Special Message to the Congress on Old Age and Survivors Insurance and on Federal Grants-in-Aid for Public Assistance Programs

To the Congress of the United States:

I submit herewith for the consideration of the Congress a number of recommendations relating to the Old Age and Survivors Insurance System and the Federal grant-in-aid programs for public assistance.

The human problems of individual citizens are a proper and important concern of our government. One such problem that faces every individual is the provision of economic security for his old age and economic security for his family in the event of his death. To help individuals provide for that security--to reduce both the fear and the incidence of destitution to the minimum--to promote the confidence of every individual in the future--these are proper aims of all levels of government, including the Federal Government.

Private and group savings, insurance, and pension plans, fostered by a healthy, fully functioning economy, are a primary means of protection against the economic hazards of old age and death. These private savings and plans must be encouraged, and their value preserved, by sound tax and fiscal policies of the Government.

But in addition, a basic, nation-wide protection against these hazards can be provided through a government social insurance system. Building on this base, each individual has a better chance to achieve for himself the assurance of continued income after his earning days are over and for his family after his death. In response to the need for protection arising from the complexities of our modern society, the Old Age and Survivors Insurance system was developed. Under it nearly 70 million persons and their families are now covered, and some 6 million are already its beneficiaries. Despite shortcomings which can be corrected, this system is basically sound. It should remain, as it has been, the cornerstone of the government's programs to promote the economic security of the individual.

Under Old Age and Survivors Insurance (OASI), the worker during his productive years and his employer both contribute to the system in proportion to the worker's earnings. A self-employed person also contributes a percentage of his earnings. In return, when these breadwinners retire after reaching the age of 65, or if they die, they or their families become entitled to income related in amount to their previous earnings. The system is not intended as a substitute for private savings, pension plans and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built. Thus the individual's own work, his planning, and his thrift will bring him a higher standard of living upon his retirement, or his family a higher standard of living in the event of his death, than would otherwise be the case. Hence the system both encourages thrift and self-reliance, and helps to prevent destitution in our national life.

In offering, as I here do, certain measures for the expansion and improvement of this system, I am determined to preserve its basic principles. The two most important are: (1) it is a contributory system, with both the worker and his employer making payments during the years of active work; (2) the benefits received are related in part to the individual's earnings. To these sound principles our system owes much of its wide national acceptance.

During the past year we have subjected the Federal social security system to an intensive study which has revealed certain limitations and inequities in the law as it now stands. These should be corrected.

1. OASI Coverage Should Be Broadened.

My message to the Congress on August 1, 1953, recommended legislation to bring more persons under the protection of the OASI system. The new groups that I recommended be covered--about ten million additional people--include self-employed farmers; many more farm workers and domestic workers; doctors, dentists, lawyers, architects, accountants, and other self-employed professional people; members of State and local retirement systems on a voluntary group basis; clergymen on a voluntary group basis; and several smaller groups. I urge the Congress to approve this extension of coverage.

Further broadening of the coverage is being considered by the Committee on Retirement Policy for Federal Personnel, created by the Congress. This Committee will soon report on a plan for expanding OASI to Federal employees not now protected, without impairing the independence of present Federal retirement plans. After the Committee has made its report, I shall make appropriate recommendations on that subject to the Congress.

Extension of coverage will be a highly important advance in our OASI system, but other improvements are also needed. People over 65 years of age who can work should be encouraged to do so and should be permitted to take occasional or part-time jobs without losing their benefits. The level of benefits should be increased. Certain defects in and injustices under the present law should be eliminated. I submit the following recommendations to further these purposes.

2. The Present "Retirement Test" Should Be Liberalized and Its Discrimination Against the Wage Earner Should Be Removed.

By depriving an OASI beneficiary of his benefit payment for any month in which he earns wages of more than $75, present law imposes an undue restraint on enterprise and initiative. Retired persons should be encouraged to continue their contributions to the productive needs of the nation. I am convinced that the great majority of our able-bodied older citizens are happier and better off when they continue in some productive work after reaching retirement age. Moreover, the nation's economy will derive large benefits from the wisdom and experience of older citizens who remain employed in jobs commensurate with their strength.

I recommend, therefore, that the first $1000 of a beneficiary's annual earnings be exempted under the retirement test, and that for amounts earned above $1000 only one month's benefit be deducted for each additional $80 earned.

To illustrate the effect of these changes: a beneficiary could take a $200 a month job for five months without losing any benefits, whereas under present law he would lose five months' benefits. He could work throughout the year at $90 a month and lose only one month's benefit, whereas under present law he would lose all twelve.

Approval of this recommendation will also remove the discriminatory treatment of wage earners under the retirement test. Self-employed persons already have the advantage of an exemption on an annual basis, with the right to average their earnings over the full year. The amendment I have proposed would afford this advantage, without discrimination, to all beneficiaries.

3. OASI Benefits Should Be Increased.

Today thousands of OASI beneficiaries receive the minimum benefit of twenty-five dollars a month. The average individual benefit for retired workers approximates fifty dollars a month. The maximum benefit for an individual is $85 a month. For OASI to fulfill its purpose of helping to combat destitution, these benefits are too low.

I recommend, therefore, that benefits now being received by retired workers be increased on the basis of a new formula to be submitted to the appropriate Committees by the Secretary of Health, Education, and Welfare. This formula should also provide increases for workers retiring in the future, raising both the minimum and the maximum benefits. These increases will further the objectives of the program and will strengthen the foundation on which its participants may build their own security.

4. Additional Benefit Credits Should Be Provided.

The maintenance of a relationship between the individual's earnings and the benefits he receives is a cornerstone of the OASI system. However, only a part of many workers' annual earnings are taken into account for contribution and benefit purposes. Although in 1938 only the first $3000 of a worker's annual earnings were considered for contribution and benefit purposes, statistical studies reveal that in that year 94% of full-time male workers protected by OASI had all of their earnings covered by the program. By 1950 less than half of such workers--44%-had their full earnings covered by the program, so the Congress increased the earnings base to $3600.

Today, the earnings base of $3600 covers the full earnings of only 40% of our regular male workers. It is clear, therefore, that another revision of this base is needed to maintain a reasonable relationship between a worker's benefits and his earnings.

I recommend, therefore, that the earnings base for the calculation of OASI benefits and payroll taxes be raised to $4200, thus enabling 15,000,000 people to have more of their earnings taken into account by the program.

5. Benefits Should Be Computed on a Fairer Basis.

The level of OASI benefits is related to the average of a worker's past earnings. Under present law periods of abnormally low earnings, or no earnings at all, are averaged in with periods of normal earnings, thereby reducing the benefits received by the retired worker. In many instances, a worker may earn little or nothing for several months or several years became of illness or other personal adversity beyond his power of prevention or remedy. Thus the level of benefits is reduced below its true relation to the earning capabilities of the employee. Moreover, if the additional millions of persons recommended for inclusion under OASI are brought into the program in 1955 without modification of present law, their average earnings will be sharply lowered by including as a period of no earnings the period from 1951 to 1955 when they were not in the program. I recommend, therefore, that in the computation of a worker's average monthly wage, the four lowest years of earnings be eliminated.

6. The Benefit Rights of the Disabled Should Be Protected.

One of the injustices in the present law is its failure to make secure the benefit fights of the worker who has a substantial work record in covered employment and who becomes totally disabled. If his disability lasts four years or less, my preceding recommendation will alleviate this hardship. But if a worker's earnings and contributions cease for a longer period, his retirement rights, and the survivor rights of his widow and children may be reduced or even lost altogether. Equity dictates that this defect be remedied. I recommend, therefore, that the benefits of a worker who has a substantial work record in covered employment and who becomes totally disabled for an extended period be maintained at the amount he would have received had be become 65 and retired on the date his disability began.

The injustice to the disabled should be corrected not simply by preserving these benefit rights but also by helping them to return to employment wherever possible. Many of them can be restored to lives of usefulness, independence and self-respect if, when they apply for the preservation of their benefit fights, they are promptly referred to the Vocational Rehabilitation agencies of the States. In the interest of these disabled persons, a close liaison between the OASI system and these agencies will be promptly established upon approval of these recommendations by the Congress. Moreover, in my message of January 18 to the Congress, I shall propose an expanded and improved program of Vocational Rehabilitation.

COSTS

I am informed by the Secretary of Health, Education and Welfare that the net additional cost of the recommendations herein presented would be, on a long-term basis, about one-half of one percent of the annual payrolls subject to OASI taxes. The benefit costs will be met for at least the next fifteen to twenty-five years under the step-rate increases in OASI taxes already provided in the law.

PUBLIC ASSISTANCE

An important by-product of the extension of the protection of the OASI system and the increase in its benefit scale is the impact on public assistance programs. Under these programs States and localities provide assistance to the needy aged, dependent children, blind persons and the permanently and totally disabled, with the Federal Government sharing in the cost.

As broadened OASI coverage goes into effect, the proportion of our aged population eligible for benefits will increase from forty-five percent to seventy-five percent in the next five or six years. Although the need for some measure of public assistance will continue, the OASI program will progressively reduce, year by year, the extent of the need for public assistance payments by the substitution of OASI benefits. I recommend that the formula for Federal sharing in the public assistance programs for these purposes reflect this changing relationship without prejudicing in any manner the receipt of public assistance payments by those whose need for these payments will continue.

Under the present public assistance formula some States receive a higher percentage share of Federal funds than others. In the program of old-age assistance, for example, States making low assistance payments receive up to eighty percent Federal funds in defraying the costs of their programs. States making high assistance payments receive about sixty-five percent of Federal funds in that portion of the old-age assistance payments which is within the $55 maximum for Federal participation.

This variation in Federal participation is the result of a Congressional determination that the Federal sharing should be higher for States which, because of low resources, generally make low assistance payments. In order better to achieve this purpose, I recommend that a new formula be enacted. It should take into account the financial capacity of the several States to support their public assistance programs by adopting, as a measure of that capacity, their per capita income. Such a new formula will also facilitate the inclusion, in the old-age assistance program, of a factor reflecting the expansion of OASI.

The present formula for Federal sharing in public assistance programs requires adjustment from another standpoint. Under present law, the Federal Government does not share in any part of a monthly old-age assistance payment exceeding $55. Yet many of these payments must exceed this amount in order to meet the needs of the individual recipient, particularly where the individual requires medical care. I consider it altogether appropriate for the Federal Government to share in such payments and recommend, therefore, that the present $55 maximum be placed on an average rather than on an individual basis. Corresponding changes in the other public assistance programs would be made. This change in the formula would enable States to balance high payments in cases of acute need against low payments where the need is relatively minor. In addition, great administrative simplification would be achieved.

A new public assistance formula should not become effective until the States have had an opportunity to plan for it. Until such time, the 1952 public assistance amendments should be extended.

The recommendations I have here submitted constitute a coordinated approach to several major aspects of the broad problem of achieving economic security for Americans. Many other phases of this national problem exist and will be reflected in legislative proposals from time to time to the Congress. The effort to prevent destitution among our people preserves a greater measure of their freedom and strengthens their initiative. These proposals are constructive and positive steps in that direction, and I urge their early and favorable consideration by the Congress.

DWIGHT D. EISENHOWER