Part II of the original 1976 Agreement established the basic rules for determining entitlement to and the amount of U.S. and German benefits for persons who have worked in both countries.  Under the rules which applied to the United States, if a worker had at least six quarters of coverage under the U.S. Social Security program, the worker’s coverage credits from both countries were totalized, i.e., combined, to qualify for a U.S. benefit.  If entitlement was established based on totalized credits, the amount of the benefit was determined by combining earnings records from both countries to compute a theoretical U.S. benefit amount.  This amount was then prorated to establish a partial benefit based on the ratio of periods of coverage completed in the United States to the total periods completed in both countries.  This computation method is the one which was used in the first three social security agreements concluded by the United States—with Italy, West Germany (now the FRG) and Switzerland. 

Experience in implementing those three agreements showed that using foreign earnings information to compute U.S. benefit amounts was cumbersome for both the United States and the other country.  A substantial amount of time was required in some cases to secure foreign earnings records, resulting in long delays in adjudicating U.S. totalization benefit claims.

To avoid the problems created by using foreign earnings data, regulations of the Department of Health and Human Services (20 CFR 404.1918) provided a new method of computing U.S. totalization benefits within the parameters of section 233 of the Act.  The revised regulations were published as a final rule in the Federal Register on July 24, 1984 (Vol. 49, No. 143, pp. 29771-29777).  Under this method, totalization benefit amounts are computed based on periods of coverage and earnings credited exclusively under U.S. law.  All the social security agreements negotiated and submitted to Congress after the agreements with Italy, West Germany and Switzerland were drafted so that they authorized the new method.  In addition, the original agreement with Italy was revised to authorize the new method.  Under the revised regulations, the original computation method continued to apply under the agreements with West Germany and Switzerland until such time as they were amended to permit use of the new method. 

Article 9.1 as amended by the U.S.-German Supplementary Agreement revised Article 9.1 of the original 1976 Agreement to permit the United States to use the new computation method.  The new method shortened processing time and expedited the payment of totalization benefits.  Under this method, the United States computes the theoretical benefit on the basis of a worker’s earnings level during the period he or she was actually covered under U.S. Social Security.  The theoretical benefit is then prorated to reflect the proportion of a coverage lifetime actually completed under the U.S. program.  A coverage lifetime is defined in the revised regulations (20 CFR 404.1918(d)(2)) as the number of the worker’s benefit computation years—i.e., the years which must be used in determining a worker’s average earnings under the regular U.S. national computation method. 

Under the new method, the theoretical benefit approximates the benefit amount to which the worker would have been entitled had he or she worked a full lifetime under the U.S. system at the same relative earnings level as during his or her actual periods of U.S. coverage.  The pro rata benefit that is payable reflects the portion of the worker’s coverage lifetime spent under the U.S. system.  The new method is comparable to the computation methods used by many Western European countries, which compute totalization benefits based solely on earnings under their own social security systems. 

The first Supplementary Agreement provided that this computation method applied to any application for benefits under the Agreement that had not been finally adjudicated at the time the first Supplementary Agreement took effect (March 1, 1988).  The first Supplementary Agreement also authorized the United States to recompute benefits payable under the Agreement to persons with U.S. covered earnings credited after entitlement and after the first Supplementary Agreement entered into force (March 1, 1988) using this computation method.