Social Insurance

Changes that have been proposed to reduce the long range deficit in the OASDI program

1. Progressive indexing to determine benefits 2. Increase the social security patroll tax 3. Move up scheduled increase in full retirement age 4. Reduce benefits for future retirees across the board 5. Increase the OASDI taxable wage earnings base 6. Extend OASDI coverage on a compulsory basis 7. Make all OASDI benefits subject to federal income tax 8. increase the number of years used in calculating retirement benefits from 35 to 38 9. Invest part of the trust fund assets in private investments such as common stock.

Eligibility requirements a disabled worker must meet to receive social security disability benefits

1. Be disability insured 2. Meet a five-month waiting period 3. Satisfy the definition of disability

Characteristics of social insurance programs that distinguish them from other government programs

1. Compulsory programs 2. Floor of income 3. Emphasis on social adequacy rather than individual equity. 4. Benefits loosely related to earnings 5. Benefits prescribed by law 6. No means test 7. Full funding unnecessary 8. Financially self supporting.

Major groups of individuals who are entitled to social security disability income benefits

1. Disabled worker 2 spouse of a disabled worker 3. unmarried children younger than the age of 18 4. Unmarried disabled children

How can person increase social security benefits by working longer?

1. Each year of work adds another year of earnings to social security record. higher lifetime earnings result in higher benefits at retirement 2. Delayed retirement credit is available if a person delays receiving retirement beyond fun retirement age.

Why is social insurance deemed necessary in the united states?

1. Enacted to solve complex social problems. Social problems require government intervention. (Great depression of 1930s - massive unemployment required direct government attack on economic insecurity 2. Certain risks are difficult to insure privately. Unemployment is difficult to insure privately because it does not completely meet the requirements of an insurable risk. People can be insured by state insurance programs 3. social insurance programs provide a layer of financial protection to most persons against the long term consequences of premature death. (Old age, Occupational and non occupational disability and unemployment.

3 advantages of compulsory programs

1. Goal of providing a floor of income to the population can be achieved more easily 2. Adverse selection is reduced because both health and unhealthy lives are covered 3. Fever random and accidental fluctuations in loss experience are likely to occur and necessity of providing margins in contingency reserves is reduced

Depletion of the DI trust fund is a serious problem. What factors are causing the increase in number of people receiving benefits?

1. Growth in the labor force 2. Aging of the population and baby boomers 3. Increased number or women in the labor force 4. Higher recipient rates for women. 5. Higher full retirement age. 6. Downturns in business cycles lead to surges in DI applications.

3 significant problems in state unemployment insurance programs

1. Only a small proportion of workers receive benefits 2. Inadequate financing 3. Relatively high percentage of claimants exhaust their regular state unemployment benefits during business recessions.

Factors someone should consider when determining when to start social security benefits

1. Present need for income 2. Individuals state of health, life expectancy 3. Labor force involvement 4. Whether or not have other assets that yield income

Objectives of unemployment insurance programs

1. Provide cash income during involuntary unemployment 2. Help unemployed workers find jobs 3. Encourage employers to stabilize employment 4. Help stability the economy

3 categories of unemployment insurance benefits

1. Regular state benefits - Weekly cash benefit paid for each week of total unemployment 2. Extended benefits - Available to workers who exhaust their regular benefits in states with high unemployment. 3. Emergency unemployment compensation - During recessions, millions of unemployed workers exhaust their regular state benefits.

Categories of persons who are entitled to monthly social security benefits?

1. Retired workers 2. Spouses of retired workers (Also divorced spouses as long as married at least 10 years) 3. Unmarried children younger than the age of 18 4. Unmarried disabled children 5. Spouses with dependent children younger than the age of 16.

Why is it unnecessary for social security program to be fully funded?

1. The program will operate indefinitely and not terminate in the predictable future 2. It is compulsory and new workers will always enter the program and pay taxes for it. 3. Government can use taxing and borrowing powers to raise revenues if program has financial issues 4. Full funding would require substantially higher social security taxes would be be deflationary and cause substantial unemployment.

What is early retirement age for social security benefits?

62 is considered early with reduced actuarial benefits

Fully insured vs. Currently insured

A person is fully insured if they have 40 credits. A person is currently insured if they have earned at least six credits during the last 13 calendar quarters ending with the quarter of death, disability or entitlement to retirement benefits.

Steps involved in calculating persons social security retirement benefit

Based on workers primary insurance amount (PIA) PIA is monthly amount paid to a retired worker at full retirement age or to a disabled worker. PIA is based on workers average indexed monthly earnings

How does the earnings test work?

Can result in reduction or loss of monthly benefits for workers with earned incomes above certain annual limits 1. Beneficiary under full retirement age $1 of benefits deducted for each $2 of earnings in excess of annual limit 2. Calendar year in which beneficiary reaches full retirement age. $1 of benefits for each $3 of earnings above annual limit. Only earnings before the month in which the beneficiary reaches retirement age are counted. 3. Earnings test is eliminated after reach full retirement age. Can receive full retirement benefits. The earnings test does not apply to investment income, dividends, interest rents or annuity payments.

How inflation affects social security benefits

Cash benefits are automatically adjusted each year for changes in the cost of living.

OASDI (Old Age, Survivors, and Disability Insurance)

Covers about 90% of all US workers and it is the primary source of income for about 2/3rds of all seniors

What is floor of income?

Difficult to define. Should be so low as to be virtually non existent. Other extreme view is that it should be high enough to provide a comfortable standard of living. Realistic view is that it should allow a reasonable standard of living. If needs still not met then welfare would kick in.

How are financially self supporting social insurance programs financed?

Earmarked contributions of covered employees, employers and from interest on the trust fund investments

How are benefits related to earnings in social insurance programs?

Higher a workers earnings the greater will be benefits.

What is the retirement age for social security retirement benefits?

If born 1960 or later full retirement age is 67. If born before 1960, full retirement age ranges from 65-67.

How are beneficiaries taxed on OASDI benefits

If monthly cash benefits must pay income tax on part of benefits Depends on the combined income - Sum of adjusted gross income plus tax free interest plus one have of the workers social security benefits.

Monetary and non monetary eligibility requirements an unemployed worker must meet to receive benefits

Monetary: 1. Earn qualifying wages and employment during the base year 2. Be able to work and be available for work 3. Actively seek work 4. Meet a waiting period Non monetary (Can disqualify): 1. Voluntarily quitting without good cause 2. Refusal of suitable work without good cause 3. Discharge for misconduct related to the job 4. Inability or unwillingness to accept full-time work 5. Unemployment because of participation in a labor dispute.

Which type of employers must provide unemployment benefits?

Most private firms, state and local governments and non profit organizations must provide unemployment benefits.

What must a person do to achieve disability insured status

Must meet 2 work tests: 1. recent work test 2. Duration of work test (More liberal rules apply to the blind)

How are social security benefits financed?

Payroll tax paid by employees, employers and the self employed. Interest income on investments, revenues derived from taxation of part of monthly cash benefits.

What is the means test and how is it used?

Requires applicants to show that their income and financial assets are below certain levels as condition of benefit eligibility. Applicants for social insurance have a statutory right to benefits if they fulfill eligibility requirements.

Concepts of social adequacy and individual equity

Social Adequacy - Benefits paid should provide a certain standard of living to all contributors. (Heavily weighted in favor of certain groups) - The actuarial value of the benefits received by these groups exceeds the actuarial value of their contributions. (Low income, large family, retired age) Individual Equity - Contributors receive benefits directly related to the actuarial value of their contributions.

"Three Legged stool" to provide economic security during retirement

Social Security Personal Saving Employer pensions

How is unemployment insurance financed

State unemployment is funded largely by payroll taxes paid by employers on the covered wages of employees

Social security quarters of coverage and how are they earned?

To receive quarters or "credits" of coverage a person must have a certain amount of work in covered employment. Maximum of 4 credits can be earned each year.

Categories of family members entitled to social security survivor benefits

Unmarried children younger than age of 18 Unmarried disabled children Surviving spouse with children younger than the age of 16. Surviving spouse age 60 or older Disabled widow or widower ages 50-59 Dependent parents aged 62 and older receive survivor benefits based on the deceased earnings Lump sum death benefit - $255 can be paid when worker dies. Only paid if there is an eligible surviving widow, widower or entitled child.

Which occupations are covered by social security?

Virtually all private sector employees are covered under social security at the present time. Federal civilian employees hired after 1983 State and local government employees 9 out of 10 workers are covered by social security.

Strict definition of disability that individuals must meet to receive social security disability benefits

Worker must have a physical or mental condition that prevents him or her from doing any substantial gainful activity and that is expected to last at least 12 months or is expected to result in death.

Pension plans - Do they emphasize full funding?

Yes, emphasize full funding because private pension plans can and do terminate.