1997 OASDI Trustees Report

In this section, values are shown for program amounts that are subject to automatic adjustment, from the time that such adjustments became effective through 2006. Projected values for future years are based on the economic assumptions described in the preceding section of this report. Appendix F, in addition to providing the most recent determinations of program amounts under the automatic adjustment provisions, also provides a more complete description of such amounts.

Under the automatic-adjustment provisions affecting cost-of-living increases, benefits generally are increased once a year. These provisions were originally enacted in 1972 and first became effective with the benefit increase effective for June 1975. The 1983 amendments changed the effective month to December for years after 1982. For persons becoming eligible for benefits in 1979 and later, the increases generally begin with the year in which the worker reaches age 62, or becomes disabled or dies, if earlier. An automatic cost-of-living benefit increase of 2.9 percent, effective for December 1996, was announced in October 1996, as described in appendix F. The automatic cost-of-living benefit increase for any year is normally based on the change in the CPI from the third quarter of the previous year to the third quarter of the current year. ^1/

Under section 215(b)(3) of the Social Security Act, the national average wage index ^2/ for each year after 1950 is used to index the 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 program amounts that are subject to the automatic-adjustment provisions. Table II.E1 shows the average wage index as determined for each year 1951 through 1995.

Table II.E1.­ Average Wage Index, Calendar Years 1951-95
Year	Amount		Year	Amount		Year	Amount
1951	$2,799.16		1966	$4,938.36		1981	$13,773.10
1952	2,973.32		1967	5,213.44		1982	14,531.34
1953	3,139.44		1968	5,571.76		1983	15,239.24
1954	3,155.64		1969	5,893.76		1984	16,135.07
1955	3,301.44		1970	6,186.24		1985	16,822.51
1956	3,532.36		1971	6,497.08		1986	17,321.82
1957	3,641.72		1972	7,133.80		1987	18,426.51
1958	3,673.80		1973	7,580.16		1988	19,334.04
1959	3,855.80		1974	8,030.76		1989	20,099.55
1960	4,007.12		1975	8,630.92		1990	21,027.98
1961	4,086.76		1976	9,226.48		1991	21,811.60
1962	4,291.40		1977	9,779.44		1992	22,935.42
1963	4,396.64		1978	10,556.03		1993	23,132.67
1964	4,576.32		1979	11,479.46		1994	23,753.53
1965	4,658.72		1980	12,513.46		1995	24,705.66

The law provides for an automatic increase in the OASDI program's contribution and benefit base, based on the increase in the average wage index, for the year following a year in which an automatic benefit increase became effective. As described in appendix F, the contribution and benefit base for 1997 was determined to be $65,400.

Under the retirement earnings test, earnings below certain amounts are exempted from the withholding of benefits payable to beneficiaries under age 70. Different exempt amounts apply for beneficiaries under age 65 and for those aged 65 to 69. The automatic adjustment provisions require that such exempt amounts be increased in the year following a year in which an automatic cost-of-living benefit increase becomes effective. Generally, increases in the exempt amounts are based on increases in the average wage index. Public Law 104-121, however, mandates a fixed series of exempt amounts for persons aged 65 to 69, for years 1996-2002. After 2002, the exempt amounts are indexed.

Table II.E2 shows historical automatic cost-of-living benefit increases for the years 1975-96 and assumed increases through 2006. The table also shows historical year-to-year percentage increases in the average wage index for 1975-95 and assumed increases through 2006. As noted above, the OASDI contribution and benefit base and the retirement test exempt amounts are adjusted on the basis of such wage increases. The historical and projected amounts for this base and the exempt amounts are also shown in table II.E2. The projections are shown under the three alternative sets of economic assumptions described in the previous section.

Table II.E2.­ Cost-of-Living Benefit Increases, Average Wage Index Increases, OASDI Contribution and Benefit Bases, and Retirement Earnings Test Exempt Amounts, by Alternative, 1975-2006
Calendar year	OASDI benefit increases 1/ (percent)	Increase in average wage index 2/ (percent)	OASDI contribution and benefit base 3/	Retirement earnings test exempt amount
				Under age 65	Ages 65 and over 4/
Historical data:
1975	8.0	7.5	$14,100	$2,520	$2,520
1976	6.4	6.9	15,300	2,760	2,760
1977	5.9	6.0	16,500	3,000	3,000
1978	6.5	7.9	17,700	3,240	4,000
1979	9.9	8.7	22,900	3,480	4,500
1980	14.3	9.0	25,900	3,720	5,000
1981	11.2	10.1	29,700	4,080	5,500
1982	7.4	5.5	32,400	4,440	6,000
1983	3.5	4.9	35,700	4,920	6,600
1984	3.5	5.9	37,800	5,160	6,960
1985	3.1	4.3	39,600	5,400	7,320
1986	1.3	3.0	42,000	5,760	7,800
1987	4.2	6.4	43,800	6,000	8,160
1988	4.0	4.9	45,000	6,120	8,400
1989	4.7	4.0	48,000	6,480	8,880
1990	5.4	4.6	51,300	6,840	9,360
1991	3.7	3.7	53,400	7,080	9,720
1992	3.0	5.2	55,500	7,440	10,200
1993	2.6	.9	57,600	7,680	10,560
1994	2.8	2.7	60,600	8,040	11,160
1995	2.6	4.0	61,200	8,160	11,280
1996	2.9	5/ 4.1	62,700	8,280	12,500
Intermediate:
1997	3.2	3.9	6/ 65,400	6/ 8,640	13,500
1998	3.3	3.2	68,100	9,000	14,500
1999	3.3	4.0	70,500	9,360	15,500
2000	3.4	4.2	72,900	9,720	17,000
2001	3.5	4.2	75,900	10,080	25,000
2002	3.5	4.3	78,900	10,440	30,000
2003	3.6	4.4	82,200	10,920	31,320
2004	3.5	4.4	85,800	11,400	32,640
2005	3.5	4.4	89,700	11,880	34,080
2006	3.5	4.4	93,600	12,360	35,520
Low Cost:
1997	2.8	3.8	6/ 65,400	6/ 8,640	13,500
1998	2.7	2.8	68,400	9,000	14,500
1999	2.5	3.8	70,800	9,360	15,500
2000	2.5	3.8	72,900	9,720	17,000
2001	2.5	3.8	75,600	10,080	25,000
2002	2.4	3.8	78,600	10,440	30,000
2003	2.6	4.0	81,600	10,800	31,080
2004	2.5	3.9	84,600	11,160	32,280
2005	2.5	3.9	87,900	11,640	33,600
2006	2.5	3.9	91,200	12,120	34,920
High Cost:
1997	4.0	4.0	6/ 65,400	6/ 8,640	13,500
1998	3.9	2.3	67,800	9,000	14,500
1999	5.7	6.4	70,800	9,360	15,500
2000	6.0	5.9	72,300	9,600	17,000
2001	4.5	2.9	76,800	10,200	25,000
2002	4.4	6.8	81,600	10,800	30,000
2003	4.6	5.0	83,700	11,160	30,840
2004	4.5	4.8	89,400	11,880	32,880
2005	4.5	4.9	93,900	12,480	34,560
2006	4.5	4.9	98,400	13,080	36,240
1 Effective with benefits payable for June in each year 1975-82, and for December in each year after 1982. 2 Increase in the average wage index from prior year to the year shown. See footnote 5 below and table III.B1 for projected dollar amounts of the average wage index. 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. Prior to 1991, the Hospital Insurance (HI) contribution base was the same as the OASDI contribution and benefit base. Higher HI bases of $125,000, $130,200, and $135,000 applied for 1991-93, respectively. Public Law 103-66 repealed the HI contribution base. 4 In 1955-82, the retirement earnings test did not apply at ages 72 and over; beginning in 1983, it does not apply at ages 70 and over. Amounts for 1978-82 specified by Public Law 95-216; for 1996-2002, Public Law 104-121. 5 Based on an estimated average wage index of $25,723.87 for 1996. 6 Actual amount, as determined and announced in October 1996.

Other wage-indexed amounts are shown in table II.E3. The table provides historical values from 1978, when the amount of earnings required for a quarter of coverage was first indexed, through 1997, and also shows projected amounts under the intermediate assumptions through the year 2006. These other wage-indexed program amounts are described in the following paragraphs.

As noted earlier, a worker who becomes eligible for benefits in 1979 or later generally receives a benefit based on his or her indexed earnings. These indexed earnings are used to calculate the worker's Average Indexed Monthly Earnings (AIME). The basic formula used to compute the Primary Insurance Amount (PIA) for workers who reach age 62, become disabled, or die in 1997 is:

90 percent of the first $455 of AIME, plus 32 percent of AIME in excess of $455       but not in excess of $2,741, plus 15 percent of AIME in excess of $2,741.

The amounts separating the individual's AIME into intervals -- the "bend points" -- are adjusted automatically by the changes in average wages as specified in section 215(a)(1)(B) of the Social Security Act.

A similar formula is used to compute the maximum total amount of monthly benefits payable on the basis of the earnings of a retired or deceased individual. This formula is a function of the individual's PIA, and is shown below for workers who first became eligible for benefits, or who died before becoming eligible, in 1997:

150 percent of the first $581 of PIA, plus 272 percent of the PIA in excess of $581       but not in excess of $839, plus 134 percent of the PIA in excess of $839       but not in excess of $1,094, plus 175 percent of the PIA in excess of $1,094.

These PIA-interval bend points are adjusted automatically in accordance with section 203(a)(2) of the Act.

An individual's insured status depends on the number of quarters of coverage he or she has earned while in covered employment. The 1977 amendments specified the amount of earnings required in 1978 to be credited with a quarter of coverage and provided for automatic adjustment of this amount for years thereafter.

The law provides for the determination of the OASDI contribution and benefit bases 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. ^3/ 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 II.E3.­ Selected OASDI Program Amounts 1/ Determined Under the Automatic- Adjustment Provisions, Calendar Years 1978-97, and Projected Future Amounts, Calendar Years 1998-2006, on the Basis of the Intermediate Set of Assumptions
Calendar year	AIME "bend points" in PIA formula			PIA "bend points" in maximum- family-benefit formula			Earnings required for a quarter of coverage 2/	"Old law" contribu- tion 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
Estimates:
1998	473	2,854		605	873	1,139	700	50,400
1999	492	2,966		629	908	1,184	720	52,500
2000	508	3,060		649	936	1,221	750	54,000
2001	528	3,181		674	973	1,270	780	56,400
2002	550	3,315		703	1,014	1,323	810	58,500
2003	573	3,455		732	1,057	1,379	840	61,200
2004	598	3,604		764	1,103	1,438	880	63,600
2005	624	3,764		798	1,152	1,502	920	66,600
2006	652	3,931		833	1,203	1,569	960	69,600
1 Other program amounts determined under automatic-adjustment provisions have negligible implications for the financial operations of the trust funds. These amounts are the substantial gainful activity amount for blind beneficiaries, the coverage threshold for domestic workers, and, for years after 1999, the coverage threshold for election workers. 2 See appendix F for a description of quarter-of-coverage requirements prior to 1978. 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.

² The average wage index is defined in the Code of Federal Regulations (Title 20, Chapter III, section 404.211(c)).

³ For special minimum purposes, "low earnings" means earnings of at least 15 percent of the old-law base. Prior to 1991, the definition required earnings of at least 25 percent of the old-law base.