ACTUARIAL NOTE |
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SOCIAL SECURITY ADMINISTRATION |
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Number 103 May 1981 |
Office of the Chief Actuary Baltimore, Maryland |
AVERAGE WAGES FOR INDEXING UNDER THE SOCIAL SECURITY ACT AND THE AUTOMATIC DETERMINATIONS FOR 1979-81 |
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by Eli N. Donkar, Ph.D., A.S.A. |
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The Social Security Act has provided for indexing certain amounts under the old-age, survivors, and disability insurance (OASDI) program according to changes in average wage levels beginning, on a limited basis, with the Social Security Amendments of 1965. Legislation enacted in 1972 broadened the use of such indexing procedures to include automatic increases in the contribution and benefit base, in conjunction with the automatic cost-of-living increases in benefits that were provided in the 1972 Amendments. The 1977 Amendments further extended the use of indexing by providing for an indexed benefit structure.
Under the OASDI program as amended in 1977, all persons newly eligible for benefits after 1978 have their benefits computed under a procedure which calls for indexing each year of their earnings taxable under social security to reflect the changes in levels of average wages in the economy from that year to a point two years before their current eligibility. Increases in average wages are also used to index the "bend points" in the formulas for computing primary insurance amounts (PIA's) and maximum family benefit amounts, as well as several other program amounts such as the contribution and benefit base, the retirement test exempt amount, and the amount of earnings required for a quarter of coverage.
The law provides for annual publication in the Federal Register of all newly determined amounts under these indexing procedures. (See list of relevant Federal Register publications at end of text.) However, because of the wide-ranging use of the amounts determined under wage indexing, it has been suggested that more detailed information on the average wage series and the related automatic determinations should be documented for permanent reference and made available to the interested public. The purpose of this Actuarial Note is to provide such information. It is planned that a similar Actuarial Note will be an annual publication appearing soon after the official announcement of the determinations in the Federal Register.
In this initial paper, the retrospective determination of the wage indexing series for 1951-77 is documented, as well as the calculations of the 1978 and 1979 average wage figures used to extend the 1951-77 series (Table 1). In addition, the details of the automatic determinations of program amounts for 1979-81 which depend on these average wage figures are presented (Table 2).