Social Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues

Publication Date: March 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

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Abstract:

Social Security reform is a major issue currently under debate in the 109th Congress. Impetus for this debate stems from calculations indicating that in the longrun the current program will not be financially sustainable under the present statutory scheme. This report addresses selected legal issues which may be raised regarding entitlement to Social Security benefits as Congress considers possible changes to the Social Security program, and in view of projected long-range shortfalls in the Social Security Trust Funds.

Social Security is a statutory entitlement program. Beneficiaries have a legal entitlement to receive Social Security benefits as set forth under the Social Security Act. However, Social Security benefits are not directly measured by the amount of payments made through the years into the system. Thus, the fact that Social Security benefits are financed by taxes on an employee's wages does not limit Congress' power to fix the levels of benefits under the Social Security Act, or the conditions upon which they may be paid. Congress's authority to modify provisions of the Social Security program, was affirmed in the 1960 Supreme Court decision in Flemming v. Nestor, wherein the Court held that an individual does not have an accrued "property right" in his or her Social Security benefits. The Court has also made clear in subsequent court decisions that the payment of Social Security taxes conveys no contractual rights to Social Security benefits. The courts will accord strong deference to social legislation such as contained in the Social Security Act where Congress exercises its power to provide for the general welfare.

The calculations concerning the possible future insolvency of the Social Security Trust Funds raise a question whether that result would affect the legal right of beneficiaries to receive full Social Security benefits. While an entitlement by definition legally obligates the United States to make payments to any person who meets the eligibility requirements established in the statute that creates the entitlement, a provision of the Antideficiency Act prevents an agency from paying more in benefits than the amount available in the source of funds available to pay the benefits. The Social Security Act states that Social Security benefits shall be paid only from the Social Security Trust Funds and the act appropriates all payroll taxes to pay benefits. Although the legal right of beneficiaries to receive full benefits would not be extinguished by an insufficient amount of funds in the Social Security Trust funds, it appears that beneficiaries would have to wait until the Trust Funds receive an amount sufficient to pay full benefits in the case of a shortfall, unless Congress amends applicable laws.