2001 OASDI Trustees Report

C. PROGRAM SPECIFIC ASSUMPTIONS AND METHODS

The demographic and economic assumptions and methods described in the previous section are input to the set of models used to project future income and outgo 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 Amounts

The Social Security Act specifies that certain program amounts affecting the determination of OASDI benefits are to be adjusted annually, in general, to reflect changes in the economy. The law prescribes specific formulas that, when applied to reported statistics, produce automatic revisions in these program amounts and hence in the benefitcomputation procedures. These automatic adjustments are based upon measured changes in the national average wage index and the CPI.¹ In this section, values are shown for program amounts that are subject to automatic adjustment, from the time that such adjustments became effective through 2010. 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 average wage index series and the values of many of the wage-indexed program amounts. 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 which have been applied to OASDI benefits under automatic cost-of-living adjustment provisions in the Social Security Act, based on increases in the CPI.

• The annual levels of and percentage increases in the national average wage index. Under section 215(b)(3) of the Social Security Act, the national average wage index 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 their equivalent values near the time of the worker's retirement or other eligibility, and these indexed values are used to calculate the worker's benefit. The average wage index is also used to adjust most of the other program amounts that are subject to the automatic-adjustment provisions.

• The OASDI contribution and benefit base-the maximum amount of earning subject to the OASDI payroll tax in the specified year.

• The 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. A higher amount applies for the year in which the beneficiary attains normal retirement age. As described earlier, under legislation enacted in 2000, the retirement test no longer applies beginning with the attainment of normal retirement age.

  Table V.C1.- Cost-of-Living Benefit Increases, Average Wage Index, Contribution and Benefit Bases, and Retirement Earnings Test Exempt Amounts, 1975-2010 

  Calendar year		OASDI benefit increases1 (percent)	Average wage index2		OASDI contribution and benefit base 3	Retirement earnings test exempt amount
  			Amount	Increase (percent)		Under NRA4	At NRA5
  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	6 2.5	30,469.84	5.6	72,600	9,600	15,500
  Intermediate:
  	2000	7 3.5	$32,104.67	5.4	7 $76,200	7 $10,080	$17,000
  	2001	2.8	33,680.35	4.9	7 80,400	7 10,680	25,000
  	2002	2.9	35,277.03	4.7	84,900	11,280	30,000
  	2003	3.0	36,781.09	4.3	89,100	11,760	31,440
  	2004	3.1	38,372.33	4.3	93,300	12,360	33,000
  	2005	3.2	40,044.65	4.4	97,200	12,840	34,320
  	2006	3.3	41,799.45	4.4	101,400	13,440	35,880
  	2007	3.3	43,575.71	4.2	105,900	14,040	37,440
  	2008	3.3	45,416.27	4.2	110,400	14,640	39,000
  	2009	3.3	47,350.68	4.3	115,200	15,240	40,680
  	2010	3.3	49,366.08	4.3	120,000	15,960	42,480
  Low Cost:
  	2000	7 3.5	32,193.94	5.7	7 76,200	7 10,080	17,000
  	2001	2.8	33,758.97	4.9	7 80,400	7 10,680	25,000
  	2002	2.6	35,383.30	4.8	85,200	11,280	30,000
  	2003	2.3	36,787.92	4.0	89,100	11,880	31,440
  	2004	2.3	38,246.59	4.0	93,600	12,360	33,000
  	2005	2.3	39,741.55	3.9	97,200	12,840	34,320
  	2006	2.3	41,303.97	3.9	101,100	13,440	35,640
  	2007	2.3	42,878.54	3.8	105,000	13,920	37,080
  	2008	2.3	44,472.96	3.7	109,200	14,520	38,520
  	2009	2.3	46,154.75	3.8	113,400	15,000	39,960
  	2010	2.3	47,901.25	3.8	117,600	15,600	41,400
  High Cost:
  	2000	7 3.5	32,074.32	5.3	7 76,200	7 10,080	17,000
  	2001	3.1	33,075.64	3.1	7 80,400	7 10,680	25,000
  	2002	3.5	34,268.35	3.6	84,600	11,280	30,000
  	2003	5.2	36,541.14	6.6	87,300	11,640	30,960
  	2004	6.2	38,138.27	4.4	90,600	12,000	32,040
  	2005	4.0	40,100.04	5.1	96,600	12,840	34,200
  	2006	3.9	42,440.05	5.8	100,800	13,320	35,640
  	2007	4.1	44,574.76	5.0	105,900	14,040	37,560
  	2008	4.3	46,686.87	4.7	112,200	14,880	39,720
  	2009	4.3	48,896.61	4.7	117,900	15,600	41,640
  	2010	4.3	51,265.10	4.8	123,300	16,320	43,680

  1 Effective with benefits payable for June in each year 1975-82, and for December in each year after 1982. 2 See table VI.E7 for projected dollar amounts of the average wage index beyond 2010. 3 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. 4 Normal retirement age. See table V.C3 for specific values. 5 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 104121. 6 Originally determined as 2.4 percent, but pursuant to Public Law 106-554, is effectively now 2.5 percent. 7 Actual amount, as determined under automatic-adjustment provisions.

Other wage-indexed amounts 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 2001, and also shows projected amounts through 2010. These other wage-indexed program amounts 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. 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. Figure V.C1 presents the PIA formula for 2001.

  Figure V.C1.- Primary-Insurance-Amount Formula for the 2001 Cohort

• 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 relies on four intervals and percentages. Figure V.C2 presents the maximum-family-benefit formula for 2001.

  Figure V.C2.- Maximum-Family-Benefit Formula for the 2001 Cohort

• 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 OASDI contribution and benefit base that would have been in effect in each year after 1978 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.- Selected Wage-Indexed Program Amounts,
  Calendar Years 1978-2010 

  Calendar year		AIME bend points in PIA formula 1			PIA bend points in maximum- family-benefit formula 2			Earnings required for a quarter of coverage	Old law contribution and benefit base 3
  		First	Second		First	Second	Third
  Historical data:
  	1978	(4)	(4)		(4)	(4)	(4)	5 $250	(4)
  	1979	5 $180	5 $1,085		5 $230	5 $332	5 $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
  Intermediate:
  	2002	$591	$3,562		$755	$1,090	$1,421	$870	$63,000
  	2003	620	3,737		792	1,143	1,491	910	66,000
  	2004	649	3,914		830	1,198	1,562	960	69,300
  	2005	677	4,081		865	1,249	1,629	1,000	72,300
  	2006	706	4,257		902	1,303	1,699	1,040	75,300
  	2007	737	4,443		942	1,359	1,773	1,090	78,600
  	2008	769	4,638		983	1,419	1,851	1,130	81,900
  	2009	802	4,835		1,025	1,479	1,929	1,180	85,500
  	2010	836	5,039		1,068	1,542	2,011	1,230	89,100
  Low Cost:
  	2002	593	3,572		757	1,093	1,425	870	63,300
  	2003	621	3,745		794	1,146	1,495	910	66,300
  	2004	651	3,926		832	1,201	1,567	960	69,300
  	2005	677	4,082		865	1,249	1,629	1,000	72,300
  	2006	704	4,243		900	1,298	1,693	1,040	75,000
  	2007	731	4,409		935	1,349	1,760	1,080	78,000
  	2008	760	4,583		971	1,402	1,829	1,120	81,000
  	2009	789	4,757		1,008	1,456	1,899	1,160	84,000
  	2010	819	4,934		1,046	1,510	1,969	1,210	87,300
  High Cost:
  	2002	590	3,559		754	1,089	1,420	870	63,000
  	2003	609	3,670		778	1,123	1,464	900	64,800
  	2004	631	3,802		806	1,163	1,517	930	67,200
  	2005	673	4,054		859	1,241	1,618	990	71,700
  	2006	702	4,231		897	1,295	1,689	1,030	74,700
  	2007	738	4,449		943	1,361	1,775	1,090	78,600
  	2008	781	4,709		998	1,441	1,879	1,150	83,400
  	2009	820	4,945		1,048	1,513	1,974	1,210	87,600
  	2010	859	5,180		1,098	1,585	2,067	1,270	91,500

  1 The formula to compute a PIA is (1) 90% of AIME below the first bend point, plus (2) 32% of AIME in excess of the first bend point but not in excess of the second, plus (3) 15% of AIME in excess of the second bend point. The bend points pertain to the first year a beneficiary becomes eligible for benefits. 2 The formula to compute a family maximum is (1) 150% of PIA below the first bend point, plus (2) 272% of PIA in excess of the first bend point but not in excess of the second, plus (3) 134% of PIA in excess of the second bend point but not in excess of the third, plus (4) 175% of PIA in excess of the third bend point. 3 Contribution and benefit base that would have been determined automatically under the law in effect prior to enactment of the Social Security Amendments of 1977. The bases for years after 1989 were increased slightly by changes to the indexing procedure to determine the base, as required by Public Law 101-239. 4 No provision in law for this amount in this year. 5 Amount specified for first year by Social Security Amendments of 1977; amounts for subsequent years subject to automatic-adjustment provisions.

In addition to the program amounts affecting the determination of OASDI benefits that reflect changes in the economy, there are certain legislated changes that have affected, and will affect, benefits. Two such changes are the scheduled increases in the normal retirement age and in the delayed retirement credits. Table V.C3 shows the scheduled changes in these two important items and their effect on benefits expressed as a percentage of PIA.