ACTION: Notice.

SUMMARY: The Commissioner has determined

(1) A 2.6 percent cost-of-living increase in Social Security benefits under title II, effective for December 1995;

(2) An increase in the Federal Supplemental Security Income (SSI) monthly benefit amounts under title XVI for 1996 to $470 for an eligible individual, $705 for an eligible individual with an eligible spouse, and $235 for an essential person; (3) The national average wage index for 1994 to be $23,753.53;

(4) The Old-Age, Survivors, and Disability Insurance (OASDI) contribution and benefit base to be $62,700 for remuneration paid in 1996 and self-employment income earned in taxable years beginning in 1996;

(5) The monthly exempt amounts under the Social Security retirement earnings test for taxable years ending in calendar year 1996 to be $960 for beneficiaries age 65 through 69 and $690 for beneficiaries under age 65;

(6) The dollar amounts ("bend points") used in the benefit formula for workers who become eligible for benefits in 1996 and in the formula for computing maximum family benefits;

(7) The amount of earnings a person must have to be credited with a quarter of coverage in 1996 to be $640;

(8) The "old-law" contribution and benefit base to be $46,500 for 1996; (9) The OASDI fund ratio to be 128.3 percent for 1995; and

(10) The domestic worker coverage threshold to be $1,000 for 1996. SUPPLEMENTARY INFORMATION: The Commissioner is required by the Social Security Act (the Act) to publish within 45 days after the close of the third calendar quarter of 1995 the benefit increase percentage and the revised table of “special minimum" benefits (section 215(i)(2)(D)). Also, the Commissioner is required to publish on or before November 1 the national average wage index for 1994 (section 215(a)(1)(D)), the OASDI fund ratio for 1995 (section 215(i)(2)(C)(ii)), the OASDI contribution and benefit base for 1996 (section 230(a)), the amount of earnings required to be credited with a quarter of coverage in 1996 (section 213(d)(2)), the monthly exempt amounts under the Social Security retirement earnings test for 1996 (section 203(f)(8)(A)), the formula for computing a primary insurance amount for workers who first become eligible for benefits or die in 1996 (section 215(a)(1)(D)), and the formula for computing the maximum amount of benefits payable to the family of a worker who first becomes eligible for old-age benefits or dies in 1996 (section 203(a)(2)(C)).

Cost-of-Living Increases

General

The cost-of-living increase is 2.6 percent for benefits under titles II and XVI of the Act. Under title II, OASDI benefits will increase by 2.6 percent beginning with the December 1995 benefits, which are payable on January 3, 1996. This increase is based on the authority contained in section 215(i) of the Act (42 U.S.C. 415(i)). Under title XVI, Federal SSI payment levels will also increase by 2.6 percent effective for payments made for the month of January 1996 but paid on December 29, 1995. This is based on the authority contained in section 1617 of the Act (42 U.S.C. 1382f). The percentage increase effective January 1996 is the same as the title II percentage increase and the annual payment amount is rounded, when not a multiple of $12, to the next lower multiple of $12.

Automatic Benefit Increase Computation

Under section 215(i) of the Act, the third calendar quarter of 1995 is a cost-ofliving computation quarter for all the purposes of the Act. The Commissioner is, therefore, required to increase benefits, effective with December 1995, for individuals entitled under section 227 or 228 of the Act, to increase primary insurance amounts of all other individuals entitled under title II of the Act, and to increase maximum benefits payable to a family. For December 1995, the benefit increase is the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers from the third quarter of 1994 through the third quarter of 1995. Section 215(i)(1) of the Act provides that the Consumer Price Index for a cost-ofliving computation quarter shall be the arithmetic mean of this index for the 3

months in that quarter. The arithmetic mean is rounded, if necessary, to the nearest 0.1. The Department of Labor's Consumer Price Index for Urban Wage Earners and Clerical Workers for each month in the quarter ending September 30, 1994, was: for July 1994, 145.8; for August 1994, 146.5; and for September 1994, 146.9. The arithmetic mean for this calendar quarter is 146.4. The corresponding Consumer Price Index for each month in the quarter ending September 30, 1995, was: for July 1995, 149.9; for August 1995, 150.2; and for September 1995, 150.6. The arithmetic mean for this calendar quarter is 150.2. Thus, because the Consumer Price Index for the calendar quarter ending September 30, 1995, exceeds that for the calendar quarter ending September 30, 1994 by 2.6 percent, a cost-of-living benefit increase of 2.6 percent is effective for benefits under title II of the Act beginning December 1995.

Title II Benefit Amounts

In accordance with section 215(i) of the Act, in the case of insured workers and family members for whom eligibility for benefits (i.e., the worker's attainment of age 62, or disability or death before age 62) occurred before 1996, benefits will increase by 2.6 percent beginning with benefits for December 1995 which are payable on January 3, 1996. In the case of first eligibility after 1995, the 2.6 percent increase will not apply.

For eligibility after 1978, benefits are generally determined by a benefit formula provided by the Social Security Amendments of 1977 (Pub. L. 95-216), as described later in this notice.

For eligibility before 1979, benefits are determined by means of a benefit table. In accordance with section 215(i)(4) of the Act, the primary insurance amounts and the maximum family benefits shown in this table are revised by (1) Increasing by 2.6 percent the corresponding amounts established by the last cost-of-living increase and the last extension of the benefit table made under section 215(i)(4) (to reflect the increase in the OASDI contribution and benefit base for 1995); and (2) by extending the table to reflect the higher monthly wage and related benefit amounts now possible under the increased contribution and benefit base for 1996, as described later in this notice. A copy of this table may be obtained by writing to: Social Security Administration, Office of Public Inquiries, 4100 Annex, Baltimore, MD 21235.

Section 215(i)(2)(D) of the Act also requires that, when the Commissioner determines an automatic increase in Social Security benefits, the Commissioner shall publish in the Federal Register a revision of the range of the primary insurance amounts and corresponding maximum family benefits based on the dollar amount and other provisions described in section 215(a)(1)(C)(i). These benefits are referred to as "special minimum" benefits and are payable to certain individuals with long periods of relatively low earnings. To qualify for such benefits, an individual must have at least 11 "years of coverage." To earn a year of coverage for purposes of the special minimum, a person must earn at least a certain proportion (25 percent for years before 1991, and 15 percent for years after 1990) of the “old-law" contribution and benefit base. In accordance with section 215(a)(1)(C)(i), the table below shows the revised range of primary insurance amounts and corresponding maximum family benefit amounts after the 2.6 percent benefit increase.

Section 227 of the Act provides flat-rate benefits to a worker who became age 72 before 1969 and was not insured under the usual requirements, and to his or her spouse or surviving spouse. Section 228 of the Act provides similar benefits at age 72 for certain uninsured persons. The current monthly benefit amount of $188.50 for an individual under sections 227 and 228 of the Act is increased by 2.6 percent to obtain the new amount of $193.40. The present monthly benefit amount of $94.30 for a spouse under section 227 is increased by 2.6 percent to $96.70.

Title XVI Benefit Amounts

In accordance with section 1617 of the Act, Federal SSI benefit amounts for the aged, blind, and disabled are increased by 2.6 percent effective January 1996. Therefore, the yearly Federal SSI benefit amounts of $5,496 for an eligible individual, $8,244 for an eligible individual with an eligible spouse, and $2,748 for an essential person, which became effective January 1995, are increased, effective January 1996, to $5,640, $8,460, and $2,820, respectively, after rounding. The corresponding monthly amounts for 1996 are determined by dividing the yearly amounts by 12, giving $470, $705, and $235, respectively. The monthly amount is reduced by subtracting monthly countable income. In the case of an eligible individual with an eligible spouse, the amount payable is further divided equally between the two spouses.

National Average Wage Index for 1994

General

Under various provisions of the Act, several amounts are scheduled to increase automatically for 1996 based on the annual increase in the national average wage index. These include (1) the OASDI contribution and benefit base, (2) the retirement test exempt amounts, (3) the dollar amounts, or "bend points," in the primary insurance amount and maximum family benefit formulas, (4) the amount of earnings required for a worker to be credited with a quarter of coverage, and (5) the “old law" contribution and benefit base (as determined under section 230 of the Act as in effect before the 1977 amendments). In addition, Pub. L. 103-387, enacted October 22, 1994, requires that the "domestic employee coverage threshold" also be based on changes in the national average wage index.

Computation

The determination of the national average wage index for calendar year 1994 is based on the 1993 national average wage index of $23,132.67 announced in the Federal Register on October 31, 1994 (59 FR 54464), along with the percentage increase in average wages from 1993 to 1994 measured by annual wage data tabulated by the Social Security Administration (SSA). The wage data tabulated by SSA include contributions to deferred compensation plans, as required by section 209(k) of the Act. The average amounts of wages calculated directly from this data were $22,191.14 and $22,786.73 for 1993 and 1994, respectively. To determine the na

tional average wage index for 1994 at a level that is consistent with the national average wage indexing series for 1951 through 1977 (published December 29, 1978, at 43 FR 61016), the 1993 national average wage index of $23,132.67 is multiplied by the percentage increase in average wages from 1993 to 1994 (based on SSA-tabulated wage data) as follows (with the result rounded to the nearest cent):

Amount

The national average wage index for 1994 is $23,132.67 times $22,786.73 divided by $22,191.14, which equals $23,753.53. Therefore, the national average wage index for calendar year 1994 is determined to be $23,753.53.

OASDI Contribution and Benefit Base

General

The OASDI contribution and benefit base is $62,700 for remuneration paid in 1996 and self-employment income earned in taxable years beginning in 1996.

The OASDI contribution and benefit base serves two purposes:

(a) It is the maximum annual amount of earnings on which OASDI taxes are paid. The OASDI tax rate for remuneration paid in 1996 is set by statute at 6.2 percent for employees and employers, each. The OASDI tax rate for self-employment income earned in taxable years beginning in 1996 is 12.4 percent. (The Hospital Insurance tax is due on remuneration, without limitation, paid in 1996, at the rate of 1.45 percent for employees and employers, each, and on self-employment income earned in taxable years beginning in 1996, at the rate of 2.9 percent.)

(b) It is the maximum annual amount used in determining a person's OASDI benefits.

Computation

Section 230(b) of the Act, as amended by section 321(g) of the "Social Security Independence and Program Improvements Act of 1994,” provides the formula used to determine the OASDI contribution and benefit base. Under the formula, the base for 1996 shall be equal to the larger of the current base ($61,200) or the 1994 base of $60,600 multiplied by the ratio of the national average wage index for 1994 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 1994, $23,753.53 as determined above, compared to that for 1992, $22,935.42, is 1.0356702. Multiplying the 1994 OASDI contribution and benefit base amount of $60,600 by the ratio of 1.0356702 produces the amount of $62,761.61 which must then be rounded to $62,700. Because $62,700 exceeds the current base amount of $61,200, the OASDI contribution and benefit base is determined to be $62,700 for 1996.

Retirement Earnings Test Exempt Amounts
General

Social Security benefits are withheld when a beneficiary under age 70 has earnings in excess of the retirement earnings test exempt amount. A formula for determining the monthly exempt amounts is provided in section 203(f)(8)(B) of the Act, as amended by section 321(g) of the "Social Security Independence and Program Improvements Act of 1994." The 1995 monthly exempt amounts were determined by the formula to be $940 for beneficiaries aged 65-69 and $680 for beneficiaries under age 65. Thus, the annual exempt amounts for 1995 were set at $11,280 and $8,160, respectively. For beneficiaries aged 65-69, $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), each monthly exempt amount for 1996 shall be the larger of the corresponding 1995 monthly exempt amount or the corresponding 1994 monthly exempt amount multiplied by the ratio of the national average wage index for 1994 to that for 1992. The ratio of the national average wage index for 1994, $23,753.53 as determined above, compared to that for 1992,

$22,935.42, is 1.0356702. 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 Aged 65 Through 69

Multiplying the 1994 retirement earnings test monthly exempt amount of $930 by the ratio of 1.0356702 produces the amount of $963.17. This must then be rounded to $960. Because $960 is larger than the corresponding current exempt amount of $940, the retirement earnings test monthly exempt amount for beneficiaries aged 65 through 69 is determined to be $960 for 1996. The corresponding retirement earnings test annual exempt amount for these beneficiaries is $11,520. Exempt Amount for Beneficiaries Under Age 65

Multiplying the 1994 retirement earnings test monthly exempt amount of $670 by the ratio 1.0356702 produces the amount of $693.90. This must then be rounded to $690. Because $690 is larger than the corresponding current exempt amount of $680, the retirement earnings test monthly exempt amount for beneficiaries under age 65 is thus determined to be $690 for 1996. The corresponding retirement earnings test annual exempt amount for these beneficiaries is $8,280. 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 1996, the national average wage index for 1994, $23,753.53, is divided by the national average wage index for each year prior to 1994 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 1994. Any earnings in 1994 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 1996.

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 1996 are obtained by multiplying the corresponding 1979 bend-point amounts by the ratio between the national average wage index for 1994, $23,753.53, and for 1977, $9,779.44. These results are then rounded to the nearest dollar. For 1996, the ratio is 2.4289254. Multiplying the 1979 amounts of $180 and $1,085 by 2.4289254 produces the amounts of $437.21 and $2,635.38. These must then be rounded to $437 and $2,635. Accordingly, the portions of the average in