Short-Range Actuarial Projections of the Old-Age, Survivors, and Disability Insurance Program, 2001 Actuarial Study No. 115 Chris Motsiopoulos and Tim Zayatz, A.S.A.

Appendix

H. GLOSSARY

Actuarial reduction

See "Benefit reduction."

Aged husband's benefit

Monthly benefit payable to a husband or a divorced husband of a retired or disabled worker, where the husband is entitled solely by age. See "Husband's benefit."

Aged spouse's benefit

See "Aged husband's benefit" and "Aged wife's benefit."

Aged wife's benefit

Monthly benefit payable to a wife or a divorced wife of a retired or disabled worker, where the wife is entitled solely by age. See "Wife's benefit."

Annual maximum taxable limit

Annual dollar amount above which earnings in employment covered under the OASDI program are neither taxable nor creditable for benefit computation purposes. (Also referred to as "contribution and benefit base," "annual creditable maximum," "taxable maximum," and "maximum taxable.") For the contribution and benefit base for years 1975 and later, see table II.3.

Automatic cost-of-living benefit increase

The annual increase in benefits effective for December, reflecting the increase in the cost of living. The percentage increase equals the percentage increase in the Consumer Price Index measured from the average over July, August, and September of the preceding year to the average for the same 3 months in the current year. If the increase is less than one-tenth of 1 percent, when rounded, there is no automatic increase for the current year; the increase for the next year would reflect the increase in the cost of living over a 2-year period.

If the stabilizer provision applies, the increase may be less than the cost of living. See "Stabilizer provision."

For the automatic benefit increase for years 1975 and later, see table II.3.

Auxiliary benefit

See "Secondary benefit."

Average indexed monthly earnings--AIME

The amount of earnings used in determining the primary insurance amount (PIA) for most workers who attain age 62, become disabled, or die after 1978. Indexing creates an earnings record that reflects the value of the individual's previous earnings relative to national average earnings in the indexing year. The indexing year is the second year before the year in which the worker attains age 62, becomes disabled, or dies; taxable earnings after the indexing year are counted at their nominal value. For widow(er)s first eligible after December 1984, the indexing year applicable to the deceased worker's earnings may alternatively be the second year before the widow(er)s' date of eligibility for survivors benefits if a higher benefit results.

Earnings are indexed by multiplying the worker's taxable earnings for each year after 1950 through the indexing year by the average wage index for the indexing year, and dividing by the average wage index for the year being indexed. Once the earnings record has been indexed, the AIME is computed by:

1. Determining the number of computation years-the number of years after 1950 (or the year of attainment of age 21, if later) and up to the year in which the worker attains age 62, becomes disabled, or dies, minus dropout years, generally 5 (minimum number of computation years is 2);

2. Selecting the actual computation years, based on highest earnings after indexing, from any years after 1950; and

3. Dividing the sum of earnings in the computation years by the total number of months in the computation years.

For workers becoming entitled to disability benefits after June 1980, the number of dropout years varies by the age attained in year of disability onset. The number is 0, 1, 2, 3, 4, and 5, respectively, for workers aged 26 and under, 27-31, 32-36, 37-41, 42-46, and 47 or older. Effective for months after June 1981, however, disabled workers under age 37 may obtain up to 3 additional dropout years (3, 2, and 1, respectively, for those aged 26 and under, 27-31, and 32-36) for years otherwise included as computation years in which the worker had no earnings and was living with a child (of the worker or his or her spouse) under age 3.

Average monthly wage--AMW

The amount of earnings used as the basis for determining the PIA for workers who attained age 62, became disabled, or died before 1979, and also under a transitional guarantee computation for workers who attained age 62 or died in 1979-83. The average is computed by:

1. Determining the number of computation years-the number of years after 1950 (or the year of attainment of age 21, if later) and up to the year in which the worker attains age 62 (age 65 for men born before January 2, 1911, and the later of age 62 or the year 1975 for men born after January 1, 1911), becomes disabled, or dies, minus dropout years, generally 5 (minimum number of computation years is 2);

2. Selecting the actual computation years, based on highest earnings (up to the amount of the annual maximum taxable earnings in each year), from any years after 1950; and

3. Dividing the sum of earnings in the computation years by the total number of months in the computation years.

See the last paragraph under AIME for special dropout rules for disabled workers.

An alternative computation method takes into account the worker's earnings after 1936. The method yielding the highest PIA is used.

The transitional guarantee computation is applicable to workers who attained age 62 in 1979-83, and to survivors of workers who attained age 62 in 1979-83 and then died (if the PIA under the transitional guarantee computation is higher than under the AIME method). It excludes earnings beginning with the year of attainment of age 62.

Award

An action following a determination that an individual is entitled to a specified type of benefit. The action adds the individual to the Social Security benefit rolls maintained for that type of benefit and is counted as an award in a particular month. Award actions are processed not only for new entrants to the benefit rolls but also for persons already on the rolls whose benefits in one category are terminated but who become entitled to another type of benefit. These actions are called conversions. Two frequent events causing conversions are the attainment of normal retirement age (NRA) by a disabled worker and the death of a retired or disabled worker. See "Normal retirement age." When a disabled worker attains NRA, the worker benefit and the benefits of spouses and children are converted to the retirement category. Upon the death of a disabled worker, benefits for children are converted to the survivor child category and benefits for spouses caring for these children are converted to widowed mothers and fathers benefits. Benefits for spouses of retired and disabled workers who are entitled because of age are converted to nondisabled widows and widowers benefits upon the death of the worker. The above conversions are counted in the award data. Children of retired workers who are converted to children of deceased workers upon the death of the worker are not counted in the award data.

Awards may result in the immediate payment of benefits (currently payable awards). If an individual does not qualify for payable benefits due to any of the reasons listed under "withholding," conditional or deferred awards are processed. Deferred awards are those in which benefits are scheduled to begin in a specified month. If benefits are withheld for an indefinite period, a conditional award is prepared. Since September 1965, most conditional and deferred awards for beneficiaries aged 65 or older have been for individuals who apply for Social Security benefits in order to become eligible for Medicare but have benefits offset due to the earnings test. Legislation enacted in 1980 permits individuals aged 65 or older to file for Medicare without applying for Social Security benefits. These individuals are not counted in the award data until they actually apply for Social Security.

Bend points

The dollar amounts defining the AIME or PIA brackets in the benefit formulas. For the bend points for years 1979 and later, see table II.4.

Beneficiary

A person who has been awarded benefits on the basis of his or her own or another's earnings record. The benefits may be either in current-payment status or withheld.

Benefit reduction

Reduction in monthly benefit amount payable:

• On entitlement at ages 62-64 if the beneficiary is a retired worker, a spouse of a retired or disabled worker (with entitlement not based on having a child beneficiary in care), or a divorced spouse;

• On entitlement at ages 60-64 if the beneficiary is a widow, widower, or a surviving divorced spouse; or

• On entitlement, in case of disability, at ages 50-59 if the beneficiary is a widow, widower, or surviving divorced spouse.

At the time of award, the following reductions in benefit amount are made for:

• A retired-worker beneficiary--5/9 of 1 percent for each of the first 36 months of entitlement before normal retirement age (maximum reduction of 20 percent for a normal retirement age of 65), plus 5/12 of 1 percent for each of the next 24 months of entitlement before normal retirement age (maximum reduction of 30 percent for a normal retirement age of 67);

• A wife or husband beneficiary--25/36 of 1 percent for each of the first 36 months of entitlement before normal retirement age (maximum reduction of 25 percent for a normal retirement age of 65), plus 5/12 of 1 percent for each of the next 24 months of entitlement before normal retirement age (maximum reduction of 35 percent for a normal retirement age of 67);

• A nondisabled widow or widower or surviving divorced spouse--19/40 of 1 percent for each month of entitlement before normal retirement age, when that is age 65 (maximum reduction of 28.5 percent), or a lesser amount for each month when the normal retirement age is greater than 65 such that the maximum reduction remains at 28.5 percent; and

• A disabled widow or widower or surviving divorced spouse age 60 or under--28.5 percent.

The benefit continues to be paid at a reduced rate even after normal retirement age, except that the reduced rate is refigured at normal retirement age for all beneficiaries and also at age 62 for a widow, widower, or a surviving divorced spouse to omit months for which the reduced benefit was not paid and to take into account any additional earnings.

A disabled worker benefit may also be reduced if it is payable to a beneficiary already entitled to a reduced retired-worker, widow's, or widower's benefit, with the reduction related to the number of months before normal retirement age a reduced benefit was actually drawn.

Benefits in force

The number of persons with benefits in force is the sum of persons with benefits in current-payment status and persons with benefits withheld.

Benefits paid

The amounts disbursed for benefits by the Department of the Treasury in specified periods, including the amount of SMI premiums deducted from the checks.

Benefits terminated

See "Termination."

Benefits withheld

See "Withholding."

Child's benefit

A monthly benefit payment to a child or eligible grandchild of a retired or disabled worker or of a deceased worker who died fully or currently insured if the child or grandchild is under age 18, or an elementary or secondary student between ages 18 and 19 (before May 1985, benefits were payable to certain post secondary students), or a disabled person aged 18 or older whose disability began before age 22. A grandchild is eligible for benefits on the earnings record of a grandparent (or the grandparent's spouse) if the following conditions are met:

• The child must live with the grandparent in the United States,

• The child must be dependent on the grandparent for at least half of his or her support, and

• If the parents of the child are alive and not disabled, the grandparent must be deceased and the child adopted by the grandparent's surviving spouse. Child beneficiaries under age 18 and student beneficiaries must be unmarried. Benefits to disabled adult children can be continued if they marry certain other Social Security beneficiaries.

Contributions

The amount based on a percent of earnings, up to an annual maximum, that must be paid by:

• Employers and employees on wages from employment under the Federal Insurance Contributions Act,

• The self-employed on net earnings from self-employment under the Self-Employment Contributions Act, and

• States on the wages of State and local government employees covered under the Social Security Act through voluntary agreements under section 218 of the Act.

Generally, employers withhold contributions from wages, add an equal amount of contributions, and pay both on a current basis. Also referred to as "taxes." For the contribution and benefit base for years 1975 and later, see table II.3. For the contribution rates for years 1975 and later, see table IV.1.

See "Award."

Cost-of-living increase

See "Automatic cost-of-living benefit increase."

Covered employment

All employment and self-employment creditable for Social Security purposes. Almost every kind of employment and self-employment is covered under the program. In a few employment situations (for example, religious orders under a vow of poverty, foreign affiliates of American employers, or State and local governments), coverage must be elected by the employer. However, effective July 1991, coverage is mandatory for State and local employees who are not participating in a public employee retirement system. In a few situations (for example, ministers or self-employed members of certain religious groups), workers can opt out of coverage. Even though employment is covered, not all earnings may be taxable and creditable.

Current-payment status

Benefit being paid for a given month with or without deductions, provided the deductions add to less than a full month's benefit. The amount shown is before deduction for the supplementary medical insurance (SMI) premium. A benefit in current-payment status at the end of a month is payable in the following month (usually on the third of the month or the second, third, or fourth Wednesday).

Delayed retirement credit

A credit due a worker for delaying retirement after attaining normal retirement age (NRA) provided the worker:

1. Was fully insured,

2. Had attained NRA but was not yet age 70 (age 72 before January 1984), and

3. Did not receive benefits because he or she had not filed an application or was working.

Each monthly credit serves as a basis for increasing the monthly benefit (unless the benefit is based on a special minimum PIA) by specified percentages that depend on the year the worker attains age 62. The monthly credit was 2/24 of 1 percent for workers who attained age 62 before 1979, 6/24 of 1 percent for workers who attained age 62 from 1979 through 1986, 7/24 of 1 percent for workers who attained age 62 in 1987-88, and 8/24 of 1 percent for workers who attained age 62 in 1989-90. The monthly credit is 9/24, 10/24, 11/24, 12/24, 13/24, 14/24, 15/24, and 16/24 of 1 percent for workers who attain age 62 in 1991-92, 1993-94, 1995-96, 1997-98, 1999-2000, 2001-02, 2003-04, and 2005 and later, respectively. The increase is applicable to the worker's monthly benefit amount but not to his or her PIA. Hence, auxiliary benefits are generally not affected. The exception is that a surviving (including divorced) spouse receiving widow(er)'s benefits is entitled, for months after May 1978, to the same increase that had been applied to the benefit of the deceased worker or for which the worker was eligible at the time of death.

For benefits payable for months before 1979, beneficiaries could not receive delayed retirement credits if they had received a reduced benefit because of entitlement before age 65. Benefits for these individuals were recomputed effective January 1979 to give them the 1/12 of 1 percent credit for any increment month.

Dependent's benefit

See "Secondary benefit."

Determination of continuing disability

A determination as to whether a person who has been under a disability within the meaning of the law is still under such disability.

Disability

The inability to engage in substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than 12 months. This means:

• For a nonblind disabled worker, a blind worker under age 55, a disabled child, or a disabled widow, widower or surviving divorced spouse--the inability to engage in substantial gainful activity. A person must not only be unable to do his or her previous work but cannot, considering age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy. Before 1991, a stricter disability definition applied to disabled widow(er)s. A widow(er) needed to have a disability severe enough to prevent him or her from engaging in "any gainful activity;" and

• For a blind worker aged 55 or older--the inability to engage in any substantial gainful activity requiring skills comparable with those in any gainful activity in which he or she previously engaged with some regularity and over a substantial period of time.

Except in certain cases involving second and subsequent disabilities, the law requires that a person be disabled continuously for 5 months before he or she can qualify for a "period of disability" or a disabled worker benefit.

Disability Insurance--DI

See "Trust fund."

Disabled child's benefit

A monthly benefit payable to a disabled person aged 18 or older-a child or eligible grandchild of a retired, deceased, or disabled worker-whose disability began before age 22.

Disabled surviving divorced husband's benefit

See "Widower's benefit."

Disabled surviving divorced wife's benefit

See "Widow's benefit."

Disabled widower's benefit

See "Widower's benefit."

Disabled widow's benefit

See "Widow's benefit."

Disabled worker benefit

A monthly benefit payable to a disabled worker under normal retirement age insured for disability. Before November 1960, disability benefits were limited to disabled workers aged 50-64.

Divorced husband's benefit

See "Husband's benefit."

Divorced wife's benefit

See "Wife's benefit."

Dual entitlement

See "Entitlement."

Early retirement

See "Benefit reduction."

Earnings

Unless otherwise qualified, this term includes all wages from employment and net earnings from self-employment, whether or not taxable or covered.

Earnings test

The provision requiring the withholding of benefits if beneficiaries under normal retirement age have earnings in excess of certain exempt amounts. For the exempt amounts for years 1975 and later, see table II.3.

Eligible worker

For retirement insurance benefits, when an individual meets the insured status and age requirements for benefits whether or not he or she has filed an application; for disability insurance benefits, when an individual meets the insured status requirements and a period of disability has been established for the worker.

Entitlement

The state or condition of meeting the applicable requirements for receipt of benefits, including the filing of an application. Entitlement can be retroactive and thus precede the date of award. A person may be eligible for retroactive benefits before the month of application for benefits but not beyond the time that all requirements, other than the filing of the application were met. See "Retroactive benefits."

A person can become entitled to only one benefit, to two benefits simultaneously (dual entitlement) or, in a few cases, to three benefits simultaneously. Entitlement to a particular benefit can be initial or subsequent.

• Dual. Entitlement to and actual receipt of two types of benefits for the same month. A woman may, for example, be entitled to payments both as a retired worker and as a wife. Entitlement to two secondary benefits generally does not result in a dual entitlement because usually only the larger benefit is payable. Entitlement to a retired worker or disabled worker benefit and a secondary benefit results in dual entitlement only if the secondary benefit is larger. When there is dual entitlement, the beneficiary receives the smaller benefit in full, but the larger benefit is paid only in the amount by which it exceeds the smaller benefit. Three distinguishable dual entitlement categories are:

1. Entitlement to a retired worker or disabled worker benefit and to a larger auxiliary benefit. If the two benefits are financed from the same trust fund, the beneficiary is represented only once in the statistics-as a retired worker or a disabled worker beneficiary-and the benefit amount recorded is the larger amount associated with the auxiliary benefit. If the two benefits are paid from different trust funds, the beneficiary is represented twice-as a retired worker or disabled worker beneficiary and also as an auxiliary beneficiary; the retired worker or disabled worker benefit amount recorded is the actual amount for that benefit, and the amount recorded for the auxiliary benefit is the actual amount for that benefit reduced by the amount of the retired worker or disabled worker benefit and further adjusted, if necessary, for actuarial reduction, disability offset, and application of the family maximum;

2. Entitlement to a spouse's benefit and to a smaller widow(er)'s benefit based on a previous marriage; and

3. Entitlement to an auxiliary benefit and to a larger special age-72 benefit.

The number of dually-entitled beneficiaries in categories 2 and 3 is relatively small.

• Initial. Entitlement to:

1. A retired worker or disabled worker benefit--or to a spouse's and child's benefit payable from the same trust fund and with the same month of entitlement as the retired worker or disabled worker benefit based on the same earnings record;

2. A lump-sum death payment; or

3. A survivor monthly benefit--where there has been neither a previous entitlement to such a benefit nor previous entitlement to a lump-sum death payment based on the same earnings record.

• Subsequent. Entitlement to:

1. A spouse's and child's benefit--as of a month later than the month in which the individual became entitled to a retired worker or disabled worker benefit payable from the same trust fund and based on the same earnings record or

2. A survivor monthly benefit--as of a month later than the month in which the individual became entitled to another survivor monthly benefit or a lump-sum death payment based on the same earnings record.

Father's benefit

A monthly benefit payable to a widower or surviving divorced father if:

1. The deceased worker on whose account the benefit is paid was either fully or currently insured at the time of her death and

2. An entitled child of the worker in his care is under age 16 or is disabled.

For fathers who were entitled to benefits for August 1981, benefits were continued until the child attained age 18 or until September 1983, whichever came earlier.

General fund of the Treasury

Funds held by the Treasury of the United States, other than receipts collected for a specific purpose (such as Social Security) and maintained in a separate account for that purpose.

General fund reimbursements

Transfers from the general fund of the Treasury to the trust funds for specific purposes defined in the law, including:

• The costs associated with providing special payments made to uninsured persons who attained age 72 before 1968, and who had fewer than 3 quarters of coverage.

• Payments corresponding to the employee-employer taxes on deemed wage credits for military personnel.

• Interest and principal items associated with unnegotiated checks.

• Administrative expense items associated with furnishing information on deferred vested pension benefits and the Coal Industry Retiree Health Benefit Act (1992); and union activities.

Grandchild's benefit

See "Child's benefit."

Gross Domestic Product--GDP

The total dollar value of all goods and services produced by labor and property located in the United States, regardless of who supplies the labor or property.

Hospital Insurance--HI

See "Trust fund."

Husband's benefit

Monthly benefit payable to a husband or a divorced husband of a retired or disabled worker under one of the following conditions:

• The husband is aged 62 or older or has an entitled child of the worker in his care who is under age 16 or is disabled. For husbands who were entitled to benefits for August 1981, benefits were continued until the child attained age 18 or until September 1983, whichever came earlier; or

• The divorced husband is aged 62 or older and his marriage to the worker has lasted at least 10 years (20 years for entitlement before 1979) before the divorce became final. Effective with benefits payable after December 1984, a divorced husband of an eligible worker can be entitled to benefits if he meets the requirements for entitlement and has been divorced for at least 2 years, regardless of whether the worker has filed for benefits or has benefits withheld due to the earnings test. Effective with benefits payable beginning January 1991, the 2-year period is waived if the worker was entitled to benefits before the divorce. The earnings test will continue to apply to the divorced husband's own earnings; or

• Effective with benefits payable beginning May 1983, a husband of a transitionally insured worker is entitled to benefits if he was born before January 2, 1897; or

• Effective with benefits payable beginning January 1991, a deemed spouse (including a divorced deemed spouse), regardless of whether the legal spouse is entitled to benefits on the same earnings record. A deemed spouse is a person who entered into an invalid ceremonial marriage in good faith.

Insured status

The state or condition of having sufficient quarters of coverage to meet the eligibility requirements for retired worker or disabled worker benefits or to permit the worker's spouse and children or survivors to establish eligibility for spouse's and children's or survivor's benefits in the event of his or her disability, retirement, or death. See "Quarters of coverage."

• Currently insured. With at least 6 quarters of coverage during the 13-quarter period ending with the calendar quarter in which the worker:

1. Died,

2. Became entitled to retired worker benefits, or

3. Most recently became entitled to disabled worker benefits.

If any part of a quarter has been included in a period of disability, that quarter is not counted in the 13-quarter period unless it was a quarter of coverage.

• Fully insured. With at least 1 quarter of coverage (whenever acquired) for each year elapsing after 1950 (or the year in which the worker attained age 21, if later) and before the year in which he or she reaches age 62, dies, or becomes disabled. For a man born before January 2, 1911, the elapsed period ends with the year he reaches age 65; for a man born after January 1, 1911, the elapsed period ends with the later of the year he reaches age 62 or 1975. If any part of a year has been included in a period of disability, that year is not counted as an elapsed year. The number of required quarters of coverage ranges from a minimum of 6 to a maximum of 40.

• Insured for "special age-72 benefits." Meeting the following quarters-of-coverage requirement: no quarters of coverage needed if age 72 was attained before 1968; 3 quarters of coverage required for every year after 1966 and before the year of attaining age 72. Thus, a woman attaining age 72 in 1970 or later and a man attaining age 72 in 1972 or later would need the same number of quarters of coverage required for fully insured status.

• Insured in event of disability. Having fully insured status and at least 20 quarters of coverage during the 40-quarter period ending with the quarter in which the worker became disabled. If any part of a calendar quarter has been included in a period of disability, that quarter is not counted in the 40-quarter period unless it was a quarter of coverage. A worker disabled before the quarter in which he or she attains age 31 is insured for disability if half the quarters in the period beginning with the quarter after the one in which the worker reached age 21 and ending with the quarter in which the worker became disabled are quarters of coverage. A worker disabled before the quarter in which he or she attains age 24 is insured if he or she has 6 quarters of coverage in the 12-quarter period ending with the quarter of disablement. A worker disabled by blindness needs only fully insured status to be insured in event of disability.

• Permanently insured. Having at least the number of quarters of coverage that is needed to become eligible for a retired worker benefit. The maximum number of quarters of coverage required is 40.

• Transitionally insured. Meeting the quarters-of-coverage requirement for receipt of a benefit under the transitionally insured status provision by certain persons born before January 2, 1897:

1. As a retired worker--has 1 quarter of coverage for each year elapsing after 1950 and up to the year of attainment of age 65 for men or age 62 for women (a minimum of 3 quarters of coverage is required);

2. As a wife or husband--the spouse must be transitionally insured; and

3. As a widow or widower--the deceased spouse must have had a specific number of quarters, depending on his or her date of birth or death and on the widow(er)'s date of birth. A minimum of 3 quarters of coverage is required.

Insured widow or widower

An insured widow or widower is someone who is receiving a widow or widower benefit and is eligible for a worker's benefit, but has not applied for the worker's benefit. Usually, the insured widow or widower has not applied for a retired worker benefit because their total benefit (worker plus dual entitlement as a widow(er)) would be the same as their current benefit.

Lump-sum death benefit

A lump sum, generally \$255, payable on the death of a fully or currently insured worker. The lump sum is payable to:

• A spouse who was living with the worker at the time of death or, if there is no such spouse; to

• A spouse eligible for monthly benefits for the month of death or, if there is no such spouse; to

• Child(ren) eligible for monthly benefits for the month of death.

For deaths before September 1981, the lump sum was generally payable to the surviving spouse or to the person(s) paying burial expenses, or to the funeral home.

Maximum family benefit--MFB

The maximum monthly amount that can be paid on a worker's earnings record. For benefits payable on the earnings records of retired and deceased workers, and of disabled workers entitled before July 1980, the maximum usually varies between 150 and 188 percent of the PIA. For disabled workers entitled after June 1980, the maximum represents the smaller of:

• 85 percent of the worker's AIME (or 100 percent of the PIA, if larger), or

• 150 percent of his/her PIA.

Whenever the total of the individual monthly benefits payable to all the beneficiaries entitled on one earnings record exceeds the maximum, each dependent's or survivor's benefit is proportionately reduced to bring the total within the maximum. Benefits payable to divorced spouses or surviving divorced spouses are not reduced under the family maximum provision. Effective with benefits payable beginning January 1991, in cases where both a legal spouse and deemed spouse are receiving benefits, the deemed spouse would be paid within the family maximum, but benefits for the legal spouse would not be reduced for the maximum.

Maximum-family-benefit formula

The mathematical formula relating the MFB to the PIA for workers who attain age 62, become disabled, or die after 1978. The MFB is equal to the sum of 150 percent of PIA up to the first bend point, plus 272 percent of PIA above the first bend point up to the second bend point, plus 134 percent of PIA above the second bend point up to the third bend point, plus 175 percent of PIA in excess of the third bend point. Automatic benefit increases are applied beginning with the year of eligibility. For the maximum-family-benefit formula bend points for years 1979 and later, see table II.4.

Military service wage credits

Noncontributory wage credits of \$160 are provided for each month of active military service from September 16, 1940, through December 31, 1956. For years after 1956, the basic pay of military personnel is covered under the Social Security program on a contributory basis. Noncontributory wage credits of \$300 for each calendar quarter in which a person receives pay for military service from January 1957 through December 1977 are granted in addition to contributory credits for basic pay. Deemed wage credits of \$100 are granted for each \$300 of military wages in years after 1977. (The maximum credits allowed in any calendar year are \$1,200.) These credits take into account that military personnel receive other cash payments and wages in kind (such as food and shelter) in addition to their basic pay.

Minimum benefit

The lowest benefit (before actuarial reduction) payable under the regular insurance programs to a retired worker, a disabled worker, or a sole survivor of a deceased worker. Through 1978, the maximum benefit increased when there was a general benefit increase. The minimum benefit was frozen at \$122 for persons first becoming eligible after 1978. Benefit increases apply to that amount only when one or more individuals are entitled to benefits on a particular record or, if earlier, when the insured worker or widow(er) reaches age 65. The minimum benefit was eliminated for most workers who attain age 62, become disabled, or die after 1981. For these persons, benefits will be derived from applicable computation methods without a minimum floor.

Minor child's benefit

Child's benefit payable to a child under age 18.

Monthly benefit

A cash benefit payable each month.

Monthly benefit amount

The amount payable after reduction if necessary, for age, family maximum, and other reasons but before any deduction for SMI premiums. Effective June 1982, the final benefit payment is rounded to the next lowest \$1 (if not already a multiple of \$1) after reduction for age, family maximum, and other reasons and after any deduction for SMI premiums. This procedure changes the monthly benefit amount credited to a beneficiary. This amount, which is called the monthly benefit credited (MBC), is derived as follows:

1. Subtract the SMI premium from the monthly benefit amount;

2. Round the above result down to the nearest whole dollar; and

3. Add back the SMI premium to the rounded result from 2 above. The result is the MBC.

For example, if a monthly benefit amount is \$673.90, and an SMI premium of \$41.10 is deducted, the MBC is \$673.10--calculated as follows:

$673.90 - 41.10 = 632.80 rounded down$
to \$632.00 + \$41.10 = \$673.10.

Monthly benefit credited--MBC

See "Monthly benefit amount."

Mother's benefit

A monthly benefit payable to a widow or surviving divorced mother, if:

1. The deceased worker on whose account the benefit is paid was fully or currently insured at the time of his death and

2. An entitled child of the worker in her care is under age 16 or is disabled.

For mothers who were entitled to benefits for August 1981, benefits were continued until the child attained age 18 or until September 1983, whichever came earlier.

Normal retirement age--NRA

The age at which a person may first become entitled to unreduced retirement benefits. Currently age 65, but scheduled under present law to increase gradually to 67 for persons attaining that age in 2027 or later. NRA initially increases to 65 years 2 months for persons born in 1938, and increases 2 months per year thereafter until it reaches 66 for persons born in 1943. A similar increase to age 67 occurs beginning with persons born in 1955.

Offset for spouses with other government pensions

Spouse's and surviving spouse's benefits, based on applications filed after November 1977, are subject to reduction by any government (Federal, State, or local) pensions payable to the spouse on the basis of his or her own earnings in noncovered employment. After November 1984, the amount of the reduction is equal to two-thirds of any such pension. Persons in either of the following categories are exempt from the offset:

• All women first eligible for a government pension before December 1982, except those divorced from the worker after fewer than 20 years of marriage, or

• Men and women first eligible for their pensions before July 1983 who received one-half or more of their support from the worker.

Old-Age and Survivors Insurance--OASI

See "Trust fund."

Old-law base

Amount the contribution and benefit base would have been if the discretionary increases in the base under the 1977 amendments had not been enacted. The Social Security Amendments of 1972 provided for automatic annual indexing of the contribution and benefit base. The Social Security Amendments of 1977 provided ad hoc increases to the bases for 1979-81, with subsequent bases updated in accordance with the normal indexing procedure.

Parent's benefit

Monthly benefit payable to a dependent parent (aged 62 or older) of a deceased fully insured worker.

Payee

A person who receives the monthly benefit payments, generally the beneficiary.

Payment status

The state or condition of a benefit with respect to actual receipt by the beneficiary--that is, whether the benefit is in current-payment status or withheld.

Period of disability

A continuous period of at least 5 months of disability, within the meaning of the law, established for a disabled worker who also meets the prescribed work restrictions. Such a period is disregarded in computing the PIA unless its inclusion would increase the PIA. Persons who meet the definition of blindness (see "Disability") may engage in substantial gainful activity during this period.

Population in the Social Security Area

The population comprised of:

• Residents of the 50 States and the District of Columbia (adjusted for net census undercount);

• Civilian residents of Puerto Rico, the Virgin Islands, Guam, American Samoa and the Northern Mariana Islands;

• Federal civilian employees and persons in the Armed Forces abroad and their dependents;

• Crew members of merchant vessels; and

• All other U.S. citizens abroad.

Primary insurance amount--PIA

The monthly amount payable to a retired worker who begins to receive benefits at normal retirement age or to a disabled worker who has never received a retirement benefit reduced for age. This amount, which is related to the worker's average monthly wage or average indexed monthly earnings, is also the amount used as a base for computing all types of benefits payable on the basis of one individual's earnings record.

Primary-insurance-amount formula

The mathematical formula relating the PIA to the AIME for workers who attain age 62, become disabled, or die after 1978. The PIA is equal to the sum of 90 percent of AIME up to the first bend point, plus 32 percent of AIME above the first bend point up to the second bend point, plus 15 percent of AIME in excess of the second bend point. Automatic benefit increases are applied beginning with the year of eligibility. For the primary insurance amount formula bend points for years 1979 and later, see table II.4.

Quarters of coverage

Effective in 1978 the crediting of coverage needed for insured status was changed from a quarterly to an annual basis. In 1978, a worker received one quarter of coverage (up to a total of four) for each \$250 of annual earnings reported from employment or self-employment. This dollar amount is subject to annual automatic increases in proportion to increases in average earnings. For amounts applicable for years after 1978, see table II.4. No more than four quarters of coverage can be credited for any calendar year, and no quarter of coverage is credited after the quarter of death or for a quarter entirely included in a period of disability.

Before 1978, a quarter of coverage was a calendar quarter in which a worker was paid \$50 or more in wages for covered employment (except wages for agricultural labor) or was credited with \$100 or more in self-employment income. An employee engaged in agricultural labor was credited with one quarter of coverage for each \$100 in covered wages paid during the year. All calendar quarters were deemed to be quarters of coverage if the worker had the maximum earnings for a year.

Reduction for early retirement

See "Benefit reduction."

Retired worker (old age) benefit

Monthly benefit payable to a fully insured retired worker aged 62 or older or to a person entitled under the transitionally insured status provision in the law. Retired worker benefit data do not include special age-72 benefits.

Retirement test

See "Earnings test."

Retroactive benefits

Benefits that are being paid for months that have already passed. These benefits are the main component of non-current-payment benefits. Retroactive benefits are divided into two types: AERO and non-AERO.

• The AERO (Automatic Earnings Reappraisal Operation) portion is benefits paid retroactively as a result of benefit recomputation to take account of additional earnings after initial retirement.

• The non-AERO portion is largely due to entitlement that precedes the date of award. See "Entitlement." The retroactive period can include up to 12 months prior to application for benefits for disabled workers, their spouses and children, and disabled widows and widowers. The maximum retroactive period prior to application for other types of beneficiaries is 6 months. The retroactive period can also include any number of months between application and award.

• Retroactive benefits for months before attainment of normal retirement age are not payable to a retired worker, a spouse or a widow(er) if a permanent reduction of the monthly benefit amount would result. However, persons filing for a widow's or widower's benefit in the month immediately following the month of the worker's death may elect a 1-month retroactivity, even if reduced benefits would result. Before 1991, retroactive entitlement was permitted in cases where unreduced spouse's and children's benefits were involved, and where persons had pre-retirement earnings above the amount allowed under the earnings test that could be charged against benefits for months before the application.

There may also be relatively small amounts of non-AERO retroactive benefits due to other reasons such as too much benefit withheld or an unknown address.

Secondary benefit

Monthly benefit payable to a spouse or child of a retired or disabled worker, or to a survivor of a deceased worker.

Self-employment

Operation of a trade or business by an individual or by a partnership in which an individual is a member.

Special age-72 benefit

Monthly benefit payable to men who attained age 72 before 1972 and to women who attained age 72 before 1970 and who do not have sufficient quarters of coverage to qualify for a retired worker benefit under either the fully or the transitionally insured status provisions. The benefit is payable only for months in which the individual is a resident of one of the 50 States or the District of Columbia and receives no public assistance money payments or SSI payments. It is reduced by the amount of any government pension (except workers' compensation and veterans' service-connected compensation) that the individual or the individual's spouse is receiving or is eligible to receive. Most of these benefits are financed from general revenues rather than Social Security contributions. (Also known as Prouty benefits.)

Special minimum PIA

An alternative PIA based not on the worker's average monthly wage or average indexed monthly earnings but on his or her length (years) of covered employment. It is designed to help those who worked in covered employment for many years but had low earnings. The amount of the special minimum is computed by multiplying the number of years of coverage in excess of 10 and up to 30 by \$11.50 and increasing the resulting amount by all automatic cost-of-living increases after 1978. The special minimum PIA cannot be increased by delayed retirement credits. To earn special minimum coverage a worker must have earnings above specified levels (see "Years of coverage").

Special primary benefit

This term is used for the special age-72 benefit payable to an eligible person who is the only special age-72 beneficiary in the family.

Special wife's benefit

The benefit payable to a woman married to another special age-72 beneficiary. Before May 1983, the special wife's benefit was one-half of the special primary benefit. Beginning with May 1983, the special wife's benefit is equal to the special primary benefit.

Spouse's benefit

See "Husband's benefit" and "Wife's benefit."

Stabilizer provision

Section 215(i)(1)(C) of the Social Security Act provides that if the combined assets of the OASI and DI Trust Funds, as a percentage of estimated annual expenditures, falls below a specified level, automatic benefit increases will be limited to the lower of the increases in wages or prices. The specified level is 20 percent for benefit increase in 1989 and later.

Student's benefit

Child's benefit payable to a full-time unmarried elementary or secondary school student between ages 18 and 19. Student's benefits end at age 19 or at the end of the current semester or quarter, whichever is later. Before May 1985, student's benefits were payable to certain postsecondary students aged 18-22.

Supplementary Medical Insurance--SMI

See "Trust fund."

Surviving divorced father's benefit

See "Father's benefit."

Surviving divorced mother's benefit

See "Mother's benefit."

Surviving divorced spouse's benefit

See "Widow's benefit" and "Widower's benefit."

Survivor benefit.

Benefit payable to a survivor of a deceased worker.

Suspended benefit

A benefit not in current-payment status for any of the reasons listed under "Withholding."

Taxable earnings

Taxable wages and/or self-employment income under the prevailing annual maximum taxable limit. For the contribution and benefit base for years 1975 and later, see table II.3.

Taxable payroll

A weighted average of taxable earnings and taxable self-employment income. When multiplied by the combined employee-employer tax rate, it yields the total amount of taxes paid by employees, employers, and the self-employed for work during the period.

Taxable self-employment income

Net earnings from self-employment, generally above \$400 and below the annual taxable and creditable maximum amount for a calendar or other taxable year, less any taxable wages in the same taxable year.

Taxable wages

See "Taxable earnings."

Taxation of benefits

During 1984-93, up to one-half of an individual's or a couple's OASDI benefits was potentially subject to Federal income taxation under certain circumstances. The revenue derived from this provision was allocated to the OASI and DI Trust Funds on the basis of the income taxes paid on the benefits from each fund. Beginning in 1994, the maximum portion of OASDI benefits potentially subject to taxation was increased to 85 percent. The additional revenue derived from taxation of benefits in excess of one-half, up to 85 percent, is allocated to the HI Trust Fund.

Taxes

See "Contributions."

Termination

Cessation of payment of a specific type of benefit because the beneficiary is no longer entitled to receive it. In some cases, the individual may become immediately entitled to another type of benefit. These actions are called conversions; see "Award." The major reasons for termination are:

• Death of the beneficiary;

• For spouses and children, termination of the benefit payable to the retired or disabled worker on whose entitlement the spouses' and child's benefit is based;

• For a spouse beneficiary under age 62 or a mother or a father beneficiary under age 60, termination of the benefit payable to the minor or disabled child or attainment of age 16 by youngest child;

• Attainment of the statutory age limit for certain types of benefits, for example, age 65 for a disabled worker and age 18 for a minor child;

• Other statutory reasons (such as marriage, divorce, remarriage, or adoption) for certain types of benefits;

• Beneficiary no longer meets the definition of disability;

• For a secondary beneficiary, entitlement to another equal or larger benefit; and

• Student beneficiary no longer attending school.

Trust fund

Separate accounts in the United States Treasury in which are deposited the equivalent of taxes received under the Federal Insurance Contributions Act, the Self-Employment Contributions Act, contributions dealing with coverage of State and local government employees; any sums received under the financial interchange with the railroad retirement account; voluntary hospital and medical insurance premiums; and transfers of Federal general revenues. Funds not withdrawn for current monthly or service benefits, the financial interchange, and administrative expenses are invested in interest-bearing Federal securities, as required by law; the interest earned is also deposited in the trust funds.

• Old-Age and Survivors Insurance (OASI). The trust fund used for paying monthly benefits to retired-worker (old-age) beneficiaries and their spouses and children and to survivors of deceased insured workers.

• Disability Insurance (DI). The trust fund used for paying monthly benefits to disabled-worker beneficiaries and their spouses and children and for providing rehabilitation services to the disabled.

• Hospital Insurance (HI). The trust fund used for paying part of the costs of inpatient hospital services and related post-hospital care for aged and disabled individuals who meet the eligibility requirements.

• Supplementary Medical Insurance (SMI). The trust fund used for paying part of the costs of physician's services, outpatient hospital services, and other related medical and health services for voluntarily insured aged and disabled individuals.

Trust fund ratio

A measure of the adequacy of the trust fund level. Defined as the assets at the beginning of the year, including advance tax transfers (if any), expressed as a percentage of the outgo during the year. The trust fund ratio represents the proportion of a year's outgo which could be paid with the funds available at the beginning of the year.

Unnegotiated check

A check which has not been cashed 6 months after the end of the month in which the check was issued. When a check has been outstanding for a year:

1. The check is administratively cancelled by the Department of the Treasury and

2. The issuing trust fund is reimbursed separately for the amount of the check and interest for the period the check was outstanding.

The appropriate trust fund also receives an interest adjustment for the time the check was outstanding if it is cashed 612 months after the month of issue. If a check is presented for payment after it is administratively cancelled, a replacement check is issued.

Vocational rehabilitation

Services provided to disabled persons to help enable them to return to gainful employment. Reimbursement from the trust funds for the costs of such services is made only in those cases where the services contributed to the successful rehabilitation of the beneficiaries.

Widowed father's benefit

See "Father's benefit."

Widowed mother's benefit

See "Mother's benefit."

Widower's benefit

Monthly benefit payable to:

• A widower or surviving divorced husband of a worker fully insured at the time of death if he is:

1. Aged 60 or older or

2. Aged 50-59 and has been disabled throughout a waiting period of 5 consecutive calendar months that began no later than 7 years after the month in which the worker died or after the end of his entitlement to benefits as a widowed father, or

• Effective with benefits payable beginning May 1983, a widower of a transitionally insured worker if he was born before January 2, 1897.

A surviving divorced husband's marriage to a worker must have lasted at least 10 years (20 years for entitlement before 1979) before the divorce became final.

Effective for benefits payable after December 1983, benefits are continued for disabled and surviving divorced husbands who remarry after the age of first eligibility for benefits. Before January 1984, benefits were not paid to a widower aged 50-59 or a surviving divorced husband who had remarried except for marriage to a person entitled to widow's, mother's, parent's, wife's, or disabled adult child's benefits.

In the case of a widower who remarries after attaining age 60, benefits for months after 1978 are not contingent on marital status; for months before 1979, his benefit amount was reduced to one-half of the deceased wife's PIA if he married a person other than one of the beneficiaries specified above.

Effective January 1991, benefits may be payable to a deemed widower, including a divorced deemed widower. A deemed widower is a person who entered into an invalid ceremonial marriage in good faith.

Widow's benefit

Monthly benefit payable to:

• A widow or surviving divorced wife of a worker fully insured at time of death if she is:

1. Aged 60 or older, or

2. Aged 50-59 and has been disabled throughout a waiting period of 5 consecutive calendar months that began no later than 7 years after the month in which the worker died or after the end of her entitlement to benefits as a widowed mother, or

• A widow of a transitionally insured worker if she was born before January 2, 1897.

A surviving divorced wife's marriage to a worker must have lasted at least 10 years (20 years for entitlement before 1979) before the divorce became final.

Effective for benefits payable after December 1983, benefits are continued for disabled and surviving divorced wives who remarry after the age of first eligibility for benefits. Before January 1984, benefits were not paid to a widow aged 50-59 or a surviving divorced wife who had remarried except for marriage to a person entitled to widower's, father's, parent's, husband's, or disabled adult child's benefits.

In the case of a widow who remarries after attaining age 60, benefits for months after 1978 are not contingent on marital status; for months before 1979, her benefit amount was reduced to one-half of the deceased husband's PIA if she married a person other than one of the beneficiaries specified above.

Effective January 1991, benefits may be payable to a deemed widow, including a divorced deemed widow. A deemed widow is a person who entered into an invalid ceremonial marriage in good faith.

Wife's benefit

Monthly benefit payable to a wife or a divorced wife of a retired or disabled worker under one of the following conditions:

• The wife is aged 62 or older or has an entitled child of the worker in her care who is under age 16 or is disabled. For wives who were entitled to benefits for August 1981, benefits were continued until the child attained age 18 or until September 1983, whichever came earlier; or

• The divorced wife is aged 62 or older and her marriage to the worker lasted at least 10 years (20 years for entitlement before 1979) before the divorce became final. Effective with benefits payable after December 1984, a divorced wife of an eligible worker can be entitled to benefits if she meets the requirements for entitlement and has been divorced for at least 2 years, regardless of whether the worker has filed for benefits or has benefits withheld due to the earnings test. Effective with benefits payable beginning January 1991, the 2-year period is waived if the worker was entitled to benefits before the divorce. The earnings test will continue to apply to the divorced wife's own earnings; or

• The wife of a transitionally insured worker is entitled to benefits if she was born before January 2, 1897; or

• Effective with benefits payable beginning January 1991, a deemed spouse (including a divorced deemed spouse) regardless of whether the legal spouse is entitled to benefits on the same earnings record. A deemed spouse is a person who entered into an invalid ceremonial marriage in good faith.

Windfall elimination provision

A modification of the PIA formula for workers who are eligible for a pension from noncovered employment, effective for workers becoming eligible for retirement or disability insurance benefits and for a pension from noncovered employment in 1986 or later. The revised formula substitutes 40 percent for the usual 90 percent factor (see "Primary-insurance-amount formula"), effective in 1991 for workers with 20 or fewer years of coverage. The reduction from 90 percent to 40 percent is phased in for workers eligible prior to 1991 or with more than 20 years of coverage. In no case is a PIA reduced by more than one-half of his or her pension from noncovered employment.

Withholding

Suspension of benefit payments until the conditions causing deductions are known to have ended. Suspension of monthly benefit payments does not affect eligibility for hospital insurance benefits. The major reasons for withholding benefits include:

• Earnings in excess of exempt amounts under provisions of the annual earnings test;

• For spouses and surviving spouses, receipt of offsetting government pensions;

• Failure of a wife or husband under age 62 or mother or father beneficiary to have an entitled child in his/her care;

• Refusal of a disabled person to accept rehabilitation services;

• Pending determination of continuing disability;

• For special age-72 beneficiaries, receipt of public assistance or Supplemental Security Income payments or offsetting government pensions;

• Worker's compensation offset for disabled workers and dependents;

• Payee not determined;

• For beneficiaries who are incarcerated as a result of a felony conviction, unless the person is participating in a court-approved rehabilitation program that is expected to result in the achievement of substantial gainful activity within a reasonable period after release;

• Administrative reasons such as (a) the inability to locate the beneficiary, (b) the beneficiary's residence in certain foreign countries, and (c) under certain conditions, an alien beneficiary's residence outside the United States for more than 6 full consecutive calendar months; or

• For disabled beneficiaries, engaging in substantial gainful activity in the disability reentitlement period following a trial work period; benefits for spouses and children of disabled workers are also suspended.

Worker

A person who has earnings creditable for Social Security purposes on the basis of services for wages in covered employment or on the basis of income from covered self-employment. Data on covered self-employment exclude self-employed persons who had no self-employment income taxable or creditable under Social Security because they had wages or salaries reaching the annual taxable maximum reported for the same year.

Workers' compensation (and public disability benefits) offset

A reduction in the monthly benefits for a disabled-worker family when the monthly DI cash benefit amount plus the State or Federal workers' compensation benefit amount or other Federal, State, or local disability benefits (excluding VA or needs-based benefits or benefits based on Federal, State, or local covered employment) exceed 80 percent of the worker's "average current earnings" before the onset of disability. "Average current earnings" is defined as the highest of:

1. The average monthly wages used for computing the PIA under the Social Security Act;

2. Average monthly earnings from covered employment and self-employment earnings during the 5 consecutive years of highest covered earnings after 1950, counting any earnings in excess of taxable earnings; or

3. Average monthly earnings from covered employment and self-employment in the year of highest earnings during the period consisting of the year of disablement and the 5 preceding years, counting any earnings in excess of taxable earnings.

The reduction is applied proportionately first to the spouse's and children's benefits; any excess is then applied to the disabled worker benefit. The workers' compensation offset applies to benefits payable for months after December 1965, with respect to a disabled worker under age 65 whose disability began after June 1, 1965. Average monthly amounts for disabled workers and their spouses and children and for disabled-worker families shown in this study reflect the applicable offsets. The offset is imposed for any month in which individuals are entitled to both DI cash benefits and other applicable benefits. The offset is not applicable if the workers' compensation or other public disability program had a provision in effect on February 18, 1981, that reduces the benefit because the worker was receiving Social Security disability benefits. Offset begins with the month of entitlement to other benefits.

Years of coverage

The number, not to exceed 14, obtained by dividing total creditable wages in 1937-50 by \$900, plus the number of years after 1950 for which the worker is credited with at least a certain percent of the annual maximum taxable earnings. For this purpose, for years after 1978, annual maximum taxable earnings are the amounts the benefit and contribution base would have been if the discretionary increases in the base under the 1977 amendments had not been enacted. The applicable percentage of the annual maximum taxable earnings depends on whether the years of coverage are for a special minimum PIA or for the windfall elimination provision:

• For a special minimum PIA--25 percent for years from 1951 to 1990 and 15 percent for years after 1990.

• For the windfall elimination provision--25 percent for years after 1950.

Young husband's benefit

Monthly benefit payable to a husband or a divorced husband of a retired or disabled worker, where the husband is entitled because of a child in his care. See "Husband's benefit."

Young spouse's benefit

See "Young husband's benefit" and "Young wife's benefit."

Young wife's benefit

Monthly benefit payable to a wife or a divorced wife of a retired or disabled worker, where the wife is entitled because of a child in her care. See "Wife's benefit".

List of Studies
December 26, 2001