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

Congressional research reportJan 15, 2015

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Social Security Reform: Legal Analysis of

Social Security Benefit Entitlement Issues

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January 15, 2015

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RL32822

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

Summary

Calculations indicating that the Social Security program will not be financially sustainable in the

long run under the present statutory scheme have fueled the current debate regarding Social

Security reform. This report addresses selected legal issues that may be raised regarding

entitlement to Social Security benefits as Congress considers possible changes to the Social

Security program 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. The fact that Social

Security benefits are financed by taxes on an employee’s wages, however, does not limit

Congress’s 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 made clear in subsequent court decisions that the payment of

Social Security taxes conveys no contractual rights to Social Security benefits.

Congress has the power legislatively to promise to pay individuals a certain level of Social

Security benefits, and to provide legal evidence of Congress’s “guarantee” of the obligation of the

federal government to provide for the payment of such benefits in the future. While Congress

may decide to take whatever measures necessary to fulfill such an obligation, courts would be

unlikely to find that Congress’s unilateral promise constitutes a contract which could not be

modified in the future. In addition, a congressional promise not to reduce a specific level of

Social Security benefits payable to certain eligible individuals would likely not overcome the

constitutional principle, subject to due process considerations, that one Congress may not bind a

subsequent Congress to legislative action or inaction.

The calculations concerning the possible future insolvency of the Social Security Trust Funds

raise a question relating to 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 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.

Congressional Research Service

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

Contents

Congressional Authority To Modify Entitlements ........................................................................... 1

Congressional Guarantee of Social Security Benefit Payments ...................................................... 5

Congressional Power To Modify Its Own Contracts................................................................. 5

Congressional Power To Promise Future Deference ................................................................. 7

Payment of Social Security Benefits From the Trust Fund in Case of Exhaustion ......................... 8

Conclusion ...................................................................................................................................... 11

Contacts

Author Contact Information ........................................................... Error! Bookmark not defined.

Acknowledgment............................................................................ Error! Bookmark not defined.

Congressional Research Service

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

alculations indicating that the current Social Security program will not be financially

sustainable in the long run under the present statutory scheme have fueled the current

debate regarding Social Security reform.1 This report addresses selected legal issues that

may be raised regarding entitlement to Social Security benefits as Congress considers possible

changes to the Social Security program in view of projected long-range shortfalls in the Social

Security Trust Funds.2

Social Security benefits are administered pursuant to Title II of the Social Security Act, known as

the Old Age, Survivors and Disability Insurance (OASDI) program.3 Title II is part of a larger

social insurance program in which Congress uses its power to tax and spend for the general

welfare to promote the social goals of aiding the aged, survivors of workers, disabled persons,

and persons of limited means. Beneficiaries under Title II have a legal entitlement to receive

Social Security benefits as set forth by the Social Security Act and as administered by the Social

Security Administration (SSA), an independent agency in the executive branch.

An individual’s right to Social Security benefits is in a sense “earned,” since there is a general

relationship between OASDI benefits and wages earned and the tax paid thereon. However,

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 provide a limit on Congress’s power to fix the levels of benefits under the Social

Security Act, or the conditions upon which they may be paid.4

Congressional Authority To Modify Entitlements

The Supreme Court’s landmark decision in Flemming v. Nestor5 provided an analysis of the

relationship between a beneficiary’s legal entitlement to receive Social Security benefits and the

power of Congress to change that entitlement by amending the underlying statute. The Court in

that case upheld a provision, Section 202(a) of the Social Security Act,6 that terminated Social

Security benefits to a person deported for membership in the Communist Party. Nestor at one

time had been a member of the Communist Party. Later he began receiving Social Security

benefits which were cut off when he was deported to his native Bulgaria. Nestor argued that he

had a “property right” in his Social Security benefits and that, by cutting off those benefits, the

government had made an unlawful “taking” of his benefits that contravened the Fifth

Amendment.7

The Court, however, disagreed. Justice Harlan wrote:8

See CRS Report RL33514, Social Security: What Would Happen If the Trust Funds Ran Out?, by Noah P. Meyerson.

See CRS Report RL33544, Social Security Reform: Current Issues and Legislation, by (name redacted), for more

information.

Sections 201 et seq. of the Social Security Act, 42 U.S.C. §§401 et seq.

Richardson v. Belcher, 404 U.S. 78 (1971). In addition, Section 1104, 42 U.S.C. §1304, explicitly states that, “The

right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.”

363 U.S. 603 (1960).

42 U.S.C. §402(a).

The Fifth Amendment, in relevant part, states that, “No person shall ... be deprived of life, liberty, or property,

without due process of law; nor shall private property be taken for public use without just compensation.” Language

preceding the semicolon is referred to as the Due Process Clause; language following the semicolon is referred to as the

Takings Clause.

363 U.S. at 610-611.

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

To engraft upon the Social Security system a concept of “accrued property rights” would

deprive it of the flexibility and boldness in adjustment to everchanging conditions which

it demands.... It was doubtless out of an awareness of the need for such flexibility that

Congress included in the original Act, and has since retained, a clause expressly reserving

to it “[t]he right to alter, amend, or repeal any provision” of the act. §1104, 49 Stat. 648,

42 U.S.C. §1304. That provision makes express what is implicit in the institutional needs

of the program.... We must conclude that a person covered by the act has not such a right

in benefit payments as would make every defeasance of “accrued” interests violative of

the Due Process Clause of the Fifth Amendment.

The inherent ability of Congress to modify the provisions of Title II of the Social Security Act,

even to the extent of affecting the benefits an individual is currently receiving, is thus well

established.9 The same principle that current benefit amounts may be modified has been applied

to other, similar programs involving pensions, such as Federal Civil Service Retirement. One

significant example is the Supreme Court affirmance, without opinion, of a decision of a threejudge district court in National Association of Retired Federal Employees v. Horner.10 The district

court in that case upheld a provision of the Balanced Budget and Emergency Deficit Control

Act,11 which suspended paying a scheduled cost-of-living adjustment (COLA) for federal retirees,

saying that it did not violate the Takings Clause of the Fifth Amendment, which states that private

property shall not be taken for public use without just compensation.

The dispute centered on whether the provision of the act, signed by the President on December

12, 1985, which suspended any automatic spending increase that first would be paid during the

period beginning with the date of enactment, constituted a taking of private property of the

retirees. The section providing for the COLA, 5 U.S.C. §8340(b), provided that it would take

effect on December 1 of each year. While Section 8340(b) made the COLA effective on

December 1, it was not scheduled to be paid until January 2, 1986. The retirees argued that the

COLA for the 12 months after December 1, 1985, became their private property on December 1,

1985, and, consequently, that the suspension signed on December 12, 1985, took their property

which had accrued between December 1 and 12 without compensation in violation of the Takings

Clause.

The court rejected their claim, asserting that, “It is utterly clear, however, that the statute [Section

8340(b)] cannot be read as plaintiffs wish.”12 It cited an earlier case, Stouper v. Jones,13 as

dispositive. The appellant in the Stouper case retired in 1953 and began receiving disability

annuity payments pursuant to the law then in force. In 1956, Congress amended the law to

discontinue benefits to recipients whose earning capacity was restored to a level fairly

comparable to the current rate of pay for the position held immediately prior to retirement. After

See Richardson v. Belcher, 404 U.S. 78 (1971), where the Supreme Court upheld an amendment that reduced monthly

Social Security disability benefits from $330 to $225 to reflect receipt of state workmen’s compensation benefits. See

also Milner v. Apfel, 148 F. 3d 812 (7th Cir. 1998), upholding suspension of Social Security benefits payable to certain

persons in public institutions found not guilty by reason of insanity of offenses punishable by imprisonment for more

than one year.

633 F. Supp. 511 (D.D.C. 1986), aff’d. 479 U.S. 878 (1986).

P.L. 99-177, known as the Gramm-Rudmann-Hollings Act.

Horner at 514. See also Zucker v. United States, 578 F. Supp. 1239 (S.D.N.Y.1984), appeal dismissed on proced.

grounds, 751 F.2d 373 (2d Cir. 1984), aff’d. 758 F. 2d 637 (Fed. Cir. 1985), cert. denied, 474 U.S. 842 (1985). The

court there upheld a modification of a Civil Service retirement COLA saying that, although retirees may have a

protected property interest when they are entitled to immediate payment under pre-existing law, their entitlement to any

post-retirement increases in an annuity stems from the underlying statute which may be adjusted at any time. Id. at 758

F.2d 638.

284 F.2d 240 (D.C. Cir. 1960).

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the Retirement Division of the Civil Service Commission determined that the appellant had been

restored to that earning capacity, her disability annuity was terminated.

The appellant asserted that the 1956 amendment could not constitutionally be applied in her case

because at the time she retired she acquired a vested right to an annuity that could not be taken

from her by subsequent legislation.14 The U.S. Court of Appeals for the District of Columbia in

Stouper said that “[I]t is well settled that a pension granted by the government confers no right

which cannot be revised, modified, or recalled by subsequent legislation. United States ex rel.

Burnett v. Teller, 107 U.S. 64 (1882).”15

The court in the Stouper case added that benefits under the Civil Service Retirement Act are

similar to those under the Social Security Act; they are not based on an employee’s contributions

to the retirement fund, but instead on the employee’s earnings record and years of service. It was

noted that the Retirement Act pays higher benefits when a deceased employee is survived by a

widow or widower and children, than when he or she is survived only by a widow or widower

even though the employee’s contribution to the Civil Service Retirement and Disability Fund had

been the same in either case. “We conclude that an employee has no right under the Retirement

Act based on contractual annuity principles, and hold that the appellant had no vested right to the

disability annuity which was terminated.”16

The U.S. Supreme Court also has made clear that the payment of Social Security taxes conveys

no contractual rights to Social Security benefits. In 1937 the High Court upheld the

constitutionality of the Social Security Act in Helvering v. Davis.17 In doing so, the Court held

that the Social Security program is not an insurance program. The court noted, “The proceeds of

both employee and employer taxes are to be paid into the treasury like any other internal revenue

generally, and are not earmarked in any way.”18 The Court, in essence, deferred to Congress on

the question of which welfare schemes fall within the ambit of the Constitution’s General Welfare

Clause. Later, in Flemming, the Court rejected any comparison of Social Security with insurance

or an annuity:19

It is apparent that the noncontractual interest of an employee covered by the act cannot be

soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed

on his contractual premium payments.

The absence of contractual rights extends to government pensions in general. In Dodge v. Board

Education,20 a retired school teacher challenged the constitutionality of a state statute that reduced

her retirement annuity from $1,500 to $500. The statute in effect when she retired said that, “Each

person so retired ... shall be paid the sum of fifteen hundred ($1500) annually and for life from

the date of such retirement.” The Supreme Court did not interpret this mandatory language

(“shall,” “annually and for life”) to supersede a subsequent state statute that reduced the amount

of the annual annuity, saying that, “The presumption is that a law is not intended to create private

Stouper at 242.

Id.

Id. at 243.

301 U.S. 619 (1937).

Id. at 635.

363 U.S. at 610.

302 U.S. 74 (1937).

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contractual or vested rights but merely declares a policy until the legislature shall ordain

otherwise.”21

The presumption that pension statutes do not preclude Congress from decreasing or eliminating

benefits at a future time rests on the recognition that legislative bodies require flexibility in public

welfare matters.22 “[O]ur cases are clear that legislation readjusting rights and burdens is not

unlawful solely because it upsets otherwise settled expectations.” Usery v. Turner Elkhorn Mining

Co., 428 U.S. 1, 15-16 (1976). While acknowledging this latitude, the Supreme Court in

Flemming nevertheless indicated that congressional action may be subject to some constitutional

restraint: Quoting from an earlier case, the Court in Flemming said that

“Whether wisdom or unwisdom resides in the scheme of benefits set forth in Title II [of

the Social Security Act], it is not for us to say. The answer for such inquiries must come

from Congress, not the courts. Our concern here, as often, is with power, not with

wisdom.” Helvering v. Davis, [301 U.S. 619] supra, at 644 [1937]. Particularly when we

deal with a withholding of a noncontractual benefit under a social welfare program such

as this, we must recognize that the Due Process Clause can be thought to interpose a bar

only if the statute manifests a patently arbitrary classification, utterly lacking in rational

justification.23

Thus, only if Congress were to act in a totally irrational and arbitrary manner would due process

considerations invalidate a subsequent amendment.24 The Court reiterated this view in United

States Railroad Retirement Board v. Fritz,25 which upheld congressional amendments to railroad

retirement benefits that reduced benefits for some beneficiaries and eliminated benefits for others.

These changes were challenged under the Due Process Clause on the ground that they irrationally

distinguished between classes of annuitants. The Court held that because Congress could have

eliminated benefits for all classes of employees, it was not constitutionally impermissible to draw

lines between groups of employees for the purpose of phasing out the benefits. The Court said,

“Where, as here, there are plausible reasons for Congress’ action, our inquiry is at an end.”26 The

Id. at 79.

In Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41 (1986), the argument was

advanced that agreements between Congress and states regarding Social Security coverage of state and local employees

conferred contractual rights upon the state and local governments. When Congress revoked the state’s right to withdraw

from its coverage agreement, California claimed a “taking of private property” under the Fifth Amendment. The Court

disagreed. “The provision simply cannot be viewed as conferring any sort of ‘vested right’ in the face of precedent

concerning the effect of Congress’ reserved power on agreements entered into under a statute containing the language

of reservation [to alter, amend or repeal the underlying statutory provisions]... Rather, the provision simply was part of

a regulatory program over which Congress retained authority to amend in the exercise of its power to provide for the

general welfare.” Id. at 55.

363 U.S. at 611. Once a beneficiary receives an actual benefit payment, however, the government cannot take it

back. “Pension payments actually made to retirees become their property and are protected against takings, even if and

where the payments are unquestionably a gift.” National Education Association-Rhode Island v. Retirement Board of

Rhode Island Employees’ Retirement System, 172 F. 3d 22, 30 (1st Cir. 1999).

“[T]he strong deference accorded legislation in the field of national economic policy is no less applicable when that

legislation is applied retroactively. Provided that the retroactive application of a statute is supported by a legitimate

legislative purpose furthered by rational means, judgments about the wisdom of such legislation remain within the

exclusive province of the legislative and executive branches.” PBGC v. R. A. Gray & Co., 467 U.S. 717, 729 (1984).

See Steinberg v. United States, 163 F. Supp. 590 (Ct. Cl. 1958), for a case which held that a provision of the Federal

Civil Service Retirement Act terminating annuity payments to any person who invoked his Fifth Amendment privilege

against self-incrimination was arbitrary and discriminatory in violation of the Due Process Clause and also a bill of

attainder, i.e., a legislative punishment, in violation of Art. I, §6, cl. 3 of the Constitution.

449 U.S. 166 (1980).

Id. at 179-180.

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Court added that drawing lines between categories of beneficiaries “is a matter for legislative,

rather than judicial, consideration.”27

Congressional Guarantee of Social Security

Benefit Payments

The Social Security program has faced funding shortfalls in the past, and Congress has enacted a

variety of measures to deal with financial imbalances.28 Given the clear judicial precedents to the

effect that Social Security benefits under Title II are not property rights and cannot be categorized

as contractual in nature, the question may be raised whether Congress legislatively could create a

new, legally enforceable right to the receipt of a certain level of benefits by individuals eligible

for Social Security benefits.29 A legislative guarantee of a certain level of Social Security benefit

payments with a corresponding obligation upon future Congresses for payment of such benefits

would require either a finding of a contractual relationship between the federal government and

individual certificate holders, the modification or repeal of which would be constitutionally

impermissible, or a right stemming from Congress’s implied promise not to enact legislation in

the future that would bind a future Congress in the sense that the legislative enactment

guaranteeing Social Security benefit payments could not be repealed or altered.

Congressional Power To Modify Its Own Contracts

A legally enforceable guarantee of a certain level of Social Security benefits set forth in

legislation may be argued to create a contract between the federal government and individual

Social Security recipients. It may be argued further that such a contract constitutionally protects

an individual’s right to continue to receive full benefits, and prohibits the federal government

from abrogating such a contract by reducing or otherwise modifying the full payment of benefits

an individual is entitled to receive.

Under Article I, §10, cl.1, known as the Contracts Clause, the states are forbidden to pass laws

impairing the obligation of contracts. Even as applied to the states, since Home Building & Loan

Assn. v. Blaisdell,30 this restriction is not very severe, save for state efforts to void their own

contracts.31 As for the federal government, there is no such clause, but this right is subsumed

under the Fifth Amendment’s Due Process Clause. And that right, as in the case of any economic

right under the due process clause, is subject to standards that are not considered rigorous.32 Even

Id.

See CRS Report RL33544, Social Security Reform: Current Issues and Legislation, by (name redacted).

Examples of proposals to address these imbalances may be found in two 109th Congress bills: S. 1750, which would

have created a legally enforceable guarantee for current retirees and workers born before 1950 to receive the level of

their monthly Social Security benefits as determined on the date of entitlement plus applicable cost-of-living increases

for the rest of their lives, and a related bill, H.R. 1164, which would have provided the same guarantee for all

individuals eligible for Social Security benefits under Title II. Current retirees, and workers upon being approved to

receive benefits, would, under these proposals, have received certificates guaranteeing the level of benefits that were in

effect at the time of retirement. Certificates would have constituted budget authority in advance of appropriations acts,

and would have represented the obligation of the federal government to provide for the payment of Social Security

benefits to individuals to whom certificates were issued in amounts in accordance with the guarantee as set forth in the

certificates. A similar bill, H.R. 1275, has been introduced in the 113th Congress.

290 U.S. 398 (1934).

United States Trust Co. v. New Jersey, 431 U.S. 1 (1977).

PBGC v. R.A. Gray & Co., 467 U.S. 717, 732-33 (1984).

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insofar as the government’s own contracts are concerned, the usual rule is that they too may be

subject to alteration, especially when the right to alter laws is reserved. Thus, Congress, in Legal

Tender Cases (Knox v. Lee)33 was held to have the authority to make Treasury notes legal tender

in payment of debts previously contracted for payment in gold, and in Norman v. Baltimore &

Ohio R. R.,34 Congress was held to have the authority to invalidate provisions in private contracts

calling for payment in gold coin. When the federal government seeks to abrogate its own

contracts in order to serve its own financial purposes or to increase the public fisc, however, a

more searching scrutiny, and usually invalidation, follows.35

The relevant distinction here is that the federal government acting as sovereign, and the federal

government acting as contractor, constitute two separate roles. When the government acts as

sovereign, in its legislative or executive capacity, rendering impossible the performance of its

obligations, it cannot be held responsible in its capacity as a contractor.36 In Horowitz v. United

States, the federal government contracted with the claimant for silk products and for the shipment

of silk within a certain time, but the United States Railroad Administration subsequently placed

an embargo on shipments of silk by freight. By the time the silk reached Horowitz, the price had

fallen, rendering the deal unprofitable. The Court barred any damages award against the United

States for the delay. “It has long been held by the Court of Claims that the United States as a

contractor cannot be held liable for an obstruction to the performance of the particular contract

resulting from its public and general acts as sovereign.”37

If a recipient’s right under law to a certain level of Social Security benefits is to be viewed as a

contract between the recipient and the federal government, this contract arguably is not in the

class of contracts that the federal government enters into in its proprietary capacity as a

contractor. Title II recipients, whether receiving old age, survivors, or disability insurance

benefits, have not, by virtue of the receipt of this promise, paid any money, provided any service

or thing of value in exchange for the government’s guarantee not to reduce the recipient’s

payments in the future. The government’s commitment is unilateral, and it arguably remains

subject to Section 1104 of the Social Security Act,38 which reserves the right of Congress to

revise or modify the Social Security Act by subsequent legislation. While congressional

modification of the express terms of the promise in law not to reduce benefits is limited by due

79 U.S. (12 Wall.) 457 (1871).

294 U.S. 240 (1871).

See Perry v. United States, 294 U.S. 330 (1935) (law purporting to abrogate a clause in government bonds calling for

payment in gold coin was invalid) and Lynch v. United States, 292 U.S. 571 (1931) (statute abrogating contracts of war

risk insurance held invalid as applied to outstanding policies). In the Lynch case, the Court found that war risk term

insurance policies for which the insured, former military personnel, had paid monthly premiums, were contracts that

were property and created vested rights. The Court contrasted these insurance policies with pensions, noting that

“Pensions, compensation allowances and privileges are gratuities. They involve no agreement of parties; and the grant

of them creates no vested right. The benefits conferred by gratuities may be redistributed or withdrawn at any time in

the discretion of Congress.” Lynch, at 577.

See Horowitz v. United States, 267 U.S. 458 (1925), and Deming v. United States, 1 Ct. Cl. 190 (1865). See also

United States v. Winstar Corp., 518 U.S. 839, 894-910 (1996) (plurality opinion of Justice Souter); and Winstar at 932935 (Chief Justice Rehnquist dissenting).

Horowitz at 461. See also Flemming v. Rhodes, 331 U.S. 100, 107 (1947), where the Court upheld a district court

injunction against the eviction of tenants, stating that, “So long as the Constitution authorizes the subsequently enacted

legislation, the fact that its provisions limit or interfere with previously acquired rights does not condemn it. Immunity

from federal regulation is not gained through forehanded contracts. Were it otherwise the paramount powers of

Congress could be nullified by ‘prophetic discernment.’” (Emphasis supplied; footnote citation omitted).

42 U.S.C. §1304.

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process considerations, such constitutional concerns impose a bar only upon the enactment of an

arbitrary modification that has no rational justification.

Congressional Power To Promise Future Deference

It may be argued that Congress, by giving eligible individuals a legislative guarantee of a certain

level of Social Security benefits, can legally bind itself in the future to pay the full amount of

such Social Security benefits plus COLAs to certificate holders. There is no doubt that Congress

may validly enact such a provision and promise to pay full Social Security benefits in the future.

Congress may also provide for a funding mechanism and judicial recourse for non-compliance.

Thereafter, Congress may decide to take whatever measures necessary to fulfill such a promise.

The undeniably strong moral duty to do so, however, would not trump the underlying

constitutional principle that a legislative enactment such as this cannot bind a future Congress in

the sense that the legislative enactment cannot be repealed or altered.39 “The principle asserted is,

that one legislature is competent to repeal any act which a former legislature was competent to

pass; and that one legislature cannot abridge the powers of a succeeding legislature. The

correctness of this principle, so far as respects general legislation, can never be controverted.”40

To be sure, some congressional enactments, by their nature, are irrevocable. If Congress should

admit a territory as a state, it could not subsequently repeal the law and make that state something

else. Moreover, as discussed above, constitutional protection is accorded contracts when the

federal government incurs financial obligations while acting in its proprietary capacity. In such

cases federal efforts to avoid liabilities arising out of its own contracts have been found to deny

due process.41 Where the federal government acts as lawmaker exercising its sovereign powers to

provide for the general welfare, however, it cannot give up such powers by a binding contract.

“Contractual arrangements, including those to which a sovereign itself is party, remain subject to

subsequent legislation by the sovereign.” Bowen v. Public Agencies Opposed to Social Security

Entrapment.42

Illustrating this principle is the Supreme Court’s holding in Stone v. Mississippi.43 The Mississippi

legislature entered into a contract with a company to operate a lottery within the state, but the

following year the state’s voters adopted a constitutional amendment abolishing lotteries. Quoting

a state case, the Court observed:

Irrevocable grants of property and franchise may be made if they do not impair the

supreme authority to make laws for the right government of the State; but no legislature

can curtail the power of its successors to make such laws as they may deem proper in

matters of police.44

These and other cases that might be cited45 demonstrate the limited role contract principles play in

matters affecting the governmental functions, rather than the proprietary functions, of the states

For an extensive treatment of this principle, see Eule, Temporal Limits on the Legislative Mandate: Entrenchment

and Retroactivity, 1987 Am. B. Found. Res. J. 379.

Fletcher v. Peck, 10 U.S. (6 Cr.) 87, 135 (1810) (Chief Justice Marshall).

Perry v. United States, Lynch v. United States, Sinking Fund Cases, discussed supra.

477 U.S. 41, 52 (1986) (internal quotation marks omitted).

101 U.S. 814 (1880).

Id. at 817-818.

See United States v. Will, 449 U.S. 200 (1980), involving congressional suspensions of automatic cost-of-living

adjustments to the salaries of high-level federal officials. The Supreme Court held that Congress could legislate to

revoke the salary increases even though they previously had been authorized in legislation. Whenever Congress decides

(continued...)

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and the federal government. In essence, absent the kind of promise involving the essence of

contracts covered by the Contracts Clause, a guarantee of the “full faith and credit” of the United

States in backing bonds, for example, a statute which in fact promises future congressional action

or inaction would likely not be held to constitute a contract enforceable by the courts. Legislative

language that obligates the federal government to provide a guaranteed level of Social Security

benefits to recipients purports to preclude the possibility that a recipient’s benefits may be

reduced in the future by either a repeal of the underlying law or by an amendment of the statutory

provisions in Title II of the Social Security Act. The weight of judicial authority, however,

suggests that Congress may not so bind itself, and that neither concepts of property rights nor

contract would disable a future Congress from changing the benefits provided under Title II of the

Social Security Act.

Payment of Social Security Benefits From the Trust

Fund in Case of Exhaustion

The projected exhaustion of the Social Security Trust Funds, formally known as the Federal Old

Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund,

raises a question regarding whether that possibility would affect the legal right of beneficiaries to

receive full Social Security benefits.46 On July 28, 2014, the Trustees of the Social Security Trust

Funds stated that

The Trustees project that annual OASDI cost will exceed non-interest income throughout

the long-range period (2014 through 2088) under the intermediate assumptions. The

dollar level of the theoretical combined trust fund reserves declines beginning in 2020

until reserves are depleted in 2033. Considered separately, the DI Trust Fund reserves

become depleted in 2016 and the OASI Trust Fund reserves become depleted in 2034.

The projected reserve depletion years were 2033 for OASDI, 2016 for DI, and 2035 for

OASI in last year’s report.47

Under current law, the projected cost of Social Security increases faster than projected

income through about 2035 primarily because of the aging of the baby-boom generation

and relatively low fertility since the baby-boom period. Cost will continue to grow faster

than income, but to a lesser degree, after 2035 due to increasing life expectancy. Based

on the Trustees’ best estimate, cost exceeds non-interest income for 2014, as it has since

2010, and remains higher than non-interest income throughout the remainder of the 75year projection period. Social Security’s theoretical combined trust funds increase with

the help of interest income through 2019 and allow full payment of scheduled benefits on

a timely basis until the trust fund asset reserves become depleted in 2033. At that time,

projected continuing income to the combined trust funds equals about 77 percent of

program cost. By 2088, continuing income equals about 72 percent of program cost.

(...continued)

to suspend or repeal a statute in effect, “There can be no doubt that ... it could accomplish its purpose by an amendment

to an appropriation bill, or otherwise.”

See CRS Report RL33514, Social Security: What Would Happen If the Trust Funds Ran Out?.

The Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, The

2014 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability

Insurance Trust Funds at 3 (2014), available at http://www.socialsecurity.gov/OACT/TR/2014/tr2014.pdf.

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

The Trustees project that the OASI Trust Fund and the DI Trust Fund will have sufficient

reserves to pay full benefits on time until 2034 and 2016, respectively. 48

The OASDI Trust Funds are accounts maintained on the books of the U.S. Treasury. The system

operates on a “pay-as-you-go” basis; current workers and their employers pay taxes on wages

under the Federal Insurance Contributions Act (FICA) and the self-employed pay taxes on selfemployment income under the Self-Employed Contributions Act (SECA). Taxes paid now

finance benefits for today’s beneficiaries. A full 100% of these payroll taxes is appropriated to the

Social Security Trust Funds.49 Interest on and proceeds from the sale or redemption of

government securities held in these funds are credited to and form a part of them. 50 Moreover,

amounts credited to the trust funds are the only source of funds to pay benefits.51

Social Security is a statutory entitlement program.52 Entitlement authority has been defined as

“authority to make payments (including loans and grants) for which budget authority is not

provided in advance by appropriation acts to any person or government if, under the provisions of

the law containing such authority, the government is obligated to make the payments to persons

or governments who meet the requirements established by law.”53 Budget authority is the

authority provided by law to enter into obligations that will result in immediate or future outlays

involving federal government funds.54

According to a publication of the Government Accountability Office, formerly the General

Accounting Office:

Congress occasionally legislates in such a manner as to restrict its own subsequent

funding options.... An example ... is entitlement legislation not contingent upon the

availability of appropriations. A well known example here is Social Security benefits.

Where legislation creates, or authorizes the administrative creation of, binding legal

obligations without regard to the availability of appropriations, a funding shortfall may

delay actual payment but does not authorize the administering agency to alter or reduce

the “entitlement.”55...

Even under an entitlement program, an agency could presumably meet a funding shortfall

by such measures as making prorated payments, but such actions would be only

Id. at 23. See a press release describing this report at http://www.ssa.gov/news/press/releases.html?__utma=

230172574.32987476.1421446832.1421446832.1421446832.1&__utmb=230172574.17.9.1421447632612&__utmc=

230172574&__utmx=-&__utmz=230172574.1421446832.1.1.utmcsr=%28direct%29|utmccn=%28direct%29|utmcmd=

%28none%29&__utmv=-&__utmk=182092516#!/post/7-.... -2. On the opening day of the 114th Congress, the House

adopted as part of its rules a separate order that makes subject to a point of order any measure that reduces the actuarial

balance by at least 0.01% of the present actuarial balance of future taxable payroll of the OASI Trust Fund for the 75year period used in the most recent report of the Board of Trustees. This point of order does not apply to a measure that

would improve the actuarial balance of the OASI and DI Trust Funds for that period. H. Res. 5, Section 4(q) reprinted

at 161 Congressional Record H10 (Jan. 6, 2015).

Section 201(a) and (d) of the Social Security Act, 42 U.S.C. §401(a) and (b).

Section 201(f) of the Social Security Act, 42 U.S.C. §401(f).

Section 201(h) of the Social Security Act, 42 U.S.C. §401(h).

See Sections 202 and 223 of the Social Security Act, 42 U.S.C. §§402 and 423, which state that every individual who

meets the eligibility requirements set forth therein “shall be entitled” to an old age benefit and disability benefit,

respectively.

2 U.S.C. §§622(9) and 651(c)(2)(C).

2 U.S.C. §622(2).

General Accounting Office (later renamed Government Accoutability Office), Office of the General Counsel, I

Principles of Appropriations Law 3-49 (3d ed. 2004), available at http://www.gao.gov.special.pubs/d04261sp.pdf.

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

temporary pending receipt of sufficient funds to honor the underlying obligation. The

recipient would remain legally entitled to the balance.56

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, 31 U.S.C. §1341, however, prevents an agency from paying

more in benefits than the amount available in the source of funds available to pay the benefits, in

this case the Old Age and Survivors Insurance Trust Fund and the Disability Insurance Trust

Fund.

Section 1341, in relevant part, provides that

An officer or employee of the United States government or of the District of Columbia

government may not—

(A) make or authorize an expenditure or obligation exceeding an amount available in an

appropriation or fund for the expenditure or obligation;

(B) involve either government in a contract or obligation for the payment of money

before an appropriation is made unless authorized by law; ....

The Antideficiency Act prohibits making expenditures either in excess of an amount available in a

fund or before an appropriation is made. It would appear to bar paying more money in benefits

than the amount of the balance in the Social Security Trust Funds primarily because, as noted

earlier, disability and old-age and survivor benefit payments shall be made “only” from the

Disability Insurance Trust Fund and the Old Age and Survivors Insurance Trust Fund,

respectively.57

Violations of the Antideficiency Act are punishable by administrative and criminal penalties. An

officer or employee who violates the act’s prohibitions is subject to appropriate administrative

discipline, including, when circumstances warrant, suspension from duty without pay or removal

from office.58 An officer or employee who knowingly and willfully violates the act can be fined

not more than $5,000, imprisoned for not more than two years, or both.59

If the Social Security Trust Funds should become insolvent (i.e., unable to pay scheduled benefits

in full on a timely basis), it appears that beneficiaries who should file suit to be paid the

difference between the amount that receipts allow paying and the full benefit amount to which

they are entitled would not be likely to succeed in getting the difference. The Supreme Court in

Reeside v. Walker60 held that no officer of the government is authorized to pay any debt due from

the United States, whether reduced to a court judgment or not, unless an appropriation has been

made for that purpose. To support its holding, the Court cited Article I, Section 9, clause 7 of the

Constitution, which states that, “No money shall be drawn from the Treasury, but in consequence

of appropriations made by law.” The Court reaffirmed this principle in Office of Personnel

Management v. Richmond.61 Consequently, unless Congress amends applicable laws, it appears

that beneficiaries would have to wait until the Trust Funds receive an amount sufficient to pay full

Id. at 3-49, n. 40.

Section 201(h) of the Social Security Act, 42 U.S.C. §401(h).

31 U.S.C. §1349.

31 U.S.C. §1350.

53 U.S. (11 How.) 272, 275 (1850).

496 U.S. 414, 424-426 (1990).

Congressional Research Service

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

benefits to receive the difference between the amount that can be paid from the Trust Funds and

the full benefit amount.

Conclusion

The Old Age Survivors Insurance and Disability Insurance program is a statutory entitlement

program. Beneficiaries have a legal right to receive benefits if they meet the Social Security Act’s

eligibility requirements. Congress, however, has reserved the “right to alter, amend, or repeal any

provision of this (Social Security) Act”62 and the U.S. Supreme Court has affirmed Congress’s

power to modify provisions of the Social Security Act in Flemming v. Nestor63 and subsequent

court decisions. The Social Security program does not accord individuals either vested property

rights or contractual rights with regard to future benefits. Congress may modify provisions of the

Social Security Act as it exercises its constitutional power to provide for the general welfare.

Congress has the power legislatively to guarantee to pay eligible individuals a certain level of

Social Security benefits and not to reduce that level of benefits to such individuals in the future.

While Congress may decide to take whatever measures necessary to fulfill such an obligation,

courts would be unlikely to find that Congress’s unilateral promise constitutes a contract that

could not be modified or abrogated in the future. Congressional modification of the terms of a

guarantee to pay a certain level of benefits would be limited by due process considerations, but

these constitutional concerns would impose a bar only upon the enactment of an arbitrary

modification that has no rational justification. In addition, a congressional promise not to reduce a

specific level of Social Security benefits payable to certain eligible individuals would not

overcome the constitutional principle that a legislative enactment in a social welfare program

cannot bind a future Congress in the sense that the legislative enactment cannot be repealed or

altered.

The Trustees of the Old Age and Survivors Insurance Trust Fund and the Disability Insurance

Trust Fund have projected that these funds on a combined basis will be exhausted (i.e., unable to

pay full benefits on time) in 2033. The Social Security Administration would not be able to pay

beneficiaries full benefits at that time because the Social Security Act states that benefits shall be

paid only from the Social Security Trust Funds. Social Security Administration officials are

bound by the Antideficiency Act, which prohibits paying amounts that exceed the amount

available in the source of funds available to pay them. Although the legal right of beneficiaries to

receive full benefits would not be extinguished by the insufficient amount of funds in the Social

Security Trust Funds, a court suit to obtain the difference between the amount in them available

to pay partial benefits and the full benefit amount would not be likely to succeed in getting the

difference. The Supreme Court has held that no officer of the government may pay a debt whether

reduced to a court judgment or not unless Congress has appropriated funds to pay it.

Consequently, unless Congress amends applicable laws, it appears that beneficiaries would have

to wait until the trust funds receive an amount sufficient to pay full benefits to receive the

difference between the amount that can be paid from them and the full benefit amount.

Section 1104 of the Social Security Act, 42 U.S.C. §1304.

363 U.S. 603 (1960).

Congressional Research Service

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

Author Contact Information

(name redacted)

Legislative Attorney

[redacted]@crs.loc.gov

, 7-....

Acknowledgment

(name redacted), a former CRS legislative attorney, coauthored earlier versions of this report. All

questions should be directed to the current author.

Congressional Research Service

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