Module 10
Extended benefits (EB)
Available to workers who exhaust their regular benefits in states with high unemployment Up to 13 additional weeks of benefits in states with high unemployment Amount is the same as the regular unemployment compensation benefit
Earnings test
Can result in a reduction or loss of monthly benefits for workers with earned incomes above certain annual limits
Individual equity
Contributors receive benefits directly related to their contributions; the actuarial value of the benefits is closely related to the actuarial value of the contributions
Nonprofit charitable, educational, and religious organizations eligibility for unemployment tax
Covered if they employ 4+ workers for at least one day in each of 20 different weeks during the current or prior year Can either pay the unemployment tax or reimburse the states for the benefits paid
Nonmonetary eligibility requirements for unemployment insurance
Disqualify certain weeks due to the following actions: 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
Survivor benefit credit requirements
Either fully insured or currently insured status Certain ones require a fully insured status
Floor of income
Extreme views: so low it's virtually nonexistent, or so high that private insurance benefits are unnecessary Realistic view: social insurance benefits, when combined with other income and financial assets, should be sufficient for most persons to maintain a reasonable standard of living
Full retirement age for Social security retirement benefits
For persons born in 1960 or after: 67 For persons born before 1960: ranges from 65-67
Relationship between benefits and earnings in social insurance programs
Loosely/disproportionately related The higher a worker's covered earnings, the greater the benefits
Primary Insurance Amount (PIA)
Monthly amount paid to a retired worker at full retirement age or to a disabled worker Based on the AIME
Private firms eligibility requirements for unemployment tax
Must employ one or more employees in each of at least 20 weeks during the calendar year (or preceding calendar year), or if it pays wages of $1,500 or more during a calendar quarter of either year
Disability insured status
Must meet two work tests: 1) A recent work test 2) A duration work test (does not require work within a certain period of time)
State and local unemployment taxation requirements
Must provide unemployment coverage Do not have to pay unemployment tax May elect to reimburse the system for the benefits paid to gov't employees
Financing for Social Security benefits
Payroll tax paid by employers, employees, and the self-employed Interest income on the trust fund investments Revenues derived from the taxation of part of the monthly cash benefits
Financing of unemployment insurance
Payroll taxes paid by employers on the covered wages of employees Contributions are deposited in the Federal Unemployment Trust Fund, where each state has a different account Experience rating is used by firms with favorable employment records to pay reduced tax rates (incentive to stabilize employment)
Factors a person should consider when determining when to start Social Security benefits
Present need for income Individual's state of health Life expectancy Labor force involvement Whether or not there are other assets that yield income
Emergency unemployment compensation
Programs provide additional weeks of benefits to eligible claimants who have exhausted their regular state benefits during recessions
Means test
Requires applicants to show that their income and financial assets are below certain levels as a condition of benefit eligibility
Taxation of beneficiaries on OASDI benefits
Some beneficiaries receiving monthly cash benefits pay an income tax on part of the benefits, dependent on the amount of combined income
Combined income
Sum of adjusted gross income, plus tax-free interest, plus 1/2 of the worker's Social Security benefits
Social adequacy
The benefits paid should provide a certain standard of living to all contributors Benefits paid are weighted heavily in favor of certain groups, such as low-income persons, large families, and the presently retired aged The actuarial value of the benefits received by these groups exceeds the actuarial value of their contributions
Definition of disability
The worker must have a physical or mental condition that prevents them from doing any substantial gainful activity and that is expected to last (or has lasted) at least 12 months or is expected to result in death Worker must be prevented from doing any substantial gainful work in the national economy
Regular state benefits
Varies by state Weekly cash benefit paid for each week of total unemployment Varies with the worker's past wages within certain minimum and maximum dollar amounts In most states, 26 week maximum duration
Early retirement age for Social Security benefits
Workers and their spouses can retire at 62 with actuarial reduced benefits
Eligibility requirements for a disabled worker to be eligible for Social Security disability benefits
1) Be disability insured 2) Meet a 5-month waiting period 3) Satisfy the definition of disability
OASDI earnings test applies to:
1) Beneficiary under full retirement age: $1 in benefits will be deducted for each $2 of earnings in excess of the annual limit 2) Calendar year in which the beneficiary attains full retirement age: $1 in benefits will be deducted for each $3 of earnings above the annual limit (only months before the month in which the beneficiary attains full retirement age) 3) Earnings test eliminated after full retirement age Does not apply to investment income, dividends, interest, rents, or annuity payments
Characteristics of social insurance programs that distinguish them from other gov't insurance 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 entitled to Social Security disability income (DI) benefits
1) Disabled worker: receives a benefit equal to 100% of the primary insurance amount 2) Spouse of a disabled worker (any age if caring for a child under age 16, or if no eligible children, age 62+) 3) Unmarried children younger than the age of 18 4) Unmarried disabled children
2 ways a person who works longer can increase their Social Security benefits
1) Each additional year of works adds another year of earnings to their Social Security earnings record. Higher lifetime earnings may result in higher benefits when the person retires 2) A delayed retirement credit is available if a person delays receiving retirement benefits beyond full retirement age. Does not extend past age 70; percentage varies based on the YOB. Workers born after 1943, primary insurance amount is increased 8%/year (prorated monthly) for each year of delay beyond full retirement age
Monetary eligibility requirements for unemployment insurance
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
Factors for the increase in the number of individuals receiving DI benefits
1) Growth in the labor force 2) Aging of the population and baby boomers 3) Increased number of women in the labor force 4) Higher recipiency rates for women 5) Higher full retirement age (disabled workers are kept on the DI rolls for additional years) 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 (most states have relatively low trust fund balances) 3) A relatively high percentage of claimants exhaust their regular state unemployment benefits during business recessions
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 stabilize the economy
3 categories of unemployment insurance
1) Regular state benefits 2) Extended benefits (EB) 3) Temporary emergency unemployment benefits
Categories of persons entitled to monthly Social Security retirement benefits
1) Retired workers 2) Spouses of retired workers: if she/he is at least 62 and has been married to the retired worker for at least 1 year. Divorced spouses are also eligible if they are at least 62 and the marriage lasted at least 10 years 3) Unmarried children younger than the age of 18 4) Unmarried disabled children: if they were severely disabled before the age of 22 and continue to be disabled 5) Spouses with dependent children younger than the age of 16: eligible regardless of age, terminates after the youngest child turns 16
Reasons why social insurance programs are deemed necessary in the US
1) Solve complex social problems that affect most or all of society and are so serious that direct gov't intervention is necessary (i.e. Social Security program after the Great Depression) 2) Certain risks are difficult to insure privately (i.e. unemployment) 3) Provide a base of economic security to the population (financial protection against the lont-term financial consequences of premature death, old age, occupational and nonoccupational disability, and unemployment)
3 specific advantages compulsory programs have over noncompulsory programs
1) The goal of providing a floor of income to the population can be achieved more easily 2) Adverse selection is reduced, because both healthy and unhealthy lives are covered 3) Fewer random or accidental fluctuations in loss experience are likely to occur, and the necessity of providing margins in contingency reserves is reduced
Reasons it is unnecessary for a Social Security program to be fully funded
1) The program will operate indefinitely and not terminate in the predictable future 2) Because the program is compulsory, new workers will always enter the program and pay taxes to support it 3) The federal gov't can use its taxing and borrowing powers to raise additional revenues if the program has financial problems 4) Full funding would require substantially higher Social Security taxes, which would be deflationary and cause substantial unemployment
Categories of family members entitled to Social Security survivor benefits
1) Unmarried children younger than the age of 18 2) Unmarried disabled children 3) Surviving spouse with children younger than the age of 16 4) Surviving spouse aged 60 or older 5) Disabled widow or widower ages 50-59: deceased must be fully insured and the disability must have started before or within 7 years of the spouse's death 6) Dependent parents aged 62 and older 7) Lump-sum death benefit: $255 can be paid when a worker dies, only if there is an eligible surviving widow, widower, or entitled child
Proposed changes to reduce the long-range deficit in the OASDI program
1) Use progressive indexing to determine benefits Add in a price index: lower-income groups continue to be based on a wage index, middle-income groups would be a combination of wage and price index, higher-income groups would be a price index 2) Increase the Social Security payroll tax for both employers and employees 3) Move up scheduled increase of full retirement age, or increase the age beyond 67 4) Reduce benefits for future retirees across the board 5) Increase the OASDI taxable wage earnings base to cover a larger percentage of earnings 6) Make all OASDI benefits subject to the federal income tax (instead of 85%) 7) Extend OASDI coverage on a compulsory basis to all new state and local gov't employees 8) Increase the number of years used in calculating retirement benefits from 35 to 38 years 9) Invest part of the trust fund assets in private investments, such as common stock
Average Indexed Monthly Earnings (AIME)
A method that updates the worker's past earnings based on increases in the average wage in the national economy For persons born after 1928, the highest 35 years of indexed earnings are used to calculate it
Currently insured
A person who has earned at least six credits during the last 13 calendar quarters ending with the quarter of death, disability, or entitlement to retirement benefits
Fully insured
A person with 40 credits Requirement to be eligible for retirement benefits
Financially self-supporting social insurance programs
Almost completely financed from the earmarked contributions of covered employees, employers, and the self-employed, and from interest on the trust fund investments
Social Security quarters of coverage
Also called credits To receive them, a person must have a certain amount of work in covered employment Credits can be earned any time during the year, and a max of 4 credits can be earned each year A person receives 1 credit for each $X of covered earnings (2017: $1,300)