Order Code RL32822
CRS Report for Congress
Received through the CRS Web
Social Security Reform:
Legal Analysis of
Social Security Benefit
Entitlement Issues
March 18, 2005
Kathleen S. Swendiman and Thomas J. Nicola
Legislative Attorneys
American Law Division
Congressional Research Service ˜ The Library of Congress
Social Security Reform: Legal Analysis of Social
Security Benefit Entitlement Issues
Summary
Social Security reform is a major issue currently under debate in the 109th
Congress. Impetus for this debate stems from calculations indicating that in the long-
run the current program will not be financially sustainable under the present statutory
scheme. This report addresses selected legal issues which may be raised regarding
entitlement to Social Security benefits as Congress considers possible changes to the
Social Security program, and in view of projected long-range shortfalls in the Social
Security Trust Funds.
Social Security is a statutory entitlement program. Beneficiaries have a legal
entitlement to receive Social Security benefits as set forth under the Social Security
Act. However, Social Security benefits are not directly measured by the amount of
payments made through the years into the system. Thus, the fact that Social Security
benefits are financed by taxes on an employee’s wages does not limit Congress’
power to fix the levels of benefits under the Social Security Act, or the conditions
upon which they may be paid. Congress’suthority to modify provisions of the Social
Security program, was affirmed in the 1960 Supreme Court decision in Flemming v.
Nestor, wherein the Court held that an individual does not have an accrued “property
right” in his or her Social Security benefits. The Court has also made clear in
subsequent court decisions that the payment of Social Security taxes conveys no
contractual rights to Social Security benefits. The courts will accord strong deference
to social legislation such as contained in the Social Security Act where Congress
exercises its power to provide for the general welfare.
The calculations concerning the possible future insolvency of the Social Security
Trust Funds raise a question whether that result would affect the legal right of
beneficiaries to receive full Social Security benefits. While an entitlement by
definition legally obligates the United States to make payments to any person who
meets the eligibility requirements established in the statute that creates the
entitlement, a provision of the Antideficiency Act prevents an agency from paying
more in benefits than the amount available in the source of funds available to pay the
benefits. The Social Security Act states that Social Security benefits shall be paid
only from the Social Security Trust Funds and the act appropriates all payroll taxes
to pay benefits. Although the legal right of beneficiaries to receive full benefits
would not be extinguished by an insufficient amount of funds in the Social Security
Trust funds, it appears that beneficiaries would have to wait until the Trust Funds
receive an amount sufficient to pay full benefits in the case of a shortfall, unless
Congress amends applicable laws.
Contents
Congressional Authority to Modify Entitlements . . . . . . . . . . . . . . . . . . . . . 1
Payment of Social Security Benefits From the Trust Fund in Case of
Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Social Security Reform: Legal Analysis of
Social Security Benefit Entitlement Issues
Social Security reform is a major issue currently under debate in the 109th
Congress. Impetus for this debate stems from calculations indicating that in the long-
run the current program will be financially unsustainable under the present statutory
scheme. This report addresses selected legal issues which may be raised regarding
entitlement to Social Security benefits as Congress considers possible changes to the
Social Security program and in view of projected long-range shortfalls in the Social
Security Trust Funds.1
Social Security benefits are administered pursuant to Title II of the Social
Security Act, known as the Old Age, Survivors and Disability Insurance (OASDI)
program.2 Title II is part of a larger Social insurance program in which Congress
uses its power to tax and spend for the general welfare to promote the Social goals
of aiding the aged, survivors of workers, disabled persons and persons of limited
means. Beneficiaries under title II have a legal entitlement to receive Social Security
benefits as set forth by the Social Security Act and as administered by the Social
Security Administration (SSA), an independent agency in the executive branch.
An individual’s right to Social Security benefits is in a sense “earned,” since
there is a general relationship between OASDI benefits and wages earned and the tax
paid thereon. However, benefits are not directly measured by the amount of
payments made through the years into the system. Thus, the fact that Social Security
benefits are financed by taxes on an employee’s wages does not provide a limit on
Congress’ power to fix the levels of benefits under the Social Security Act, or the
conditions upon which they may be paid.3
Congressional Authority to Modify Entitlements
The Supreme Court’s landmark decision in Flemming v. Nestor,4 provided an
analysis of the relationship between a beneficiary’s legal entitlement to receive Social
Security benefits and the power of Congress to change that entitlement by amending
1 For more information, see CRS Issue Brief IB98048, Social Security Reform, by Dawn
Nuschler, and CRS Report RL31498, Social Security Reform: Economic Issues, by Jane
Gravelle and Marc Labonte.
2 Section 201 et seq. of the Social Security Act, 42 U.S.C. § 401 et seq.
3 Richardson v. Belcher, 404 U.S. 78 (1971). In addition, Section 1104, 42 U.S.C. § 1304
explicitly states “The right to alter, amend, or repeal any provision of this Act is hereby
reserved to the Congress.”
4 363 U.S. 603 (1960).
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the underlying statute. The Court in that case upheld a provision, section 202(a) of
the Social Security Act, 42 U.S.C. §402(a), that terminated Social Security benefits
to a person deported for membership in the Communist Party. Nestor had, at one
time, been a member of the Communist Party. Later he began receiving Social
Security benefits which were cut off when he was deported to his native Bulgaria.
Nestor argued that he had a “property right” in his Social Security benefits and that,
by cutting off those benefits, the government had made an unlawful “taking” of his
benefits under the Fifth Amendment.5
The Court, however, disagreed. Justice Harlan wrote:
To engraft upon the Social Security system a concept of “accrued property
rights” would deprive it of the flexibility and boldness in adjustment to
everchanging conditions which it demands. ... It was doubtless out of an
awareness of the need for such flexibility that Congress included in the original
Act, and has since retained, a clause expressly reserving to it “[t]he right to alter,
amend, or repeal any provision” of the act. §1104, 49 Stat. 648, 42 U.S.C. §1304.
That provision makes express what is implicit in the institutional needs of the
program... We must conclude that a person covered by the act has not such a
right in benefit payments as would make every defeasance of “accrued” interests
violative of the Due Process Clause of the Fifth Amendment.
Flemming at 610-611.
The inherent ability of Congress to modify the provisions of Title II of the
Social Security Act, even to the extent of affecting the benefits an individual is
currently receiving, is thus well established.6 The same principle that current benefit
amounts may be modified has been applied to other, similar programs involving
pensions, such as Federal Civil Service Retirement. One significant example is the
Supreme Court affirmance, without opinion, of a decision of a three-judge district
court in National Association of Retired Federal Employees v. Horner.7 The district
court in that case upheld a provision of the Balanced Budget and Emergency Deficit
Control Act,8 which suspended paying a scheduled cost-of-living adjustment (COLA)
for federal retirees, saying that it did not violate the Takings Clause of the Fifth
Amendment, which states that private property shall not be taken for public use
without just compensation.
5 The Fifth Amendment, in relevant part, states that, “No person shall ... be deprived of life,
liberty, or property, without due process of law; nor shall private property be taken for
public use without just compensation.” Language preceding the semicolon is referred to as
the Due Process Clause; language following the semicolon is referred to as the Takings
Clause.
6 See Richardson v. Belcher, 404 U.S. 78 (1971), where the Supreme Court upheld an
amendment that reduced monthly Social Security disability benefits from $330 to $225 to
reflect receipt of state workmen’s compensation benefits. See Also Milner v. Apfel, 148 F.
3d 812 (7th Cir. 1998) upholding suspension of Social Security benefits payable to certain
persons in public institutions found not guilty by reason of insanity of offenses punishable
by imprisonment for more than one year.
7 633 F. Supp. 511 (D.D.C. 1986), aff’d. 479 U.S. 878 (1986).
8 Pub. L. No. 99-177, known as the Gramm-Rudmann-Hollings Act.
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The dispute centered on whether the provision of the act, signed by the President
on December 12, 1985, which suspended any automatic spending increase that first
would be paid during the period beginning with the date of enactment, constituted a
taking of private property of the retirees. The section providing for the COLA, 5
U.S.C. §8340(b), provided that it would take effect on December 1 of each year.
While section 8340(b) made the COLA effective on December 1, it was not
scheduled to be paid until January 2, 1986. The retirees argued that the COLA for
the twelve months after December 1, 1985, became their private property on
December 1, 1985, and, consequently, that the suspension signed on December 12,
1985 took their property which had accrued between December 1 and 12 without
compensation in violation of the Takings Clause.
The court rejected their claim, asserting that, “It is utterly clear, however, that
the statute [section 8340(b)] cannot be read as plaintiffs wish.”9 Horner at 514. It
cited an earlier case, Stouper v. Jones, 284 F.2d 240 (D.C. Cir. 1960), as dispositive.
The appellant in the Stouper case retired in 1953 and began receiving disability
annuity payments pursuant to the law then in force. In 1956, Congress amended the
law to discontinue benefits to recipients whose earning capacity was restored to a
level fairly comparable to the current rate of pay for the position held immediately
prior to retirement. After the Retirement Division of the Civil Service Commission
determined that the appellant had been restored to that earning capacity, her disability
annuity was terminated.
The appellant asserted that the 1956 amendment could not constitutionally be
applied in her case because at the time she retired she acquired a vested right to an
annuity that could not be taken from her by subsequent legislation. Stouper at 242.
The U.S. Court of Appeals for the District of Columbia in Stouper said that “(i)t is
well settled that a pension granted by the government confers no right which cannot
be revised, modified, or recalled by subsequent legislation. United States ex rel.
Burnett v. Teller, 107 U.S. 64 (1882).” The court in the Stouper case added that
benefits under the Civil Service Retirement Act are similar to those under the Social
Security Act: they are not based on an employee’s contributions to the retirement
fund, but instead on the employee’s earnings record and years of service. It was
noted that the Retirement Act pays higher benefits when a deceased employee is
survived by a widow or widower and children, than when he or she is survived only
by a widow or widower even though the employee’s contribution to the Civil Service
Retirement and Disability Fund had been the same in either case. “We conclude that
an employee has no right under the Retirement Act based on contractual annuity
principles, and hold that the appellant had no vested right to the disability annuity
which was terminated.” Id.
9 See also Zucker v. United States, 578 F. Supp. 1239 (S.D.N.Y. 1984), appeal dismissed
on proced. grounds. 751 F.2d 373 (1d Cir. 1984), aff’d. 758 F. 2d 637 (Fed. Cir. 1985), cert.
denied, 474 U.S. 842 (1985). The court there upheld a modification of a Civil Service
retirement COLA saying that, although retirees may have a protected property interest when
they are entitled to immediate payment under pre-existing law, their entitlement to any post-
retirement increases in an annuity stems from the underlying statute which may be adjusted
at any time. Id. at 758 F.2d 638.
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The United States Supreme Court has also made clear that the payment of Social
Security taxes conveys no contractual rights to Social Security benefits. In 1937 the
High Court upheld the constitutionality of the Social Security Act in Helvering v.
Davis.10 In doing so, the Court held that the Social Security program was not an
insurance program. The court noted, “The proceeds of both employee and employer
taxes are to be paid into the treasury like any other internal revenue generally, and are
not earmarked in any way.”11 The Court, in essence, deferred to Congress on the
question of which welfare schemes fall within the ambit of the Constitution’s
General Welfare Clause. Later, in Flemming, the Court rejected any comparison of
Social Security with insurance or an annuity:12
It is apparent that the noncontractual interest of an employee covered by the act
cannot be soundly analogized to that of the holder of an annuity, whose right to
benefits is bottomed on his contractual premium payments.
The absence of contractual rights extends to government pensions in general.
In Dodge v. Board Education, 302 U.S. 74 (1937) a retired school teacher challenged
the constitutionality of a state statute that reduced her retirement annuity from $1500
to $500. The statute in effect when she retired said that, “Each person so retired ...
shall be paid the sum of fifteen hundred ($1500) annually and for life from the date
of such retirement.” The Supreme Court did not interpret this mandatory language
(“shall,” “annually and for life”) to supersede a subsequent state statute that reduced
the amount of the annual annuity, saying that, “The presumption is that a law is not
intended to create private contractual or vested rights but merely declares a policy
until the legislature shall ordain otherwise.”13
The presumption that pension statutes do not preclude Congress from decreasing
or eliminating benefits at a future time rests on the recognition that legislative bodies
require flexibility in public welfare matters.14 “[O]ur cases are clear that legislation
readjusting rights and burdens is not unlawful solely because it upsets otherwise
settled expectations.” Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15-16.
10 301 U.S. 619 (1937).
11 Id. at 635.
12 Flemming at 610.
13 Id. at 79.
14 In Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41 (1986),
the argument was advanced that agreements between Congress and states regarding Social
Security coverage of state and local employees conferred contractual rights upon the state
and local governments. When Congress revoked the state’s right to withdraw from its
coverage agreement, California claimed a “taking of private property” under the Fifth
Amendment. However, the Court disagreed. “The provision simply cannot be viewed as
conferring any sort of ‘vested right’ in the face of precedent concerning the effect of
Congress’ reserved power on agreements entered into under a statute containing the
language of reservation [to alter, amend or repeal the underlying statutory provisions]...
Rather, the provision simply was part of a regulatory program over which Congress retained
authority to amend in the exercise of its power to provide for the general welfare.” Id. at 55.
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While acknowledging this latitude, the Supreme Court in Flemming nonetheless
indicated that congressional action may be subject to some constitutional restraint:15
“Whether wisdom or unwisdom resides in the scheme of benefits set forth in
Title II [of the Social Security Act], it is not for us to say. The answer for such
inquires must come from Congress, not the courts. Our concern here, as often,
is with power, not with wisdom.” Helvering v. Davis, [301 U.S. 619] supra, at
644 [1937]. Particularly when we deal with a withholding of a noncontractual
benefit under a Social welfare program such as this, we must recognize that the
Due Process Clause can be thought to interpose a bar only if the statute manifests
a patently arbitrary classification, utterly lacking in rational justification.
Thus, only if Congress were to act in a totally irrational and arbitrary manner
would due process considerations invalidate a subsequent amendment.16 The Court
reiterated this view in United States Railroad Retirement Board v. Fritz, 449 U.S.
166 (1980), wherein it upheld congressional amendments to railroad retirement
benefits that reduced benefits for some beneficiaries and eliminated benefits for
others. These changes were challenged under the Due Process Clause on the ground
that they irrationally distinguished between classes of annuitants. However, the
Court held that because Congress could have eliminated benefits for all classes of
employees, it was not constitutionally impermissible to draw lines between groups
of employees for the purpose of phasing out the benefits. The Court said: “Where,
as here, there are plausible reasons for Congress’ action, our inquiry is at an end.”
The Court added that drawing lines between categories of beneficiaries “is a matter
for legislative, rather than judicial, consideration.” Id. at 179-180.17
Payment of Social Security Benefits From the Trust Fund in
Case of Insolvency
The projected insolvency of the Social Security Trust Funds, formally known
as the Federal Old Age and Survivors Insurance (OASI) Trust Fund and the
Disability Insurance (DI) Trust Fund, raises a question whether that possibility would
affect the legal right of beneficiaries to receive full Social Security benefits. In
15 Flemming at 611. Note, however, that once a beneficiary receives an actual benefit
payment, the government cannot take it back. “Pension payments actually made to retirees
become their property and are protected against takings, even if and where the payments are
unquestionably a gift.” National Education Association-Rhode Island v. Retirement Board
of Rhode Island Employees’ Retirement System, 172 F. 3d 22, 300 (1st Cir. 1999).
16 “[T]he strong deference accorded legislation in the field of national economic policy is
no less applicable when that legislation is applied retroactively. Provided that the
retroactive application of a statute is supported by a legitimate legislative purpose furthered
by rational means, judgments about the wisdom of such legislation remain within the
exclusive province of the legislative and executive branches.” PBGC v, R.. A. Gray & Co.,
467 U.S. 717, 729(1984).
17 See Steinberg v. United States, 163 F. Supp. 590 (Ct. Cl. 1958), for a case which held that
a provision of the Federal Civil Service Retirement Act terminating annuity payments to any
person who invoked his Fifth Amendment privilege against self-incrimination was arbitrary
and discriminatory in violation of the Due Process Clause and also a bill of attainder, i.e.,
a legislative punishment, in violation of Art. I, §6, cl. 3 of the Constitution.
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March of 2004, the most recent year for which a report is available, the Trustees of
the Social Security Trust Funds stated that the funds18
. . . are projected to become insolvent (i.e., unable to pay scheduled benefits
in full on a timely basis) when assets are exhausted in 2042 under the long-range
intermediate assumptions. . . . Based on the Trustees’ best estimate, program
cost will exceed tax revenues starting in 2018 and throughout the remainder of
the 75-year projection period. Social Security’s combined trust funds are
projected to allow full payment of benefits until they become exhausted in 2042.
At that time annual tax income to the trust funds is projected to equal about 73
percent of program costs. Separately, the OASI and DI funds are projected to
have sufficient funds to pay full benefits on time until 2044 and 2029,
respectively. By 2078, however, annual tax income is projected to be only about
two thirds as large as the annual cost of the OASDI program.
The OASDI Trust Funds are accounts maintained on the books of the United
States Treasury. The system operates on a “pay-as-you-go” basis. Current workers
and their employers and the self-employed pay taxes on wages and self-employment
income under the Federal Insurance Contributions Act (FICA) and the Self-
Employed Contributions Act (SECA), respectively. Taxes paid now finance benefits
for today’s beneficiaries. A full 100% of these payroll taxes is appropriated to the
Social Security Trust Funds.19 Interest on and proceeds from the sale or redemption
of government securities held in these funds are credited to and form a part of them.20
Moreover, amounts credited to the funds are the only source of funds to pay
benefits.21
Social Security is a statutory entitlement program.22 Entitlement authority has
been defined as “authority to make payments (including loans and grants) for which
budget authority is not provided in advance by appropriation acts to any person or
government if, under the provisions of the law containing such authority, the
government is obligated to make the payments to persons or governments who meet
the requirements established by law.”23 Budget authority is the authority provided
by law to enter into obligations that will result in immediate or future outlays
involving federal government funds.24
18 Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance
Trust Funds, The 2004 Annual Report of the Board of Trustees of the Federal Old-Age and
Survivors Insurance and Disability Insurance Trust Funds 3 and 16 (2004).
19 Section 201(a) and (d) of the Social Security Act, 42 U.S.C. § 401(a) and (b).
20 Section 201(f) of the Social Security Act, 42 U.S.C. § 401(f).
21 Section 201(h) of the Social Security Act, 42 U.S.C. § 401(h).
22 See sections 202 and 223 of the Social Security Act, 42 U.S.C. §§ 402 and 423, which
state that every individual who meets the eligibility requirements set forth therein “shall be
entitled” to an old age benefit or disability benefit, respectively.
23 2 U.S.C. §§ 622(9) and 651(c)(2)(C).
24 2 U.S.C. § 622(2).
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According to a publication of the General Accountability Office, formerly the
General Accounting Office,25
Congress occasionally legislates in such a manner as to restrict its own
subsequent funding options. . . . An example . . . is entitlement legislation not
contingent upon the availability of appropriations. A well known example here
is Social Security benefits. Where legislation creates, or authorizes the
administrative creation of, binding legal obligations without regard to the
availability of appropriations, a funding shortfall may delay actual payment but
does not authorize the administering agency to alter or reduce the “entitlement.”
. . . Even under an entitlement program, an agency could presumably meet a
funding shortfall by such measures as making prorated payments, but such
actions would be only temporary pending receipt of sufficient funds to honor the
underlying obligation. The recipient would remain legally entitled to the
balance.
While an entitlement by definition legally obligates the United States to make
payments to any person who meets the eligibility requirements established in the
statute that creates the entitlement, a provision of the Antideficiency Act, 31 U.S.C.
§ 1341, prevents an agency from paying more in benefits than the amount available
in the source of funds available to pay the benefits, in this case the Old Age and
Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. Section
1341, in relevant part, provides that:
An officer or employee of the United States government or of the District
of Columbia government may not —
(A) make or authorize an expenditure or obligation exceeding
an amount available in an appropriation or fund for the expenditure
or obligation;
(B) involve either government in a contract or obligation for the
payment of money before an appropriation is made unless authorized
by law; . . . .
The Antideficiency Act prohibits making expenditures either in excess of an
amount available in a fund or before an appropriation is made. It would appear to bar
paying more money in benefits than the amount of the balance in the Social Security
Trust Funds primarily because, as noted earlier, disability and old-age and survivor
benefit payments shall be made “only” from the Disability Insurance Trust Fund and
the Old Age and Survivors Insurance Trust Fund, respectively.26
Violations of the Antideficiency Act are punishable by administrative and
criminal penalties. An officer or employee who violates the act’s prohibitions is
subject to appropriate administrative discipline, including, when circumstances
25 Office of the General Counsel, General Accounting Office, I Principles of Appropriations
Law 3-49 and 3-49, n. 40. (3d ed. 2004).
26 Section 201(h) of the Social Security Act, 42 U.S.C. § 401(h).
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warrant, suspension from duty without pay or removal from office.27 An officer or
employee who knowingly and willfully violates the act can be fined not more than
$5000, imprisoned for not more than two years, or both.
After the Social Security Trust Funds become insolvent, it appears that
beneficiaries who would file suit to be paid the difference between the amount that
receipts allow paying and the full benefit amount to which they are entitled would not
be likely to succeed in getting the difference. The Supreme Court in Reeside v.
Walker, 53 U.S. (11 How.) 272, 275 (1850), held that no officer of the government
is authorized to pay any debt due from the United States, whether reduced to a court
judgment or not, unless an appropriation has been made for that purpose. To support
its holding, the Court cited Article I, Section 9, clause 7 of the Constitution, which
states that, “No money shall be drawn from the Treasury, but in consequence of
appropriations made by law; . . . .” The Court reaffirmed this principle in Office of
Personnel Management v. Richmond, 496 U.S. 414, 424-426 (1990). Consequently,
unless Congress amends applicable laws, it appears that beneficiaries would have to
wait until the Trust Funds receive an amount sufficient to pay full benefits to receive
the difference between the amount that can be paid from the Trust Funds and the full
benefit amount.
Conclusion
The Old Age, Survivors and Disability Insurance program is a statutory
entitlement program. Beneficiaries have a legal right to receive benefits if they meet
the Social Security Act’s eligibility requirements. Congress has, however, reserved
the “right to alter, amend, or repeal any provision of this (Social Security) Act” and
the United States Supreme Court has affirmed Congress’ power to modify provisions
of the Social Security Act in Flemming v. Nestor, 363 U.S. 603 (1960), and in
subsequent court decisions. The Social Security program does not accord individuals
either vested property rights or contractual rights with regard to future benefits.
Congress may modify provisions of the Social Security Act as it exercises its
constitutional power to provide for the general welfare.
The Trustees of the Old Age and Survivors Insurance Trust Fund and the
Disability Insurance Trust Fund have projected that these funds on a combined basis
will be insolvent, i.e., unable to pay full benefits on time, in 2042. The Social
Security Administration would not be able to pay beneficiaries full benefits at that
time because the Social Security Act states that benefits shall be paid only from the
Social Security Trust Funds. Social Security Administration officials are bound by
the Antideficiency Act, which prohibits paying amounts that exceed the amount
available in the source of funds available to pay them. Although the legal right of
beneficiaries to receive full benefits would not be extinguished by the insufficient
amount of funds in the Social Security Trust funds, a court suit to obtain the
difference between the amount in the Social Security Trust Funds available to pay
partial benefits and the full benefit amount would not be likely to succeed in getting
the difference. The Supreme Court has held that no officer of the government may
pay a debt whether reduced to a court judgment or not, unless Congress has
27 31 U.S.C. § 1349.
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appropriated funds to pay it. Consequently, unless Congress amends applicable
laws, it appears that beneficiaries would have to wait until the Trust Funds receive
an amount sufficient to pay full benefits to receive the difference between the amount
that can be paid from the Trust Funds and the full benefit amount.