dexed monthly earnings to be used in 1996 are determined to be the first $437, the amount between $437 and $2,635, and the amount over $2,635.

Consequently, for individuals who first become eligible for old-age insurance benefits or disability insurance benefits in 1996, or who die in 1996 before becoming eligible for benefits, their primary insurance amount will be the sum of:

(a) 90 percent of the first $437 of their average indexed monthly earnings, plus (b) 32 percent of the average indexed monthly earnings over $437 and through $2,635, plus

(c) 15 percent of the average indexed monthly earnings over $2,635.

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 continued 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 new formula for computing the maximum benefits payable to the family of a disabled worker. This new 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. The new formula was explained in a final rule published in the Federal Register on May 8, 1981, at 46 FR 25601. 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 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 the average for 1977, $9,779.44. This amount is then rounded to the nearest dollar. For 1996, the ratio is 2.4289254. Multiplying the amounts of $230, $332, and $433 by 2.4289254 produces the amounts of $558.65, $806.40, and $1,051.72. These amounts are then rounded to $559, $806, and $1,052. Accordingly, the portions of the primary insurance amounts to be used in 1996 are determined to be the first $559, the amount between $559 and $806, the amount between $806 and $1,052, and the amount over $1,052.

Consequently, for the family of a worker who becomes age 62 or dies in 1996 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 $559 of the worker's primary insurance amount, plus (b) 272 percent of the worker's primary insurance amount over $559 through $806, plus

(c) 134 percent of the worker's primary insurance amount over $806 through $1,052, plus

(d) 175 percent of the worker's primary insurance amount over $1,052.

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 1996 amount of earnings required for a quarter of coverage is $640. 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 (Pub. L. 95-216) 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 1996 shall be equal to the larger of the current amount of $630 or the 1978 amount of $250 multiplied by the ratio of the national average wage index for 1994 to that for 1976. The national average wage index for 1976 was previously determined to be $9,226.48. The average wage index for 1994 is $23,753.53 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 1994, $23,753.53, compared to that for 1976, $9,226.48, is 2.5744954. Multiplying the 1978 quarter of coverage amount of $250 by the ratio of 2.5744954 produces the amount of $643.62, which must then be rounded to $640. Because $640 exceeds the current amount of $630, the quarter of coverage amount is determined to be $640 for 1996.

"Old-Law" Contribution and Benefit Base

General

The 1996 "old-law" contribution and benefit base is $46,500. This is the base that I 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 the current "old-law" base ($45,300) or the 1994 "old-law" base ($45,000) 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 "old-law" contribution and benefit base amount of $45,000 by the ratio of 1.0356702 produces the amount of $46,605.16 which must then be rounded to $46,500. Because $46,500 exceeds the current amount of $45,300, the “old-law" contribution and benefit base is determined to be $46,500 for 1996.

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 1995 is the ratio of (1) the combined assets of the OASI and DI Trust Funds at the beginning of 1995 to (2) the estimated expenditures of the OASI and DI Trust Funds during 1995, 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 1995 equaled $436,385 million, and the expenditures are estimated to be $340,194 million. Thus, the OASDI fund ratio for 1995 is 128.3 percent, which exceeds the applicable threshold of 20.0 percent. Therefore, the stabilizer provision does not affect the benefit increase for December 1995. 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.

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 new 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, as added by the new law.

Computation

Under the new formula, the domestic employee coverage threshold amount for 1996 shall be equal to the 1995 amount of $1,000 multiplied by the ratio of the national average wage index for 1994 to that for 1993. The national average wage index for 1993 was previously determined to be $23,132.67. The average wage index for 1994 is $23,753.53 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 1994, $23,753.53, compared to that for 1993, $23,132.67, is 1.0268391. Multiplying the 1995 domestic employee coverage threshold amount of $1,000 by the ratio of 1.0268391 produces the amount

of $1,026.84, which must then be rounded to $1,000. Accordingly, the domestic employee coverage threshold amount is determined to be $1,000 for 1996.

(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, 1995.

Shirley S. Chater,

Commissioner, Social Security Administration