Arthur J. Altmeyer
PROTECTION OF FEDERAL OLD-AGE AND SURVIVORS INSURANCE
TO MEMBERS OF ARMED FORCES
Arthur J. Altmeyer, Chairman,
Social Security Board
Reprint from Congressional Record,
October 25, 1943
General nature of plan: There are two methods that could be utilized in extending the protection of the Federal old-age and survivors insurance system to persons in the armed forces. One is the moratorium plan whereby all pre-existing rights under the Federal old-age and survivors insurance system, possessed by persons entering the armed forces, would be frozen at the time they entered the armed forces. The other method is simply to extend the coverage of the old-age and survivors insurance system to include service in the armed forces.
The moratorium plan has three disadvantages. One is that a large proportion of persons entering the armed forces have no previous existing benefit rights to be frozen. The second is that there is no increase in the benefit rights as occurs in the case of periods of insured employment. If these men had not been in the armed forces during the war, but had continued at their regular jobs or gone into war industry in most cases they would have been building up their benefit rights. The third is that it is more difficult to understand because it would be necessary to explain in each individual case that the period of military service would be blocked out in computing an individual's average wage (upon which benefits are paid) and in determining eligibility for benefits, both of which are related to the period of time elapsing from the date the Federal system originally went into effect (or from the date the individual became 21 years of age, whichever is the later).
It seems preferable, therefore, to treat service in the armed forces as though it were insured employment and to credit to the serviceman's social security account the wages received during his military service.
Amount of wages to be credited: In selecting the amount of wages to be credited to the serviceman's social security account consideration must be given to equity to the serviceman, and to administrative factors. The actual amount of pay received by the serviceman might be credited under the program plus an arbitrary amount such as $60 or $75 per month to represent the value of the subsistence which he receives. Crediting the actual pay, however, may involve substantial administrative difficulties. Two other simpler possibilities are either the highest pay during military service, or pay at time of discharge--plus some amount in lieu of subsistence. Another even more simple possibility is to provide some flat sum for all persons in the service, such as $160 per month, as is provided in the military service amendments to the Railroad Retirement Act. It should be noted that the crediting of any amount less than $250 per month (the maximum under the present insurance program) may reduce the amount of any benefit slightly for those few persons who had higher earnings and were covered under the insurance system before entering military service.
Contributions by servicemen: Since the old-age and survivors insurance program is a contributory program, it is suggested that the legislation affording military service credit provide that contributions be paid just as they are in private employment. This should add to the assurance that any benefits derived from military service are being provided through a contributory program. In private employment, the employer may pay the individual's contributions for him. Analogously, provision can be made that the Federal Government should pay the serviceman's contributions.
Duplicate benefits: An important question to be decided is the relationship of regular veterans' benefits to benefits which would be payable under the Federal old-age and survivors insurance system. It is desirable not only to eliminate gaps, but also overlaps in providing protection against economic loss. In other countries having a social insurance system adjustments are usually made to prevent the payment of duplicate benefits for the same hazard. In Great Britain, for example, social security benefits usually are not payable if the person is eligible for veterans' benefits. In Germany the social insurance benefit may be reduced to one-third when veterans' benefits are payable.
In this country the problem of adjustment of duplicate benefits payable for the same hazards under the Social Security Act and other laws has not yet been faced or solved. If the social security law had been passed first it is probable that the various other laws Federal, State, and local, providing protection against economic loss due to the same hazards would have taken into account the basic protection provided under the Social Security Act. That is to say, the benefits provided under such other laws would have been made supplementary to the extent necessary to a more desirable degree of protection. However, as it is, in this country benefits are paid under veterans' legislation, under workmen's compensation laws, and, under other Federal, State, and local government retirement plans without any adjustment for the fact that we now have a basic social security law. The result is that frequently the benefits provided are in excess of the economic loss sustained.
In the case of workmen's compensation the duplication of benefit payments occurs only in the case of death, since disability benefits are not yet provided under the basic social security law. But in the case of death, while each type of law calculates benefits as a percentage of the wage loss sustained with a maximum to prevent payment of more than the wage loss, the payment of the given percentage under several laws results many times in a payment in excess of 100 percent of the wage loss sustained. If veterans' benefits are intended to cover a proportion of the economic loss, the same result occurs in the case of death as under workmen's compensation.
Duplicate benefits can also occur in the case of persons who are entitled to old-age retirement benefits under both the old-age and survivors insurance system and under some other Federal, State, or local Government retirement plan. While this duplication is reduced somewhat by the fact that all old-age retirement benefits are generally related to the actual period of service, this duplication is by no means eliminated in its entirety, since the benefits provided under the Federal old-age and survivors insurance system have very little relationship to the actual actuarial value of the contributions that have been made by or on behalf of each individual who is insured. This is particularly true in the early years of the operation of the Federal old-age and survivors insurance system. Of course, if in the present instance the Government bears the cost of the employee's contributions as well as the employer's contributions, this is all the more true.
In this respect social insurance differs from private insurance. A comparison of the actuarial value of contributions and the actuarial value of benefits payable in the early years of the old-age and survivors insurance system will be found in table 5 of the report of the Senate Finance Committee on the Social Security Act amendments of 1939 (S. Rept. No. 734, 76th Cong., 1st sess.). That table indicates, for example, that a person who receives under the old-age and survivors insurance system $27.50 a month makes contributions which would purchase an annuity of only 41 cents a month. However, eventually, as this table indicates, the employees' contributions will cover approximately one-half of the actuarial cost of the benefits for the high-paid employee.
The Federal Government would of course have no power to require our State or local governments to make adjustments in benefits to take account of the basic benefits provided under the Social Security Act. However, it would appear that the Federal Government should make adjustments in the benefits provided under various Federal laws to cover economic loss in order to take account of the basic protection provided by the Federal old-age and survivors insurance system. This adjustment should, of course, be made in such a manner as to eliminate any gaps in the protection and to prevent any reduction in combined protection below a reasonable level. In the case of the various special Federal old-age retirement plans which relate the amount of benefits to length of service, while the problem of duplication exists, it is not quite so great, although its solution is more difficult. Therefore, any adjustment should start with Federal employee non-contributory plans where benefits are paid that are not related to the length of service; such as veterans' benefits and benefits payable under the United States Employees Compensation Act, the District of Columbia Workmen's Compensation Act, the Longshoremen and Harbor Workers Compensation Act, and various non-contributory retirement plans for officers of the armed forces.
If the benefits provided under the old-age and survivors insurance system, standing alone, and the benefits provided under these other Federal non-contributory plans, standing alone, were considered completely adequate, it would probably be logical and reasonable to provide that benefits should be payable under only one law. Thus, one method would be to provide that no benefits shall be payable under the Federal old-age and survivors insurance system if benefits are payable under some other Federal law to cover the same hazard. This method is incorporated in bill S. 281. Its defect is that the benefit payable under some other Federal law may not be adequate and also not be as great as the benefit payable under the Federal old-age and survivors insurance system. Moreover, it would seem to be inequitable to pay the non-contributory benefit and withhold all of the "insurance" benefit toward which some contribution had been made by or on behalf of the insured.
Another method is to provide that there shall be subtracted from the benefits payable under the Federal old-age and survivors insurance system benefits payable under some other Federal law. This would make certain that a person would always receive an amount equal to the higher of the two benefits. However, again we could not be sure that even the higher of the two benefits was completely adequate. Moreover this method also would not recognize that a person insured under the Federal old-age and survivors insurance system probably should receive some additional protection because of the contributions that he has made under that system.
A third method would be to provide that the full old-age and survivors insurance system benefits shall be paid in any case and that the benefits provided under any other Federal law shall be reduced by only one-half of the amount of the old-age and survivors insurance benefits or one-half of the amount of the benefits provided under the other law, whichever amount is the lesser. An alternative way of accomplishing the same result as achieved under the last-mentioned method would be to make an equivalent adjustment in the Federal old-age and survivors insurance system benefits but pay the full benefits provided under the other Federal law. While this alternative would accomplish the same result and might be considered more acceptable, it is not so logical if the Federal old-age and survivors insurance system is recognized as the basic social security system and all other governmental systems are considered supplemental thereto.
It should be recognized that even this third method does not bring about a fundamental readjustment of benefits under the various systems to take into account their relationship to each other. Therefore, this method does not make certain that the total combined benefits is adequate in all cases. However, it does make certain that in all cases where protection is provided under more than one system, the beneficiary receives more in total benefits than he would receive under any one system.
There are a number of other methods which would adjust, in part at least, the duplication of benefits occurring under the several Federal laws, but it is doubted whether they would be considered as understandable as any of the three mentioned above.
In deciding on the adjustment to be made an important detail relates to the treatment of survivors who are already receiving old-age and survivors insurance benefits or would have been receiving such benefits if credit for military service had been granted in the past. For the survivors of persons already killed in service retroactive credit might be granted and benefits adjusted so that all survivors of persons killed in service will receive benefits according to the same plan. Some of the alternatives for adjusting benefits would result in reduced benefit amounts for a small number of persons already receiving, or eligible, for old-age and survivors insurance benefits. Therefore, consideration should be given to whether to apply the adjustment provisions only with respect to future deaths in order not to reduce benefits already payable, or to apply the adjustment with respect to all deaths in the military service since 1940.
Disqualification: It is assumed that since old-age and survivors benefits are payable under a contributory insurance program there will be no disqualification from receipt of any credit under the old-age and survivors insurance program if the discharge is not under honorable conditions.
Effective date of plan: Among the various dates which may be considered in determining the effective date of the plan are the following: September 8, 1939, at which time the emergency was proclaimed by the President; August 31, 1940, when the National Guard was called into active service; and September 16, 1940, when the Selective Training and Service Act was approved. As calendar quarters constitute the time unit with respect to wage credits under the old-age and survivors insurance system, the wage credits to be provided might begin with a calendar quarter, such as July 1, 1940, or October 1, 1940.
Terminal date of plan: The providing of wage credits for servicemen under the old-age and survivors insurance program might be terminated at the end of the war or at the end of a reasonable period thereafter. It is impossible to determine now the length of time it will take for demobilization after the termination of hostilities. Moreover, it does not seem necessary that a terminal date be specified in the initial legislative enactment. If termination of the plan is desired at the end of the war the appropriate date can be inserted at that time by amendment. However, there is no fundamental reason why the crediting of wages under the old-age and survivors insurance program for military service need be discontinued at all, since movement of individuals in and out of the armed forces will continue, although on a reduced scale.