$65,400 exceeds the current base amount of $62,700, the OASDI contribution and benefit base is determined to be $65,400 for 1997. Retirement Earnings Test Exempt Amounts Social Security benefits are withheld when a beneficiary under age 70 has earnings in excess of the retirement earnings test exempt amount. Since 1978, higher exempt amounts have applied to beneficiaries aged 65 through 69 compared to those under age 65. Formulas for determining the monthly exempt amounts are provided in section 203(f)(8)(B) of the Act, as amended by section 102 of the "Senior Citizens' Right to Work Act of 1996,” Title I of Pub. L. 104-121. This amendment set the annual exempt amount for beneficiaries aged 65 through 69 to $12,500 for 1996, $13,500 for 1997, $14,500 for 1998, $15,500 for 1999, $17,000 for 2000, $25,000 for 2001, and $30,000 for 2002. The corresponding monthly exempt amounts are exactly one-twelfth of the annual amounts. After 2002, the monthly exempt amount for this group of beneficiaries will increase under the applicable formula. For beneficiaries aged 65 through 69, $1 in benefits is withheld for every $3 of earnings in excess of the annual exempt amount. For beneficiaries under age 65, $1 in benefits is withheld for every $2 of earnings in excess of the annual exempt amount. Computation Under the formula in section 203(f)(8)(B) applicable to beneficiaries under age 65, the monthly exempt amount for 1997 shall be the larger of (1) the 1996 monthly exempt amount or (2) the 1994 monthly exempt amount multiplied by the ratio of the national average wage index for 1995 to that for 1992. The ratio of the national average wage index for 1995, $24,705.66 as determined above, compared to that for 1992, $22,935.42, is 1.0771837. Section 203(f)(8)(B) further provides that if the amount so determined is not a multiple of $10, it shall be rounded to the nearest multiple of $10. Exempt Amount for Beneficiaries Under Age 65 Multiplying the 1994 retirement earnings test monthly exempt amount of $670 by the ratio 1.0771837 produces the amount of $721.71. This must then be rounded to $720. Because $720 is larger than the corresponding current exempt amount of $690, the retirement earnings test monthly exempt amount for beneficiaries under age 65 is thus determined to be $720 for 1997. The corresponding retirement earnings test annual exempt amount for these beneficiaries is $8,640. 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. The computation formula is adjusted automatically each year to reflect changes in general wage levels, as measured by the national average wage index. A worker's earnings are adjusted, or “indexed,” 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. A certain number of years of earnings are needed to compute the average indexed monthly earnings. After the number of years is determined, those years with the highest indexed earnings are chosen, the indexed earnings are summed, and the total amount is divided by the total number of months in those years. The resulting average amount is then rounded 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 1997, the national average wage index for 1995, $24,705.66, is divided by the national average wage index for each year prior to 1995 in which the worker had earnings. The actual wages and self-employment income, as defined in section 211(b) of the Act and credited for each year, is multiplied by the corresponding ratio to obtain the worker's indexed earnings for each year before 1995. Any earnings in 1995 or later are considered at face value, without indexing. The average indexed monthly earnings is then computed and used to determine the worker's primary insurance amount for 1997. 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. The dollar amounts in the formula which govern the portions of the average indexed monthly earnings are frequently referred to as the “bend points” of the formula. Thus, the bend points for 1979 were $180 and $1,085. The bend points for 1997 are obtained by multiplying the corresponding 1979 bend-point amounts by the ratio between the national average wage index for 1995, $24,705.66, and for 1977, $9,779.44. These results are then rounded to the nearest dollar. For 1997, the ratio is 2.5262858. Multiplying the 1979 amounts of $180 and $1,085 by 2.5262858 produces the amounts of $454.73 and $2,741.02. These must then be rounded to $455 and $2,741. Accordingly, the portions of the average indexed monthly earnings to be used in 1997 are determined to be the first $455, the amount between $455 and $2,741, and the amount over $2,741. Consequently, for individuals who first become eligible for old-age insurance benefits or disability insurance benefits in 1997, or who die in 1997 before becoming eligible for benefits, their primary insurance amount will be the sum of: (a) 90 percent of the first $455 of their average indexed monthly earnings, plus (b) 32 percent of the average indexed monthly earnings over $455 and through $2,741, plus (c) 15 percent of the average indexed monthly earnings over $2,741. This amount is then rounded 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 continue the long established policy of limiting the total monthly benefits which 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 which 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 is applied 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, the family maximum payable is computed 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. The dollar amounts in the formula which govern the portions of the primary insurance amount are frequently referred to as the "bend points" of the family-maximum formula. Thus, the bend points for 1979 were $230, $332, and $433. The bend points for 1997 are obtained by multiplying the corresponding 1979 bend-point amounts by the ratio between the national average wage index for 1995, $24,705.66, and the average for 1977, $9,779.44. This amount is then rounded to the nearest dollar. For 1997, the ratio is 2.5262858. Multiplying the amounts of $230, $332, and $433 by 2.5262858 produces the amounts of $581.05, $838.73, and $1,093.88. These amounts are then rounded to $581, $839, and $1,094. Accordingly, the portions of the primary insurance amounts to be used in 1997 are determined to be the first $581, the amount between $581 and $839, the amount between $839 and $1,094, and the amount over $1,094. Consequently, for the family of a worker who becomes age 62 or dies in 1997 before age 62, the total amount of benefits payable to them will be computed so that it does not exceed: (a) 150 percent of the first $581 of the worker's primary insurance amount, plus (b) 272 percent of the worker's primary insurance amount over $581 through $839, plus (c) 134 percent of the worker's primary insurance amount over $839 through $1,094, plus (d) 175 percent of the worker's primary insurance amount over $1,094. This amount is then rounded 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 1997 amount of earnings required for a quarter of coverage is $670. A quarter of coverage is the basic unit for determining whether a worker is insured under the Social Security program. For years before 1978, an individual generally was credited with a quarter of coverage for each quarter in which wages of $50 or more were paid, or an individual was credited with 4 quarters of coverage for every taxable year in which $400 or more of self-employment income was earned. Beginning in 1978, wages generally are no longer reported on a quarterly basis; instead, annual reports are made. 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 1997 shall be equal to the larger of (1) the current amount of $640 or (2) the 1978 amount of $250 multiplied by the ratio of the national average wage index for 1995 to that for 1976. The national average wage index for 1976 was previously determined to be $9,226.48. The average wage index for 1995 is $24,705.66 as determined above. Section 213(d) further provides that if the amount so determined 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 1995, $24,705.66, compared to that for 1976, $9,226.48, is 2.6776907. Multiplying the 1978 quarter of coverage amount of $250 by the ratio of 2.6776907 produces the amount of $669.42, which must then be rounded to $670. Because $670 exceeds the current amount of $640, the quarter of coverage amount is determined to be $670 for 1997. "Old-Law" Contribution and Benefit Base General The 1997 "old-law" contribution and benefit base is $48,600. This is the base that would have been effective under the Act without the enactment of the 1977 amendments. The base is computed 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 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 base is computed using the automatic adjustment formula in section 230(b) of the Act as it read prior to the enactment of the 1977 amendments, but with the revised indexing formula introduced by section 321(g) of the "Social Security Independence and Program Improvements Act of 1994." Under the formula, the “oldlaw" contribution and benefit base shall be the larger of (1) the current "old-law" base ($46,500) or (2) the 1994 “old-law" base ($45,000) multiplied by the ratio of the national average wage index for 1995 to that for 1992. If the amount so determined 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 1995, $24,705.66 as determined above, compared to that for 1992, $22,935.42, is 1.0771837. Multiplying the 1994 "old-law" contribution and benefit base amount of $45,000 by the ratio of 1.0771837 produces the amount of $48,473.27 which must then be rounded to $48,600. Because $48,600 exceeds the current amount of $46,500, the “old-law" contribution and benefit base is determined to be $48,600 for 1997. Substantial Gainful Activity Amount for Blind Individuals 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). Under current regulations, a person who is not statutorily blind and is earning more than $500 a month (net of impairment-related work expenses) is ordinarily considered to be engaging in SGA. The Social Security amendments of 1977 established a higher SGA amount for statutorily blind individuals by setting their monthly SGA amount to the monthly exempt amount for persons aged 65 through 69 under the retirement earnings test provisions of the Act. As mentioned earlier, section 102 of Pub. L. 104-121 increased the exempt amount for persons aged 65 through 69 to specific levels for 1996-2002. Section 102 further provided that the SGA amount for blind individuals be the same as it would have been if section 102 had not been enacted. Thus, the monthly SGA amount for blind individuals in 1996 is $960—the same as the monthly exempt amount for persons aged 65 through 69 promulgated in the Federal Register on October 25, 1995 (60 FR 54751). Computation Under the formula in section 203(f)(8)(B) in effect prior to the enactment of Pub. L. 104-121, the monthly SGA amount for statutorily blind individuals for 1997 shall be the larger of (1) such amount for 1996 or (2) such amount for 1994 multiplied by the ratio of the national average wage index for 1995 to that for 1992. The ratio of the national average wage index for 1995, $24,705.66 as determined above, compared to that for 1992, $22,935.42, is 1.0771837. Section 203(f)(8)(B) further provides that if the amount so determined is not a multiple of $10, it shall be rounded to the nearest multiple of $10. SGA Amount for Statutorily Blind Individuals Multiplying the 1994 monthly SGA amount for statutorily blind individuals of $930 by the ratio of 1.0771837 produces the amount of $1,001.78. This must then be rounded to $1,000. Because $1,000 is larger than the current amount of $960, the monthly SGA amount for statutorily blind individuals is determined to be $1,000 for 1997. 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 in calendar year 1994. The statute holds the coverage threshold at the $1,000 level for 1995 and then increases the threshold in $100 increments for years after 1995. The formula for increasing the threshold is provided in section 3121(x) of the Internal Revenue Code. Computation Under the new formula, the domestic employee coverage threshold amount for 1997 shall be equal to the 1995 amount of $1,000 multiplied by the ratio of the national average wage index for 1995 to that for 1993. The national average wage index for 1993 was previously determined to be $23,132.67. The national average wage index for 1995 is $24,705.66 as determined above. If the amount so determined 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 1995, $24,705.66, compared to that for 1993, $23,132.67, is 1.0679986. Multiplying the 1995 domestic employee coverage threshold amount of $1,000 by the ratio of 1.0679986 produces the amount of $1,068.00, which must then be rounded to $1,000. Accordingly, the domestic employee coverage threshold amount is determined to be $1,000 for 1997. OASDI Fund Ratio General Section 215(i) of the Act provides for automatic cost-of-living increases in OASDI benefit amounts. This section also includes a "stabilizer” provision that can limit the automatic OASDI 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 1996 is the ratio of (1) the combined assets of the OASI and DI Trust Funds at the beginning of 1996 to (2) the estimated expenditures of the OASI and DI Trust Funds during 1996, 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 1996 equaled $496,068 million, and the expenditures are estimated to be $354,615 million. Thus, the OASDI fund ratio for 1996 is 139.9 percent, which exceeds the applicable threshold of 20.0 percent. Therefore, the stabilizer provision does not affect the benefit increase for December 1996. Although the OASDI fund ratio exceeds the 32.0-percent threshold for potential "catch-up" benefit increases, no past benefit increase has been reduced under the stabilizer provision. 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; 96.003 Social Security Special Benefits for Persons Aged 72 and Over; 96.004 Social Security-Survivors Insurance; 96.006 Supplemental Security Income.) Dated: October 18, 1996. Shirley S. Chater, Commissioner, Social Security Administration 1996 Cost-of-Living Increase and Other Determinations 6 AGENCY: Social Security Administration. "This material was published in the Federal Register on October 25, 1995, at 60 FR 54751. |