Social Security
http://nationalpriorities.org/budget-basics/federal-budget-101/revenues/
Social Welfare
• Welfare is the provision of a minimal level of financial support for all citizens,
sometimes referred to as public aid – 43% of the budget (social security, Medicare
Medicaid)
• Also provided by nonprofit groups; charitable, educational, informal social groups,
religious groups, and inter-governmental organizations
• Financial support given to a targeted segment of the population – low income,
homeless, veterans, American-Indians, WIC participants, schoolchildren (nutrition)
– safety net programs – 12% of budget
Poverty in the United States: 2012 (CRS, Nov. 13, 2013
Social Security (Wikipedia)
The original Social Security Act was passed in 1935
The current – amended version – 42 USC chapter 7 – includes several programs
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Social Security – retirement and other programs
Medicare
Medicaid
Children’s Health Insurance Program (CHIP)
Programs that provide aid to individuals and families facing hardship.
Social insurance
Any government-sponsored program with the following four characteristics
• the program defined by statute - benefits, eligibility requirements, and premiums
defined by statute;
• explicit provision is made to account for the income and expenses (often through
a trust fund);
• funded by taxes or premiums paid by (or on behalf of) participants (although
additional sources of funding may be provided as well); and
• the program serves a defined population, and participation is either compulsory or
the program is subsidized heavily enough that most eligible individuals choose to
participate.
Social Insurance Actuarial Standards of Practice No. 32 (Actuarial Standards Board,
1998)
Social Security is funded through payroll taxes - Federal Insurance Contributions Act
tax (FICA) - and/or Self Employed Contributions Act Tax (SECA) – and apprpriations
from Congress
Monies collected by the Internal Revenue Service (IRS) and placed in the Social
Security Trust Funds administered by the Department of the Treasury
• Federal Old-Age and Survivors Insurance Trust Fund
• Federal Disability Insurance Trust Fund
• Federal Hospital Insurance Trust Fund - This trust fund is part A of Medicare, the
United States' health insurance program for people age 65 and older and certain
disabled persons
• Federal Supplementary Medical Insurance Trust Fund – Part B and D
Financing Social Security
A. Social Security taxes
• pay on your earnings up to a certain amount in 2013 that was $113,700
B. Medicare taxes
• pay on all of your wages or net earnings from self-employment
Beginning 2013 workers will pay an additional 0.9 percent Medicare tax on income
exceeding certain thresholds
Debt held in federal accounts money that the
Treasury has borrowed from itself – 1/3 of the
total
Some federal tax revenues can only be used
for certain programs and accumulated in
dedicated trust funds
When trust fund accounts run a surplus, the
Treasury takes the surplus and uses it to pay
for other kinds of federal spending
Of course the Treasury must pay that
borrowed money back to the trust fund at a
later date
Airport and Airway Trust Fund
Civil Service Retirement and Disability Fund
Commodity Credit Corporation Fund
Federal Employees and Retired Employees Health
Benefits Funds
Employees Life Insurance Fund
Highway Trust Fund
Land and Water Conservation
Medicare (Hospital Insurance and Supplemental
Medical Insurance)
Military Retirement Fund
Nuclear Waste Fund
Postal Service Fund
Strengthening Markets, Income, and Supply
Social Security
Tennessee Valley Authority Fund
Unemployment Insurance Fund
Universal Service Fund
Reports From The Board Of Trustees
• 2013 Annual Report of the Board of Trustees of the federal Old-Age and Survivors
Insurance and Federal Disability Insurance Trust Funds
Actuarial Studies
• With a few exceptions all salaried income has a FICA and/or SECA tax collected on
it
• With few exceptions all legal residents working in the United States now have an
individual Social Security card number
• Nearly all working (and many non-working) residents since Social Security's 1935
inception have had a Social Security number since it is required to do a wide range
of things from paying the IRS to getting a job
Total Social Security expenditures in 2013 were $1.3 trillion
• 8.4% of the $16.3 trillion GNP (2013) and
• 37% of the Federal expenditures of $3.684 trillion
Status of the Social Security and Medicare Programs (Social Security Administration)
Historical Tables (Office of Management and Budget)
Income derived from Social Security is currently estimated to keep approximately 20%
of all Americans - age 65 or older - above the Federally defined poverty level
• Social Security reaches almost every family, and at some point will touch the lives
of nearly all Americans
• Social Security helps not only older Americans, but also workers who become
disabled and families in which a spouse or parent dies
• Today, about 161 million people work and pay Social Security taxes and about 57
million people receive monthly Social Security benefits
Social Security Administration
• Retirement
• Disability - benefits to you and certain members of your family if you have worked
long enough and have a medical condition that has prevented you from working or
is expected to prevent you from working for at least 12 months or end in death
• Medicare
• Survivors
• Supplemental Security Income
Minnesota Social Security Offices
• Minneapolis Social Security Office
• St Paul Social Security Office
Retirement
The original Social Security Act of 1935 set the minimum age for receiving full
retirement benefits at 65
The 1983 Amendments phased in a gradual increase in the age for collecting full Social
Security retirement benefits
The retirement age is increasing from 65 to 67 over a 22-year period, with an 11-year
hiatus at which the retirement age will remain at 66
Congress cited improvements in the health of older people and increases in average
life expectancy as primary reasons for increasing the normal retirement age
Since the program first began paying monthly Social Security benefits in 1940 average
life expectancy
• for men reaching age 65 has increased to age 84
• for women reaching age 65, has increased to age 86
Retirement
• Most of beneficiaries are retirees and their families—about 40 million people
• Social Security was never meant to be the only source of income for retired people
• Social Security replaces about 40% of an average retirees income
• Most financial advisors say retirees will need 70 percent or more of pre-retirement
earnings to live comfortably
• For this they will need private pensions, savings and investments
Medicare
• The Medicare Program is the second-largest social insurance program in the U.S.,
with 50.7 million beneficiaries and total expenditures of $574 billion in 2012.
• Health insurance program for people age 65 or older
• Certain people younger than age 65 can qualify for Medicare including those who
have disabilities including permanent kidney failure or amyotrophic lateral sclerosis
(Lou Gehrig’s disease)
• The program does not cover all medical expenses or the cost of most long-term
care
• Many individuals buy a Medicare supplement policy from a private insurance
company to cover some of the costs that Medicare does not cover
• It is financed in part by monthly premiums deducted from Social Security checks
The Centers for Medicare & Medicaid Services administers the Medicare program
Medicare Trust Fund's Life Extended, But What Does It Really Mean? (PBS Newshour
May 31, 2013)
Trustees: Medicare fund will run out in 2026 (CBS News May 31, 2013)
Disability
Studies show that a 20-year-old worker has a 3-in-10 chance of becoming disabled
before reaching full retirement age
Social Security pays benefits to people who cannot work because they have a medical
condition that is expected to last at least one year or result in death
Federal law has a very strict definition of disability
Disability-Claim Judge Has Trouble Saying ‘No’(The Wall Street Journal May 19, 2011)
Supplemental Security Income
Payments to people with low income who are age 65 or older or are blind or have a
disability
Understanding Supplemental Security Income (SSI)
Survivors benefits
• Social Security can help your family if you have earned enough Social Security
credits through your work
• Social Security helps families cope with the financial loss of the family wage earner
by providing income for the families of workers who die
• 98 of every 100 children could get benefits if a working parent dies
• Social Security pays more benefits to children than any other federal program
Survivors Benefits
Medicaid
• Medicaid and CHIP (Children’s Health Insurance Program) provide health coverage
to nearly 60 million Americans, including children, pregnant women, parents,
seniors and individuals with disabilities
• In order to participate in Medicaid, Federal law requires States to cover certain
population groups (mandatory eligibility groups) and gives them the flexibility to
cover other population groups (optional eligibility groups)
• States establish and administer their own Medicaid programs, and determine the
type, amount, duration, and scope of services within broad federal guidelines.
States are required to cover certain “mandatory benefits,” and can choose to
provide other “optional benefits” including prescription drugs
• States receive federal matching funds to provide these benefits
• The Center for Medicaid and CHIP Services (CMCS) is one of six Centers within
the Centers for Medicare & Medicaid Services, an agency of the U.S. Department
of Health and Human Services (HHS)
• CMCS serves as the focal point for all national program policies and operations
related to Medicaid and the Children’s Health Insurance Program (CHIP).
Department of Health and Human Services
• Centers for Medicare and Medicaid Services
• Federal Policy Guidance
• Medicare.gov
• Medicaid
• State Resource Center
• The Center for Consumer Information & Insurance Oversight
Unemployment Insurance
US Department of Labor Employment and Training Administration
• the Federal-State Unemployment Insurance Program provides unemployment
benefits to eligible workers who are unemployed through no fault of their own (as
determined under State law), and meet other eligibility requirements of State law
• benefits are intended to provide temporary financial assistance to unemployed
workers
• each State administers a separate unemployment insurance program within
guidelines established by Federal law
• in the majority of States, benefit funding is based solely on a tax imposed
on employers
The Minnesota Unemployment Insurance Program
Safety net
Government Benefits, Grants, and Financial Aid
low income,
Food and Nutrition Service
• Supplemental Nutrition Assistance Program (SNAP)
• The Special Supplemental Nutrition Program for Women Infants and Children (WIC)
• Disaster Nutrition Assistance Programs
• School Meals
Senior Farmers' Market Nutrition Program
DisasterAssistance.gov
Veterans Benefits
Low Income Home Energy Assistance Program
Telephone Assistance Programs for Low-Income Households
Mortgages for Home Buyers and Homeowners
Renter's Assistance
Weatherization Assistance
Employment and Training Assistance
Youth Education and Training Assistance
Laid-Off and Dislocated Worker Assistance
Adoption Assistance
Head Start - a federal program that promotes the school readiness of children ages
birth to five from low-income families by enhancing their cognitive, social, and
emotional development
Vaccines for Children
Native American Benefits
Refugee Resettlement Programs
Rural Assistance Center
Charities
Charity Search
• Health
• Human Services – children‘s and family services, food banks, homeless services,
social services
• Public Benefit – civil rights, community and housing development
Tax benefits of giving
Eight tips for deducting charitable contributions (IRS)
Tax Information for Charities & Other Non-Profits (IRS)
The Future of the Charitable Deduction (New York Times Nov. 21 2013)
Pensions (Wikipedia)
Governed primarily by federal statutory law – the Employee Retirement Income
Security Act (1974)
• set minimum standards for most voluntarily established pension and health plans in
private industry to provide protection for individuals in these plans
• requires plans to provide participants with information about plan features and plan
funding
• provides fiduciary responsibilities for those who manage and control plan assets;
• requires plans to establish a grievance and appeals process for participants to get
benefits from their plans
• gives participants the right to sue for benefits and breaches of fiduciary duty
Defined benefit plan
• a pension plan in which an employer/sponsor promises a specified monthly benefit
on retirement that is predetermined by a formula based on the
employee's earnings history, tenure of service and age
• traditionally, governmental and public entities, as well as a large number of
corporations, provided defined benefit plans, sometimes as a means of
compensating workers in lieu of increased pay
• the most common type of formula used is based on the employee’s terminal
earnings (final salary). Under this formula, benefits are based on a percentage of
average earnings during a specified number of years at the end of a worker’s
career
Minnesota State Retirement System
Public Employees Retirement Association of MN
• Each employee does not have a separate account in these programs, as the
money to support the pensions is generally administered through a trust
established by the employer
• No recourse for individuals with defined benefit plan when their employers go out of
business
• 1974 Act passed in response to the mismanagement of funds in direct benefit plans
• All employers who engage in interstate commerce and provide defined benefit
plans to their employees must abide by ERISA guidelines
Defined contribution plan
• contributions are paid into an individual account for each member
• contributions are invested in the stock market, and the returns on the investment
(which may be positive or negative) are credited to the individual's account
• on retirement, the member's account is used to provide retirement benefits
• defined contribution plans have become widespread all over the world in recent
years, and are now the dominant form of plan in the private sector in many
countries
University of Minnesota Faculty Retirement Plan
Department of Labor responsible for the operation of the pension plans
Internal Revenue Service responsible for funding the plans
Pension Benefit Guaranty Corporation established to insure the pensions
Pension Benefit Guaranty Corporation
• Federal corporation created by the Employee Retirement Income Security Act of
1974
• It currently protects (insures) the pensions of more than 44 million American
workers and retirees in more than 29,000 private single-employer and
multiemployer defined benefit pension plans
• Operations are financed by insurance premiums set by Congress and paid by
sponsors of defined benefit plans, investment income, assets from pension plans
trusteed by PBGC, and recoveries from the companies formerly responsible for the
plans
Companies insured by PBGC
A Predictable Secure Pension for Life