Research Notes & Special Studies by the Historian's Office
Research Note #2:
Original 1935 Act-
The origins of the Lump Sum Death Benefit (LSDB) were in the original 1935 legislation, although not intended to be a "burial benefit" as such. The concern in the 1935 Act was the equity for individuals who died prior to retirement age (65 at the time). And since there were no survivors benefits in the original program, a provision was added to award a LSDB to the survivors in the amount of 3.5 % of the individual's covered earnings. LSDB payments were made from 1937 through 1939 and since the maximum covered earnings during these years was $3,000 per year, the maximum LSDB payment that could have been paid was $315, although virtually all of the payments were for considerably less than this amount. In December 1939 the average LSDB was $96.93.
The major Amendments of 1939 introduced survivors benefits into the program and began regular monthly benefit payments in 1940. Due to the addition of survivors benefits, the original LSDB was discontinued. In its place, the current LSDB was introduced, with the intention that this would assist surviving family members when regular survivors benefits were not otherwise payable. If there were no surviving family members, the LSDB could be paid to an individual who assisted with the burial expenses of the worker. So the LSDB was not strictly a burial benefit, although it evolved over the years to be considered as such.
The amount of the LSDB was defined as 6 times the Primary Insurance Amount (PIA). The PIA is basically the monthly benefit amount for the worker at full retirement age.
The average LSDB payment in 1940 was $145.79. The minimum payment ever made under this 6X computation rule was $63.75 and the maximum payment $273.60.
The 1950 Amendments lifted the restriction on the LSDB to cases where no survivors benefits were payable. After 1950, all deaths of covered workers were potentially eligible for the LSDB.
The 1950 Amendments also increased basic monthly benefits for the first time since payments began in 1940. This large increase in payment levels (almost 80%) would have dramatically increased the LSDB, so the benefit was redefined as 3 times the PIA. The result was to hold the maximum LSDB amount steady at approximately the existing level. The average LSDB payment in 1950 was $147.81.
The cap of $255 on the LSDB was introduced by law in 1954. Two years prior to this legislative change, the maximum PIA payable under Social Security had reached the $85 level. Thus 3 X the PIA for these maximum cases would yield a LSDB of $255. In 1954, Congress decided that this was an appropriate level for the maximum LSDB benefit, and so the cap of $255 was imposed at that time.
This 1954 change meant that no claim for a LSDB could be paid of more than $255, although claims could still be for less than this amount--if the person's actual PIA was lower than $85.
So, the statutory cap on the LSDB has been in place since 1954. However, most people did not receive the maximum payment in 1954, and the average LSDB payment that year was only $207.86.
By 1974 the lowest possible PIA had reached $85, and hence the lowest possible LSDB payment available under the computation formula also reached $255. Thus the cap on the LSDB at $255 also effectively became a floor under the benefit. However, because some people who died in a given year would have had their PIA figured for earlier years (and thus might have PIAs less than $85), there were still some cases in which the LSDBs being paid were less than the $255. (The effect of this on the average LSDB payment can be seen in this Table.)
The Omnibus Budget Reconciliation Act of 1981 made two changes to the law regarding the LSDB. Previously if no spouse or child of the deceased worker was eligible for receipt of the LSDB, a funeral home or other party who was responsible for the funeral expenses could sometimes claim the benefit. After the 1981 changes, the only people eligible for the LSDB are a spouse who was living with the worker at the time of his death, or a spouse or child who is receiving monthly benefits on the worker's record. In some cases, therefore, a LSDB is no longer paid.
The second change in the 1981 law eliminated the minimum benefit guarantee of previous law. This meant that individuals might have PIAs considerably lower than $85, and hence LSDBs considerably lower than $255. To prevent this from happening, the law provides that the provisions of the 1981 OBRA act which eliminated the minimum benefit are not considered when computing the LSDB. Thus, current law provides that the LSDB is 3 X the PIA, or $255, whichever is less. And in determining the PIA, for this purpose alone, the PIA is computed as if the minimum benefit repeal provision of the 1981 law had never been passed.