Committee on Economic Security (CES)
"Social Security In America"
Part II
OLD-AGE SECURITY
Chapter XI
OLD-AGE PROVISIONS OF THE FEDERAL SOCIAL SECURITY ACT
THE FEDERAL SOCIAL SECURITY ACT1 establishes two types of provisions for old-age security, (1) Federal aid to States to enable them to give more adequate aid to their needy aged, and (2) a system of Federal old-age benefits for superannuated workers. The first measure is designed to give immediate aid to aged individuals and to assist the States in the care of old people who are ineligible for Federal emergency relief and who are not employable on work projects. The second is a preventive measure which aims to reduce the extent of future dependency among the aged and to assure a worker that the years of employment during his working life will entitle him to a life income.
OLD-AGE ASSISTANCE
The extent of suffering and destitution of the past 5 years has accentuated and brought to light the large numbers of aged individuals in the United States who are without means of self-support. Even those States with the most liberal provisions for the assistance of their needy aged have long waiting lists of eligibles to such assistance whom they are financially unable to aid. Furthermore, as many as 13 States and the District of Columbia on July 1, 1935, had no laws providing for their needy aged, and the provisions in the 35 States with such laws show a wide divergence in age and residence requirements for eligibility, as well as in the amount and extent of assistance made available throughout the State. To rectify and improve these conditions, title I of the Federal Social Security Act provides for a system of grants-in-aid to the several States to enable them, as far as practicable under the conditions in each State, to furnish financial assistance in the form of money payments to their destitute aged residents. But to provide a degree of uniformity in. administrative standards, age, residence, and citizenship qualifications for eligibility to old-age assistance and to insure State financial
{1} Ch. 531, 49 Btat. 820;
42 U. 8. C. (1935 8npp.), ¢f 301-1305.
218
participation in the system, the Federal law establishes certain requirements which a State plan must meet in order to qualify for Federal funds.
Table 46 gives in summary form the provisions of the Federal Social Security Act with respect to old-age assistance. The following paragraphs also briefly outline these provisions.
Administration of Federal and State Plans.-The Federal agency authorized to administer the old-age assistance provisions of the Social Security Act is the Social Security Board. To obtain Federal approval and to qualify for Federal grants, a State must submit to this Board its plan for old-age assistance, and the Board will determine whether or not the State plan and its operation comply with the Federal requirements. The Board will then certify to the Secretary of the Treasury those States which qualify for Federal grants and will indicate the amount to which each State is entitled.
The Federal law leaves to the States the actual administration of the State plan but specifies (1) that the plan must be State-wide in operation; (2) that a single State agency must be established or designated either to administer the plan or to supervise the administration, if such administration is delegated to political subdivisions of the State; (3) that the plan must be mandatory upon all political subdivisions of the State if administered by them; (4) that the plan shall provide such methods of administration (other than those relating to selection, tenure of office, and compensation of personnel) as are found by the Social Security Board to be necessary for the efficient administration of the plan; (5) that the State agency shall make reports from time to time to the Social Security Board, furnishing such information as the Board may deem necessary, and that the State agency shall comply with such provisions as the Board may from time to time make to assure the correctness and verification of reports; (6) that the plan must provide for granting to an individual whose claim for old-age assistance is denied an opportunity for a fair hearing before the State agency; and (7) that the plan must provide for the payment to the United States of one-half of any amount which the State or its political subdivision may collect from the estate of an old-age assistance recipient with respect to the assistance furnished him under the plan.
Maximum Eligibility Requirements for Old-Age Assistance. As indicated in chapter VIII, present State provisions for old-age assistance vary greatly in their age and residence requirements. The Federal law establishes maximum requirements which a State plan may not exceed if it is to receive Federal approval. Thus, the State plan may not impose an age requirement of more than 65 years,
219
| TABLE 46. Summary of provisions for Federal grants to States for old-age assistance |
| To be made by the Social Security Board under title II of the Social Security Act. DEFINITION "Old-age assistance" means money payments to aged needy individuals. CERTIFICATION OF STATE PLAN FOR FEDERAL GRANTS A State, in order to receive a Federal grant, must submit a plan and have it approved by the Soial Security Board as meeting the ollowing requirements 1, Effective in all political subdivisions of the State and, if administered by them, mandatory upon them; 2, Provision for financial participation by the State, except that this condition is waived until July 1, 1937, if the Board fis that a State's constitution prevents each participation ; 3. Either provision ,for the establishment or designation of a single State agency to administer the plan, or for the establishment or designation of a single State agency to supervise the administration of the plan; 4. Provision for granting to any individual whose claim for old-age assistance is denied, an opportunity for a fair hearing before such State agency ; 5. Sch methods of administration (other than those relating to selection, tenure of office, and compensation of personnel) as are found by the Social Security oard to be necessary for the efficient operation of the plan ; 6. Submission of such reports in such form and containing such information as the Federal Social Security Board may from time to time require, and compliance with the provisions which the Board may from time to time find necessary to assure the correctness and verification of such reports ; 7. Provision that if the State or any of its political subdivisions collects from the estate of any recipient of old-age assistance any amount with respect to old-age assistance furnished him under the plan, one-half of the net amount so collected shall be promptly paid to the United States ' A State plan will not be approved if it imposes: 1. An age requirement of more than 65 years, except that until Jan. 1, 1940, an age requirement of as much as 70 years may be Imposed; 2. A residence requirement which excludes any resident of the State who has resided therein 5 years during the 9 years immediately preceding the application for oldage assistance and who has resided therein continuously for 1 year preceding application; 3. A citizenship requirement which excludes any citizen of the United States.
AMOUNT OF GRANT TO EACH STATE 1. A quarterly amount which shall be used exclusively as old-age assistance equal to one-half of the total sums expended in the State in such quarter as old-age assistance to needy individuals 65 years of age or older who are not inmates of public institutions, not counting so much of such expenditure to any individual in excess of $30 a month; 2. Five percent of the total Federal quarterly grant to be used solely for costs of administering the State plan, or for old-age assistance, or both.
METHODS OF COMPUTING AND PAYING GRANTS 1. Estimates of amounts to be paid States will be based on (a) State report of total saint to be expended each quarter for old-age assistance, with statement of amount appropriated or made available by the State and its political subdivisions. (If the amount appropriated is leas than one-half of the total sum bf estimated quarterly expenditures, the source or sources from which the difference is expected to be derived must be stated.) (b) Records of the total number of aged individuals in the State. (c) Such investigation as the Social Security Board may find necessary. 2. Payments will be made to the State at the time or times filed by the Social Security Board (a) After certification by the Social Security Board to the Secretary of the Treasury of the amount due the State reduced or increased by any sum by which its estimate for any quarter was greater or leas than the amount which should have been paid (b) By the Secretary of the Treasury, through the Division of Disbursement, prior to audit or settlement by the General Accounting Office.
SUSPENSION OF GRANTS If the Social Security Board finds, after reasonable notice and opportunity for hearing to the State agency administering or supervising the administration of the State plan, that the plan has been so changed as to impose prohibited age, residence, or citizenship requirements, or failed to comply substantially with conditions required for Federal approval, the Board shall notify the State agency that Federal grants will not be made until such conditions are rectified.
AMOUNT Of FEDERAL APPROPRIATION AUTHORIZED $49,750,000 for fiscal year ending June 30, 1936 {2} thereafter an annual amount sufficient to carry out the purposes of the title. |
{1} 49 Stat. 620 ; 42 U. S. C.
(1935 Supp. ) , Sect. 301-306. {2} The Social Security Act was not approved until Aug. 14 1935 and the supplemental appropriation bill, fiscal year 1936 (H. R. 9215), failed of passage in the first session of the Seventy-fourth Congress The Supplemental Appropriation Act, fiscal year 1936, Public, No. 440, 74th Con ., 2d less. (H. R. 10464), approved Feb. 11, 1936, included an appropriation of $24,660,00 for the remainder of the fiscal year ending June 30, 1936. |
220
except that, until January 1, 1940, an age requirement of as much as 70 years may be in effect. The State plan may not impose a residence requirement which excludes any resident of the State (1) who has resided therein for 5 years during the 9 years immediately preceding application for. old-age assistance and (2) who has resided in the State continuously for 1 year preceding the application. Moreover, a State plan will not be approved by the Federal Government if it imposes any citizenship requirement which excludes any citizen of the United States.
Financial Participation by the State.-The Federal Social Security Act stipulates as one of its main requirements that a State plan for old-age assistance must provide for State participation in financing the plan if it is to qualify for Federal approval. However, until July 1, 1937, this requirement will be waived in the case of any State which the Social Security Board, upon application by the State and after reasonable notice and opportunity for hearing to the State, finds is prevented by its constitution from providing such financial participation. The exemption of the State from financial participation, however, does not alter the provision that the Federal aid will be limited to 50 percent of the total assistance paid, thus requiring local participation of at least 50 percent.
Methods of Computing and Paying Federal Grants.-To determine the amount payable by the Federal Government to each State with an approved old-age assistance plan the Social Security Board, before the beginning of each quarter, will examine reports from the State agency giving estimates of the total amount of expenditures necessary for old-age assistance in the quarter and the amount appropriated or made available for these expenditures by the State and its political subdivisions. If the amount appropriated or. available within the State is less than one-half of the total estimated expenditures for the quarter, the State report must show the source or sources from which the difference is to be derived. The State must also report to the Social Security Board the total number of aged individuals in the State and must furnish any other information based on such other investigation as the Board may find necessary. ,
The Social Security Board will then certify to the Secretary of the Treasury the amount which is due the State under the provisions of the Social Security Act, and the Secretary of the Treasury will pay to the State, through the Division of Disbursement of the Treasury Department and prior to audit or settlement of the General Accounting Once, at the time or times fixed by the Board, the amount so certified, increased by 5 percent, to be used either for administration or for the payment of old-age assistance. The estimated Federal appro-
221
priation to the State for each quarter will be reduced or increased by any sum by which the Board's estimate for the previous quarter was greater or less than the amount due the State under the provisions of the act.
Amounts Payable to the States.-An appropriation of $49,750,000 has been authorized by the Social Security Act for the fiscal period ending June 30, 1936,2 from which to defray the costs of grants to the States with approved old-age assistance plans, and, for subsequent years, appropriations of amounts sufficient to carry out the purposes of the old-age assistance title of the act authorized. From these appropriations there will be paid for each quarter an amount to each State. equal to one-half of the total sums (not exceeding $30 per month for any individual) expended as old-age assistance during such quarter under an approved State plan. Old-age assistance is defined as money payments to an individual who, at the time of such expenditure, is 65 years of age or older and is not an inmate of a public institution. The Federal law does not place any minimum or maximum limits on the amount of old-age assistance which the States may pay to their needy aged, but stipulates that the Federal Government's share of such payment shall not exceed $15 per month per person. Thus, if the State grant to an aged person is $30 a month, the Federal Government will pay $15, or one-half of the amount paid in respect of this individual recipient of assistance; if in certain areas or under certain conditions the State pays a grant of $45 a month, the Federal grant will be $15 a month for each individual receiving this amount; and if the State pays $20 a month, the Federal Government's share on behalf of each individual receiving this amount will be $10 per month.
In addition, the Federal Government will pay 5 percent of its total quarterly grants to the State. This sum may be used for paying the cost of administering the State old-age assistance plan, or, if the State pays all or a part of its administrative expenses, this additional grant may be used wholly or in part for money payments to needy individuals eligible for old-age assistance under the State plan. The use of this additional grant is, however, limited to the payment of old-age assistance and the administrative costs of the State system.
Suspension of Grants.-If a State plan, after approval by the Social Security Board, is found by the Board to have been so modified that it fails to comply with any requirement of the Federal law, the Board, after reasonable notice and opportunity for hearing to the
{2} The Social Security Act wee not approved until Aug. 14, 1935, and
the supplemental appropriation bill, fiscal year 1938 (H. R.
9215), failed o! passage in the first session o! the Seventy-fourth Congress.
The Supplemental Appropriation Act, fiscal year 1938, Public, No.
440, 74th Cong., 2d seas. (H. R. 10484), approved Feb. il, 1938,
included an appropriation of $24,880,000 for the remainder of the fiscal
year ending June 30, 1988.
222
State agency, will notify the State that no further grants-in-aid will be paid until the Board is satisfied that the prohibited requirements are no longer imposed and that the State plan no longer fails to comply with Federal requirements.
THE FEDERAL OLD-AGE BENEFITS SYSTEM
Under the Federal Social Security Act {3} a Nation-wide old-age benefit system is provided. Title II {4} of the act establishes an old-age reserve account in the Treasury of the United States from which there will be paid after December 31, 1941, an old-age benefit in the form of a monthly life income to eligible wage earners after they have reached the age of 65. From December 31, 1936, there will be paid certain death benefits and lump-sum payments at 65.
Table 47 gives a digest of the provisions of the Federal Social Security Act with respect to coverage of the old-age benefit system, the conditions required as qualifications for the receipt of benefits, and the method of computing benefits.
Coverage: Benefits are based upon wages from all services performed after 1936 and before age 65 except agricultural service, domestic service in a private home, any form of Government service, casual labor not in the course of the employer's trade or business, service on a documented vessel, service performed in the employ of religious, charitable, scientific, literary, or educational institutions and institutions for the prevention of cruelty to children or animals which are not organized for profit, or service in the employ of a carrier as defined in the Railroad Retirement Act of 1935. Since the self-employed do not receive wages, their services are also excluded.
Monthly Benefits.-Monthly benefits are payable to qualified individuals after age 65. They will be determined by the total amount of wages from regular employment covered by the old-age benefits provisions of the act, with the requirement that the individual must have worked in included employment at some time in at least 5, years after 1936 and before age 65 and that his wages from such employment must amount to not less than $2,000. Only the first $3,000 a year from any one employer, including the cash value of remuneration other than in the medium of cash, is considered as counting toward the total of annual wages on which benefits are to be based. The monthly benefit is paid at the rate of one-half of 1 percent of the first $3,000 of total wages, plus one-twelfth of 1 percent of the next $42,000, plus one-twenty-fourth of 1 percent of any additional amount.
{3} Ch. 531; 49 Stat. 620; 42 U. S. C. (1935 Supp.), §§ 301-1305.
{4} 49 Stat. 622, § § 201-210 ; 42 U. S. C. (1935 Supp. ) , § § 401-410.
223
| TABLE 47.-Summary of principal provisions of the Federal Social Security Act relating to Federal old-age benefits |
||||||||||
| (49 Stat. 622, title II; 42 U. S. C. (1936 Supp.), §$ 401-410) Coverage {1} Old-age benefits are to be based upon wages received in employments performed within the United States, Alaska, and Hawaii except 1. Agricultural labor; 2. Domestic service in a private home; 3. Casual labor not in the course of the employer's trade or business; 4. Service performed as an officer or member of the crew of a vessel, documented under the laws of the United States or of any foreign country; 5. Service performed in the employ of the United States Government or o! an instrumentality of the United States; 8. Service performed in the employ of a State, a political subdivision thereof, or an instrumentality of one or more States or political subdivisions; 7. Service performed in the employ of a corporation, community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit o! any private shareholder or Individual; 8. Employment by a carrier as defined in Railroad Retirement Act of 1935 {2}
CONDITIONS TO QUALIFY FOR RECEIPT OF MONTHLY OLD-AGE BENEFITS {3} 1. At least 85 years of age. 2. Not less than $2,000 total wages from included employment after December 31, 1936, and before age o! 85. 3. Wages were for employment on some day in each of 5 calendar years after December 31, 1938, and before age of 85.
MONTHLY OLD-AGE BENEFIT PAYMENTS {4} 1. Date monthly benefits first payable, January 1, 1842. 2. The amount of the monthly benefits payable is determined as follows
LUMP-SUM BENEFIT PAYMENTS 1. Individuals whose total wages or periods of service are Insufficient for them to qualify for monthly benefits are paid, upon reaching age 65, a lump sum equal to 3% percent of the total wages from included employment after December 31, 1938, and before the attainment of age 65.° 2. Upon death of individual before age 85, death benefits will be paid equal do 3% percent of his total wages from included employment after December 31, 1938. If a person dies without having received at least 3% percent of his wages in a lump sum or monthly payments the difference between such 3% percent and Federal payments previously made will be paid as a death benefit. {6} REDUCTION OF BENEFITS An amount equal to 1 month's benefit Rill be deducted for each month in which a qualified individual who has attained age 86 received wages for regular included employment. FEDERAL ADMINISTRATION Social Security Board determines the qualifications of the individual and the amount of benefits payable,{7} and certifies to the Treasury persons entitled to payments.{8} |
||||||||||
{1} 49 Stat. 825, ¢ 210 (b) ; 42 U. S.
C. (1935 Supp.), ¢ 410 (b). {2} Ch. 812, 49 Stat. 987 ; 46 U. S. C. (1935 Supp. ) , g g 215-228. {3} 49 Stat. 625, § 210 (c) ; 42 U. S. C. (1935 Supp.), § 410 (c). {4} 49 Stat. 623, $ 202; 42 U. S. C. (1935 Supp.), ; 402. {5} 49 Stat. 824, § 204 ; 42 U. S. C. (1935 Supp.), ¢ 404. {6} 49 Stat. 825, § 203; 42 U. S. C. (1936 Supp.), ¢ 403. {7} 49 Stat. 823, ¢ 202 (a) ; 42 U. S. C. (1935 Supp.), § 402 (a). {8} 49 Stat. 824, 1 207; 42 U. S. C. (193b Supp.), Sec. 407. |
||||||||||
224
Table 48 illustrates the monthly benefits payable to eligible individuals. No monthly old-age benefits are payable before January 1, 1942. Since the aggregate of wages from employment must be at least $2,000, the smallest monthly benefit payable will be $10. The Social Security Act limits the benefit to a maximum of $85 a month. An amount equal to 1 month's benefit will be deducted for each month in which a qualified individual who has reached age 65 receives wages for regular included employment. Wages in excess of $3,000 a year from any one employer will not be counted in the computation of benefits.
Since a. higher percentage of the first $3,000 of total wages is used in the computation of monthly benefits, the benefit scale is designed to give greater weight to the earnings of lower-paid, middle-aged, and older workers than to persons who through high salaries and a
long period of employment accumulate large amounts as total wages. The greater weight thus assigned to the earnings of the lowerincome groups has been adopted in lieu of a maximum wage limit for coverage by the plan. The $85 maximum monthly benefit has a similar influence.
Forty-five years after this part of the act becomes effective persons whose wages from included employment have averaged $50 a month will be eligible at age 65 to a life income of $35 a month. In the absence of any radical increase in costs of living this amount may often be sufficient to provide for the person's needs without supplementary assistance from State old-age assistance plans. The Federal old-age benefit system will thus serve in the course of time to reduce materially the extent of old-age dependency among wage earners and the resulting burden on the State and Federal Governments for charitable assistance.
225
Eligibility for Benefits.-In order to be eligible for monthly benefits providing a life income from the Federal Government, a person must have worked in included employment at some time in each of 5 separate calendar years in the period subsequent to 1936 and prior to attaining the age of 65, and all his wages counted from such employment must not total less than $2,000. If his wages from included employment are less than $2,000 or his periods of employment are insufficient to meet the conditions just mentioned he will receive a lump-sum payment equal to 31/2 percent of such wages.
Payments Upon Death.-If a person covered by the old-age benefit system dies between December 31, 1936, and his sixty-fifth birthday, his estate will receive an amount equal to 31/2 percent of his total wages during the period. Similarly, when an individual dies after the commencement of his monthly life income, any surplus will be paid which remains after the sum total of his benefit payment has been deducted from the amount representing 31/2 percent of his total wages.
Method of Making Payments.- The Social Security Board will from time to time certify to the Secretary of the Treasury the name and address of each person entitled to receive a monthly old-age benefit, lump-sum payment, or death settlement, from the old-age reserve account, and will establish the amount of such payment and the time when it is due. The Secretary of the Treasury will there upon, through the Division of Disbursement of the Treasury Department, make these payments.
Protection of Benefit Rights.-The Federal Social Security Act stipulates that the future benefit rights of any individual shall not be transferable or assignable at law or in equity. Furthermore, oldage benefit payments shall not be subject to execution, levy, attachment, garnishment, or other legal process or to the operation of any bankruptcy or insolvency law.
Old-Age Reserve Account.-The act creates an old-age reserve account in the Treasury, to which Congress is authorized to appropriate for each fiscal year beginning with the year ending June 30, 1937, "an amount sufficient as an annual premium to provide for the payments required" for old-age benefits. The Secretary of the Treasury is to submit annually to the Bureau of the Budget an estimate of the appropriations to be made to this account, such estimate to be made by the Secretary of the Treasury "on a reserve basis in accordance with accepted actuarial principles."
The Secretary of the Treasury is to invest that portion of the oldage reserve account which will not be needed for current withdrawals. The funds are to be invested only in interest-bearing obligations of the United States or in obligations guaranteed as to both
226
principal and interest by the United States. For purposes of investment the Secretary of the Treasury may purchase outstanding obligations at the market price. In addition, through an amendment to the Second Liberty Bond Act, special obligations of the United States may be issued at par exclusively for the purpose of investing the funds of the old-age reserve account. The special,obligatians and those purchased at market price are to yield not less than 3 percent, and the interest on these obligations is to be credited to and form a part of the account. The obligations purchased for the account may be sold at the market price; those issued exclusively for the account may be redeemed at par plus accrued interest.