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Laws that Penalize Older Workers are Set to Fall

By David Armstrong   Fox Market Wire
Washington, D.C. restaurateur Zed Wondemu has a problem.

As the owner of a small apartment complex, he wanted to hire one of his tenants, a healthy and responsible 69-year-old former maintenance worker to take care of the place as an on-site manager.

The older man wanted the job, but he could not afford to take it. If the retiree worked too many hours, it would mean giving up over 30 percent of his Social Security benefits.

"(The apartment complex) only has seven units, so I do not need, and cannot afford, a management company. I just need someone to help out," Wondemu said before a congressional panel debating Social Security last week. "Because of his concern over the losing his Social Security benefits if he works too many hours, I am unable to hire him."

 
'Almost everyone agrees that the country can do away with the Social Security earnings tax'
 

If proponents of changing the current Social Security laws are right, there are a lot of employers in Wondemu's shoes. They want to hire older workers and retirees, but they fight against laws penalizing older Americans who want to work.

But that is on the verge of changing. A Congressional subcommittee has overwhelmingly passed a bill that would eliminate the current financial penalties levied against retirees who earn above $17,000 a year. The bill is on the fast-track to passing the House, and President Clinton, who endorsed the effort last week, said he will sign the bipartisan effort into law.

Employers hail the move as a way to grapple with the tightest labor market they have seen in decades. They feel the pinch of too many jobs and too few workers, and many are discovering that Americans over the normal retirement age of 65 have the necessary skills and talents that would benefit their businesses.

For older Americans, being 65 does not mean what it once did. Quite often, they regard the standard retirement age as a relic from the era of the Great Depression, and do not feel the need to plan their life around it. Certainly, they say, the economic picture is different today than it was when the Social Security earnings tests were created in 1935.

As the current law stands, starting at the normal retirement age of 65, a worker must pay back $1 in benefits for every $3 earned above $17,000 a year. That means that if a retiree wants to continue working, or start a different career after retirement, Uncle Sam keeps 33 percent of his or her Social Security benefits.

That money is returned to the employee at age 70, regardless of whether they are still working or how much they are making, so the earnings test has little effect when it comes to government coffers.

But many politicians and business leaders claim the real crime with the current rules is that it hurts an economy desperate for employees.

"The issue isn't so much that this is good Social Security policy," said Joe Theissen, director of Congressional affairs for the U.S. Chamber of Commerce. "The issue is that this is good employment policy."

"Our members are having a hell of a time finding qualified workers," he said. "Many of the people who could be brought back in to the workforce have the kinds of skills that are at a premium. But they won't go back into the workforce at a penalty."

Take Henry A. Hough, a retired military veteran who went to work at age 67 for The 60 Plus Association, a Virginia senior citizen's advocacy group.

 
'Employers hail the move as a way to grapple with the tightest labor market they have seen in decades'
 

Hough told the subcommittee last week he lost an estimated $11,452 in benefits during the three years he worked for the group before the age of 70, when all earnings tests cease and retirees are eligible for full benefits, regardless of income.

"As my experience indicates, it certainly is a disincentive" to continue working, Hough told the subcommittee, although, in his case, it obviously was not disincentive enough.

Almost everyone agrees that the country can do away with the Social Security earnings tax. But there is disagreement on whether it will take the sting out of the tight labor pinch in any significant way.

A study done by the Center for Retirement Research at Boston College shows that eliminating the earnings test would not lead to an increased number of older Americans going back to work or remaining in the workforce.

Still other studies show that older workers' earnings tend to cluster just below the $17,000 earnings limit, meaning that there are significant numbers of older Americans who are deliberately working only up to the point where their Social Security benefits would be affected.

For some retirees, razing any barrier to employment is justification enough.

"Look at (Federal Bank) Chairman Greenspan and, I might add, certain members of Congress who pursue active careers as bonafide seniors," Hough said at the hearing. "There are favorable psychological factors to having an opportunity to work. For one thing, work contributes to seniors' self esteem. Instead of older people being regarded as a burden on society, they can make a positive contribution to the economy and society and feel good about themselves."


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