Clarifying the Notch Baby Distortion
Tuesday, March 2, 1999
NEW YORK "What is your opinion of the notch victim mail, which I have been receiving from two sources," writes reader Laurie Kerekes, 77, in Romulus, Mich. "Should I, on my limited income, contribute to the cause?"
"I have been inundated with (notch victim) mailings over the past seven years, since I retired," writes Anne Somers, 74, of Bound Brook, N.J. "My brother used to get them in the 1980s. I told him to ignore them, because these people hit on seniors for contributions."
If you're younger, you've probably never heard of the notch-baby controversy. But your parents may be getting these mailings, even though you don't.
The letters tell them they're victims who are being unfairly deprived of Social Security benefits. Recipients are urged to send money, so Congress can be lobbied to right this outrageous wrong.
But no wrong was done, so don't send money. The only victims are those who believe the mailings, and contribute to a "cause" that benefits only the fund-raisers.
The roots of the phony notch grievance lie in a good deed. Congress, in 1972, decided to link Social Security benefits to the consumer price index to preserve older people's purchasing power.
But an error was made in the formula Congress approved for carrying out the law. It showed up in the first check that beneficiaries received when they went on the rolls.
This meant that ongoing benefits were higher than they should have been. Had that law stood, Social Security would have run out of money years ago.
Congress corrected the formula in 1977. So the windfall affected only retirees born roughly between 1910 and 1916.
The extra money wasn't taken away from this lucky group. Congress felt it wouldn't be fair. They had innocently built that benefit into their budgets.
The lawmakers also decided to give a special break to the next group of retirees, who had presumably counted on getting similar benefits. Instead of restoring a proper (and lower) level of benefits all at once, they restored it slowly, over five years.
This transition formula covered people born roughly from 1917 to 1921--the group now known as the notch. It gave many of them higher benefits than they otherwise would have had, but lower than the lucky group that got the windfall.
Hence, the notch-baby grievance arose. The retirees in this group didn't care (or didn't know) that that small group of previous retirees merely had benefited from a mistake. They wanted the same windfall benefits, too.
The people who nurture the notch babies' gripes have a second argument. They claim that the notch also got worse treatment than people who retired later. They whip out charts, showing that, for the notch group, average Social Security benefits weren't as high.
That's an outright distortion. The transition formula used for figuring notch-baby benefits was better than that used for people who retired later.
But under any formula, dollar benefits are linked to lifetime earnings. Average earnings were higher for people who retired after the notch babies did, so their benefits were higher, too. That's natural. No one is being robbed.
Still, ever since 1977, fund-raisers have fed on the notch. They send out letters, asking people to sign petitions to Congress (and, incidentally, enclose a check). They stir up resentment. They falsely tell people they're being discriminated against, based on the year they were born.
The major notch mailer today is The Retired Enlisted Association (TREA) Senior Citizens League in Washington, D.C. In its view, the notch extends to people born as late as 1926--which nicely extends its mailing list. TREA raised $7.47 million in 1997, up from $6.3 million in 1996. Last year's data hasn't been published yet.
The notch is a nifty fund-raiser for legislators, too. By introducing or co-sponsoring a bill, they can pick up a campaign contribution from TREA.
The current bills plump for a flat $5,000 "settlement" for everyone in the notch. No cost estimates are offered, but based on Social Security data, the price could be anywhere from $25 billion to $60 billion. Last year's budget surplus was $69.2 billion.
In 1992, Congress appointed a commission to study the notch. It reported, in 1994, that no injustice had been done. "Notch legislation won't pass," says Evelyn Morton, legislative representative for the American Association of Retired Persons.
You've probably noticed that, if the notch babies win higher benefits, a new notch would be created, of people who retired later. A new generation of "victims" would have been born--an opening for fund-raisers to milk seniors yet again.
Jane Bryant Quinn welcomes letters on money issues and problems
but cannot offer individual financial advice.
© Copyright 1999 Washington Post Writers Group