the worker's primary insurance amount. The NRA is age 65 for those born before 1938, and it will gradually increase to age 67.) For 2001, NRA is age 65. From 1978 through 1999, when the retirement earnings test applied to individuals beyond the NRA, higher exempt amounts applied to beneficiaries aged 65 to 69 compared to those under age 65. Under Pub. L. 106-182, the "Senior Citizens' Freedom to Work Act of 2000," which ended the retirement earnings test for beneficiaries who have attained NRA, these higher exempt amounts still apply in the year in which a person attains his/her NRA, but only for months prior to such attainment. Section 203(f)(8)(B) of the Act, as amended by section 102 of Pub. L. 104-121, provides formulas for determining the monthly exempt amounts. The amendment set the higher annual exempt amount to $25,000 for 2001 and $30,000 for 2002. After 2002, the higher exempt amount will increase under the applicable formula. The corresponding monthly exempt amounts are exactly one-twelfth of the annual amounts. For beneficiaries attaining NRA in the year, we withhold $1 in benefits for every $3 of earnings in excess of the annual exempt amount for months prior to such attainment. For all other beneficiaries under NRA, we withhold $1 in benefits for every $2 of earnings in excess of the annual exempt amount. Computation

Under the formula applicable to beneficiaries under the NRA, the monthly exempt amount for 2001 shall be the larger of: (1) The 1994 monthly exempt amount multiplied by the ratio of the national average wage index for 1999 to that for 1992; or (2) the 2000 monthly exempt amount ($840). If the resulting amount is not a multiple of $10, it shall be rounded to the nearest multiple of $10. Exempt Amount for Beneficiaries Under NRA

The ratio of the national average wage index for 1999, $30,469.84, compared to that for 1992, $22,935.42, is 1.3285059. Multiplying the 1994 retirement earnings test monthly exempt amount of $670 by the ratio 1.3285059 produces the amount of $890.10. We round this to $890. Because $890 is larger than the corresponding current exempt amount of $840, the retirement earnings test monthly exempt amount for beneficiaries under NRA is $890 for 2001. The corresponding retirement earnings test annual exempt amount for these beneficiaries is $10,680. Computing Benefits After 1978

General

The Social Security Amendments of 1977 provided a method for computing benefits which generally applies when a worker first becomes eligible for benefits after 1978. This method uses the worker's "average indexed monthly earnings" to compute the primary insurance amount. We adjust the computation formula each year to reflect changes in general wage levels, as measured by the national average wage index.

We also adjust, or “index,” a worker's earnings to reflect the change in general wage levels that occurred during the worker's years of employment. Such indexation ensures that a worker's future benefits reflect the general rise in the standard of living that occurs during his or her working lifetime. To compute the average indexed monthly earnings, we first determine the needed number of years of earnings. Then we select that number of years with the highest indexed earnings, add the indexed earnings, and divide the total amount by the total number of months in those years. We then round the resulting average amount down to the next lower dollar amount. The result is the average indexed monthly earnings.

For example, to compute the average indexed monthly earnings for a worker attaining age 62, becoming disabled before age 62, or dying before attaining age 62, in 2001, we divide the national average wage index for 1999, $30,469.84, by the national average wage index for each year prior to 1999 in which the worker had earnings. Then we multiply the actual wages and self-employment income, as defined in section 211(b) of the Act and credited for each year, by the corresponding ratio to obtain the worker's indexed earnings for each year before 1999. We consider any earnings in 1999 or later at face value, without indexing. We then compute the average indexed monthly earnings for determining the worker's primary insurance amount for 2001.

Computing the Primary Insurance Amount

The primary insurance amount is the sum of three separate percentages of portions of the average indexed monthly earnings. In 1979 (the first year the formula was in effect), these portions were the first $180, the amount between $180 and $1,085, and the amount over $1,085. We call the dollar amounts in the formula governing the portions of the average indexed monthly earnings the "bend points" of the formula. Thus, the bend points for 1979 were $180 and $1,085.

To obtain the bend points for 2001, we multiply the corresponding 1979 bendpoint amounts by the ratio between the national average wage index for 1999, $30,469.84, and for 1977, $9,779.44. We then round these results to the nearest dollar. For 2001, the ratio is 3.1157040. Multiplying the 1979 amounts of $180 and $1,085 by 3.1157040 produces the amounts of $560.83 and $3,380.54. We round these to $561 and $3,381. Accordingly, the portions of the average indexed monthly earnings to be used in 2001 are the first $561, the amount between $561 and $3,381, and the amount over $3,381.

Consequently, for individuals who first become eligible for old-age insurance benefits or disability insurance benefits in 2001, or who die in 2001 before becoming eligible for benefits, their primary insurance amount will be the sum of:

(a) 90 percent of the first $561 of their average indexed monthly earnings, plus (b) 32 percent of their average indexed monthly earnings over $561 and through $3,381, plus

(c) 15 percent of their average indexed monthly earnings over $3,381.

We round this amount to the next lower multiple of $.10 if it is not already a multiple of $.10. This formula and the rounding adjustment described above are contained in section 215(a) of the Act (42 U.S.C. 415(a)).

Maximum Benefits Payable to a Family

General

The 1977 amendments continued the long established policy of limiting the total monthly benefits that a worker's family may receive based on his or her primary insurance amount. Those amendments also continued the then existing relationship between maximum family benefits and primary insurance amounts but did change the method of computing the maximum amount of benefits that may be paid to a worker's family. The Social Security Disability Amendments of 1980 (Pub. L. 96265) established a formula for computing the maximum benefits payable to the family of a disabled worker. This formula applies to the family benefits of workers who first become entitled to disability insurance benefits after June 30, 1980, and who first become eligible for these benefits after 1978. For disabled workers initially entitled to disability benefits before July 1980, or whose disability began before 1979, we compute the family maximum payable the same as the old-age and survivor family maximum.

Computing the Old-Age and Survivor Family Maximum

The formula used to compute the family maximum is similar to that used to compute the primary insurance amount. It involves computing the sum of four separate percentages of portions of the worker's primary insurance amount. In 1979, these portions were the first $230, the amount between $230 and $332, the amount between $332 and $433, and the amount over $433. We refer to such dollar amounts in the formula as the "bend points" of the family-maximum formula.

To obtain the bend points for 2001, we multiply the corresponding 1979 bendpoint amounts by the ratio between the national average wage index for 1999, $30,469.84, and the average for 1977, $9,779.44. Then we round this amount to the nearest dollar. For 2001, the ratio is 3.1157040. Multiplying the amounts of $230, $332, and $433 by 3.1157040 produces the amounts of $716.61, $1,034.41, and $1,349.10. We round these amounts to $717, $1,034, and $1,349. Accordingly, the portions of the primary insurance amounts to be used in 2001 are the first $717, the amount between $717 and $1,034, the amount between $1,034 and $1,349, and the amount over $1,349.

Consequently, for the family of a worker who becomes age 62 or dies in 2001 before age 62, we will compute the total amount of benefits payable to them so that it does not exceed:

(a) 150 percent of the first $717 of the worker's primary insurance amount, plus (b) 272 percent of the worker's primary insurance amount over $717 through $ 1,034, plus

(c) 134 percent of the worker's primary insurance amount over $1,034 through $ 1,349, plus

(d) 175 percent of the worker's primary insurance amount over $1,349.

We then round this amount to the next lower multiple of $.10 if it is not already a multiple of $.10. This formula and the rounding adjustment described above are contained in section 203(a) of the Act (42 U.S.C. 403(a)).

Quarter of Coverage Amount

General

The amount of earnings required for a quarter of coverage in 2001 is $830. A quarter of coverage is the basic unit for determining whether a worker is insured under the Social Security program. For years before 1978, we generally credited an individual with a quarter of coverage for each quarter in which wages of $50 or more were paid, or with 4 quarters of coverage for every taxable year in which $400 or more of self-employment income was earned. Beginning in 1978, employers generally report wages on an annual basis instead of a quarterly basis. With the change to annual reporting, section 352(b) of the Social Security Amendments of 1977 amended section 213(d) of the Act to provide that a quarter of coverage would be credited for each $250 of an individual's total wages and self-employment income for calendar year 1978, up to a maximum of 4 quarters of coverage for the year. Computation

Under the prescribed formula, the quarter of coverage amount for 2001 shall be the larger of: (1) The 1978 amount of $250 multiplied by the ratio of the national average wage index for 1999 to that for 1976; or (2) the current amount of $780. Section 213(d) further provides that if the resulting amount is not a multiple of $10, it shall be rounded to the nearest multiple of $10.

Quarter of Coverage Amount

The ratio of the national average wage index for 1999, $ 30,469.84, compared to that for 1976, $9,226.48, is 3.3024339. Multiplying the 1978 quarter of coverage amount of $250 by the ratio of 3.3024339 produces the amount of $825.61, which must then be rounded to $830. Because $830 exceeds the current amount of $780, the quarter of coverage amount is $830 for 2001.

"Old-Law" Contribution and Benefit Base

General

The "old-law" contribution and benefit base for 2001 is $59,700. This is the base that would have been effective under the Act without the enactment of the 1977 amendments. We compute the base under section 230(b) of the Act as it read prior to the 1977 amendments.

The "old-law" contribution and benefit base is used by:

(a) the Railroad Retirement program to determine certain tax liabilities and tier II benefits payable under that program to supplement the tier I payments which correspond to basic Social Security benefits,

(b) the Pension Benefit Guaranty Corporation to determine the maximum amount of pension guaranteed under the Employee Retirement Income Security Act (as stated in section 230(d) of the Social Security Act),

(c) Social Security to determine a year of coverage in computing the special minimum benefit, as described earlier, and

(d) Social Security to determine a year of coverage (acquired whenever earnings equal or exceed 25 percent of the "old-law" base for this purpose only) in computing benefits for persons who are also eligible to receive pensions based on employment not covered under section 210 of the Act.

Computation

The "old-law" contribution and benefit base shall be the larger of: (1) The 1994 "old-law" base ($45,000) multiplied by the ratio of the national average wage index for 1999 to that for 1992; or (2) the current “old-law" base ($56,700). If the resulting

amount is not a multiple of $300, it shall be rounded to the nearest multiple of $300.

Amount

The ratio of the national average wage index for 1999, $30,469.84, compared to that for 1992, $22,935.42, is 1.3285059. Multiplying the 1994 "old-law" contribution and benefit base amount of $45,000 by the ratio of 1.3285059 produces the amount of $59,782.76. We round this amount to $59,700. Because $59,700 exceeds the current amount of $56,700, the "old-law" contribution and benefit base is $59,700 for 2001.

Substantial Gainful Activity Amount for Blind Individuals
General

A finding of disability under titles II and XVI of the Act requires that a person be unable to engage in substantial gainful activity (SGA). A person who is earning more than a certain monthly amount (net of impairment-related work expenses) is ordinarily considered to be engaging in SGA. The amount of monthly earnings considered as SGA depends on the nature of a person's disability. Section 223(d)(4)(A) of the Act specifies a higher SGA amount for statutorily blind individuals while Federal regulations specify a lower SGA amount (currently $700 per month) for nonblind individuals. At this time, only the SGA amount for statutorily blind individuals increases in accordance with increases in the national average wage index. Later this year, however, we will issue a Final Rule in the Federal Register announcing a wage-indexed SGA amount applicable to non-blind disabled beneficiaries for 2001.

Computation

The monthly SGA amount for statutorily blind individuals for 2001 shall be the larger of: (1) Such amount for 1994 multiplied by the ratio of the national average wage index for 1999 to that for 1992; or (2) such amount for 2000. If the resulting amount is not a multiple of $10, it shall be rounded to the nearest multiple of $10. SGA Amount for Statutorily Blind Individuals

The ratio of the national average wage index for 1999, $30,469.84, compared to that for 1992, $22,935.42, is 1.3285059. Multiplying the 1994 monthly SGA amount for statutorily blind individuals of $930 by the ratio of 1.3285059 produces the amount of $1,235.51. We then round this amount to $1,240. Because $ 1,240 is larger than the current amount of $1,170, the monthly SGA amount for statutorily blind individuals is $1,240 for 2001.

Domestic Employee Coverage Threshold

General

Section 2 of the "Social Security Domestic Employment Reform Act of 1994” (Pub. L. 103-387) increased the threshold for coverage of a domestic employee's wages paid per employer from $50 per calendar quarter to $1,000 per annum in calendar year 1994. The statute held the coverage threshold at the $1,000 level for 1995 and then increased the threshold in $100 increments for years after 1995. Section 3121(x) of the Internal Revenue Code provides the formula for increasing the threshold.

Computation

Under the formula, the domestic employee coverage threshold amount for 2001 shall be equal to the 1995 amount of $1,000 multiplied by the ratio of the national average wage index for 1999 to that for 1993. If the resulting amount is not a multiple of $100, it shall be rounded to the next lower multiple of $100.

Domestic Employee Coverage Threshold Amount

The ratio of the national average wage index for 1999, $30,469.84, compared to that for 1993, $23,132.67, is 1.3171778. Multiplying the 1995 domestic employee coverage threshold amount of $1,000 by the ratio of 1.3171778 produces the amount of $1,317.18, which must then be rounded to $1,300. Accordingly, the domestic employee coverage threshold amount is $1,300 for 2001.

Election Worker Coverage Threshold

General

Section 303(b) of Pub. L. 103-296, the "Social Security Independence and Program Improvements Act of 1994,” increased from $100 a year to $1,000 a year the amount an election official or election worker must be paid for the earnings to be covered under Social Security or Medicare, effective January 1, 1995. Beginning in the year 2000, the coverage threshold increases automatically with increases in the national average wage index.

Computation

Under the formula, the election worker coverage threshold amount for 2001 shall be equal to the 1999 amount of $1,000 multiplied by the ratio of the national average wage index for 1999 to that for 1997. If the amount so determined is not a multiple of $100, it shall be rounded to the nearest multiple of $100. Election Worker Coverage Threshold Amount

The ratio of the national average wage index for 1999, $30,469.84, compared to that for 1997, $27,426.00, is 1.1109837. Multiplying the 1999 election worker coverage threshold amount of $1,000 by the ratio of 1.1109837 produces the amount of $1,110.98, which we then round to $1,100. Accordingly, the election worker coverage threshold amount is $1,100 for 2001.

OASDI Fund Ratio

General

In addition to providing an annual automatic cost-of-living increase in OASDI benefits, section 215(i) of the Act also includes a "stabilizer" provision that can limit such benefit increase under certain circumstances. If the combined assets of the OASI and DI Trust Funds, as a percentage of annual expenditures, are below a specified threshold, the automatic benefit increase is equal to the lesser of: (1) The increase in the national average wage index; or (2) the increase in prices. The threshold specified for the OASDI fund ratio is 20.0 percent for benefit increases for December of 1989 and later. The law also provides for subsequent "catch-up" benefit increases for beneficiaries whose previous benefit increases were affected by this provision. “Catch-up" benefit increases can occur only when trust fund assets exceed 32.0 percent of annual expenditures.

Computation

Section 215(i) specifies the computation and application of the OASDI fund ratio. The OASDI fund ratio for 2000 is the ratio of the combined assets of the OASI and DI Trust Funds at the beginning of 2000 to the estimated expenditures of the OASI and DI Trust Funds during 2000, excluding transfer payments between the OASI and DI Trust Funds, and reducing any transfers to the Railroad Retirement Account by any transfers from that account into either trust fund.

Ratio

The combined assets of the OASI and DI Trust Funds at the beginning of 2000 equaled $896,133 million, and we estimate the expenditures in 2000 to be $416,120 million. Thus, the OASDI fund ratio for 2000 is 215.4 percent, which exceeds the applicable threshold of 20.0 percent. Therefore, the stabilizer provision does not affect the benefit increase for December 2000. Although the OASDI fund ratio exceeds the 32.0-percent threshold for potential "catch-up" benefit increases, the stabilizer provision has not reduced any past benefit increase. Thus, no "catch-up" benefit increase is required.

(Catalog of Federal Domestic Assistance: Program Nos. 96.001 Social Security-Disability Insurance; 96.002 Social Security-Retirement Insurance; 96.004 Social Security-Survivors Insurance; 96.006 Supplemental Security Income)

Dated: October 18, 2000.

Kenneth S. Apfel,

Commissioner of Social Security