SSR 80-30a: SECTION 203 (42 U.S.C. 403) WORK DEDUCTIONS -- BACK PAY UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967
20 CFR 404.430, 404.434, and 404.822(e)(6)
- On January 31, 1971, the claimant was forced by his employer to retire from his job because of his age. He performed no work for that employer after that date. In October 1973, the claimant attained age 62 and applied for, and received, old-age insurance benefits. In 1974, the Secretary of labor sued the employer to enforce the rights of the claimant and others who had been involuntarily retired by the employer in violation of section 8 of the Age Discrimination in Employment Act of 1967. As a result of this action, the claimant was awarded $13,690.62 in back pay and other benefits for the period February 1, 1971, to May 15, 1974. Held, the back pay awarded to the claimant under the Age Discrimination in Employment Act of 1967 for the period February 1, 1971, to May 15, 1974, constitutes wages for deduction purposes under section 203(f) of the Social Security Act, even though the claimant performed no actual work for the employer during that period.
The issue before the Appeals Council is whether the claimant is subject to work deductions for the year 1973. Specifically at issue is whether the claimant had "earnings" in excess of $175.00 for any month from October 1973 through December 1973.
The claimant was severed from his employment with his company on January 31, 1971, and performed no actual services for the company after that date. He applied for, and received, old-age insurance benefits effective October 1973, the month he attained age 62. The United States Department of Labor acted on behalf of the claimant and others in bringing suit against the company for violations of the Age Discrimination in Employment Act of 1967, and the Fair Labor Standards Act of 1938. As a result of this action, the claimant was awarded $13,690.62 in back pay and other benefits, representing 39½ months remuneration for the period February 1, 1971, to May 15, 1974.
The Social Security Administration (SSA) subsequently determined that the award of $13,690.62 represented back pay under a statute, and allocated the award to the claimant's earnings record. After taking into account other earnings that the claimant received from the company in 1971, SSA adjusted the earnings record to reflect the following amounts:
|1971 - $7,800.00||1973 - $4,159.20|
|1972 - $4,159.20||1974 - $1,559.62|
SSA advised the claimant that because of this allocation of earnings he was subject to work deductions, under the provisions of section 203 of the Social Security Act (the Act), for the period October 1973 through December 1973 and had been overpaid $1,084.80.
The administrative law judge found that the payment received by the claimant from the company was not "earnings" within the meaning of section 203(b) of the Act, as the claimant rendered no services for the company during the period for which the claimant was compensated, and that the claimant had therefore not been overpaid old-age insurance benefits.
Section 203(b) of the Act provides that deductions, in amounts and at such times to be determined by the Secretary of Health, Education, and Welfare, shall be made from the old-age insurance benefits to which an individual is entitled for any month or months to the extent that excess earnings are chargeable under section 203(f) of the Act.
Section 203(f) of the Act, as applicable to the taxable year 1973, provided that an old-age insurance beneficiary could earn as much as $2,100.00 without suffering a loss of benefits, and that earnings in excess of $2,100.00 were chargeable at the rate of $1.00 for each $2.00 in excess of $2,100.00 against benefits for each month in which, while under age 72, he earns wages of over $175.00.
Section 203(f) of the Act, as applicable to the taxable year 1974, provided that an old-age insurance beneficiary could earn as much as $2,400.00 without suffering a loss of benefits; and that earnings in excess of $2,400.00 were chargeable at the rate of $1.00 for each $2.00 in excess of $2,400.00 against benefits for each month in which, while under age 72, he earns wages of over $200.00.
Section 203(f)(5)(A) of the Act provides that an individual's earnings for a taxable year shall be the sum of his wages for services rendered in such year and his net earnings from self-employment for such year, minus any net loss from self-employment for such year.
Section 203(f)(1)(E) of the Act as in effect in 1973 and 1974, provided that no deductions on account of excess earnings may be made from an individual's monthly benefits in any month in which the individual did not engage in self-employment and did not render services for wages in excess of the monthly limitation.
In his decision, the administrative law judge relied upon section 203(f)(1)(E) of the Act. He also took note of Social Security Board v. Nierotko, 327 U.S. 358 (1946), a case involving "back pay" under a statute. The administrative law judge distinguished Nierotko from this case by pointing out that Nierotko involved a question of "wages", as defined by section 213 of the Act. In Nierotko, the claimant sought coverage for wages retroactively paid under a statute. The United States Supreme Court held that employee "service" included an employment relationship in recognition of which back pay for non-work periods is awarded under a statute protecting employee rights. The Court interpreted "service" as encompassing the entire employer-employee relationship for which remuneration is paid regardless of whether any work is actually performed.
The Appeals Council believes that Nierotko applies with equal force as to whether back pay constitutes "earnings" within the meaning of section 203 of the Act. Moreover, there is no reason to believe that the expressions "services rendered" and "rendered services", as used in section 203(f) of the Act, differs in meaning from the expression "services performed" as used in the definition of "employment". In Kore v. Celebrezze, 342 F.2d 638 (7th Cir. 1965), the Court of Appeals held that Nierotko was applicable in defining "service" for purposes of the deduction provisions of section 203(f) of the Act. The Court of Appeals in Kore ruled that the employee had "rendered services" for deduction purposes event though he had performed no actual work for his employer. In light of Nierotko and Kore, the Appeals Council finds that work deductions are applicable in this case for 1973 as the claimant earned in excess of $2,100.00 in that year. Deductions are not applicable for 1974, as the claimant earned less than $2,400 in that year.