Social Security Reform: Legal Analysis of
Social Security Benefit Entitlement Issues
Emily M. Lanza
Legislative Attorney
Thomas J. Nicola
Legislative Attorney
September 17, 2014
Congressional Research Service
7-5700
www.crs.gov
RL32822
Social Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues
Summary
Calculations indicating that the Social Security program will not be financially sustainable in the
long run under the present statutory scheme have fueled the current debate regarding Social
Security reform. This report addresses selected legal issues that may be raised regarding
entitlement to Social Security benefits as Congress considers possible changes to the Social
Security program 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. The fact that Social
Security benefits are financed by taxes on an employee’s wages, however, does not limit
Congress’s power to fix the levels of benefits under the Social Security Act or the conditions upon
which they may be paid. Congress’s authority 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 made clear in subsequent court decisions that the payment of
Social Security taxes conveys no contractual rights to Social Security benefits.
Congress has the power legislatively to promise to pay individuals a certain level of Social
Security benefits, and to provide legal evidence of Congress’s “guarantee” of the obligation of the
federal government to provide for the payment of such benefits in the future. While Congress
may decide to take whatever measures necessary to fulfill such an obligation, courts would be
unlikely to find that Congress’s unilateral promise constitutes a contract which could not be
modified in the future. In addition, a congressional promise not to reduce a specific level of
Social Security benefits payable to certain eligible individuals would likely not overcome the
constitutional principle, subject to due process considerations, that one Congress may not bind a
subsequent Congress to legislative action or inaction.
The calculations concerning the possible future insolvency of the Social Security Trust Funds
raise a question relating to 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 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.
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Social Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues
Contents
Congressional Authority To Modify Entitlements ........................................................................... 1
Congressional Guarantee of Social Security Benefit Payments ...................................................... 5
Congressional Power To Modify Its Own Contracts ................................................................. 5
Congressional Power To Promise Future Deference ................................................................. 7
Payment of Social Security Benefits From the Trust Fund in Case of Exhaustion.......................... 8
Conclusion ..................................................................................................................................... 11
Contacts
Author Contact Information........................................................................................................... 12
Acknowledgment ........................................................................................................................... 12
Congressional Research Service
Social Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues
alculations indicating that the current Social Security program will not be financially
sustainable in the long run under the present statutory scheme have fueled the current
C debate regarding Social Security reform.1 This report addresses selected legal issues that
may be raised regarding entitlement to Social Security benefits as Congress considers possible
changes to the Social Security program in view of projected long-range shortfalls in the Social
Security Trust Funds.2
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.3 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’s power to fix the levels of benefits under the Social
Security Act, or the conditions upon which they may be paid.4
Congressional Authority To Modify Entitlements
The Supreme Court’s landmark decision in Flemming v. Nestor5 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 the underlying statute. The Court in
that case upheld a provision, Section 202(a) of the Social Security Act,6 that terminated Social
Security benefits to a person deported for membership in the Communist Party. Nestor at one
time had 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 that contravened the Fifth
Amendment.7
1 See CRS Report RL33514, Social Security: What Would Happen If the Trust Funds Ran Out?, by Noah P. Meyerson.
2 See CRS Report RL33544, Social Security Reform: Current Issues and Legislation, by Dawn Nuschler, for more
information.
3 Sections 201 et seq. of the Social Security Act, 42 U.S.C. §§401 et seq.
4 Richardson v. Belcher, 404 U.S. 78 (1971). In addition, Section 1104, 42 U.S.C. §1304, explicitly states that, “The
right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.”
5 363 U.S. 603 (1960).
6 42 U.S.C. §402(a).
7 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.
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The Court, however, disagreed. Justice Harlan wrote:8
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.
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.9 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.10 The district
court in that case upheld a provision of the Balanced Budget and Emergency Deficit Control
Act,11 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.
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 12 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.”12 It cited an earlier case, Stouper v. Jones,13 as
8 363 U.S. at 610-611.
9 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.
10 633 F. Supp. 511 (D.D.C. 1986), aff’d. 479 U.S. 878 (1986).
11 P.L. 99-177, known as the Gramm-Rudmann-Hollings Act.
12 Horner at 514. See also Zucker v. United States, 578 F. Supp. 1239 (S.D.N.Y.1984), appeal dismissed on proced.
grounds, 751 F.2d 373 (2d 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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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.14 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).”15
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.”16
The U.S. Supreme Court also has 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.17 In doing so, the Court held
that the Social Security program is 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.”18 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:19
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.
(...continued)
13 284 F.2d 240 (D.C. Cir. 1960).
14 Stouper at 242.
15 Id.
16 Id. at 243.
17 301 U.S. 619 (1937).
18 Id. at 635.
19 363 U.S. at 610.
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The absence of contractual rights extends to government pensions in general. In Dodge v. Board
Education,20 a retired school teacher challenged the constitutionality of a state statute that reduced
her retirement annuity from $1,500 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.”21
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.22 “[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 (1976). While acknowledging this latitude, the Supreme Court in
Flemming nevertheless indicated that congressional action may be subject to some constitutional
restraint: Quoting from an earlier case, the Court in Flemming said that
“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 inquiries 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.23
Thus, only if Congress were to act in a totally irrational and arbitrary manner would due process
considerations invalidate a subsequent amendment.24 The Court reiterated this view in United
20 302 U.S. 74 (1937).
21 Id. at 79.
22 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. 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.
23 363 U.S. at 611. Once a beneficiary receives an actual benefit payment, however, 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, 30 (1st Cir. 1999).
24 “[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).
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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States Railroad Retirement Board v. Fritz,25 which 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. 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.”26 The
Court added that drawing lines between categories of beneficiaries “is a matter for legislative,
rather than judicial, consideration.”27
Congressional Guarantee of Social Security
Benefit Payments
The Social Security program has faced funding shortfalls in the past, and Congress has enacted a
variety of measures to deal with financial imbalances.28 Given the clear judicial precedents to the
effect that Social Security benefits under Title II are not property rights and cannot be categorized
as contractual in nature, the question may be raised whether Congress legislatively could create a
new, legally enforceable right to the receipt of a certain level of benefits by individuals eligible
for Social Security benefits.29 A legislative guarantee of a certain level of Social Security benefit
payments with a corresponding obligation upon future Congresses for payment of such benefits
would require either a finding of a contractual relationship between the federal government and
individual certificate holders, the modification or repeal of which would be constitutionally
impermissible, or a right stemming from Congress’s implied promise not to enact legislation in
the future that would bind a future Congress in the sense that the legislative enactment
guaranteeing Social Security benefit payments could not be repealed or altered.
Congressional Power To Modify Its Own Contracts
A legally enforceable guarantee of a certain level of Social Security benefits set forth in
legislation may be argued to create a contract between the federal government and individual
Social Security recipients. It may be argued further that such a contract constitutionally protects
an individual’s right to continue to receive full benefits, and prohibits the federal government
25 449 U.S. 166 (1980).
26 Id. at 179-180.
27 Id.
28 See CRS Report RL33544, Social Security Reform: Current Issues and Legislation, by Dawn Nuschler.
29 Examples of proposals to address these imbalances may be found in two 109th Congress bills: S. 1750, which would
have created a legally enforceable guarantee for current retirees and workers born before 1950 to receive the level of
their monthly Social Security benefits as determined on the date of entitlement plus applicable cost-of-living increases
for the rest of their lives, and a related bill, H.R. 1164, which would have provided the same guarantee for all
individuals eligible for Social Security benefits under Title II. Current retirees, and workers upon being approved to
receive benefits, would, under these proposals, have received certificates guaranteeing the level of benefits that were in
effect at the time of retirement. Certificates would have constituted budget authority in advance of appropriations acts,
and would have represented the obligation of the federal government to provide for the payment of Social Security
benefits to individuals to whom certificates were issued in amounts in accordance with the guarantee as set forth in the
certificates. A similar bill, H.R. 1275, has been introduced in the 113th Congress.
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from abrogating such a contract by reducing or otherwise modifying the full payment of benefits
an individual is entitled to receive.
Under Article I, §10, cl.1, known as the Contracts Clause, the states are forbidden to pass laws
impairing the obligation of contracts. Even as applied to the states, since Home Building & Loan
Assn. v. Blaisdell,30 this restriction is not very severe, save for state efforts to void their own
contracts.31 As for the federal government, there is no such clause, but this right is subsumed
under the Fifth Amendment’s Due Process Clause. And that right, as in the case of any economic
right under the due process clause, is subject to standards that are not considered rigorous.32 Even
insofar as the government’s own contracts are concerned, the usual rule is that they too may be
subject to alteration, especially when the right to alter laws is reserved. Thus, Congress, in Legal
Tender Cases (Knox v. Lee)33 was held to have the authority to make Treasury notes legal tender
in payment of debts previously contracted for payment in gold, and in Norman v. Baltimore &
Ohio R. R.,34 Congress was held to have the authority to invalidate provisions in private contracts
calling for payment in gold coin. When the federal government seeks to abrogate its own
contracts in order to serve its own financial purposes or to increase the public fisc, however, a
more searching scrutiny, and usually invalidation, follows.35
The relevant distinction here is that the federal government acting as sovereign, and the federal
government acting as contractor, constitute two separate roles. When the government acts as
sovereign, in its legislative or executive capacity, rendering impossible the performance of its
obligations, it cannot be held responsible in its capacity as a contractor.36 In Horowitz v. United
States, the federal government contracted with the claimant for silk products and for the shipment
of silk within a certain time, but the United States Railroad Administration subsequently placed
an embargo on shipments of silk by freight. By the time the silk reached Horowitz, the price had
fallen, rendering the deal unprofitable. The Court barred any damages award against the United
States for the delay. “It has long been held by the Court of Claims that the United States as a
contractor cannot be held liable for an obstruction to the performance of the particular contract
resulting from its public and general acts as sovereign.”37
30 290 U.S. 398 (1934).
31 United States Trust Co. v. New Jersey, 431 U.S. 1 (1977).
32 PBGC v. R.A. Gray & Co., 467 U.S. 717, 732-33 (1984).
33 79 U.S. (12 Wall.) 457 (1871).
34 294 U.S. 240 (1871).
35 See Perry v. United States, 294 U.S. 330 (1935) (law purporting to abrogate a clause in government bonds calling
for payment in gold coin was invalid) and Lynch v. United States, 292 U.S. 571 (1931) (statute abrogating contracts of
war risk insurance held invalid as applied to outstanding policies). In the Lynch case, the Court found that war risk term
insurance policies for which the insured, former military personnel, had paid monthly premiums, were contracts that
were property and created vested rights. The Court contrasted these insurance policies with pensions, noting that
“Pensions, compensation allowances and privileges are gratuities. They involve no agreement of parties; and the grant
of them creates no vested right. The benefits conferred by gratuities may be redistributed or withdrawn at any time in
the discretion of Congress.” Lynch, at 577.
36 See Horowitz v. United States, 267 U.S. 458 (1925), and Deming v. United States, 1 Ct. Cl. 190 (1865). See also
United States v. Winstar Corp., 518 U.S. 839, 894-910 (1996) (plurality opinion of Justice Souter); and Winstar at 932-
935 (Chief Justice Rehnquist dissenting).
37 Horowitz at 461. See also Flemming v. Rhodes, 331 U.S. 100, 107 (1947), where the Court upheld a district court
injunction against the eviction of tenants, stating that, “So long as the Constitution authorizes the subsequently enacted
legislation, the fact that its provisions limit or interfere with previously acquired rights does not condemn it. Immunity
from federal regulation is not gained through forehanded contracts. Were it otherwise the paramount powers of
Congress could be nullified by ‘prophetic discernment.’” (Emphasis supplied; footnote citation omitted).
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If a recipient’s right under law to a certain level of Social Security benefits is to be viewed as a
contract between the recipient and the federal government, this contract arguably is not in the
class of contracts that the federal government enters into in its proprietary capacity as a
contractor. Title II recipients, whether receiving old age, survivors, or disability insurance
benefits, have not, by virtue of the receipt of this promise, paid any money, provided any service
or thing of value in exchange for the government’s guarantee not to reduce the recipient’s
payments in the future. The government’s commitment is unilateral, and it arguably remains
subject to Section 1104 of the Social Security Act,38 which reserves the right of Congress to
revise or modify the Social Security Act by subsequent legislation. While congressional
modification of the express terms of the promise in law not to reduce benefits is limited by due
process considerations, such constitutional concerns impose a bar only upon the enactment of an
arbitrary modification that has no rational justification.
Congressional Power To Promise Future Deference
It may be argued that Congress, by giving eligible individuals a legislative guarantee of a certain
level of Social Security benefits, can legally bind itself in the future to pay the full amount of
such Social Security benefits plus COLAs to certificate holders. There is no doubt that Congress
may validly enact such a provision and promise to pay full Social Security benefits in the future.
Congress may also provide for a funding mechanism and judicial recourse for non-compliance.
Thereafter, Congress may decide to take whatever measures necessary to fulfill such a promise.
The undeniably strong moral duty to do so, however, would not trump the underlying
constitutional principle that a legislative enactment such as this cannot bind a future Congress in
the sense that the legislative enactment cannot be repealed or altered.39 “The principle asserted is,
that one legislature is competent to repeal any act which a former legislature was competent to
pass; and that one legislature cannot abridge the powers of a succeeding legislature. The
correctness of this principle, so far as respects general legislation, can never be controverted.”
Fletcher v. Peck.40
To be sure, some congressional enactments, by their nature, are irrevocable. If Congress should
admit a territory as a state, it could not subsequently repeal the law and make that state something
else. Moreover, as discussed above, constitutional protection is accorded contracts when the
federal government incurs financial obligations while acting in its proprietary capacity. In such
cases federal efforts to avoid liabilities arising out of its own contracts have been found to deny
due process.41 Where the federal government acts as lawmaker exercising its sovereign powers to
provide for the general welfare, however, it cannot give up such powers by a binding contract.
“Contractual arrangements, including those to which a sovereign itself is party, remain subject to
subsequent legislation by the sovereign.” Bowen v. Public Agencies Opposed to Social Security
Entrapment.42
38 42 U.S.C. §1304.
39 For an extensive treatment of this principle, see Eule, Temporal Limits on the Legislative Mandate: Entrenchment
and Retroactivity, 1987 Am. B. Found. Res. J. 379.
40 10 U.S. (6 Cr.) 87, 135 (1810) (Chief Justice Marshall).
41 Perry v. United States, Lynch v. United States, Sinking Fund Cases, discussed supra.
42 477 U.S. 41, 52 (1986) (internal quotation marks omitted).
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Illustrating this principle is the Supreme Court’s holding in Stone v. Mississippi.43 The Mississippi
legislature entered into a contract with a company to operate a lottery within the state, but the
following year the state’s voters adopted a constitutional amendment abolishing lotteries. Quoting
a state case, the Court observed:
Irrevocable grants of property and franchise may be made if they do not impair the supreme
authority to make laws for the right government of the State; but no legislature can curtail the
power of its successors to make such laws as they may deem proper in matters of police. 44
These and other cases that might be cited45 demonstrate the limited role contract principles play in
matters affecting the governmental functions, rather than the proprietary functions, of the states
and the federal government. In essence, absent the kind of promise involving the essence of
contracts covered by the Contracts Clause, a guarantee of the “full faith and credit” of the United
States in backing bonds, for example, a statute which in fact promises future congressional action
or inaction would likely not be held to constitute a contract enforceable by the courts. Legislative
language that obligates the federal government to provide a guaranteed level of Social Security
benefits to recipients purports to preclude the possibility that a recipient’s benefits may be
reduced in the future by either a repeal of the underlying law or by an amendment of the statutory
provisions in Title II of the Social Security Act. The weight of judicial authority, however,
suggests that Congress may not so bind itself, and that neither concepts of property rights nor
contract would disable a future Congress from changing the benefits provided under Title II of the
Social Security Act.
Payment of Social Security Benefits From the Trust
Fund in Case of Exhaustion
The projected exhaustion 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 regarding whether that possibility would affect the legal right of beneficiaries to
receive full Social Security benefits.46 On July 28, 2014, the Trustees of the Social Security Trust
Funds stated that
The Trustees project that annual OASDI cost will exceed non-interest income throughout the
long-range period (2014 through 2088) under the intermediate assumptions. The dollar level
of the theoretical combined trust fund reserves declines beginning in 2020 until reserves are
depleted in 2033. Considered separately, the DI Trust Fund reserves become depleted in
2016 and the OASI Trust Fund reserves become depleted in 2034. The projected reserve
43 101 U.S. 814 (1880).
44 Id. at 817-818.
45 See United States v. Will, 449 U.S. 200 (1980), involving congressional suspensions of automatic cost-of-living
adjustments to the salaries of high-level federal officials. The Supreme Court held that Congress could legislate to
revoke the salary increases even though they previously had been authorized in legislation. Whenever Congress decides
to suspend or repeal a statute in effect, “[t]here can be no doubt that ... it could accomplish its purpose by an
amendment to an appropriation bill, or otherwise.”
46 See CRS Report RL33514, Social Security: What Would Happen If the Trust Funds Ran Out?.
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depletion years were 2033 for OASDI, 2016 for DI, and 2035 for OASI in last year’s
report.47
Under current law, the projected cost of Social Security increases faster than projected
income through about 2035 primarily because of the aging of the baby-boom generation and
relatively low fertility since the baby-boom period. Cost will continue to grow faster than
income, but to a lesser degree, after 2035 due to increasing life expectancy. Based on the
Trustees’ best estimate, cost exceeds non-interest income for 2014, as it has since 2010, and
remains higher than non-interest income throughout the remainder of the 75-year projection
period. Social Security’s theoretical combined trust funds increase with the help of interest
income through 2019 and allow full payment of scheduled benefits on a timely basis until the
trust fund asset reserves become depleted in 2033. At that time, projected continuing income
to the combined trust funds equals about 77 percent of program cost. By 2088, continuing
income equals about 72 percent of program cost.
The Trustees project that the OASI Trust Fund and the DI Trust Fund will have sufficient
reserves to pay full benefits on time until 2034 and 2016, respectively.48
The OASDI Trust Funds are accounts maintained on the books of the U.S. Treasury. The system
operates on a “pay-as-you-go” basis; current workers and their employers pay taxes on wages
under the Federal Insurance Contributions Act (FICA) and the self-employed pay taxes on self-
employment income under the Self-Employed Contributions Act (SECA). Taxes paid now
finance benefits for today’s beneficiaries. A full 100% of these payroll taxes is appropriated to the
Social Security Trust Funds.49 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.50 Moreover,
amounts credited to the trust funds are the only source of funds to pay benefits.51
Social Security is a statutory entitlement program.52 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.”53 Budget authority is the
authority provided by law to enter into obligations that will result in immediate or future outlays
involving federal government funds.54
According to a publication of the Government Accountability Office, formerly the General
Accounting Office:
47 The Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, The
2014 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability
Insurance Trust Funds at 3 (2014), available at http://www.socialsecurity.gov/OACT/TR/2014/tr2014.pdf.
48 Id. at 23. See a press release describing this report at http://socialsecurity.gov/new/press/release.html#!post//7-2014-
2.
49 Section 201(a) and (d) of the Social Security Act, 42 U.S.C. §401(a) and (b).
50 Section 201(f) of the Social Security Act, 42 U.S.C. §401(f).
51 Section 201(h) of the Social Security Act, 42 U.S.C. §401(h).
52 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 and disability benefit,
respectively.
53 2 U.S.C. §§622(9) and 651(c)(2)(C).
54 2 U.S.C. §622(2).
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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.”55...
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.56
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, however, 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.57
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 warrant, suspension from duty without pay or removal
from office.58 An officer or employee who knowingly and willfully violates the act can be fined
not more than $5,000, imprisoned for not more than two years, or both.59
55 General Accounting Office (later renamed Government Accoutability Office), Office of the General Counsel, I
Principles of Appropriations Law 3-49 (3d ed. 2004), available at http://www.gao.gov.special.pubs/d04261sp.pdf.
56 Id. at 3-49, n. 40.
57 Section 201(h) of the Social Security Act, 42 U.S.C. §401(h).
58 31 U.S.C. §1349.
59 31 U.S.C. §1350.
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If the Social Security Trust Funds should become insolvent (i.e., unable to pay scheduled benefits
in full on a timely basis), it appears that beneficiaries who should 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. Walker60 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.61 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 Insurance 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, however, has reserved the “right to alter, amend, or repeal any
provision of this (Social Security) Act”62 and the U.S. Supreme Court has affirmed Congress’s
power to modify provisions of the Social Security Act in Flemming v. Nestor63 and 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.
Congress has the power legislatively to guarantee to pay eligible individuals a certain level of
Social Security benefits and not to reduce that level of benefits to such individuals in the future.
While Congress may decide to take whatever measures necessary to fulfill such an obligation,
courts would be unlikely to find that Congress’s unilateral promise constitutes a contract that
could not be modified or abrogated in the future. Congressional modification of the terms of a
guarantee to pay a certain level of benefits would be limited by due process considerations, but
these constitutional concerns would impose a bar only upon the enactment of an arbitrary
modification that has no rational justification. In addition, a congressional promise not to reduce a
specific level of Social Security benefits payable to certain eligible individuals would not
overcome the constitutional principle that a legislative enactment in a social welfare program
cannot bind a future Congress in the sense that the legislative enactment cannot be repealed or
altered.
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 exhausted (i.e., unable to
pay full benefits on time) in 2033. 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
60 53 U.S. (11 How.) 272, 275 (1850).
61 496 U.S. 414, 424-426 (1990).
62 Section 1104 of the Social Security Act, 42 U.S.C. §1304.
63 363 U.S. 603 (1960).
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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 them 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 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 them and the full benefit amount.
Author Contact Information
Emily M. Lanza
Thomas J. Nicola
Legislative Attorney
Legislative Attorney
elanza@crs.loc.gov, 7-6508
tnicola@crs.loc.gov, 7-5004
Acknowledgment
Kathleen S. Swendiman, a former CRS legislative attorney, coauthored earlier versions of this report. All
questions should be directed to the current authors.
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