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1997 OASDI Trustees Report
G. GLOSSARY
Actuarial balance.
The difference between the summarized income
rate and the summarized cost rate over a given valuation period.
Actuarial deficit.
A negative actuarial balance.
Adjusted gross income -- AGI.
Amount of income potentially subject to
Federal income taxation, before consideration of exemptions and deductions.
Administrative expenses.
Expenses incurred by the, Social Security
Administration, Department of Health and Human Services, and the
Department of the Treasury in administering the OASDI program and
the provisions of the Internal Revenue Code relating to the collection of
contributions. Such administrative expenses are paid from the OASI and
DI Trust Funds.
Advance tax transfers.
Amounts representing the estimated total
OASDI tax contributions for a given month. From May 1983 through
November 1990, such amounts were credited to the OASI and DI Trust
Funds at the beginning of each month. Reimbursements were made from
the trust funds to the general fund of the Treasury for the associated loss
of interest. Advance tax transfers are no longer made unless needed in
order to pay benefits.
Advisory Council on Social Security.
Prior to the enactment of the
Social Security Independence and Program Improvements Act of 1994
(Public Law 103-296) on August 15, 1994, the Social Security Act required
the appointment of an Advisory Council every 4 years to study and review
the financial status of the OASDI and Medicare programs. The most
recent Advisory Council was appointed on June 9, 1994; and its report on
the financial status of the OASDI program was submitted on January 6,
1997. Under the provisions of Public Law 103-296, this is the last Advisory
Council to be appointed.
Alternatives I, II, or III.
See "Assumptions."
Annual balance.
The difference between the income rate and the cost
rate in a given year.
Assets.
Treasury notes and bonds, other securities guaranteed by the
Federal Government, certain Federally sponsored agency obligations, and
cash, held by the trust funds for investment purposes.
Assumptions.
Values relating to future trends in certain key factors
which affect the balance in the trust funds. Demographic assumptions
include fertility, mortality, net immigration, marriage, divorce, retirement
patterns, disability incidence and termination rates, and changes in the
labor force. Economic assumptions include unemployment, average earnings,
inflation, interest rates, and productivity. Three sets of economic
assumptions are presented in this report --
- Alternative I is characterized as a "low cost" set -- it assumes
relatively rapid economic growth, low inflation, and favorable
(from the standpoint of program financing) demographic conditions.
Alternative II is the "intermediate" set of assumptions, and
represents the Trustees' "best estimates" of likely future economic and
demographic conditions.
Alternative III, characterized as a "high cost" set, assumes
slow economic growth, more rapid inflation, and financially disadvantageous
demographic conditions.
See tables II.D1 and
II.D2.
Automatic cost-of-living increase.
The annual increase in benefits,
effective for December, reflecting the increase in the cost of living. The
benefit increase equals the percentage increase in the Consumer Price
Index for Urban Wage Earners and Clerical Workers measured from the
average over July, August, and September of the preceding year to the
average for the same 3 months in the current year. If the increase is less
than one-tenth of 1 percent, when rounded, there is no automatic increase
for the current year; the increase for the next year would reflect the
increase in the cost of living over a 2-year period.
See table II.E2. If the
"stabilizer provision" applies, the increase may be less than the cost of
living.
Auxiliary beneficiary.
Monthly benefits payable to a spouse or child of
a retired or disabled worker, or to a survivor of a deceased worker.
Average indexed monthly earnings -- AIME.
The amount of earnings
used in determining the primary insurance amount (PIA) for most workers who
attain age 62, become disabled, or die after 1978. A worker's
actual past earnings are adjusted by changes in the "average wage index,"
in order to bring them up to their approximately equivalent value at the
time of retirement or other eligibility for benefits.
Average wage index.
The average amount of total wages for each year
after 1950, including wages in noncovered employment and wages in covered
employment in excess of the OASDI contribution and benefit base.
These amounts are used to index the earnings of most workers first
becoming eligible for benefits in 1979 or later, and for automatic
adjustments in the contribution and benefit base, bend points, earnings test
exempt amounts, and other wage-indexed amounts.
See tables II.E1,
II.E2, and
III.B1.
Award.
An administrative determination that an individual is entitled to
receive a specified type of OASDI benefit. Awards can represent not only
new entrants to the benefit rolls but also persons already on the rolls who
become entitled to a different type of benefit. Awards usually result in the
immediate payment of benefits, although payments may be deferred or
withheld depending on the individual's particular circumstances.
Baby boom.
The period from the end of World War II through the mid-1960s
marked by unusually high birth rates.
Bend points.
The dollar amounts defining the AIME or PIA brackets in
the benefit formulas. For the bend points for years 1979 and later,
see table II.E3.
Beneficiary.
A person who has been awarded benefits on the basis of his
or her own or another's earnings record. The benefits may be either in
current-payment status or withheld.
Benefit award.
See "Award."
Benefit payments.
The amounts disbursed for OASI and DI benefits by
the Department of the Treasury in specified periods.
Benefit termination.
See "Termination."
Best estimate assumptions.
See "Assumptions."
Board of Trustees.
A Board established by the Social Security Act to
oversee the financial operations of the Federal Old-Age and Survivors
Insurance Trust Fund and the Federal Disability Insurance Trust Fund.
The Board is composed of six members, four of whom serve automatically
by virtue of their positions in the Federal Government: the Secretary of
the Treasury, who is the Managing Trustee, the Secretary of Labor, the
Secretary of Health and Human Services, and the Commissioner of Social
Security. The other two members are appointed by the President and
confirmed by the Senate to serve as public representatives. Stephen G.
Kellison and Marilyn Moon began serving 4-year terms on July 20, 1995.
The Commissioner of Social Security became a member of the Board
effective March 31, 1995, under Public Law 103-296, signed on August 15,
1994.
Book value.
A bond's value between its price at purchase and its value
at maturity. Book value is calculated as par value plus unamortized
premium, if purchased at a price above its par value, or less unamortized
discount, if purchased below par.
COLA.
See "Automatic cost-of-living increase."
Constant dollars.
One or more financial amounts adjusted by the CPI to
a constant year as a reference point.
Consumer Price Index -- CPI.
Relative measure of inflation. In this
report, all references to the CPI relate to the Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W).
See table II.D1.
Contribution and benefit base.
Annual dollar amount above which
earnings in employment covered under the OASDI program are neither
taxable nor creditable for benefit computation purposes. (Also referred to
as "maximum contribution and benefit base," "annual creditable maximum,"
"taxable maximum," and "maximum taxable.") See tables
II.B1
and II.E2. See also,
"HI contribution base."
Contributions.
The amount based on a percent of earnings, up to an
annual maximum, that must be paid by --
- employers and employees on wages from employment under the
Federal Insurance Contributions Act,
the self-employed on net earnings from self-employment under
the Self-Employment Contributions Act, and
States on the wages of State and local government employees
covered under the Social Security Act through voluntary agreements
under section 218 of the Act.
Generally, employers withhold contributions from wages, add an equal
amount of contributions, and pay both on a current basis. Also referred to
as "taxes."
Cost-of-living increase.
See "Automatic cost-of-living increase."
Cost rate.
The cost rate for a year is the ratio of the cost (also called
outgo, expenditures, or disbursements) of the program to the taxable
payroll for the year. In this context, the outgo is defined to include
benefit payments, special monthly payments to certain uninsured persons who
have 3 or more quarters of coverage (and whose payments are therefore
not reimbursable from the general fund of the Treasury), administrative
expenses, net transfers from the trust funds to the Railroad Retirement
program under the financial-interchange provisions, and payments for
vocational rehabilitation services for disabled beneficiaries; it excludes
special monthly payments to certain uninsured persons whose payments
are reimbursable from the general fund of the Treasury (as described
above), and transfers under the interfund borrowing provisions.
Covered earnings.
Earnings in employment covered by the OASDI program.
Covered employment.
All employment and self-employment creditable
for Social Security purposes. Almost every kind of employment and self-employment
is covered under the program. In a few employment situations,
for example, religious orders under a vow of poverty, foreign affiliates of
American employers, or State and local governments, coverage
must be elected by the employer. However, effective July 1991, coverage is
mandatory for State and local employees who are not participating in a
public employee retirement system. In a few situations, for example,
ministers or self-employed members of certain religious groups, workers can
opt out of coverage.
Covered worker.
A person who has earnings creditable for Social Security purposes on the
basis of services for wages in covered employment
and/or on the basis of income from covered self-employment.
Current-cost financing.
See "Pay-as-you-go financing."
Current dollars.
Amounts expressed in nominal dollars with no adjustment for inflationary
changes in the value of the dollar over time.
Current-payment status.
Status of a beneficiary for whom a benefit is
being paid for a given month (with or without deductions, provided the
deductions add to less than a full month's benefit). A benefit in
current-payment status for a month is usually payable on the third day of the
following month.
Deemed wage credit.
See "Military service wage credits."
Demographic assumptions.
See "Assumptions."
Disability.
For Social Security purposes, the inability to engage in substantial
gainful activity (see "Substantial gainful activity") by reason of
any medically determinable physical or mental impairment that can be
expected to result in death or to last for a continuous period of not less
than 12 months. Special rules apply for workers age 55 or older whose
disability is based on blindness.
The law generally requires that a person be disabled continuously for 5
months before he or she can qualify for a disabled-worker benefit.
Disability incidence rate.
The proportion of workers in a given year,
insured for but not receiving disability benefits, who apply for and are
awarded disability benefits.
Disability Insurance (DI) Trust Fund.
See "Trust fund."
Disability termination rate.
The proportion of disabled-worker beneficiaries in a given year whose
disability benefits terminate as a result of
the individual's recovery, death, or attainment of normal retirement age.
Disabled-worker benefit.
A monthly benefit payable to a disabled
worker under normal retirement age and insured for disability. Before
November 1960, disability benefits were limited to disabled workers aged
50-64.
Earnings.
Unless otherwise qualified, all wages from employment and
net earnings from self-employment, whether or not taxable or covered.
Earnings test.
The provision requiring the withholding of benefits if
beneficiaries under age 70 have earnings in excess of certain exempt
amounts. See table II.E2.
Economic assumptions.
See "Assumptions."
Effective interest rate.
See "Interest rate."
Excess wages.
Wages in excess of the contribution and benefit base on
which a worker initially pays taxes (usually as a result of working for
more than one employer during a year). Employee taxes on excess wages
are refunded to affected employees, while the employer taxes are not
refunded.
Federal Insurance Contributions Act -- FICA.
Provision authorizing
taxes on the wages of employed persons to provide for Retirement,
Survivors, and Disability Insurance, and for Hospital Insurance. The tax is
paid in equal amounts by workers and their employers.
Financial interchange.
Provisions of the Railroad Retirement Act providing for transfers between
the trust funds and the Social Security
Equivalent Benefit Account of the Railroad Retirement program in order
to place each trust fund in the same position it would have been in if
railroad employment had always been covered under Social Security.
Fiscal year.
The accounting year of the United States Government. Since
1976, each fiscal year has begun on October 1 of the prior calendar year
and ended the following September 30. For example, fiscal year 1997
began October 1, 1996 and will end September 30, 1997.
Full advance funding.
A financing scheme where taxes or contributions
are established to match the full cost of future benefits as these costs are
incurred through current service. Such financing methods also provide for
amortization over a fixed period of any financial liability that is incurred
at the beginning of the program (or subsequent modification) as a result
of granting credit for past service.
General fund of the Treasury.
Funds held by the Treasury of the
United States, other than receipts collected for a specific purpose (such as
Social Security) and maintained in a separate account for that purpose.
General fund reimbursements.
Transfers from the general fund of the
Treasury to the trust funds for specific purposes defined in the law,
including:
- The costs associated with providing special payments made to
uninsured persons who attained age 72 before 1968, and who had fewer than
3 quarters of coverage.
Payments corresponding to the employee-employer taxes on
deemed wage credits for military personnel.
Interest on checks which are not negotiated 6 months after
the month of issue. (For checks issued before October, 1989, the principal
was returned to the trust funds as a general fund reimbursement; since
that time, the principal amount is automatically returned to the issuing
fund when the check is uncashed after a year.)
Administrative expenses incurred as a result of furnishing
information on deferred vested benefits to pension plan participants,
as required by the Employee Retirement Income Security Act of 1974
(Public Law 93-406).
Gross Domestic Product -- GDP.
The total dollar value of all goods and
services produced by labor and property located in the United States,
regardless of who supplies the labor or property.
Gross National Product -- GNP.
The total dollar value of all goods and
services produced by labor and property supplied by United States
residents, regardless of the location in which the production occurs.
HI contribution base.
Annual dollar amount above which earnings in
employment covered under the HI program are not taxable. (Also referred
to as "maximum contribution base," "taxable maximum," and "maximum
taxable.") Beginning in 1994, the HI contribution base was eliminated.
High cost assumptions.
See "Assumptions."
Hospital Insurance (HI) Trust Fund.
See "Trust fund."
Income rate.
Ratio of income from tax revenues on a liability basis
(payroll-tax contributions and income from the taxation of benefits)
to the OASDI taxable payroll for the year.
Inflation.
An increase in the volume of money and credit relative to
available goods, resulting in an increase in the general price level.
Insured status.
The state or condition of having sufficient quarters of
coverage to meet the eligibility requirements for retired-worker or
disabled-worker benefits, or to permit the worker's spouse and children or
survivors to establish eligibility for benefits in the event of his or her
disability, retirement, or death. See
"Quarters of coverage."
Interest.
A payment in exchange for the use of money during a specified
period.
Interest rate.
Interest rates on new public-debt obligations issuable to
Federal trust funds (see "Special
public-debt obligation") are determined
monthly. Such rates are set equal to the average market yield on all
outstanding marketable U.S. securities not due to mature for at least 4 years
from the date of the determination. See table
II.D1 for historical and
assumed future interest rates on new special-issue securities.
The "effective" interest rate for a trust fund is the ratio of the
interest earned by the fund over a given period of time to the average
level of assets held by the fund during the period. The effective rate
of interest thus represents a measure of the overall average interest
earnings on the fund's portfolio of assets.
Interfund borrowing.
The borrowing of assets by a trust fund (OASI,
DI, or HI) from another of the trust funds when the first fund is in danger
of exhaustion. Interfund borrowing was permitted by the Social Security
Act only during 1982 through 1987; all amounts borrowed were to be
repaid prior to the end of 1989. The only exercise of this authority
occurred in 1982, when the OASI Trust Fund borrowed assets from the DI
and HI Trust Funds. The final repayment of borrowed amounts occurred
in 1986.
Intermediate assumptions.
See "Assumptions."
Long range.
The next 75 years. Long-range actuarial estimates are
made for this period because it is approximately the maximum remaining
lifetime of current Social Security participants.
Low cost assumptions.
See "Assumptions."
Lump-sum death benefit.
A lump sum, generally $255, payable on the
death of a fully or currently insured worker. The lump sum is payable to
the surviving spouse of the worker, under most circumstances, or to the
worker's children.
Maximum family benefit.
The maximum monthly amount that can be
paid on a worker's earnings record. Whenever the total of the individual
monthly benefits payable to all the beneficiaries entitled on one earnings
record exceeds the maximum, each dependent's or survivor's benefit is
proportionately reduced to bring the total within the maximum. Benefits
payable to divorced spouses or surviving divorced spouses are not reduced
under the family maximum provision.
Medicare.
A nationwide, Federally administered health insurance program authorized
in 1965 to cover the cost of hospitalization, medical care,
and some related services for most people over age 65, people receiving
Social Security Disability Insurance payments for 2 years, and people
with End-Stage Renal Disease. Medicare consists of two separate but
coordinated programs -- Part A (Hospital Insurance, HI) and Part B
(Supplementary Medical Insurance, SMI). All persons entitled to HI are
eligible to enroll in the SMI program on a voluntary basis by paying a
monthly premium. Health insurance protection is available to Medicare
beneficiaries without regard to income.
Military service wage credits.
Credits recognizing that military personnel receive wages in kind (such
as food and shelter) in addition to their
basic pay and other cash payments. Noncontributory wage credits of $160
were provided for each month of active military service from September
16, 1940, through December 31, 1956. For years after 1956, the basic pay
of military personnel is covered under the Social Security program on a
contributory basis. In addition to the contributory credits for basic pay,
noncontributory wage credits of $300 were granted for each calendar
quarter, from January 1957 through December 1977, in which a person
received pay for military service. In years after 1977, noncontributory
wage credits of $100 are granted for each $300 of military wages, up to a
maximum credit of $1,200 per calendar year.
National average wage index.
See "Average wage index."
Normal retirement age.
The age at which a person may first become
entitled to unreduced retirement benefits. Currently age 65, but scheduled
under present law to increase gradually to 67 for persons reaching
that age in 2027 or later, beginning with an increase to 65 years and 2
months for persons reaching age 65 in 2003.
Old-Age and Survivors Insurance (OASI) Trust Fund.
See "Trust
fund."
Old-law base.
Amount the contribution and benefit base would have
been if the discretionary increases in the base under the 1977 amendments
had not been enacted. The Social Security Amendments of 1972
provided for automatic annual indexing of the contribution and benefit
base. The Social Security Amendments of 1977 provided ad hoc increases
to the bases for 1979-81, with subsequent bases updated in accordance
with the normal indexing procedure. See table
II.E3.
Par value.
The value printed on the face of a bond. For both public and
special issues held by the trust funds, par value is also the redemption
value at maturity.
Partial advance funding.
A financing scheme where taxes are scheduled to provide a substantial
accumulation of trust fund assets, thereby
generating additional interest income to the trust funds and reducing the
need for payroll tax increases in periods when costs are relatively high.
(Higher general taxes or additional borrowing may be required, however,
to support the payment of such interest.) While substantial, the trust
fund buildup under partial advance funding is much smaller than it
would be with full advance funding.
Pay-as-you-go financing.
A financing scheme where taxes are scheduled to produce just as much
income as required to pay current benefits,
with trust fund assets built up only to the extent needed to prevent
exhaustion of the fund by random economic fluctuations.
Payroll taxes.
A tax levied on the gross wages of workers. See tables
II.B1 and
III.A1.
Population in the Social Security Area.
The population comprised of
(i) residents of the 50 States and the District of Columbia (adjusted for
net census undercount); (ii) civilian residents of Puerto Rico, the Virgin
Islands, Guam, and American Samoa; (iii) Federal civilian employees and
persons in the Armed Forces abroad and their dependents; (iv) crew members
of merchant vessels; and (v) all other U.S. citizens abroad.
Present value.
The equivalent value, at the present time, of a future
stream of payments (either income or expenditures). The present value of
a future stream of payments may be thought of as the lump-sum amount
that, if invested today, together with interest earnings would be just
enough to meet each of the payments as they fell due. At the time of the
last payment, the invested fund would be exactly zero. For example, a
home mortgage of $100,000 represents the present value at 8 percent
interest of future monthly payments of $714.40 for the next 30 years.
Present values are widely used in calculations involving financial
transactions over long periods of time to account for the time value of
money (interest) and the changing value of the dollar (inflation).
Primary insurance amount -- PIA.
The monthly amount payable to a
retired worker who begins to receive benefits at normal retirement age or
(generally) to a disabled worker. This amount, which is related to the
worker's average monthly wage or average indexed monthly earnings, is
also the amount used as a base for computing all types of benefits payable
on the basis of one individual's earnings record.
Primary insurance amount formula.
The mathematical formula
relating the PIA to the AIME for workers who attain age 62, become disabled,
or die after 1978. The PIA is equal to the sum of 90 percent of
AIME up to the first bend point, plus 32 percent of AIME above the first
bend point up to the second bend point, plus 15 percent of AIME in excess
of the second bend point. Automatic benefit increases are applied beginning
with the year of eligibility. See table
II.E3 for historical and assumed
future bend points and table II.E2 for
historical and assumed future benefit increases.
Quarters of coverage.
Basic unit of measurement for determining
insured status. In 1997, a worker receives one quarter of coverage (up to a
total of four) for each $670 of annual covered earnings. The amount of
earnings required for a quarter of coverage is subject to annual automatic
increases in proportion to increases in average earnings. For amounts
applicable for years after 1978, see table
II.E3.
Railroad retirement.
A Federal insurance program, somewhat similar
to Social Security, designed for workers in the railroad industry.
The provisions of the Railroad Retirement Act provide for a system of
coordination and financial interchange between the Railroad Retirement
program and the Social Security program.
Reallocation of tax rates.
An increase in the tax rate payable to either
the OASI or DI Trust Fund, with a corresponding reduction in the rate for
the other fund, so that the total OASDI tax rate is not changed.
Real-wage differential.
The difference between the percentage
increases in (1) the average annual wage in covered employment and (2)
the average annual Consumer Price Index. See table
II.D1.
Recession.
A period of adverse economic conditions; in particular, two or
more successive calendar quarters of negative growth in either Gross
Domestic Product, or Gross National Product.
Retired-worker benefit.
A monthly benefit payable to a fully insured
retired worker aged 62 or older or to a person entitled under the
transitionally insured status provision in the law. Retired-worker
benefit data do not include special age-72 benefits.
Retirement age.
The age at which an individual establishes entitlement
to retirement benefits. See also,
"Normal retirement age."
Retirement earnings test.
See "Earnings test."
Retirement test.
See "Earnings test."
Self-employment.
Operation of a trade or business by an individual or
by a partnership in which an individual is a member.
Self-Employment Contributions Act -- SECA.
Provision authorizing
Social Security taxes on the net earnings of most self-employed persons.
Short range.
The next 10 years. Short-range actuarial estimates are prepared for this
period because of the short-range test of financial adequacy.
The Social Security Act requires estimates for 5 years; estimates are
prepared for an additional 5 years to help clarify trends which are only
starting to develop in the mandated first 5-year period.
Social Security Act.
Provisions of the law governing most operations of
the Social Security program. Original Social Security Act is Public Law
74-271, enacted August 14, 1935. With subsequent amendments, the
Social Security Act consists of 20 titles, of which four have been repealed.
The Old-Age, Survivors, and Disability Insurance program is authorized
by Title II of the Social Security Act.
Special public-debt obligation.
Securities of the United States Government issued exclusively to the OASI, DI,
HI, and SMI Trust Funds
and other Federal trust funds. Section 201(d) of the Social Security Act
provides that the public-debt obligations issued for purchase by the OASI
and DI Trust Funds shall have maturities fixed with due regard for the
needs of the funds. The usual practice in the past has been to spread the
holdings of special issues, as of each June 30, so that the amounts maturing
in each of the next 15 years are approximately equal. Special public-debt
obligations are redeemable at par value at any time and carry interest
rates determined by law (see "Interest rate").
See also tables II.C2 and
II.C4 for a listing of the obligations held
by the OASI and DI Trust Funds,
respectively.
Stabilizer provision.
Section 215(i)(1)(C) of the Act, which provides that
if the combined assets of the OASI and DI Trust Funds, as a percentage of
estimated annual expenditures, fall below a specified level, automatic
benefit increases will be limited to the lower of the increases in wages or
prices. The specified level is 20 percent for benefit increases in 1989 and
later.
Statutory blindness.
Central visual acuity of 20/200 or less in the better eye with the use of
a correcting lens or tunnel vision of 20° or less.
Substantial gainful activity.
The level of work activity used to establish disability. A finding of
disability requires that a person be unable to
engage in substantial gainful activity. Under current regulations, a person
who is not statutorily blind and is actually earning more than $500 a
month (net of impairment-related work expenses) is ordinarily considered
to be engaging in substantial gainful activity. A person who is statutorily
blind (see "Statutory blindness") is not considered to be engaging in
substantial gainful activity, for the purpose of determining a condition of
disability, unless the person's earnings are more than $1,000 a month in
1997 (net of impairment-related work expenses). This amount for the
blind is subject to adjustment each year to reflect increases in average
wage levels.
Summarized balance.
The difference between the summarized cost rate
and the summarized income rate, expressed as a percentage of taxable
payroll.
Summarized cost rate.
The ratio of the present value of expenditures to
the present value of the taxable payroll for the years in a given period.
This ratio can be used as a measure of the relative level of expenditures
during the period in question. For purposes of evaluating the financial
adequacy of the program, the summarized cost rate is adjusted to include
the cost of reaching and maintaining a "target" trust fund level. Because a
trust fund level of about 1 year's expenditures is considered to be an
adequate reserve for unforeseen contingencies, the targeted trust fund ratio
used in determining summarized cost rates is 100 percent of annual
expenditures. Accordingly, the adjusted summarized cost rate is equal to
the ratio of (a) the sum of the present value of the outgo during the period
plus the present value of the targeted ending trust fund level, to (b) the
present value of the taxable payroll during the projection period.
Summarized income rate.
The ratio of the present value of tax income
to the present value of taxable payroll for the years in a given period. This
ratio can be used as a measure of the relative level of income during the
period in question. For purposes of evaluating the financial adequacy of
the program, the summarized income rate is adjusted to include assets on
hand at the beginning of the period. Accordingly, the adjusted summarized
income rate equals the ratio of (a) the sum of the trust fund balance
at the beginning of the period plus the present value of the total income
from taxes during the period, to (b) the present value of the taxable payroll
for the years in the period.
Supplemental Security Income -- SSI.
A Federally administered program (often with State supplementation) of cash
assistance for needy
aged, blind, or disabled persons. SSI is funded through the general fund
of the Treasury and administered by the Social Security Administration.
Supplementary Medical Insurance (SMI) Trust Fund.
See "Trust
fund."
Survivor benefit.
Benefit payable to a survivor of a deceased worker.
Taxable earnings.
Wages and/or self-employment income, in employment covered by the OASDI
and/or HI programs, that is under the applicable annual maximum taxable
limit. For 1994 and later, no maximum
taxable limit applies to the HI program.
Taxable payroll.
A weighted average of taxable wages and taxable self-employment
income. When multiplied by the combined employee-employer
tax rate, it yields the total amount of taxes incurred by
employees, employers, and the self-employed for work during the period.
Taxable self-employment income.
Net earnings from self-employment,
generally above $400 and below the annual taxable and creditable maximum
amount for a calendar or other taxable year, less any taxable wages
in the same taxable year.
Taxable wages.
See "Taxable earnings."
Taxation of benefits.
During 1984-93, up to one-half of an individual's
or a couple's OASDI benefits was potentially subject to Federal income
taxation under certain circumstances. The revenue derived from this
provision was allocated to the OASI and DI Trust Funds on the basis of the
income taxes paid on the benefits from each fund. Beginning in 1994, the
maximum portion of OASDI benefits potentially subject to taxation was
increased to 85 percent. The additional revenue derived from taxation of
benefits in excess of one-half, up to 85 percent, is allocated to the HI
Trust Fund.
Taxes.
See "Contributions."
Termination.
Cessation of payment of a specific type of benefit because
the beneficiary is no longer entitled to receive it. For example, benefits
might terminate as a result of the death of the beneficiary, the recovery of
a disabled beneficiary, or the attainment of age 18 by a child beneficiary.
In some cases, the individual may become immediately entitled to
another type of benefit (such as the conversion of a disabled-worker
beneficiary at normal retirement age to a retired-worker beneficiary).
Test of Long-Range Close Actuarial Balance.
Summarized income
rates and cost rates are calculated for each of 66 valuation periods within
the full 75-year long-range projection period. The first of these periods
consists of the next 10 years. Each succeeding period becomes longer by 1
year, culminating with the period consisting of the next 75 years. The
long-range test is met if, for each of the 66 valuation periods, the
actuarial balance is not less than zero or is negative by, at most, a
specified percentage of the summarized cost rate for the same time period.
The percentage allowed for a negative actuarial balance is 0 percent for the
10-year period, grading uniformly to 5 percent for the full 75-year period.
The criterion for meeting the test is less stringent for the longer periods
in recognition of the greater uncertainty associated with estimates for
more distant years. The test is applied to OASI and DI separately, as well
as combined, based on the intermediate (alternative II) set of assumptions.
Test of Short-Range Financial Adequacy.
The conditions required to
meet this test are as follows:
- If the trust fund ratio for a fund exceeds 100 percent at the
beginning of the projection period, then it must be projected to remain at
or above 100 percent throughout the 10-year projection period;
Alternatively, if the fund ratio is initially less than 100
percent, it must be projected to reach a level of at least 100 percent
within 5 years (and not be depleted at any time during this period) and
then remain at or above 100 percent throughout the remainder of the 10-year
period.
These conditions apply to each trust fund separately, as well as to the
combined funds, and are evaluated based on the intermediate (alternative
II) set of assumptions.
Total fertility rate.
The average number of children who would be born
to a woman in her lifetime if she were to experience the birth rates by age
observed in, or assumed for, a specified year, and if she were to survive
the entire childbearing period.
Trust fund.
Separate accounts in the United States Treasury in which
are deposited the taxes received under the Federal Insurance Contributions
Act, the Self-Employment Contributions Act, contributions resulting
from coverage of State and local government employees; any sums
received under the financial interchange with the railroad retirement
account; voluntary hospital and medical insurance premiums; and transfers of
Federal general revenues. Funds not withdrawn for current
monthly or service benefits, the financial interchange, and administrative
expenses are invested in interest-bearing Federal securities, as required
by law; the interest earned is also deposited in the trust funds.
- Old-Age and Survivors Insurance (OASI). The
trust fund used for paying monthly benefits to retired-worker (old-age)
beneficiaries and their spouses and children and to survivors of deceased
insured workers.
Disability Insurance (DI). The trust fund
used for paying monthly benefits to disabled-worker beneficiaries
and their spouses and children and for providing rehabilitation services to
the disabled.
Hospital Insurance (HI). The trust fund used
for paying part of the costs of inpatient hospital services and related care
for aged and disabled individuals who meet the eligibility requirements.
Supplementary Medical Insurance (SMI). The trust
fund used for paying part of the costs of physician's services, outpatient
hospital services, and other related medical and health services for
voluntarily enrolled aged and disabled individuals.
Trust fund ratio.
A measure of the adequacy of the trust fund level.
Defined as the assets at the beginning of the year, including advance tax
transfers (if any), expressed as a percentage of the outgo during the year.
The trust fund ratio represents the proportion of a year's outgo which
could be paid with the funds available at the beginning of the year.
Unnegotiated check.
A check which has not been cashed 6 months after
the end of the month in which the check was issued. When a check has
been outstanding for a year (i) the check is administratively cancelled by
the Department of the Treasury and (ii) the issuing trust fund is reimbursed
separately for the amount of the check and interest for the period
the check was outstanding. The appropriate trust fund also receives an
interest adjustment for the time the check was outstanding if it is cashed
6-12 months after the month of issue. If a check is presented for payment
after it is administratively cancelled, a replacement check is issued.
Valuation period.
A period of years which is considered as a unit for
purposes of calculating the financial status of a trust fund.
Vocational rehabilitation.
Services provided to disabled persons to
help enable them to return to gainful employment. Reimbursement from
the trust funds for the costs of such services is made only in those cases
where the services contributed to the successful rehabilitation of the
beneficiaries.
Year of exhaustion.
The year in which a trust fund would become
unable to pay benefits when due because the assets of the fund were
exhausted.
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