Summary of Major Changes in the Social Security Cash Benefits Program: 1935-1996

94-36 EPW
Summary of Major Changes in the
Social Security Cash Benefits Program:
1935-1996
Geoffrey Kollmann
Specialist in Social Legislation
Education and Public Welfare Division
Updated December 20, 1996
CRS

---

SUMMARY OF MAJOR CHANGES IN
SOCIAL SECURITY
CASH BENEFITS PROGRAM: 1935-1996
SUMMARY
Title II of the original Social Security Act of 1935 established a national plan
designed to provide economic security for the nation’s workers. The system of Old-Age
Insurance it created provided benefits to individuals who were age 65 or older and who
had “earned” retirement benefits through work in jobs covered by the system. Benefits
were to be financed by a payroll tax paid by employees and their employers on wages up
to a base amount (then $3,000 per year). Monthly benefits were to be based on
cumulative wages in covered jobs. The law related the amount of the benefit to the
amount of a worker’s total wages covered by the program, but the formula was weighted
to give a greater return, on payroll taxes paid, to low-wage earners.
Before the Old-Age Insurance program was actually in full operation, the 1939
amendments shifted the emphasis of Social Security, from protection of the individual
worker to protection of the family, by extending monthly benefits to workers’ dependents
and survivors. The program now provided Old-Age and Survivors Insurance (OASI).
For most of the history of Social Security in the following decades, changes to the
program were ones of expansion. Coverage of workers became nearly universal (the only
large groups remaining outside the system being employees of state and local government
who have not chosen to join the system and federal workers who were hired before 1984).
Congress established the Disability Insurance (DI) program in 1956, and, for aged and
disabled Social Security recipients, the Medicare program in 1965. Both these programs
were financed in whole or in part by additions to the payroll tax rate, which increased
periodically, from 1 .O% of pay on employees and employers, each, in the 1937-1949
period, to its present level of 7.65%. The types of beneficiaries eligible for benefits were
expanded over the years, and benefit levels were increased periodically. In 1972,
legislation provided that, beginning in 1975, benefits would rise by the same percentage
as the cost-of-living.
Beginning in the late
legislative action regarding Social Security became more
concentrated on solving persistent financing problems. The OASDI trust funds would have
been exhausted in the early 1980s if legislation had not been enacted in 1977 raising taxes
and curtailing future benefit growth. In 1983, Congress passed additional major legislation
that restored solvency to the OASDI program. Since then, changes to Social Security have
been much less fundamental, focusing mainly on “fine-tuning” the program and making
technical adjustments. However, recent projections of financial shortfalls (in 2015 in the
DI program, 2029 in OASI and DI combined) have refocused attention on the solvency of
the program.
This paper describes only the major changes to the OASDI program since 1935.
However, information concerning less significant OASDI amendments is also available
from the Congressional Research Service (CRS).

---

TABLE OF CONTENTS
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE SOCIAL SECURITY ACT OF 1935 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1939 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1950 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1952 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1954 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1956 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1958 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1960 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1961 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1965 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1966 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
1967 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
1969 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
1971 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
1972 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
1973 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
1977 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
1980 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
198 1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
1983 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
1984 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
1985 Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
1986 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
1987 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
1989 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
1990 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
1993 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1994 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1996 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
APPENDIX A.
SOCIAL SECURITY FINANCING SCHEDULE
FOR CALENDAR YEARS 1935-1997 . . . . . . . . . . . . . . . . . 22
APPENDIX B:
SOCIAL SECURITY BENEFIT INCREASES
SINCE 1935 . . . . . . , . . . . . . . . . . . . . . . . . . , . . . . . . . . . . 23
APPENDIX C:
MAJOR BENEFIT CATEGORIES . . . . . . . . . . . . . . . . . . . . 24
APPENDIX D:
HISTORY OF MAJOR EMPLOYMENT COVERED
BY SOCIAL SECURITY: 1935-1996 . . . . . . . . . . . . . . . . . . 25
APPENDIX E:
GLOSSARY OF FREQUENTLY USED SOCIAL
SECURITY TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

---

SUMMARY OF MAJOR CHANGES IN THE SOCIAL SECURITY
CASH BENEFITS PROGRAM: 1935-1996
INTRODUCTION
The original Social Security Act of 1935 established a national plan to provide
economic security for the nation’s workers and to enable the states to provide more
adequate welfare benefits. Title II of that Act provided old-age benefits to most workers
and became known as “Social Security.” Title II has been amended many times over the
years; it now includes Old-Age, Survivors and Disability Insurance (OASDI), under which
cash benefits are paid to retired and disabled workers and their families, and to the
survivors of deceased workers.
This paper describes the major changes in the OASDI program since 1935.
Information concerning other programs under the Social Security Act, such as
Supplemental Security Income (SSI), Medicare, Medicaid, unemployment insurance, and
social services, is available from the Congressional Research Service (CRS), but is not
included in this summary. Information also is available from CRS on less significant
OASDI amendments that are omitted from this paper.
THE SOCIAL SECURITY ACT OF 1935
The Social Security program is basically a product of the Great Depression. That
economic crisis overwhelmed traditional sources of aid for the jobless, aged, widowed,
orphaned, and disabled. To help deal with the crisis, a Committee on Economic Security
appointed by President Franklin D. Roosevelt recommended that the federal government
create a national program that would establish a system of unemployment and old-age
benefits and enable the states to provide more adequate welfare benefits. Acting on those
recommendations, in 1935, Congress enacted the Social Security Act. In addition to
offering states grants for cash relief for the needy aged, the blind, and dependent children,
the Act established social insurance programs, financed by payroll taxes, for the
unemployed and the aged.
The system of Old-Age Insurance created by Title II of the Act provided benefits to
individuals who were age 65 or older if they were “insured” by the program. Individuals
were insured if they had worked at least 5 years in jobs covered by the program, and
earned total wages of at least $2,000 in those jobs, before they reached age 65. The
amount of the benefit was related to the amount of total wages covered by the program,
but the formula was weighted to give a greater return, on payroll taxes paid, to low-wage
earners. The first benefits were to be paid in 1942. No benefits were to be paid for
months in which beneficiaries earned any wages from covered employment (an “earnings
test”). If a worker attained age 65 but was ineligible for benefits, or died before reaching
age 65, Social Security would pay a lump sum of 3.5% of covered wages (intended to be
roughly equivalent to the payroll taxes he had paid plus some interest) to the worker or

---

CRS-2
his estate. For death after age 65, the lump sum was 3.5% of covered wages minus total
benefits paid.
Nearly all workers in commerce and industry under age 65, or about 60% of the work
force, were required to participate in the Old-Age Insurance program. Principal groups
excluded from the program were government workers, railroad employees,’ the
self-employed, farm and domestic workers, and employees of nonprofit organizations.
No direct method of financing old-age benefits was provided in Title II. Rather, Title
VIII of the Act levied payroll taxes on the types of employment that provided eligibility
for benefits under Title II. Title VIII required that, beginning in 1937, employees covered
by the program and their employers each pay a tax of 1% (rising gradually to 3% in 1949
and thereafter) on the employee’s first $3,000 of wages. It was hoped that separating the
financing from the benefit provisions would help the system withstand early charges that
the federal government did not have the constitutional power to levy taxes to pay benefits
to individuals.
Nevertheless, an amount equivalent to the taxes collected under Title VIII was
appropriated to an Old-Age Reserve Account under Title II from which benefits were to
be paid. Surplus funds in the Old-Age Reserve Account were to be invested in U.S.
government securities.
1939 Amendments
The 1939 amendments shifted the emphasis of the Old-Age Insurance program from
protection of the individual worker to protection of the family. More emphasis was placed
on the goal of providing socially adequate benefit payments, and somewhat less emphasis
was placed on the principle of individual equity (amount of benefits linked to the amount
of taxes paid). The amendments also altered the financing of the program. Major
provisions:
Provided benefits for “dependents” of insured workers based on a set proportion
(75% for widows, 50% for others) of the worker’s benefit:
child under age 16, or under 18 if regularly attending school (student
requirement repealed in 1946);
widow of any age if caring for eligible child; and
totally dependent parent age 65 or older.
‘Workers in the railroad industry have their own federal retirement system. Subsequent legislation
has resulted in the coordination of the two programs so that railroad employees and employers now pay
the equivalent of Social Security taxes, and railroad retirees receive benefits which are comparable to
Social Security benefits as part of their total retirement pension.

---

CRS-3
�
Liberalized benefits for those persons becoming eligible for benefits in the early
years of the program:
Instead of being based on cumulative lifetime earnings after 1936,
benefits were based on average monthly wages (AMW) after 1936
and before the quarter of death or retirement. This shift was based on
the concept that, as a social insurance system, Social Security should
replace wages lost that formerly provided support for the beneficiaries,
rather than merely strictly reflecting the degree to which a person had
worked in covered employment. The amount of the benefit was 40%
of the first $50 of the AMW plus 10% of the next $200; this amount
was then increased by 1% for each year with at least $200 in covered
wages.
The provision for lump-sum payments of 3.5% of
accumulated wages for workers who died
65, or attained
age 65 but were ineligible for benefits, was repealed;
The “quarter of coverage” concept was introduced for achieving the
“insured status” necessary in order to be eligible for benefits. A
quarter of coverage was a calendar quarter in which an individual was
paid at least $50 in wages in covered employment. A worker was
“fully insured” for any type of benefits if he had quarters of coverage
equal to one-half of the quarters that had elapsed after 1936 (or
quarter age 21) and before the quarter of death or age 65, provided he
had a minimum of 6 quarters of coverage. A worker with 40 quarters
of coverage was fully insured for life. A worker was “currently
insured” for survivors benefits if he had at least 6 quarters of
coverage out of the 12 calendar quarters immediately preceding his
death (changed in 1946 to 6 out of 13 quarters, including the quarter
of his death); and
The first benefits were to become payable in 1940 instead of 1942.
Extended coverage to wage earners over age 65.
Revised the earnings test -- benefits remained payable for months in which
wages were less than $15.
Provided a lump-sum death benefit upon the death of insured workers if there
were no entitled survivors.
Established a “minimum benefit” of $10 a month (same as the lowest amount
payable, based on cumulative wages, under the old law).
Replaced the Old-Age Account with a trust fund to which 100% of taxes under
the Federal Insurance Contributions Act (FICA -- also enacted in 1939) were
automatically appropriated to pay benefits and expenses of the program. Title

---

CRS-4
VIII of the Act was repealed (the program had been found constitutional in
1937).
Postponed the increase in the tax rate, scheduled for 1940, until 1943.
(Subsequent amendments during the 1940s kept postponing the increase so that
it did not take effect until 1950.)
1950 Amendments
The 1950 amendments substantially expanded the scope of the Old-Age and Survivors
Insurance (OASI) program by extending coverage to about 10 million additional workers.
The amendments also greatly increased benefit levels, liberalized eligibility requirements,
and increased the maximum amount of covered earnings considered for both benefit and
tax purposes the “earnings base”). Major provisions:
Covered regularly employed farm and domestic workers, self-employed workers
(except farmers and professionals), federal civilian employees not under a
federal civil service retirement system (e.g., temporary employees), Americans
employed outside the United States by American employers, and workers in
Puerto Rico and the Virgin Islands. Not-for-profit organizations could elect
coverage for their employees (except ministers). State and local governments
could elect coverage for their employees not under public employee retirement
systems.
Provided an average 77% increase in benefits (which almost exactly matched the
increase in prices since benefits were first paid in
effective in September
1950. The “minimum benefit” was raised to $20.
�
Liberalized the conditions for fully insured status by requiring a person to have
quarters of coverage equal to at least one-half the calendar quarters after 1950,
instead of after 1936. This change gave newly covered workers the same
opportunity to qualify for benefits as workers covered under the original Act by
relating the amount of work required to the time a worker could have been
expected to have worked after 1950.
Created a “new start” benefit computation formula, which allowed a worker’s
average monthly earnings to be figured on the basis of earnings after 1950 rather
than 1936, to ensure that newly covered workers received benefits comparable
to other covered workers.
Exempted persons age 75 or over from the earnings test. Also under the
earnings test, the amount of monthly earnings permitted before benefits were
withheld for that month was increased from $15 to $50.
Provided free wage credits of $160 a month for military service from September
1940 through July 1947.

---

CRS-5
Made benefits payable at any age (i.e., under age 65) to the wife of a retired
worker, or to the surviving divorced wife, if caring for an eligible child. The
amendments also provided benefits to a dependent husband of a retired or
deceased worker at age 65. (Previously only wives were eligible for spousal
dependent benefits).
�
Provided a lump-sum death benefit to the survivors or estate of all insured
no entitled survivors
�
Raised payroll taxes, so that the employee/employer share would gradually rise
to an ultimate rate of 3.25% in 1970. The tax for the self-employed was set at
1
times the employee rate.
Set the earnings base (the minimum yearly amount of earnings on which Social
Security taxes are paid and which is creditable for benefits) at $3,600 for 195 1
and thereafter.
1952 Amendments
Major provisions of the 1952 amendments:
Increased benefit levels by
effective in September 1952.
Raised the earnings test limitation from $50 to $75 a month.
Extended free wage credits of $160 a month for military service from July 1940
through December 1953, instead of September 1940 through July 1947. (The
1956 amendments extended the credit for military service through December
1956.)
1954 Amendments
The 1954 amendments extended coverage to self-employed farmers, most professional
self-employed workers, and most homeworkers. The amendments also extended coverage
to state and local government employees (except firemen and policemen) who were in
positions already covered under a state or local pension plan but only if coverage were
agreed to, through a referendum, by a majority of all employees who were members of the
pension plan. Ministers also were given a one-time option of electing coverage as
self-employed individuals.
The 1954 amendments began the process of protecting the worker against income loss
from disability by providing a “freeze” of the disabled worker’s earnings record. Under
prior law, a worker could become ineligible for retirement or survivor benefits because a
period when he had a disability that prevented him from working was included in the
elapsed time used in determining his insured status. Even if he remained insured, his
benefit would be low because its computation would include years when he had little or

---

CRS-6
no earnings. By “freezing” workers’ earnings records and their old-age and survivors
insured status during extended periods of total disability, the 1954 amendments prevented
those periods of disability from reducing or wiping out retirement and survivor benefits.
Disability was defined as the inability to engage in any substantial gainful activity
because of any medically determinable physical or mental impairment that could be
expected to result in death or to be of long-continued and indefinite duration. To screen
out cases of temporary disability, the amendments limited disability determinations to those
illnesses or injuries that had lasted at least 6 months. The law provided that the states
would make determinations of disability under agreements with the Secretary of Health,
Education and Welfare and would be reimbursed for expenses from the Social Security
trust funds.
To limit the disability program to individuals who had worked recently and for a
reasonable length of time in covered employment, Congress imposed additional insured
status requirements. To qualify for the disability “freeze,” a disabled individual had to
have at least 6 quarters of coverage during the
period that ended with the
quarter in which the period of disability began, and 20 quarters of coverage during the
quarter period that ended with such quarter.
In addition, the 1954 amendments:
Increased benefit levels by about
effective in September 1954.
�
Reduced from 75 to 72 the age at which benefits would be paid without regard
to earnings, and established a uniform annual earnings test for wage-earners and
self-employed persons (previously, two separate tests were provided: a monthly
test for wage-earners and an annual test for the self-employed). Under the new
annual test, 1 month’s benefit would be withheld for each $80 of earnings in
excess of $1,200, and all types of earnings, not just covered earnings, would be
taken into account.
Raised the earnings base from $3,600 to $4,200 a year, effective in 1955, and
the ultimate tax rate to 4.0% for employers and employees, each, effective in
1975.
Provided a new benefit formula that ignored 4 years of an individual’s lowest
earnings; 5 years if the workers had 20 quarters of coverage (enacted primarily
to overcome the handicap of the late entry into the system of the approximately
10 million workers newly covered by the amendments).
1956 Amendments
The 1956 amendments provided monthly benefits, beginning in July 1957, to
permanently and totally disabled workers between the ages of 50 and 65 (but not to their
dependents). To qualify for disability benefits, the worker had to have been both currently
and fully insured and to have had 20 quarters of coverage during the
period that

---

CRS-7
ended with the quarter in which the disability began. A waiting period of 6 consecutive
months had to elapse before payments could begin. When a beneficiary also received
another federal benefit based on disability, or a workman’s compensation benefit, the
disability benefit under Social Security was to be reduced by the amount of the other
benefit. In addition, the law required beneficiaries to accept rehabilitation services offered
by the states. To finance the new benefits, the legislation established a Disability
Insurance (DI) trust fund to which an additional
of contributions from employers and
employees and
from the self-employed were allocated, raising the total
employee/employer tax rate to 2.25% in 1957 and ultimately to 4.25% in 1975.
The amendments also:
�
Provided benefits to a dependent child aged 18 or over of a deceased or retired
insured worker if the child became disabled before age 18.
Extended coverage to members of the uniformed military services, most
previously excluded self-employed professionals, additional farm owners and
operators, and, by referendum, firemen and policemen in some State and local
government retirement plans.
Made benefits payable to women workers and wives at age 62 instead of age 65,
but at a reduced level to take account of the longer period over which they
would collect benefits, and to widows and dependent parents (female) at an
rate at age 62.
Provided a benefit formula that ignored 5 years of an individual’s earnings in all
cases, and liberalized benefits for women by reducing the amount of Social
Security credits needed to be eligible for benefits and by averaging their
earnings over a shorter period of time than for men.
1958 Amendments
Major provisions:
Increased benefits by
effective in January 1959.
Raised the earnings base from $4,200 to $4,800.
Made benefits payable to dependents of disabled workers.
Eliminated currently insured status (6 quarters of coverage in preceding 13
quarters) as requirement for eligibility for disability benefits or for a disability
freeze.
Increased scheduled payroll taxes by
on employers and employees each,
ultimately rising to 4.5% by 1969.

---

CRS-8
Provided that disability benefits could be paid retroactively for 12 months if all
other requirements had been met for the earlier months (previously benefits
could not be paid for months prior to filing for benefits).
Eliminated offset of disability benefits for workmen’s compensation or other
benefits from Federal programs.
Withheld 1 month’s benefit under the earnings test for each $100 in excess of
yearly earnings of $1,200.
1960 Amendments
Major provisions:
Allowed disabled workers to qualify for benefits at any age (previously limited
to those age 50 and older).
Liberalized the earnings test; the requirement for withholding a month’s benefit
for each $100 of earnings above $1,200 was eliminated. Instead, $1 in benefits
would be withheld for each $2 in earnings from $1,200 to $1,500 and $1 in
benefits for each $1 in earnings above $1,500.
Changed the requirements for fully insured status to one quarter of coverage for
every 3 calendar quarters between January 1, 195 1, and the year in which the
worker becomes disabled, reaches retirement age, or dies, instead of one for
every 2 quarters.
Raised surviving child’s benefit to 75% of the primary insurance amount
1961 Amendments
Major provisions:
�
As had been the case with women since 1956, lowered the age at which male
retirees could begin to collect benefits from 65 to 62, but with benefits
actuarially reduced to take account of the longer period in which they would
collect benefits. Male dependent parents and widowers could collect
benefits at age 62, as had been the case with female dependent parents and
widows since 1956.
Changed the requirement for fully insured status from 1 quarter of coverage for
each 3 calendar quarters elapsing after 1950 to 1 quarter for each calendar year
(equivalent to one for each 4 calendar quarters
1950).
Changed the earnings test to withhold $1 in benefits for each $2 of earnings
between $1,200 and $1,700, and $1 in benefits for each $1 in earnings above

---

CRS-9
$1,700. Under previous law, $1 was withheld for every $2 of earnings between
$1,200 and $1,500, and $1 in benefits for each $1 in earnings above $1,500.
�
Increased the tax on employers and employees by one-eighth of 1% and by
three-sixteenths of 1% for the self-employed. The ultimate employee or
employer rate would be 4.625% in 1968.
Raised the minimum benefit from $33 to $40.
1965 Amendments
The 1965 amendments established under Title XVIII of the Social Security Act two
related health insurance programs for persons aged 65 and over. Hospital Insurance (HI),
or Part A of Medicare, provided basic protection against the costs of hospital and related
care, and Supplementary Medical Insurance, or Part B, provided coverage for physicians’
services and other related health services. Part A was to be financed by an additional
payroll tax, gradually rising to 0.8% on employers and employees, each, and on
employed individuals, by 1987. Enrollment in Part B was to be voluntary, and Part B was
to be financed equally by general revenues and premiums paid by enrollees. Separate trust
funds were established for each part of the Medicare program.
In addition, the contribution schedule for OASDI was increased, raising the tax rate
on employers and employees from 3.625% to 3.85% and on self-employed persons from
5.4% to
beginning in 1966. The total OASDHI tax was set at 4.2% for employers
and employees each, and 6.15% for the self-employed. The ultimate OASDHI rate in
1987 was to be 5.65% on employers and employees, each, and 7.8% for the self-employed.
Significant changes made in Title II included a 7% increase in benefits, effective in
January 1965. The amendments also:
Changed the earnings test so that beneficiaries could earn up to $1,500 a year
and still get all their benefits. If, however, earnings exceeded $1,500, $1 in
benefits would be withheld for each $2 of annual earnings up to $2,700 and for
each $1 of earnings thereafter.
�
Increased the earnings base from $4,800 to $6,600, beginning in 1966.
Liberalized the definition of disability: rather than requiring that a worker’s
disability be of long-continued and indefinite duration, an insured individual was
eligible for disability benefits if he or she had been under a disability that could
be expected to result in death or that had lasted or could be expected to last for
a continuous period of not less than 12 months.
Reduced disability benefits to workers and their families if benefits plus
workmen’s compensation exceeded 80% of the worker’s previous earnings. (The
original offset provision had been repealed in 1958.)

---

CRS-10
Enabled widows to elect to receive reduced benefits as early as age 60 instead
of age 62.
Provided “children’s” benefits to full-time students aged
1 of insured retired,
disabled, or deceased workers.
Provided benefits to divorced wives and widows if they were dependent upon
the wage-earner’s support and if their marriage had lasted 20 consecutive years
or more.
Provided benefits to persons age 72 before 1969 who had fewer than 6 quarters
of coverage under a “transitional insured status” provision. A minimum of 3
quarters of coverage was required. The benefit was $35 .OO for an individual and
$52.50 for a couple.
1966 Amendments
As part of the Tax Adjustment Act of 1966, Congress provided benefits, to be paid
out of general revenue, for people over age 72 who were not insured for Social Security
benefits (these became known as Prouty benefits). A person could be entitled to this
special payment even with no quarters of coverage if he or she attained age 72 before
1968. Those attaining age 72 after 1967 had to have at least 3 quarters of coverage for
each calendar year after 1966 and before the year in which they attained age 72. The
benefit amount was the same as for transitional benefits.
1967 Amendments
Major provisions:
Increased benefit levels by
effective in February 1968.
Increased the amount a person could earn in a year under the earnings test from
$1,500 to $1,680. One dollar in benefits would be withheld for each $2 in
earnings between $1,680 and $2,880, and $1 in benefits would be withheld for
each $1 in earnings over $2,880 (instead of $2,700 as under the 1965
amendments).
Provided monthly cash benefits for disabled widows and disabled dependent
widowers at reduced rates as early as age 50.
To counteract unintended liberalizations derived through court decisions,
stipulated that the definition of disability includes inability to engage in any
substantial gainful activity existing in the national economy regardless of
whether such work was available locally. For surviving spouses, however, the
definition was stricter -- the inability to engage in any gainful activity.

---

CRS-11
Made it easier for young workers to be eligible for disability benefits. Instead
of needing 20 quarters of coverage in the last 40, workers under age 3 1 could
be insured if they had quarters of coverage in at least half the quarters elapsing
since age 21 (minimum of 6 quarters needed), up to the quarter of disability.
Increased the earnings base from $6,600 to $7,800, beginning in 1968. The tax
rates were increased, rising from an ultimate rate of 5.65% in 1987 to 5.9% for
employees and employers, each, and from 7.8% to 7.9% for the self-employed.
Gave additional wage credits of up to $300 a quarter for military service after
1967 (amended in 1972 to be effective in 1957).
Covered ministers, unless they opted out on grounds of conscience or religious
principles.
1969 Amendments
The 1969 amendments increased benefit levels by
effective in January 1970.
1971 Amendments
The 197 1 amendments increased benefit levels by 10% effective January 197 and
the earnings base to $9,000, effective January 1972. The tax rate was increased, rising
from 5.9 to 6.05% in 1987 for employers and employees, each. The self-employed tax
rate was not changed.
1972 Amendments
The 1972 amendments introduced the concept of automatic adjustments or “indexing”
to the Social Security system. They provided that, effective in 1975, benefit increases
would be tied directly, or indexed, to rises in the cost of living. Under this new procedure,
benefits would be increased automatically each January (through a cost-of-living
adjustment, or COLA) when inflation as measured by the Consumer Price Index (CPI) rose
3% or more from the approximate time of the last benefit increase. In addition, effective
in 1975, the earnings base and the exempt amount under the earnings test would be
adjusted automatically to keep pace with changes in wage levels. The base was increased
in the meantime to $10,800 for 1973 and $12,000 for 1974.
Other major 1972 amendments:
Increased benefit levels by 20% effective in September 1972.
Increased the annual exempt amount under the earnings test from $1,680 to
$2,100. Each $2 in earnings above $2,100 would cause $1 in benefits to be
withheld. (The second-stage dollar-for-dollar offset of earnings -- $2,880 in the
1967 Act -- was removed.)

---

CRS-12
Provided a delayed retirement credit effective after 1970 that would increase
benefits by one-twelfth of 1% for each month between ages 65 and 72 in which
an individual did not collect benefits.
Provided a special minimum benefit for those who worked in covered
employment for many years but at low earnings. Unlike the already existing
minimum benefit, the special minimum benefit was to be proportional to the
number of years of covered earnings (in excess of 10 and up to 30).
Provided that, prospectively, men and women would have their retirement
benefits computed the same way (phased in to be fully effective in 1975).
Before, a man the same age as a woman needed more Social Security credits to
qualify for retirement benefits, and, if his earnings were identical to hers, usually
received a lower benefit because his earnings were averaged over a longer
period.
Provided benefits for dependent grandchildren.
Provided reduced benefits for widowers at age 60.
Improved benefits for disability;
Provided Medicare coverage to disability beneficiaries who had been
on the rolls for at least 2 years and to persons under age 65 in need
of hemodialy sis.
Reduced the waiting period from 6 to 5 months.
Extended childhood disability benefits to children disabled before age
22.
�
Raised payroll taxes, effective in 1978, with the employee OASDHI rate to
reach an ultimate rate of 7.3% in 20 11.
The amendments also created the Supplemental Security Income (SSI) program under
Title XVI of the Social Security Act. In 1974, SSI was to replace former federal grants
to the states for aiding the needy aged, blind, and disabled with a federal minimum income
guarantee. This program was to be financed by general revenues and administered by the
Social Security Administration rather than the individual states.
1973 Amendments
The 1973 amendments raised OASDI benefits by 11%. The 11% increase was
payable in two steps -- 7% for March, April, and May 1974, with the full 11% payable
for months after May. This benefit increase was an ad hoc adjustment designed to speed
up compensation for higher-than-expected rises in prices that had occurred since the last

---

CRS-13
benefit increase in 1972. The date for implementing automatic benefit increases was
delayed from January to June 1975, and future COLAS would also be effective in June.
In addition, the amendments increased the earnings base in 1974 to $13,200, and
raised payroll taxes, effective in 198 1, with the employee OASDHI rate to reach 7.45%
in 2011.
1977 Amendments
In 1973, the Social Security Board of Trustees began to project financial problems
for the system in both the near and long term. The financing problem grew worse
throughout the mid-seventies.
The near-term problem was caused primarily by adverse economic conditions. Much
higher-than-expected inflation caused benefit levels to soar, and aggregate expenditures to
do likewise, while lower growth in real wages and higher unemployment caused revenues
to grow at an inadequate rate.
The long-term problem was caused in part by less favorable demographic trends. For
example, based on new population data, the long-term fertility rate assumption was
lowered. This reduced the projected number of workers who would contribute to the
system in the next century. However, the largest part of the looming deficit (it was
estimated in 1977 that costs would outstrip revenues by 75% over the next 75 years) was
caused by changes in the underlying assumptions about future economic conditions. Under
the 1972 law, future benefit levels were highly dependent upon the future relationship of
wage and price growth. As a result, future benefits could be lower or higher than
intended, and the prevailing view in the mid-1970s was that they would be much higher
than anticipated. In fact, it was projected that if the benefit computation rules were left
unchanged, benefits for many individuals retiring in the future would exceed their earnings
before retirement.
The 1977 amendments were enacted primarily to alleviate these financing problems.
The amendments increased future revenues by raising tax rates and the earnings base, but
more significantly, they changed the benefit formula that was raising initial benefits too
rapidly. For individuals becoming eligible after 1978, benefits were to be determined by
a formula designed to give a stable relationship between one’s benefit and preretirement
career earnings.
This would be accomplished by indexing both the formula for
determining initial benefits and a person’s earnings to reflect changing wage levels. The
change in the computation rules was called “decoupling.” These actions improved the
forecasts of the financial condition of the program significantly. At the time of enactment,
the Social Security actuaries projected that the OASDI trust funds would be solvent for the
next 50 years, although by a small margin in the late 1970s and early 1980s.
Major provisions of the 1977 amendments:
Changed the benefit formula for those reaching age 62, becoming disabled, or
dying in 1979 or later. Initial benefits would be computed using a formula that

---

CRS-14
would be indexed to the growth in average wages over the years, so that they
would generally maintain pace with the standard of living. To ease transition
to the new rules, those attaining age 62 in 1979-1983 could have their benefits
computed under the old rules, with some limitations, if they were higher than
benefits computed under the new rules.
�
Increased tax rates slightly in 1979 and 1980, and more significantly in 198 1
and later. The ultimate OASDHI tax rate would be 7.65% on employees and
employers, each, in 1990. (Formerly, the rate in 1990 was
and the
ultimate rate 7.45% in 2011.)
Increased the earnings base, on an ad hoc basis, to $22,900 in 1979, $25,900 in
1980, and $29,700 in 1981. After 198 1, the base would be adjusted
automatically to keep up with average wages as under the prior law.
Increased the delayed retirement credit, for those who do not receive benefits
until after age 65, to 3% a year for workers reaching age 62 after 1978 (those
subject to the new way of computing benefits).
Lowered from 72 to 70 the age at which the earnings test no longer applies,
effective in 1982.
Increased, on an ad hoc basis for 5 years, the annual exempt amount in the
earnings test for those age 65 and over. (The amount for those under age 65
was not changed but left to continue to be indexed to wage growth.) After
1982, the annual exempt amount for those over age 65 ($6,000 in 1982) would
again rise automatically with wage growth.
Changed the quarter-of-coverage measure so that, beginning in 1978, a worker
would receive 1 quarter of coverage (up to 4 per year) for each $250 of annual
wages (instead of $50 per quarter). The $250 figure would be increased
automatically in future years to take account of increases in average wages.
Reduced the duration-of-marriage requirement for divorced spouses and
surviving divorced spouses from 20 to 10 years.
“Froze” initial minimum benefit levels -- at $122 -- so they would not rise in
future years (although COLAS would be given beneficiaries once they were on
the rolls).

---

CRS-15
1980 Amendments
Concerned about the rapid growth in expenditures in the Disability Insurance (DI)
program, Congress enacted legislation in 1980 designed to control this growth and deal
with other issues involved in the administration of the DI program. Major provisions of
the amendments:
�
Established a limit on disability family benefits; the smaller of 85% of the
worker’s average indexed monthly earnings or 150% of the worker’s basic
benefit (known as the primary insurance amount
In no case would the
limit be less than the
�
Made the number of years of lowest earnings (up to 5) that can be dropped from
the computation (averaging) period proportional to
age of the disabled
worker. (Previously, all disabled workers could drop 5 years of lowest earnings
regardless of age.) The provision also allowed young disabled workers to drop
out up to 3 additional years from the computation period, with certain
limitations, if in those years they were caring for a young child and not
employed.
�
Provided Medicare coverage for 36 months after cash benefits cease for workers
who are engaging in substantial gainful activity but have not medically
recovered.
�
Eliminated the
waiting period for Medicare for individuals who were
previously entitled to Medicare and become disabled a second time.
�
Provided a
“reentitlement” period, following the normal
trial
work period, during which a disabled beneficiary can become automatically
reentitled to benefits if a work attempt is unsuccessful.
Required the Secretary to review the status of a disabled individual, unless the
disability is permanent, once every 3 years.
1981 Amendments
In 198 1, budgetary pressures led to proposals that various categories of benefits be
reduced or eliminated. Major provisions of the Omnibus Budget Reconciliation Act (P.L.
97-35) included:
�
Eliminating the minimum benefit for both current and future beneficiaries.
(However, the elimination of the minimum benefit for current beneficiaries was
repealed before it took effect.)
�
Phasing out benefits over the next 4 years for students over age 19 or in
postsecondary school.

---

CRS-16
�
Offsetting Social Security disability benefits by the amount of compensation
paid by federal, state, and local governments to disabled persons (a “megacap”).
The provisions of the megacap offset would be generally similar to, but more
inclusive than, those of the workers’ compensation offset provision in old law.
Ending benefit entitlement for the mother or father caring for an entitled child
when the child reaches age 16 instead of 18, as under the old law. (The child’s
benefit would continue to age 18 as under old law.)
Limiting entitlement to the lump-sum death benefit to an eligible spouse or
children. Before, distant relatives, funeral homes, etc., could claim the lump
sum in some circumstances.
�
Delaying until 1983 lowering to age 70 the age at which earnings test no longer
applies (old law would have dropped the age threshold from 72 to 70 in 1982).
Although the 1977 amendments had been projected to keep Social Security solvent
for 50 years, but with a fairly thin margin of safety in the early
the performance
of the economy was much worse than expected in the years immediately following
enactment, and trust fund reserves continued to decline rapidly. As forecasts of a cash
shortfall worsened, stopgap measures were enacted to buy time for Congress to assess the
problem. In 1980, revenues were reallocated between the OASI and the DI trust funds for
1980 and 1981. At the end of 1981, authority (P.L. 97-123) was given for the trust funds
to borrow from one another (including the HI trust fund), but only until the end of 1982.
The borrowing could not exceed the amount needed to assure benefit payments beyond
June 1983.
At the same time, Congress restored the minimum benefit to current
beneficiaries.
1983 Amendments
To resolve
financing problems President Reagan and congressional leaders
formed a bipartisan panel, the National Commission on Social Security Reform. In
January 1983, a majority of its members reached agreement on a compromise solution that
was estimated to produce enough in additional OASDI income and benefit reductions to
solve the short-range financing problem and reduce the OASDI deficit projected over the
next 75 years by two-thirds.
In March 1983, Congress incorporated the Commission’s recommendations, with some
modifications, as well as additional provisions to resolve the remaining long-range deficit,
into the 1983 Social Security Amendments. The major provisions of the amendments
included:
A gradual increase in the age of eligibility for full retirement benefits from age
65 to age 66 in 2009 and age 67 in 2027.
�
Coverage of federal civilian employees hired after December 3 1, 1983, and most
current executive level political appointees and elected officials (including

---

CRS-17
Members of Congress, the President, and the Vice President) and Federal judges,
effective January 1984.
�
Compulsory coverage of all employees of nonprofit organizations effective in
January 1984 and a ban on the termination of coverage of nonprofit organization
and state and local government employment after 1982.
�
A delay of the June 1983 Social Security COLA to December 1983. All future
COLAS would also be effective in December.
�
Acceleration of scheduled tax increases for employees and employers, with an
offsetting tax credit for employees for 1984; increase in the rates for the
self-employed to equal the combined employee/employer rate but with partially
offsetting credits and deductions.
Inclusion of up to 50% of Social Security benefits in the taxable income of
higher income beneficiaries and transfer of projected revenues therefrom to the
Social Security trust funds. The income thresholds (adjusted gross income plus
one-half of Social Security benefits) were set at $25,000 for single individuals,
$32,000 for couples filing jointly, and zero for couples filing separately.
Liberalization of the earnings test. For those attaining full retirement age in
1990 or later, $1 in benefits would be withheld for every $3 in earnings over the
exempt amount. Also beginning in 1990, the delayed retirement credit would
be gradually increased from 3% to 8% a year for persons who attain full
retirement age between 1990 and 2008.
Additional provisions that: eliminated “windfall” Social Security benefits for
certain workers who also receive pensions from noncovered employment;
improved benefits for certain spouses; provided a lump-sum payment to the trust
funds for the cost of certain noncontributory military wage credits and for
unnegotiated checks; sped up the crediting of tax receipts to the trust funds; and
removed OASDI fund operations from the unified budget beginning in FY 1993.
1984 Amendments
In 1984, concerns about the economic hardships caused by the loss of benefits
resulting from the periodic reviews mandated by the 1980 amendments to the DI program
led to legislation that softened the disability review progress. Major provisions of P.L.
98-460:
Continued benefit payments, with certain limitations, for those under review
whose medical condition has not improved;
�
Gave authority for continued benefit payments through the Administrative Law
Judge decision in cases where a termination of benefits for medical reasons is
being appealed (this authority expires on December 3 1, 1988);

---

CRS-18
�
Provided a temporary delay of reviews of all mental impairment disabilities until
regulations stipulating new medical listings for mental impairments were
published;
�
Mandated that in cases of multiple impairments, the combined effect of all the
impairments must be considered in making disability determinations;
�
Required that the Secretary develop demonstration projects on providing
face-to-face hearing between the beneficiary and State agency disability
examiners in potential termination cases at the initial decision level;
�
Provided temporary guidelines for the evaluation of pain as a disabling factor
and directed that a study of the problem of pain be made by a commission
appointed by the Secretary;
�
Stipulated that regulations develop uniform standards for disability
determinations under the Administrative Procedure Act, to be binding at all
levels of adjudication;
�
Required closer evaluations of the qualifications of representative payees, and
annual monitoring of benefit payments made to someone other than a parent or
spouse living in the same household with the beneficiary; and
�
Provided that the Secretary federalize disability determinations in a state within
6 months of finding that a state was not in substantial compliance with federal
laws and standards.
1985 Legislation
The Balanced Budget and Emergency Deficit Control Act of 1985 (P.L.
known as the Gramm-Rudman-Hollings Act, included several measures that altered the
budgetary treatment of Social Security. It:
Accelerated the “off-budget” treatment of Social Security, as prescribed by the
Social Security Amendments of 1983, to FY 1986 (from FY 1993). However, for
the purpose of setting out a schedule for eliminating federal budget deficits by
FY 1991 (amended by subsequent legislation to FY
the receipts and
expenditures of the Social Security trust funds would be counted in measuring
projected budget deficits.
�
Required the President to reduce (or sequester) federal expenditures that would
otherwise be authorized (using procedures prescribed in the Act), if projected
budget deficits exceeded specified levels. However, Social Security benefits
(including COLAS) would be exempt from any reduction in expenditures that the
President would be required to make. Social Security administrative expenses
would not be exempt.

---

CRS-19
�
Restricted Social Security changes in various stages of the congressional budget
,
process. The provision made it out of order for either the House or Senate to
take up changes in Social Security as part of a reconciliation bill or
reconciliation resolution. Separate votes in each body -- suspending or
otherwise altering the rules under which the respective bodies operate -- would
be required to make consideration of any proposed Social Security changes
permissible.
1986 Amendments
During 1986, inflation slowed to a rate that made it unlikely that it would reach the
3% threshold necessary to provide a COLA in that year. As part of the Omnibus Budget
Reconciliation Act of 1986 (P.L.
Congress permanently eliminated the 3%
requirement, which enabled a 1.3% COLA to be authorized for December 1986.
1987 Amendments
The Omnibus Budget Reconciliation Act of 1987 (P.L. 100-203):
�
Extended FICA coverage to military training of inactive reservists, the
employer’s share of all cash tips, and several other categories of earnings.
Lengthened from 15 to 36 months the period during which a disability
beneficiary who returns to work may become automatically reentitled to benefits.
1989 Amendments
The Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239):
Extended benefits to children adopted after the worker became entitled to
benefits, regardless of whether the child was dependent on the worker before the
worker’s entitlement.
1990 Amendments
The Omnibus Budget Reconciliation Act of 1990 (P.L. 10 l-508):
�
Made permanent a temporary provision, first enacted in 1984 and subsequently
extended, that provides the option for beneficiaries to choose to continue to
receive disability and Medicare benefits while their termination is being
appealed.
�
Liberalized the definition of disability for disabled
by making it
consistent with that for disabled workers.

---

CRS-20
�
Extended benefits to spouses whose marriage to the worker is otherwise invalid,
if the spouse was living with the worker before he or she died or filed for
benefits.
Removed the operation of the trust funds from budget deficit calculations under
the Gramm-Rudman-Hollings Act. In addition, the legislation established
separate House and Senate procedural safeguards to protect trust fund balances.
�
Extended coverage to employees of state and local governments who are not
covered by a retirement plan.
�
Raised the maximum amount of earnings subject to HI taxes to $125,000,
effective in 199 with raises thereafter indexed to increases in average wages.
1993 Amendments
The Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66):
�
Made up to 85% of Social Security benefits subject to the income tax for
recipients whose income plus one-half of their benefits exceed $34,000 (single)
and $44,000 (couple).
Eliminated the maximum taxable earnings base for HI, i.e., subjected all
earnings to the HI tax, effective in 1994.
1994 Amendments
The Social Security Administrative Reform Act of 1994 (P.L. 103-296):
�
Established the Social Security Administration as an independent agency,
effective March 3 1, 1995.
Restricted DI and SSI benefits payable to drug addicts and alcoholics by
creating sanctions for failing to get treatment, limiting their enrollment to 3
years, and requiring that those receiving DI benefits have a representative payee
(formerly required only of SSI recipients).
Social Security Domestic
Act of 1994 (P.L. 103-387):
Raised the threshold for Social Security coverage of household employees from
remuneration of $50 in wages a quarter to $1,000 a year.
Reallocated taxes from the OASI fund to the DI fund.

---

CRS-2 1
1996 Amendments
The Contract With America Advancement Act of 1996 (P.L. 104-22):
�
Raised the annual earnings test exempt amount, for recipients who have attained
the full retirement age, over a period of 7 years, reaching $30,000 in 2002.
�
Prohibited DI and SSI eligibility to individuals whose disability is based on drug
addiction or alcoholism.

---

---

CRS-23
APPENDIX B. SOCIAL SECURITY BENEFIT
INCREASES SINCE 1935
Across-the-board
Date of
Effective
increases in benefits
Act of
enactment
date
Each amendment
1939 . . . . . . . . . . . . . . .
1950 . . . . . . . . . . . . . . .
77.0%
1952 . . . . . . . . . . . . . . .
12.5"
1954 . . . . . . . . . . . . . . .
13.0
1958 . . . . . . . . . . . . . . .
1965 . . . . . . . . . . . . . . .
7.0"
1967 . . . . . . . . . . . . . . .
13.0
1969 . . . . . . . . . . . . . . .
15.0
1971 . . . . . . . . . . . . . . .
10.0
1972 . . . . . . . . . . . . . .
20.0
1973 . . . . . . . . . . . . . . .
1973 . . . . . . . . . . . . . . Automatic
8.0
Automatic
6.4
Automatic
5.9
Automatic
6.5
Automatic
9.9
Automatic
14.3
Automatic
1
11.2
Automatic
7.4
1983 . . . . . . . . . . . . . . .
3.5
Automatic
3.5
Automatic
3.1
Automatic
1.3
Automatic
4.2
Automatic
4.0
Automatic
4.7
Automatic
5.4
Automatic
3.7
Automatic
3.0
Automatic
2.6
Automatic
2.8
Automatic
2.6
Automatic
2.9
*Guarantee of 12.5% or $5.00.
of 7% or $3.00.
‘Guarantee of 7% or $4.00.
11% increase was payable in two steps -- 7% for March, April, and May 1974, with the
full 11% payable for months after May.

---

---

CRS-25
APPENDIX D. HISTORY OF MAJOR EMPLOYMENT
COVERED BY SOCIAL SECURITY: 1935-1994
Act
Employment covered
1935
All workers in commerce and industry (except railroads) under age 65.
1939
Age restriction eliminated.
1946
Railroad and Social Security earnings combined to determine eligibility for
and amount of survivor benefits.
1950
Regularly employed farm and domestic workers.
self-employed
(except professional groups). Federal civilian employees not under
retirement system.
Americans employed outside United States by
American employer. Puerto Rico and Virgin Islands. At the option of the
State, State and local government employees not under retirement system.
Nonprofit organizations could elect coverage for their employees (other
than ministers).
1951
Railroad workers with less than 10 years of service, for all benefits. (After
October 195 coverage is retroactive to 1937.)
1954
Farm self-employed. Professional self-employed except lawyers, dentists,
doctors, and other medical groups. Additional regularly employed farm
and domestic workers. Homeworkers.
State and local government
employees (except firemen and policemen) under retirement system if
agreed to by referendum. Ministers could elect coverage.
1956
Members of the uniformed services. Remainder of professional
employed except doctors. By referendum, firemen and policemen in
designated States.
1965
Interns. Self-employed doctors. Tips.
1967
Ministers (unless exemption is claimed on grounds of conscience or
religious principles). Firemen under retirement system in all States.
1972
Members of a religious order subject to a vow of poverty.
1983
All federal civilian employees hired after 1983; all employees of nonprofit
organizations. Covered state and local government employees prohibited
from opting out of Social Security.
1990
Employees of state and local governments not covered under a retirement
plan.

---

CRS-26
APPENDIX E. GLOSSARY OF FREQUENTLY USED
SOCIAL SECURITY TERMS
Actuarial
-- The reduction in a Social Security benefit if taken before the
full retirement age (currently age 65). The reduction is permanent and is designed in most
cases to provide on the average the same total lifetime benefits that would have been
payable if the benefits had not started before age 65.
Annual exempt amount -- Amount of earnings a beneficiary can have in a year and
still receive all of his benefits for that year. For beneficiaries under age 65 the amount is
$8,040 for 1994 and will be automatically adjusted based on increases in general earnings
levels in the future. For beneficiaries age 65 or older the amount is $11,160 in 1994 with
automatic adjustments as wages rise thereafter. (See also earnings test.)
Benefit
-- The formula under which Social Security benefits are determined;
derived from percentages of average monthly earnings or average indexed monthly
earnings.
Cost-of-living adjustment (COLA) -- General increases in benefit amounts based on
changes in the Consumer Price Index. From 1975 to 1982, they were effective in June of
each year. Beginning in 1983, they are effective in December.
employment -- Earnings from work that are generally subject to
Social Security taxation; employment in which Social Security taxes are paid and earnings
credits toward benefit rights are obtained.
-- Having earned at least 6 quarters of coverage in the
period ending with the quarter in which individual becomes eligible for retirement
benefits, becomes disabled, or dies. Used to determine eligibility for survivors benefits
in some cases.
Decoupling -- Refers to the benefit formula and benefit computation changes resulting
from the 1977 Social Security amendments intended to stabilize initial benefit levels.
Generally refers to the separation of the procedures used to determine benefits for future
beneficiaries from those that adjust benefits for current beneficiaries.
Delayed
-- A credit due a worker for retirement delayed beyond full
retirement age (currently age 65). The credit is measured in terms of the number of
months after age 65 up to age 70 in which the worker did not receive retirement benefits.
The credit is one-twelfth of 1% per month of the worker’s primary insurance amount for
workers reaching age 62 before 1979, 1 -quarter of 1% per month for workers reaching age
62 after 1978, and will gradually increase from 3% to 8% a year for workers who attain
the full retirement age between 1990 and 2008.
Disability Insurance (DI) -- The Social Security cash program that provides benefits
to replace a portion of earnings lost due to a severe disabling condition that can be
expected to last for 12 months or result in death.

---

CRS-27
Dropout
-- The number of years of low earnings in an individual’s countable
earnings record that may be dropped in determining average monthly or average indexed
monthly earnings; usually 5 years are dropped, but in disability cases the number of years
excluded (up to 5) is proportional to the age of the worker.
Eamings base -- The maximum amount of annual earnings on which employees,
employers, and self-employed people pay Social Security taxes and which can be counted
in figuring Social Security benefit amounts. The base is $60,600 in 1994 and will be
adjusted each year to rise in proportion to average wages.
Eamings test (also called
test) -- The provision that requires a person’s
Social Security benefits to be reduced by $1 for each $2 of earnings over an annual
exempt amount. No reduction is made for earnings in and after the month the beneficiary
attains age 70. For those attaining full retirement age in 1990
$1 in benefits will
be withheld for every $3 in earnings over the exempt amount.
Eligibility -- Having fulfilled all the conditions specified in the law and regulations
for benefit rights, except for filing and approval of the application.
Entitlement -- Having fulfilled all the conditions specified in the law and regulations
for benefit rights, including the filing and approval of the application.
FICA -- Federal Insurance Contributions Act, which requires payments of the payroll
tax by employees and their employers.
Fully
-- Having earned at least the minimum number of quarters of coverage
required for a worker of a certain age to have insured status; ranges from 6 quarters to 40
quarters -- generally the basis upon which a worker establishes benefit rights for himself
and his dependents/survivors.
General
-- Federal funds raised by means other than the payroll tax --
mainly funds raised through corporate and individual income taxes -- and deposited in the
General Fund of the Treasury.
Hospital Insurance (HI) -- (Medicare part A) -- A program generally financed by the
payroll tax which reimburses elderly and disabled individuals for costs incurred as
inpatients in hospitals and skilled nursing facilities.
Indexing -- Linking elements of the social security program, such as periodic benefit
increases, raises in the earnings base, and the factors that determine initial benefit levels,
to change in wages or prices.
status -- Whether or not a worker’s earnings record under covered
employment contains earnings over a long enough period of time for him and his
dependents or survivors to receive benefits, measured in “quarters of coverage.” (See
currently and fully insured.)

---

CRS-28
Lump-sum death benefit -- A one-time benefit of $255 paid to an eligible spouse or
children of a deceased worker.
Mandatory coverage -- Requiring by law that certain work be treated as covered
employment or self-employment and be subject to social security taxes. Nearly all work
in the private sector is mandatorily covered.
Medicare -- The health insurance portion of Social Security, which provides Hospital
Insurance (HI) (part A of Medicare), and Supplementary Medical Insurance (part B), for
people aged 65 and over and the long-term disabled.
Minimum benefit -- The lowest benefit payable (before any reductions or deductions)
under the regular insurance provisions to a retired worker, a disabled worker, or a sole
survivor. As a result of the 1977 amendments, the minimum benefit was frozen at $122.
However, after a person began to get benefits based on the minimum, his benefits were
increased for cost-of-living raises. In 198 1, the minimum benefit was repealed for
newly-eligible beneficiaries, effective in 1982.
Old-Age and
Insurance (OASI) -- The basic Social Security program which
replaces a portion of earnings lost on account of the retirement or death of an insured
worker through monthly benefit payments to the worker, his dependents, or his survivors.
tax -- The Social Security or FICA (or self-employment) tax; a tax on
earnings that is paid by both employees and employers at the same rate (however, in 1984
employers paid 7.0% and employees,
with a tax credit making up the 0.3%
difference) and by the self-employed up to a certain limit (in 1994 the limit is $60,600 for
OASDI, but there is no limit for HI) and provides the primary source of revenue for the
Social Security trust funds.
Primary insurance amount
-- An amount generally viewed as “full benefits,”
i.e., the amount of benefits payable to a worker or on his behalf upon retirement at age 65,
disablement or death, used as the starting point for computing reductions and deductions
from benefits and to determine benefits for dependents and survivors (expressed as some
“percent of
is derived directly from the benefit formula.
of coverage -- A unit of credit toward obtaining insured status. In 1994,
$620 in earnings during the year is needed to obtain a quarter of coverage, with a
maximum of four quarters of coverage for earnings of $2,480 or more. Earnings do not
need to be earned in a particular calendar quarter in order for that calendar quarter to be
credited.
Special age 72 benefits -- Special benefits paid primarily from general revenues to
a small category of people now over 80 years old who are not insured for regular Social
Security benefits, also known as “Prouty” benefits.

---

CRS-29
Special minimum benefit -- A benefit amount payable to certain persons who have
worked in covered employment or self-employment for many years at low earnings levels.
Used only if higher than the regularly computed benefit.
Substantial gainful activity (SGA) -- The part of the definition of disability which
precludes entitlement to Disability Insurance (DI) or Supplemental Security Income (SSI)
disability benefits when an impaired individual engages in substantial paid work;
“substantial” is measured by the amount of wages the worker has earned (currently pegged
at $500 or more per month).
Supplementary Medical Insurance (SMI) -- (Medicare part B) -- A voluntary
supplementary program covering the costs of physicians’ services and a number of other
items and services not covered under the Hospital Insurance (HI) program; financed
through premiums paid by enrollees and general revenue contributions to the program.
benefits -- Monthly cash benefits which can be paid to certain survivors of
a deceased worker, including a spouse, former spouse, children, and parents.
Student benefits -- Monthly cash benefits paid to the child of a retired, disabled, or
deceased worker during the time between the child’s 18th and 19th birthday; payable only
if the child is a full-time student in an elementary or secondary school. (Benefits to
postsecondary students were phased out by May 1985
Tax
-- The percent of covered earnings (earnings up to the earnings base)
deducted from a worker’s paycheck as contributions to the Social Security system, with an
equal amount paid by employer (except for 1984). The self- employed are subject to a
different rate.
Taxable
-- Earnings subject to the payroll tax; that is, earnings up to the
earnings base in jobs covered by the Social Security system.
Transitional benefits -- Special benefits paid to a small category of persons now over
90 years old who had earned at least 3 quarters of coverage but who were not otherwise
insured for Social Security benefits.
Trust funds -- The Old-Age and Survivors Insurance (OASI) trust fund, the Disability
Insurance (DI) trust fund, the Hospital Insurance (HI) trust fund, and the Supplementary
Medical Insurance (SMI) trust fund, where payroll taxes from employees, employers, the
self-employed, and a small amount of general revenues are credited in an account in the
Treasury, and which form the authority for the Treasury to pay for benefits and
administrative expenses.
Wage indexing -- The procedures used to adjust a worker’s past earnings to reflect
what they would be if earned recently, and to adjust the benefit formula itself so that the
initial benefits paid to future retirees will represent the same percentage of preretirement
career earnings, regardless of when each successive group of workers reaches retirement

---

CRS-30
Waiting period -- The amount of time a disabled worker must wait after his disabling
condition begins before entitlement to Disability Insurance (DI) benefits can be started.
(The waiting period is 5 full calendar months.)

---