than work experience
to his job. He maintains a perspective and a sense of priorities developed
during his upbringing in Worcester, Massachusetts, his education at Northeastern,
and his early work in social services in Boston.
"He is not theoretical," Bradley told the Washington Post
in 1997. "He's terribly committed to the lives of real people struggling
under real circumstances."
Apfel grew up middle class in worcester, the son of a steel salesman.
He was the first in his family to go to college. A self-described late
bloomer, he initially attended a junior college, then the University of
MassachusettsAmherst, where he majored in sociology and political
science.
After UMass, he entered the master's degree program in rehabilitation
counseling at N.U., earning his degree in 1973. Though this pursuit might
seem tangential to his work in Washington, Apfel says his years at Northeastern
set the course for his life afterward.
"I wanted to work in the human service arena, and I've spent my
life ever since there," he says. "It was my choice of the program
at Northeastern that opened my eyes to the plight of very vulnerable Americans
and to the capacity of government to help people.
"Rehab counseling is all about helping people with disabilities
or in highly vulnerable conditions to be able to return to work, to be
able to develop the skills that are necessary to leave full government
support and move on to self-sufficiency," he explains. "To me,
the philosophy of rehab, the philosophy of helping people achieve independence,
has been central to everything I've done throughout my career."
Apfel's internships at N.U. were particularly important for his future
success. "I was never a very stellar student until I came to Northeastern,"
he says. "I started to succeed there because I could tie practical
realities to my classroom education. The gift that Northeastern gave me
was the real-life experiences that I had in the human service arena."
Apfel's first internship was with the welfare office at the Columbia
Point housing project in Boston. "Back in the early 1970s, Columbia
Point was one of the toughest and poorest parts of all of New England,"
he says. "The welfare office there dealt with families who lived in
the complex. I spent time with the elderly poor living in the project and
with young mothers with drug problems."
That internship planted the seeds of his future work, Apfel says. "I
was dealing with very-low-income people, seeing how they interface with
the government, and understanding how the government can help provide enormous
support. I was working with families living in the most impoverished community
in all of Boston. They were trying to fend off drugs and crime and struggling
to survive. It was my first straight-out experience with where the rubber
absolutely hits the road."
After a second internship at Boston State Hospital, Apfel graduated
and got a job as an administrator at Brookline's Newbury College, where
he received a federal grant to provide educational and outreach services
to veterans returning from Vietnam.
"My experience at Northeastern and my years afterward convinced
me that government systems can really have an impact on low-income Americans,"
he says. "So I decided to supplement my Northeastern training with
a degree in public affairs."
In 1976, Apfel left Boston to attend the Lyndon B. Johnson School of
Public Affairs at the University of Texas. After graduating, at the age
of twenty-nine, he traveled to Washington to become a member of the first
class of Presidential Management Interns, the prestigious apprenticeship
program for future government leaders. As an intern, he worked for the
Department of Labor under the Carter administration, before moving on to
jobs with the Senate Budget Committee and Bradley.
Apfel's education, training, and outlook are now being tested in his
first job leading a large government bureaucracy. Since taking his oath
of office in late 1997, he has had to tackle several difficult, high-profile
problems.
For one, the Social Security Administration's computers weren't ready
for the year 2000 "bug," raising fears that payments would be
interrupted. The massive job of updating the computers, which required
2,800 workers, including 700 programmers, was completed last December.
Another crisis erupted when the agency, responding to new regulations,
cut off disability payments to more than 120,000 needy children. As soon
as Apfel became commissioner, he instituted a review process that resulted
in benefits being restored to many.
But now Apfel faces the daunting task of being the president's right-hand
man on Social Security reform. It's a difficult and delicate job given
the issue's hot-button nature. For several years, President Clinton refused
to propose any measures to strengthen Social Security, reportedly fearing
the kind of partisan strife that destroyed his health-care reform efforts
during his first term in office. Instead, Clinton repeatedly called for
a bipartisan effort to rethink the system and advocated a period of public
education and debate.
But on January 19, President Clinton took a new tack, using his State
of the Union speech to advance a plan to bolster Social Security's finances
and encourage Americans to save more for their retirements. He proposed
earmarking about $2.7 trillion-sixty percent of the projected $4.4 trillion
federal budget surplus during the next fifteen years-for Social Security
and investing about $700 billion of these funds in the stock market to
reap higher returns.
In addition, the president suggested using eleven percent, or $500 billion,
of the budget surplus to establish a program of individual savings and
investment accounts called Universal Savings Accounts, or "USA Accounts."
According to this plan, the federal government would provide seed money
and matching funds to help low- and middle-income citizens save for their
own retirements.
While it will undoubtedly be a focal point of Social Security reform
efforts, Clinton's plan is just one of many being discussed throughout
the nation. These include proposals by private interest groups that range
from leaving the program essentially as it is now to scrapping the current
setup and replacing it with a system of private investment accounts.
Several groups with strong New England ties have weighed in on the debate.
The thirty-million-member American Association of Retired Persons (AARP)
is a major player in efforts to preserve and strengthen Social Security.
The group's New England director, Glenn Koocher of Boston, says AARP opposes
individual retirement accounts, but thinks the government should invest
a portion of the Social Security trust funds in the stock market.
"We are ill at ease with allowing people to invest in private accounts,"
Koocher explains. "What happens if you have unscrupulous money managers,
bad investments, or swings in the stock market? However, we do think the
Social Security trustees should be able to consider investing in something
other than Treasury bonds. If everyone in the U.S. is in a collective risk
pool, then people are protected."
A group called Economic Security 2000 favors a two-tiered system, in
which a government safety net would be supplemented by private investment
accounts.
"We'd like to reduce the payroll tax from 12.4 percent to 9 percent
and allow people to divert the additional 3.4 percent to individually owned,
professionally managed accounts," says Hilary Wehner, with the group's
New England office in Nashua, New Hampshire. "These would be like
IRAs. You couldn't touch it until you retired, but you can watch it grow.
It would encourage savings and ultimately provide a greater return and
a higher quality of life for retirees."
The Concord Coalition, a group founded by the late Massachusetts Senator
Paul Tsongas, a Democrat, and former New Hampshire Senator Warren Rudman,
a Republican, also endorses a two-tiered system that includes some private
investing. But the funds for these private accounts should be tacked on
to the current payroll tax rate, not deducted from it, argues Bob Hannon
of Easton, Massachusetts, the group's Northeast regional director.
"If the rate is currently 12.4 percent, we shouldn't take 3 percent
off the top," he says. "We should add another 3 percent, raising
the tax to 15.4 percent, which workers could then invest in private retirement
accounts."
Finally, the Cato Institute, a Washington, D.C., think tank, favors
complete privatization. Cato is supported financially and in its views
by William Shipman, a leading advocate for privatization and a principal
at Boston's State Street Global Advisors investment firm. Cato and Shipman
urge a switch to a system of individual accounts.
While all these proposals appear to focus on figures and financing,
the debate is really about national values, says Apfel.
"Social Security embodies some of the greatest shared values in
this nation: collective responsibility, caring for other generations, and
mutual obligations," he says. "These are central to us as a people
and as a nation. When we look at the big reform effort, we need to ask
ourselves how we can maintain these values while making the system work
better. It's a question beyond economics. It's the bedrock of this debate."
He cautions that a system of completely privatized accounts could eliminate
the social insurance aspect of Social Security and make everyone's retirement
savings subject to "the vagaries of the marketplace." This would
inevitably have the greatest impact on the lowest-wage earners, who would
have nothing to fall back on.
Older women could also be greatly affected by reform measures. While
Social Security has reduced the overall percentage of the elderly who are
poor to about ten percent, the poverty rate of elderly women remains double
that percentage.
Northeastern law professor Mary O'Connell has studied the impact of
Social Security on women. She explains that older, single women are often
poor because of the way the system allocates benefits.
"In 1935, the drafters of the Social Security Act were operating
under a very different set of assumptions than we would be today,"
O'Connell says. "It was written at a time when men went to work, women
stayed home, and couples stayed married. They assumed that those receiving
benefits would be one of two kinds of people: they would be either a lifelong
earner, generally a man, or the widow of a lifelong earner."
But times have changed, O'Connell says, and many older, single women
are poor because they did not fit Social Security's assumptions about their
work lives. "What about a woman who dropped out of the workforce and
stayed home with her kids for a few years, then got divorced?" O'Connell
asks. "Social Security never anticipated anything like this.
"The people who get clobbered are those who are neither lifelong
earners or lifelong dependents of earners," she says, explaining that
Social Security computes a person's benefits by averaging their earnings
during their thirty-five-year work life. "You don't have to be a math
major to figure out what a few zeros are going to do to a computation like
that."
O'Connell urges that whatever changes are made in Social Security, they
should include new rules that would recognize the changing realities of
women's lives and the deficiencies of the current system.
Apfel agrees. "Reducing the poverty rate of older women is centrally
important to any reform effort," he says. "There is still a pocket
of poverty there that we need to deal with."
Boosting Social Security recipients from poverty is just as important
as bolstering the program's finances, he insists. "When we look to
reform, we can't just be looking at financing. We need to figure out where
the holes are in the system that need strengthening."
But what's most important at the moment, says "the Commissioner,"
is making sure the public takes part in the debate about reforming Social
Security. As Apfel said at his swearing-in, the federal government "cannot
make these choices in a vacuum. Critical discussions about the future of
Social Security need to take place not only in committee hearing rooms
on Capitol Hill, but also in family living rooms all across America."
Hudson Sangree is a student at N.U. Law School.
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