Statement of James B. Lockhart
Deputy Commissioner for Social Security
Testimony before the House Committee on Ways and Means Subcommittee on Social Security
Subcommittee on Oversight Hearing on Individual Taxpayer Identification Numbers (ITINs), Social Security Numbers (SSNs), Wage Reporting, and the Suspense File
March 10, 2004
Mr. Chairman and Members of the Committee:
Thank you for asking me to be here today to discuss the steps SSA has taken to improve and strengthen our wage reporting and enumeration processes, as well as our efforts to reduce the size of the suspense file. We have taken positive action in all these areas. Enumeration, which is the issuance of Social Security numbers (SSNs), and wage reporting are core Agency functions. Commissioner Barnhart's Five Year Strategic Plan has nine strategic objectives, of which two are: "Strengthen the integrity of the Social Security number" and "Increase the accuracy of the earnings record."
History of the Social Security Number and Card
First, I would like to describe the history and the original purpose of the SSN and the Social Security card. Following the enactment of the Social Security Act in 1935, the SSN was developed to keep track of the earnings of people who worked in jobs covered under the new Social Security program. The rules regarding the assignment of SSNs to workers were first published in Treasury regulations in 1936.
The Social Security card reflects the number that has been assigned to each individual who applies for an SSN. The card, when shown to an employer, assists the employer in assuring that earnings are reported properly. Public information documents issued early in the administration of the program advised workers to share their SSNs only with their employers. Initially, the only purpose of the SSN was to assure that SSA kept accurate records of earnings under Social Security so that we could pay benefits based on those earnings.
Use of the SSN Expands Over Time
Although the purpose of the SSN was narrowly drawn from the outset of the program, use of the SSN as a convenient means of identifying people in large systems of records has increased over the years. In 1943, Executive Order 9397 required Federal agencies to use the SSN in any new record systems for the purpose of identifying individuals. This use proved to be an early reflection of what has become an enduring trend to expand the use of the SSN. The simplicity and efficiency of using a unique number that most people already possessed encouraged widespread use of the SSN by both government agencies and private enterprises, especially as they adapted their record-keeping and business systems to automated data processing.
In 1961, the Federal Civil Service Commission established a numerical identification system for all Federal employees using the SSN as the identification number. The next year, the Internal Revenue Service (IRS) decided to begin using the SSN as its taxpayer identification number (TIN) for individuals. In 1967, the Defense Department adopted the SSN as the service number for military personnel. At the same time, use of the SSN for computer and other accounting systems spread throughout State and local governments, to banks, credit bureaus, hospitals, educational institutions and other parts of the private sector. During this time, there were no legislative restrictions on the use of the SSN.
Statutory Provision Relating to the Public Sector
The first explicit statutory authority to issue SSNs was not enacted until 1972, when Congress required that SSA assign SSNs to all noncitizens authorized to work in this country and take affirmative steps to assign SSNs to children and anyone receiving or applying for a Federally funded benefit. Subsequent Congresses have enacted legislation which requires an SSN in order to receive Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), Medicaid, and food stamps. Additional legislation authorized States to use the SSN in the administration of tax, general public assistance, driver's license, or motor vehicle registration laws within its jurisdiction.
The Privacy Act was enacted in 1974 partly in response to concern about the widespread use of the SSN. It provided that, except when required by Federal statute or regulation adopted prior to January 1975, no Federal, State, or government agency could withhold benefits from a person simply because the person refused to furnish his or her SSN.
In the 1980s and 1990s, new legislation provided for additional uses of the SSN, including employment eligibility verification, military draft registration, and for operators of stores that redeem food stamps. Legislation was also enacted that required taxpayers to provide the SSN for dependents.
A major expansion of SSN usage was provided in welfare reform legislation enacted in 1996. Under welfare reform, to improve child support enforcement, the SSN was required to be recorded in a broad array of records, including applications for professional licenses, marriage licenses, divorce decrees, support orders, and paternity determinations.
Use of the SSN by the Private Sector
Currently, there are no restrictions in Federal law on the use of the SSN by the private sector. Businesses may ask for a customer's SSN for such things as renting a video, applying for credit cards, obtaining medical services, and applying for public utilities. Customers may refuse to provide the number, however, the business may, in turn, decline to furnish the product or service. Continuing advances in computer technology, the ready availability of computerized data, and rapidly increasing use of the internet have encouraged the growth of information brokers who amass and sell large volumes of personal information, including SSNs collected by businesses. When possible, information brokers store and retrieve information about an individual by that individual's SSN because it is more likely than any other identifier to maintain unique records for each specific individual.
Contemporary Challenges Regarding the SSN
As you can see, use of the SSN is widespread in our society. This usage is the product of numerous decisions made over the years. The cumulative effect is to make the SSN an important element in establishing and maintaining an individual's identity in various record systems, and the ability of individuals to function in our society and economy. As a result, the SSN is prized by criminals who are intent on stealing another person's identity, or creating a false identity.
Accomplished identity thieves use a variety of methods to gain access to personal data. We at the Social Security Administration want to do whatever we can to help prevent identity theft and assist in the apprehension and conviction of those who engage in this crime.
Social Security Cards Issuance
The vast majority of new cards are issued to U.S. citizens or to non-citizens who have been permanently authorized to work in the U.S. These cards show only the name and SSN of the individual. In 2003 we issued approximately 5.4 million new cards. Of these 4.2 million were issued to U.S. citizens, nearly 90 percent of these were issued through our Enumeration at Birth process, which successfully expedites SSN issuance for newborns and facilitates their parents' tax return filings. In addition we issued almost 400,000 new cards to non citizens who were lawfully admitted for permanent residence.
Non-citizens who are not authorized to work, or who are only temporarily authorized to work will receive a card bearing one of two legends. We issued approximately 800,000 of these cards.
We have been issuing cards with the legend "Valid for Work Only With INS Authorization" since 1992 in cases where non-citizens come to the U.S. with temporary authorization to work. In 2003 about 771,000 of these cards were issued.
We started issuing cards with the legend "Not Valid for Employment" in 1982 to inform employers that the individual is not eligible for work. In 2003 we issued less than 20,000 of these cards. Due to changes we have made, we have had a significant decline in the number of "non-work" SSNs we issue, from a peak level of over half a million in the mid-90s.
Strengthening the Enumeration Process
In connection with this effort, I'd like to discuss what SSA has done to strengthen the processes associated with assigning Social Security Numbers. The terrorist attacks of September 11, 2001 reinforced the need for a concerted long-term effort to address SSN misuse and identity theft. SSA formed a high-level response team meeting regularly to develop recommendations on enumeration policy and procedure. Implementation of many of the team's recommendations has strengthened our capability of preventing those with criminal intent from obtaining and using SSNs and SSN cards.
For example, effective October 27, 2003, SSA does not assign an SSN to noncitizens who are not authorized to work when the only reason for needing a number is to comply with a state statute requiring an SSN for the issuance of a driver's license.
SSA changed procedures in February 2002 for verifying a person's SSN so that additional private information on SSA's records (NUMIDENT) would not be included on the document that verifies the SSN.
Beginning June 1, 2002, SSA began verifying birth records with the issuing agency for all U.S. born SSN applicants age one or older. (Under former rules, we only verified birth records for applicants age 18 and older.)
SSA no longer assigns SSNs to non-citizens who are authorized to work without first verifying the authenticity of their immigration documents with United States Citizenship and Immigration Services (USCIS).
As of mid-December, 2001, new audit trails were put in place for SSN applications, making the quality checks used under SSA's SSN verification processes consistent and more robust.
Our online SSN verification system (SSNVS) pilot for employers has expanded from the original 9 employers to 85. This system holds great promise, but, we are proceeding carefully to ensure that the system is secure as well as user friendly.
We have been successful in establishing a process, administered jointly by SSA and the Department of State, which allows SSA to assign SSNs and issue SSN cards to non-citizens who choose to apply for an SSN as part of the process that allows them to enter the country as permanent residents. (Thus, this process is not available to students or tourists.) Under this process, known as Enumeration at Entry (EAE), the data required to assign an SSN, including verification of the individual's immigration and work authorization status, are provided to SSA by the Department of State (DOS) and the Department of Homeland Security, (DHS), (formerly INS). SSA electronically receives the information needed to enumerate the individual from the INS with no need for further document review and verification.
SSA has reserved a block of Social Security numbers specifically for assignment under the EAE process. Therefore, all non-citizens choosing to use this process to request their SSN receive a number from this special series. All US consular sites now have the software necessary to allow non-citizens applying for permanent residence in the U.S. to participate in EAE.
We also continue to look for other ways to make the enumeration process more efficient and secure. A pilot Social Security Card Center opened in Brooklyn, New York in November, 2002. The Center represents a joint effort of SSA, SSA's Office of the Inspector General and the Immigration and Naturalization Service (now USCIS). The collaboration of the parties is intended to strengthen SSN application procedures, ensuring that applications are processed with a high degree of integrity, efficiency and expertise.
As of February 2004, the Center has successfully served over 170,000 visitors. While we are waiting to see the final results from the review of the pilot, initial feedback has been extremely positive. After considering the final results, we hope to open at least one additional Card Center this year. We will move slowly and judiciously in deciding when and where to open it.
The Wage Reporting Process
I would now like to discuss the process of reporting and crediting wages. SSA's role in the wage reporting process ensuring that all workers receive credit for the work on which they and their employers paid FICA taxes is one of SSA's core business processes, and it ensures that a worker and his or her family receive benefits that accurately reflect all of the worker's earnings.
Accurate earnings information is important because a worker's earnings record is the basis for computing retirement, survivors, and disability benefits. If a worker's earnings are not properly recorded, he or she may not qualify for benefits, or the benefit amount may be too low or too high.
Employers report wages to the Social Security Administration on Forms W-2. Each year, SSA processes about 240 million W-2s from about 6.5 million employers, that are sent to the Social Security Administration (SSA) either on electronic media or on paper. These W-2s represent the wages earned by about 145 million workers annually. While some employers continue to send paper reports, we encourage electronic filing. We work with the employer community to educate them on the advantages of this method, and its use continues to grow as technology improves. I am pleased to report in 2003 over 53% of W-2s were filed electronically up from less than 10% in 1999.
When a person files for benefits, the SSA employee reviews the earnings record with the worker and assists the worker to establish any earnings that are not shown or are not correctly posted. However, because it may be difficult to accurately recall past earnings or to obtain evidence of them, it is better to establish and maintain accurate records at the time the wages are paid.
As you know, SSA mails Social Security Statements to all workers over age 25 each year. Among other benefit information on the Statement, it shows the worker's annual earnings for past years. This gives the worker the opportunity to verify the earnings on SSA's records and to determine if any earnings are missing. Corrections can be made on a more timely basis by reviewing the Statement, instead of waiting until the point that an actual claim is filed.
In addition to using earnings for Social Security benefit purposes, SSA sends the same data to the IRS, which has the responsibility of collecting the income taxes due.
The earnings suspense file is an electronic holding file for W-2s that cannot be matched to the earnings records of individual workers. This happens when the name and SSN on the W-2s do not match SSA's records. The suspense file is maintained so that if SSA later obtains the correct name and/or SSN for a worker, the wages can then be credited to that person's record. As I mentioned, the suspense file contains about 244 million W-2s (data through TY 2001-the most recent year for which complete data is available).
In order for wages to be credited to the correct worker, the worker's name and SSN on the W-2 must match the name and SSN recorded on the "Numident" file - the master record of SSNs issued. We receive 240 million W-2 reports annually. About 10 percent of the W-2s received by SSA have invalid name/SSN combinations when they first come to us. In our initial processing, the computer system manipulates the name and SSN to try to find a match on our records. A number of separate processes address discrepancies between the name reported on the W-2 and the name on SSA records. For example, compound surnames sometimes cause a "no match". Other processes assume that the reported name is correct but that some mistake has been made with the SSN. The reported SSN is adjusted for a variety of prescribed common mistakes, such as transposing digits, in an effort to obtain a match. For TY 2001, we were able to post 6 percent of all W-2s received to the correct SSN through these computer routines-i.e., 60 percent of the 10 percent of all W-2s received with invalid name/SSN combinations. The balance, 4 percent of W-2s received for TY 2001, remains in the suspense file. This represents approximately 9.6 million W-2s representing $56.1 billion in wages and $7.0 billion in social security payroll taxes.
Subsequent processing reduces this percentage further. W-2s are removed from the suspense file on an ongoing basis and reinstated to the correct worker's record. These reinstatements can occur for various reasons for example, because the worker raises a question about his or her earnings when they receive their Social Security Statement, or during the benefit application process, or as a result of internal processing where SSA can subsequently match the W-2 to the correct worker. As a result of this subsequent processing, over time, there is a decline in the percentage of W-2s for a given year or period of years that remain in the suspense file. For example, for tax years beginning in 1978, when SSA began processing W-2s, through TY 2001, about 2 percent of all W-2s remain in the suspense file.
Individual Tax Identification Numbers
Some W-2s received by SSA have an Individual Tax Identification Number (ITIN) in the SSN field on the form, instead of a valid SSN. An ITIN is a 9-digit number issued by IRS to non-citizens who need tax identification numbers for tax purposes and who otherwise do not meet the requirements for being assigned an SSN. When employers show an ITIN on the W-2, this results in the W-2 being posted to the suspense file because an ITIN is not a valid SSN.
IRS began assigning ITINs effective July 1,1996. Subject to a 1997 Memorandum of Understanding between SSA and IRS, IRS agreed that ITINs will be nine digits beginning with the number "9" and initially will have either "7" or "8" in the 4th position.
A one-time review of our records indicated that for the period 1996 (the first year ITINs were issued) through 2002, approximately 342,000 W-2s have been reported under ITINs and remain in the suspense file. This represents less than two-tenths of 1 percent of the W-2s in the suspense file since its beginning through the time of the review.
Removing W-2 Items from the Suspense File
SSA is committed to significantly reducing the suspense file's rate of growth as well as to reducing its current size. This commitment reflects SSA's concern that, when earnings are not posted to an individual's earnings record, the individual will not receive proper credit, a concern that I discussed earlier. As part of this effort, SSA employees carry out a number of activities to assure that W-2s are credited to the correct individuals' earnings record.
One activity that SSA has instituted is to notify employers with a significant number of mismatches of all name and SSN errors on the W-2s that they reported. SSA also requests corrected W-2s, so that employers will avoid the same mistakes in future years. These letters are often called employer "no-match" letters, and in 2003, SSA sent 126,250 of these letters to employers with substantial numbers of mismatched name/SSN combinations.
We also notify employees that we could not process their W-2s due to errors on the W-2 and ask them to work with us to resolve the problem. These notices are often referred to as employee "no-match" letters. In 2003, we sent 9.5 million such letters to employees, of which 1.9 million went to their employers because we did not have a good address for the employee.
Last year, for TY 2002, the letters were modified to make them easier to understand and to emphasize the cautionary language that an employer should not take adverse action against the employee. This version of the notice was used again for the most recent year.
For those who did not respond to the employee no-match letters, SSA compares the name and address with the name and address on the IRS' master file. If there is a match, the person's wages can be credited on the basis of the SSN reported to the IRS on the person's tax form.
On a cyclical basis, SSA runs an electronic operation to review all the W-2s in the suspense file in light of improvements that have been made to the electronic processes I mentioned before. This operation, known as "SWEEP," is run every year for the suspense file back to 1978 and every two years for the entire suspense file (back to 1937). While the SWEEP program is most successful in crediting earnings from recent years, it does identify earnings that can be associated with a correct SSN for all years. For the 2002 processing year, the SWEEP operation removed 468,000 W-2s from the suspense file and properly reinstated them to correct individual's records. This operation included reinstatements for all past years back to 1937.
Beginning in April 2003, SSA implemented a new process that will electronically find millions of additional matches of W-2s in the suspense file and post those W-2s to the earnings records of the correct individuals. While the previous processes to match the name and SSN used only the Numident, the new process also uses the worker's detailed earnings record (that includes employer information) and the master beneficiary record, for those who are receiving benefits, to identify the missing earnings with the correct worker. This new process also employs new techniques with earnings record patterns to match the earnings to the correct individual.
As a result of this new process, in FY 2003, 2.4 million W-2s were removed from the suspense file and posted to the correct earnings records. It is estimated that a total of 30 million W-2s will be removed from suspense and credited to the records of individual workers through these new efforts.
Helping Individuals and Employers Find Missing Earnings
As I have mentioned, an individual may contact us at any time in the event that earnings are missing from his or her earnings record or not correctly posted. SSA makes a concerted effort to fully resolve any discrepancy. We review the individual's record, item-by item, including all earnings and employers, in order to assist the individual in identifying the earnings that are in question. We request that the individual provide SSA with as much evidence of the earnings (Forms W-2, pay stubs, etc.) as may be available. With the individual's permission, we contact any employers and request that the employer check all records for possible evidence of earnings.
In addition, we check the suspense file both by the worker's SSN and by employer identification number in an attempt to locate the earnings in question. If SSA is satisfied that the earnings in the suspense file belong to the worker based on the evidence that has been provided by the worker, the worker's earnings record is credited with the earnings.
In addition to these processing activities, SSA assists employers to make sure that the name and SSN provided to them by new employees match the information on our records.
SSA has successfully provided SSN verification services to the employer community for many years. In the beginning, this was a manual process which was highly labor intensive. SSA's verification workloads have increased as the use of the number has expanded. Now, SSA provides SSN verification for employers through a special employer 800 number. In addition, SSA verifies SSNs for employers via the Employer Verification System (EVS). As of January 2004, approximately 13,500 employers have registered for EVS. In addition, in FY 2003 we responded to nearly 1.1 million telephone calls at our employer reporting service center.
EVS is a free, convenient way for employers to verify employee SSNs. EVS provides several options to employers depending on the number of SSNs to be verified. For up to five SSNs, employers can call SSA's toll-free number for employers - 1-800-772-6270 - weekdays from 7:00 a.m. to 7:00 p.m. Employers may also use this number to get answers to any questions they have about EVS, or to request assistance.
Employers also have the option to submit a paper listing to the local Social Security Office to verify up to 50 names and SSNs. In addition, they may use a simple registration process to verify requests of more than 50 names and SSNs or requests submitted on magnetic media (regardless of how many items are being verified). All these requests, whether made via phone, paper, or magnetic media, are handled through the EVS system. However, from an efficiency and accuracy standpoint we plan to encourage electronic verification via the internet, and hope to continue rolling out SSNVS, which is being piloted.
The Social Security Number Verification Service (SSNVS), is an internet option to verify the accuracy of employees' names and SSNs by matching the employee-provided information with SSA's records. To date, we have processed over 4.5 million verifications for the 85 employers who are participating in the pilot. SSNVS provides a quicker and more efficient alternative for employers to obtain verifications than some of the other methods I have described to verify information. Beginning in January 2004, we added death file information to the responses received by participating employers. We are considering modifications of other automated routines to include death file information. When we review the pilot results, we will be in the best position to determine what our next steps should be.
Because correct names and Social Security numbers (SSNs) on W-2 wage reports are the keys to successful processing of employer submitted annual wage reports, each of our regional offices have Employer Service Liaison Officers (ESLOs) who work with employers to prevent and overcome reporting problems. Employers can also visit SSA's website - www.socialsecurity.gov/employer/ - for more information.
Report on Non-Work SSNs
Section 414 of Public Law 104-208, the Illegal Immigration Reform and Immigrant Responsibility Act of 1996, requires SSA to report to Congress the number of SSNs assigned to non-citizens who are not authorized to work in the United States for whom we receive W-2s. We issued the most recent report for 2003. In it, we stated that SSA credited earnings to 571,193 SSNs which were assigned to non-citizens who did not have authority to work in the United States when they got their SSN.
SSA also sends an annual report to DHS about earnings reported to SSA on a social security number issued to a non-citizen not authorized to work in the U.S. The information includes the name and address of the non-citizen, the name and address of the person reporting the earnings, and the amount of earnings reported.
I need to point out, however, that since non-citizens are not required to report changes in their work authorization status to SSA, SSA does not routinely learn of changes in their authority to work in the U.S. Therefore, an earnings report under a nonwork SSN does not necessarily mean that unauthorized work was performed.
Given the steps we have taken to limit the assignment of non-work SSNs, we are confident that the problem of earnings being posted to non-work numbers will diminish.
Cooperation with DHS and IRS
We have formed an executive level steering committee, together with DHS, to oversee and direct cooperative activities. The first issues we will discuss will be 1) tightening the assignment of Social Security numbers to promote homeland security, and 2) identifying potential data sharing activities consistent with rules governing the use of SSA's data that would best assist each organization in carrying out its mission. The group has already met once and we believe it will be a successful and productive effort.
SSA also supports the Department of Homeland Security (DHS) in an ongoing joint initiative, known as the Basic Pilot. The pilot is designed to assist participating employers in confirming employment eligibility for newly hired employees. Participating employers use an automated DHS system to verify SSNs and alien registration numbers through verification checks of SSA and DHS databases. As of January 1, 2004, there were over 13,000 individual employer sites using the Basic Pilot. SSA receives over 45,000 Basic Pilot requests each month.
We have established an interagency effort with IRS to work on issues of mutual concern. This is a high level group that will work to resolve issues and cooperate on efforts that cross agency lines. We had our first meeting on March 5, and we anticipate this interagency coordination will be useful and productive for each agency.
I would like to conclude by emphasizing that we at the Social Security Administration are committed to strengthening the integrity of the processes that we use to assign SSNs. We believe the recent improvements we have implemented have made it more difficult for individuals to obtain SSNs from us through fraudulent means.
The difficult challenge we face is to balance SSA's commitment to assigning numbers quickly and accurately to individuals who qualify for them and need them to work, with the equally important need to maintain the integrity of the enumeration system to prevent SSN fraud and misuse.
We are also continuing to explore ways to improve the accuracy of our earnings report records and to limit the growth of the suspense file.
I want to thank the Chairmen and members of both subcommittees for inviting me here today and I look forward to working with you to continue to improve SSA's processes. I will be happy to answer any questions you might have.