2009 OASDI Trustees Report

C. PROGRAM-SPECIFIC ASSUMPTIONS AND METHODS

The demographic and economic assumptions and methods described in the previous sections are used in a set of models to project future income and cost under the OASDI program. In some cases, the economic assumptions result in the direct calculation of program parameters as described in the fol­lowing subsection. These parameters affect the level of payroll taxes col­lected and the level of benefits paid and are calculated using formulas described explicitly in the Social Security Act. In other cases, the combina­tion of demographic and economic assumptions are used indirectly to drive more complicated models that project the numbers of future workers covered under OASDI and the levels of their covered earnings, and the numbers of future beneficiaries and the expected levels of their benefits. The following subsections provide brief descriptions of the derivations of these program-specific factors.

1. Automatically Adjusted Program Parameters

The Social Security Act specifies that certain program parameters affecting the determination of OASDI benefits and taxes are to be adjusted annually in a manner that reflects changes in particular economic measures. The law pre­scribes specific formulas that, when applied to reported statistics, produce automatic revisions in these program parameters and hence in the benefit and tax computations. These automatic adjustments are based on measured changes in the national average wage index (AWI) and the CPI.¹ In this sec­tion, values are shown for program parameters that are subject to automatic adjustment, from the time that such adjustments became effective through 2018. Projected values for future years are based on the economic assump­tions described in the preceding section of this report.

The following two tables present the historical and projected values of the CPI-based benefit increases, as well as the AWI series and the values of many of the wage-indexed program parameters. In each table, the projections are shown under the three alternative sets of economic assumptions described in the previous section. Table V.C1 includes:

•

The annual percentage increases that have been applied to OASDI ben­efits under automatic cost-of-living adjustment provisions in the Social Security Act, based on increases in the CPI. Under all three sets of eco­nomic assumptions, no cost-of-living adjustment becomes effective for December of 2009 (and in some later years under the intermediate and low-cost assumptions).

•

The annual levels of and percentage increases in the AWI. Under sec­tion 215(b)(3) of the Social Security Act, the AWI for each year after 1950 is used to index the taxable earnings of most workers first becom­ing eligible for benefits in 1979 or later. This procedure converts a worker’s past earnings to approximately benefit equivalent values near the time of the worker’s benefit eligibility, and these indexed values are used to calculate the worker’s benefit amount. The AWI is also used to adjust most of the other program parameters that are subject to the auto­matic-adjustment provisions.

•

The wage-indexed contribution and benefit base—the maximum amount of earnings for the specified year that are subject to the OASDI payroll tax and creditable toward benefit computation. The Social Secu­rity Act prohibits an increase in this base if there is no cost-of-living adjustment effective for December of the preceding year.

•

The wage-indexed retirement earnings test exempt amounts—the annual amount of earnings below which beneficiaries are not subject to benefit withholding. A lower exempt amount applies in years before a beneficiary attains normal retirement age (NRA). A higher amount applies for the year in which the beneficiary attains normal retirement age. The retirement test does not apply beginning with the attainment of normal retirement age. The Social Security Act prohibits an increase in these exempt amounts if there is no cost-of-living adjustment effective for December of the preceding year.

 

Table V.C1.—Cost-of-Living Benefit Increases, Average Wage Index, Contribution and
Benefit Bases, and Retirement Earnings Test Exempt Amounts, 1975-2018 

Calendar year		Cost-of-living benefit increasea (percent)	Average wage index (AWI) b		Contribution and benefit base c	Retirement earnings test exempt amount
			Amount	Increase (percent)		Under NRAd	At NRAe
Historical data:
	1975	8.0	$8,630.92	7.5	$14,100	$2,520	$2,520
	1976	6.4	9,226.48	6.9	15,300	2,760	2,760
	1977	5.9	9,779.44	6.0	16,500	3,000	3,000
	1978	6.5	10,556.03	7.9	17,700	3,240	4,000
	1979	9.9	11,479.46	8.7	22,900	3,480	4,500
	1980	14.3	12,513.46	9.0	25,900	3,720	5,000
	1981	11.2	13,773.10	10.1	29,700	4,080	5,500
	1982	7.4	14,531.34	5.5	32,400	4,440	6,000
	1983	3.5	15,239.24	4.9	35,700	4,920	6,600
	1984	3.5	16,135.07	5.9	37,800	5,160	6,960
	1985	3.1	16,822.51	4.3	39,600	5,400	7,320
	1986	1.3	17,321.82	3.0	42,000	5,760	7,800
	1987	4.2	18,426.51	6.4	43,800	6,000	8,160
	1988	4.0	19,334.04	4.9	45,000	6,120	8,400
	1989	4.7	20,099.55	4.0	48,000	6,480	8,880
	1990	5.4	21,027.98	4.6	51,300	6,840	9,360
	1991	3.7	21,811.60	3.7	53,400	7,080	9,720
	1992	3.0	22,935.42	5.2	55,500	7,440	10,200
	1993	2.6	23,132.67	.9	57,600	7,680	10,560
	1994	2.8	23,753.53	2.7	60,600	8,040	11,160
	1995	2.6	24,705.66	4.0	61,200	8,160	11,280
	1996	2.9	25,913.90	4.9	62,700	8,280	12,500
	1997	2.1	27,426.00	5.8	65,400	8,640	13,500
	1998	1.3	28,861.44	5.2	68,400	9,120	14,500
	1999	f 2.5	30,469.84	5.6	72,600	9,600	15,500
	2000	3.5	32,154.82	5.5	76,200	10,080	17,000
	2001	2.6	32,921.92	2.4	80,400	10,680	25,000
	2002	1.4	33,252.09	1.0	84,900	11,280	30,000
	2003	2.1	34,064.95	2.4	87,000	11,520	30,720
	2004	2.7	35,648.55	4.6	87,900	11,640	31,080
	2005	4.1	36,952.94	3.7	90,000	12,000	31,800
	2006	3.3	38,651.41	4.6	94,200	12,480	33,240
	2007	2.3	40,405.48	4.5	97,500	12,960	34,440
Intermediate:
	2008	g 5.8	41,679.58	3.2	g 102,000	g 13,560	g 36,120
	2009	.0	42,041.84	.9	g 106,800	g 14,160	g 37,680
	2010	.0	43,451.28	3.4	106,800	14,160	37,680
	2011	1.4	45,194.92	4.0	106,800	14,160	37,680
	2012	2.8	47,013.95	4.0	114,900	15,240	40,560
	2013	3.1	48,969.10	4.2	119,400	15,840	42,120
	2014	3.0	50,962.45	4.1	124,200	16,440	43,920
	2015	2.8	53,085.22	4.2	129,300	17,160	45,720
	2016	2.8	55,070.22	3.7	134,700	17,880	47,520
	2017	2.8	57,165.32	3.8	140,400	18,600	49,560
	2018	2.8	59,362.72	3.8	145,500	19,320	51,360
Low-cost:
	2008	g 5.8	$41,698.13	3.2	g $102,000	g $13,560	g $36,120
	2009	.0	42,276.96	1.4	g 106,800	g 14,160	g 37,680
	2010	.0	43,659.88	3.3	106,800	14,160	37,680
	2011	.0	45,301.16	3.8	106,800	14,160	37,680
	2012	1.5	46,961.47	3.7	106,800	14,160	37,680
	2013	2.1	48,656.14	3.6	119,700	15,840	42,240
	2014	2.0	50,243.82	3.3	124,200	16,440	43,800
	2015	1.8	52,029.44	3.6	128,700	17,040	45,360
	2016	1.8	53,791.01	3.4	132,900	17,640	46,920
	2017	1.8	55,658.55	3.5	137,400	18,240	48,600
	2018	1.8	57,642.09	3.6	142,200	18,840	50,160
High-cost:
	2008	g 5.8	41,672.33	3.1	g 102,000	g 13,560	g 36,120
	2009	.0	42,100.53	1.0	g 106,800	g 14,160	g 37,680
	2010	.2	43,502.26	3.3	106,800	14,160	37,680
	2011	2.6	45,273.05	4.1	111,300	14,760	39,240
	2012	4.5	46,607.81	2.9	114,900	15,240	40,560
	2013	6.2	49,339.09	5.9	119,700	15,840	42,240
	2014	5.7	52,785.62	7.0	123,000	16,320	43,440
	2015	4.6	56,005.14	6.1	130,500	17,280	46,080
	2016	3.9	58,775.40	4.9	139,500	18,480	49,200
	2017	3.8	61,324.49	4.3	147,900	19,680	52,200
	2018	3.8	63,781.41	4.0	155,400	20,640	54,840

---

a

Effective with benefits payable for June in each year 1975-82, and for December in each year after 1982.

b

See table VI.F6 for projected dollar amounts of the AWI beyond 2018.

c

Amounts for 1979-81 were specified by Public Law 95-216. The bases for years after 1989 were increased slightly by changes to the indexing procedure, as required by Public Law 101-239.

d

Normal retirement age. See table V.C3 for specific values.

e

In 1955-82, the retirement earnings test did not apply at ages 72 and over; in 1983-99, the test did not apply at ages 70 and over; beginning in 2000, it does not apply beginning with the month of attainment of NRA. In the year of attainment of NRA, the higher exempt amount applies to earnings in the year prior to the month of NRA attainment. Amounts for 1978-82 specified by Public Law 95-216; for 1996-2002, Public Law 104‑121.

f

Originally determined as 2.4 percent, but pursuant to Public Law 106-554, is effectively 2.5 percent.

g

Actual amount, as determined under automatic-adjustment provisions.

Values for other wage-indexed parameters are shown in table V.C2. The table provides historical values from 1978, when the amount of earnings required for a quarter of coverage was first indexed, through 2009, and also shows projected amounts through 2018. These other wage-indexed program param­eters are:

•

The bend points in the formula for computing the primary insurance amount (PIA) for workers who reach age 62, become disabled, or die in a given year. As illustrated in figure V.C1, these bend points indicate three ranges in a worker’s average indexed monthly earnings (AIME) over which a certain percent factor, 90, 32, or 15 percent, respectively, is applied to determine the worker’s PIA.

 

Primary-Insurance-Amount Formula for Those Newly Eligible in 2009

[D]

•	Bend points in the formula used to compute the maximum total amount of monthly benefits payable on the basis of the earnings of a retired or deceased worker. This formula is a function of the worker’s PIA, and, as shown in figure V.C2, relies on four intervals and percentages.

 

Maximum-Family-Benefit Formula for Those Newly Eligible in 2009

[D]

•	The amount of earnings required in a year to be credited with a quarter of coverage (QC). The number and timing of QCs earned is used to determine an individual’s insured status—the basic requirement for benefit eligibility under OASDI.

•

The old-law contribution and benefit base—the contribution and benefit base that would have been in effect in each year after 1977 under the automatic-adjustment provisions as in effect before the enactment of the 1977 amendments. This old-law base is used in determining special-minimum benefits for certain workers who have many years of low earnings in covered employment. Beginning in 1986, the old-law base is also used in the calculation of OASDI benefits for certain workers who are eligible to receive pensions based on noncovered employment. In addition, it is used for certain purposes under the Railroad Retirement program and the Employee Retirement Income Security Act of 1974.

 

Table V.C2.—Values for Selected Wage-Indexed Program Parameters,
Calendar Years 1978-2018 

Calendar year		AIME bend points in PIA formula a			PIA bend points in maximum- family-benefit formula b			Earnings required for a quarter of coverage	Old-law contribution and benefit base c
		First	Second		First	Second	Third
Historical data:
	1978	d	d		d	d	d	e $250	e $17,700
	1979	e $180	e $1,085		e $230	e $332	e $433	260	18,900
	1980	194	1,171		248	358	467	290	20,400
	1981	211	1,274		270	390	508	310	22,200
	1982	230	1,388		294	425	554	340	24,300
	1983	254	1,528		324	468	610	370	26,700
	1984	267	1,612		342	493	643	390	28,200
	1985	280	1,691		358	517	675	410	29,700
	1986	297	1,790		379	548	714	440	31,500
	1987	310	1,866		396	571	745	460	32,700
	1988	319	1,922		407	588	767	470	33,600
	1989	339	2,044		433	626	816	500	35,700
	1990	356	2,145		455	656	856	520	38,100
	1991	370	2,230		473	682	890	540	39,600
	1992	387	2,333		495	714	931	570	41,400
	1993	401	2,420		513	740	966	590	42,900
	1994	422	2,545		539	779	1,016	620	45,000
	1995	426	2,567		544	785	1,024	630	45,300
	1996	437	2,635		559	806	1,052	640	46,500
	1997	455	2,741		581	839	1,094	670	48,600
	1998	477	2,875		609	880	1,147	700	50,700
	1999	505	3,043		645	931	1,214	740	53,700
	2000	531	3,202		679	980	1,278	780	56,700
	2001	561	3,381		717	1,034	1,349	830	59,700
	2002	592	3,567		756	1,092	1,424	870	63,000
	2003	606	3,653		774	1,118	1,458	890	64,500
	2004	612	3,689		782	1,129	1,472	900	65,100
	2005	627	3,779		801	1,156	1,508	920	66,900
	2006	656	3,955		838	1,210	1,578	970	69,900
	2007	680	4,100		869