# SSR 72-5c: SSR 72-5c: SECTION 203(f)(3). -- WORK DEDUCTIONS -- BENEFIT REDUCTION BECAUSE OF EXCESS EARNINGS -- CONSTITUTIONALITY OF RETIREMENT PROVISO

> Federal · Rulings · In force

URL: https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_72_5c

## Section

- **Citation:** SSR 72-5c
- **Heading:** SSR 72-5c: SECTION 203(f)(3). -- WORK DEDUCTIONS -- BENEFIT REDUCTION BECAUSE OF EXCESS EARNINGS -- CONSTITUTIONALITY OF RETIREMENT PROVISO
- **Jurisdiction:** Federal
- **Kind:** Rulings
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Social Security Rulings / OASI / Reduction of Insurance Benefits / SSR 72-5c

## Text

20 CFR 404.415 and 404.416

SSR 72-5c

Gainville et al v. Richardson, 319 F.Supp. 16 (D.Mass., 1970)

WYZANSKI , Chief Judge: This case is before the court on
defendant's motion to dismiss the complaint on grounds of lack of
jurisdiction and failure to state a cause of action.

This is a class action brought by seven plaintiffs claiming that, as
applied to them and others in their class, § 203(f)(3) of the Social
Security Act, 42 U.S.C. § 403(f)(3) -- a provision for deducting earned
income from old age benefits otherwise payable -- denies each plaintiff
the due process of law guaranteed by the Fifth Amendment.

The Social Security Act, so far as here material, provides for payments
of federal old-age benefits based upon a person's record of earnings in
employment covered by the Act. Eligibility depends on satisfying statutory
conditions as to (1) employment in covered employment [see § 210(a), 42
U.S.C. § 410(a)]; (2) the requisite number of "quarters of coverage" [see
§§ 213-215, 42 U.S.C. §§ 413-415]; and (3) attainment of the retirement
age of 65 in the case of men and 62 in the case of women. [See Pub.L.
87-64, Title 1 § 102(c), Act of June 30, 1961, 75 Stat. 131, 134.]

Entitlement to benefits once gained is partially or totally lost if the
beneficiary has earnings in excess of $1200 annually from employment. In
essence, the Social Security Act provides for monthly benefits [see §§ 202
and 203, 42 U.S.C. §§ 402, 403] from which thee are to be deducted
so-called excess earnings, that is wages and self-employment income above
a certain amount. [See §§ 203(b) and (f)(1), 42 U.S.C. §§ 403(b) and
rtially or totally lost if the
beneficiary has earnings in excess of $1200 annually from employment. In
essence, the Social Security Act provides for monthly benefits [see §§ 202
and 203, 42 U.S.C. §§ 402, 403] from which thee are to be deducted
so-called excess earnings, that is wages and self-employment income above
a certain amount. [See §§ 203(b) and (f)(1), 42 U.S.C. §§ 403(b) and
(f)(1).] For purposes of the aforesaid provisions it is further provided
in § 203(f)(3) of the Act, 42 U.S.C. § 403(f)(3), -- that is, in the
section now challenged -- as follows:

These are the practical effects of the quoted formula. For each month
that an old age beneficiary under the age of 72 earns in excess of $140,
his benefits are reduced by one dollar for every two earned up to an
additional $100 in any month, and by one dollar for every one dollar
earned thereafter. Thus any old age beneficiary under the age of 72 who
works at a steady pace throughout the year is effectively limited to
earning $1,680 in any year or else he faces the loss of some social
security benefits. For every two dollars earned between $1,680 and $2,880
per year, the beneficiary forfeits one dollar of benefits. For every
dollar over $2,880 earned per year, the beneficiary forfeits one dollar of
benefits.

Three of the seven plaintiffs make parallel allegations. Plaintiffs Ralph
Aims, Frank McGillvray and William Manzel, each allege that (1) he has
made involuntary contributions to the Social Security Trust Fund, through
the payment of Social Security taxes; (2) he is a fully insured individual
within the meaning of 42 U.S.C. § 414(a); (3) he has been deprived and
will be deprived hereafter of old age benefits to which he would otherwise
be entitled in a sum in excess of $10,000 and has been deterred and will
be deterred hereafter from earning income in excess of $10,000 by the
application or threatened application of 42 U.S.C. § 403(f)(3)
; (2) he is a fully insured individual
within the meaning of 42 U.S.C. § 414(a); (3) he has been deprived and
will be deprived hereafter of old age benefits to which he would otherwise
be entitled in a sum in excess of $10,000 and has been deterred and will
be deterred hereafter from earning income in excess of $10,000 by the
application or threatened application of 42 U.S.C. § 403(f)(3). The other
plaintiffs' allegations add nothing, and in each instance fall somewhat
short of the allegations of Aims, McGillvray and
Manzel. [1] Hence plaintiffs will
be at no disadvantage if in considering the present motion we concentrate
on Aims' case as being the strongest.

Aim's claim that the threatened application to him of § 403(f)(3) has
deprived and will deprive him of $10,000 in benefits to which he would
otherwise be entitled, and has deterred him and will deter him from
earning $10,000, arises under the Constitution and laws of the United
States and involves the requisite jurisdictional amount. 28 U.S.C. §
1331.

Plaintiff Aims is not debarred from seeking judicial relief by the
general doctrine that he must first exhaust his administrative remedies,
nor by the more specific provisions of § 205(h) of the Social Security
Act, 42 U.S.C. § 405(h). The general doctrine is inapplicable because here
plaintiff claims that the statutory provision permitting deduction is
unconstitutional. Where a plaintiff attacks the constitutionality of the
statute under which an administrative agency acts, and the attack does not
turn upon a factual determination requiring administrative expertise, the
doctrine of exhaustion of administrative remedies does not apply. Public
Utilities Commission v. United States, U.S. 534, 539; Oesteich v.
Selective Service Board, 393 U.S. 233, 242.

Nor are the specific provisions of § 205(h) of the Social Security Act 42
U.S.C. § 405(h) a bar. That section merely provides that:
turn upon a factual determination requiring administrative expertise, the
doctrine of exhaustion of administrative remedies does not apply. Public
Utilities Commission v. United States, U.S. 534, 539; Oesteich v.
Selective Service Board, 393 U.S. 233, 242.

Nor are the specific provisions of § 205(h) of the Social Security Act 42
U.S.C. § 405(h) a bar. That section merely provides that:

In the present action, while plaintiff does, perhaps improperly, seek
damages, his complaint also has prayers for a declaratory judgment that §
203(f)(3) of the Social Security Act, 42 U.S.C. § 403(f)(3) is
unconstitutional, and for an injunction restraining defendant from
applying that section. If he were to be successful with respect to those
prayers, plaintiff would not, in the language of the statute, "recover on
any claim" for benefits. For recovery of benefits he would still need to
resort to the administrative process. The only effect of a declaratory
judgment or injunction by this court would be to preclude the Secretary
from making the challenged deduction.

There is another reason why the general doctrine of exhaustion of
administrative remedies and the specific provisions of 42 U.S.C. § 405(h)
do not apply. Plaintiff Aims seeks a declaratory judgment with respect to
the application of 42 U.S.C. § 403(f)(3) to amounts he may earn hereafter.
There is no way that that issue may be submitted for administrative
determination. The only remedy is by an action for a declaratory judgment
or an injunction.

We now turn to the substantive issues raised by the complaint.
Plaintiff's principal contention is that they are denied the equal
protection of the laws because from old age benefits otherwise payable
earned income is deductible, although unearned income is not
deductible.
ed for administrative
determination. The only remedy is by an action for a declaratory judgment
or an injunction.

We now turn to the substantive issues raised by the complaint.
Plaintiff's principal contention is that they are denied the equal
protection of the laws because from old age benefits otherwise payable
earned income is deductible, although unearned income is not
deductible.

Plaintiffs' cardinal error is in disregarding the nature of the social
insurance provided by the old age benefit system established by the Social
Security Act. That system is for retirement benefits to replace lost
earnings. As Secretary of H.E.W., Wilbur J. Cohen, in his letter of
January 7, 1969, to Speaker John W. McCormack stated, "what people have
been paying for is a retirement benefit . . . the whole purpose of a
retirement system . . . is to pay benefits to partially replace lost
earnings" See The Retirement Test Under Social Security, Letter from The
Secretary of Health, Education and Welfare, transmitting a report
resulting from a study of the retirement test pursuant to Public Law
90-248. The Social Security Amendments of 1967. H.Doc. No. 91-40, 91st
Cong., 1st Session, p. III.

From its inception in 1935 the Social Security old-age benefit system was
designed to provide insurance against the failure to receive a particular
kind of earned income. This is shown by the provision in § 202(d) of the
original Act, 49 Stat. 620, 623, that then old age benefits were not
payable for any month for which a person received wages in covered
employment. It is a misunderstanding to treat this insurance system as
though it were addressed to the risks of the aged poor as such. It is a
system that covers both rich and poor insofar as they receive earned
income in covered employment and have retired from employment. While not
irrelevant, the statement of Mr. Justice Cardozo in Helvering v. Davis,
301 U.S
ceived wages in covered
employment. It is a misunderstanding to treat this insurance system as
though it were addressed to the risks of the aged poor as such. It is a
system that covers both rich and poor insofar as they receive earned
income in covered employment and have retired from employment. While not
irrelevant, the statement of Mr. Justice Cardozo in Helvering v. Davis,
301 U.S. 619, 641 that "The hope behind this statute is to save men and
women from the rigors of the poor house as well as from the haunting fear
that such a lot awaits them when journey's end is near" tends to be
misleading. The test of a right to a benefit is not poverty nor even old
age -- but, in general, former employment in taxable occupations, plus
attainment of a prescribed age, plus present retirement from work.

It is obviously rational to make benefits depend not upon need but upon
the failure to receive a specific kind of income. This is especially true
when, as here, contributions have been exacted in the light of the
particular risk of that possible failure.

Moreover, Congress has a rational basis for not providing for deductions
for unearned income. First, unearned income has little relevance to the
central purpose of a retirement benefit system intended to compensate for
loss of earned income. Second, unearned income plays no part in the
taxation or other aspects of the old age benefit system. Third, to make a
deduction would create disincentives to saving. As Secretary Cohen, in the
letter previously quoted, noted "If benefits were withheld because the
person had income from savings, investments, a private pension plan or the
like, the program would discourage people from saving in their productive
years to have a more comfortable life in retirement than social security
benefits alone can make possible." Fourth, if deductions were to be made
for unearned income a new set of problems of administration, valuation,
computation and reporting would be presented.
savings, investments, a private pension plan or the
like, the program would discourage people from saving in their productive
years to have a more comfortable life in retirement than social security
benefits alone can make possible." Fourth, if deductions were to be made
for unearned income a new set of problems of administration, valuation,
computation and reporting would be presented.

But plaintiffs seem to contend that even if Congress has a rational basis
for not making deductions from benefits on account of unearned income it
has no rational basis for making deducting of earned income when it does
not simultaneously make deductions for unearned income. The short and
adequate answer is the one already given: that it is rational to have a
retirement benefit system in which benefits are related to failure to
receive a particular type of earned income.

In effect, plaintiffs are claiming that they are as deserving of getting
a full benefit as are persons who have retired and have unearned income.
The due process clause of the Fifth Amendment (even if construed to
include a guarantee of equal protection of the laws) does not usually
require Congress if it provides benefits for A to provide benefits for B
merely because B is in the same economic plight as A. It can hardly be
supposed that if Congress appropriates money for victims of a disaster in
Texas it must appropriate money for victims of a disaster in
Massachusetts. Nor does the due process clause require Congress when it is
directing the distribution of a particular welfare fund to make
distribution to all persons on the basis of equality of need. It may
establish classifications reasonably related to the purposes of the fund.
In the area of economics and social welfare, all that is required is that
the classifications have some reasonable basis. Dandridge v. Williams, 397
U.S. 471, 485
ongress when it is
directing the distribution of a particular welfare fund to make
distribution to all persons on the basis of equality of need. It may
establish classifications reasonably related to the purposes of the fund.
In the area of economics and social welfare, all that is required is that
the classifications have some reasonable basis. Dandridge v. Williams, 397
U.S. 471, 485. Surely it is reasonable to make a classification making
payments depend upon the attainment of a prescribed age, even though some
persons under that age are in greater need than others who have attained
it. It has been held reasonable to make payments to women at an earlier
age than men, although some elderly women are more affluent than men of
the same age. Gruenwald v. Gardner, 390 F.2d 591 (2nd Cir.). And in view
of the differences between a deduction of earned income and of unearned
income, such as the four already recited, the classification here has a
reasonable basis. "Whether wisdom or unwisdom resides in the scheme of
benefits . . . it is not for us to say." Helvering v. Davis, 301 U.S. 619,
644. "Particularly, when we deal with a withholding of a noncontractual
benefit under a social welfare program such as this, we must recognized
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." Flemming v. Nestor, 363 U.S. 603, 611
[ SSR 60-1 , C.B. 1960, p.87].
9,
644. "Particularly, when we deal with a withholding of a noncontractual
benefit under a social welfare program such as this, we must recognized
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." Flemming v. Nestor, 363 U.S. 603, 611
[ SSR 60-1 , C.B. 1960, p.87].

What has been said also applies to the claim that plaintiffs have been
denied due process of law because full old age monthly benefits, without a
deduction for earned income, are available worker who has reached the age
of 72. [See § 203(f)(1) of the Act, 42 U.S.C. § 403(f)(1)]. If a
classification based upon attainment of a prescribed age is permissible as
a test of eligibility for benefits it is also permissible as a test of
non-deductibility of earned income. While it is not always true, it is
generally true that persons over 72 have been contributing for a longer
time than persons under 72, and are likely to have fewer years of
retirement ahead of them. See Sen. Rept. No. 1987, 83rd Cong., 2nd Sess.,
p. 18. "'The problems of government are practical ones and may justify, if
they do not require, rough accommodations -- illogical, it may be, and
unscientific.' Metropolis Theatre Co. v. City of Chicago, 228 U.S. 61,
69-70." Dandridge v. Williams, 397 U.S. 471, 485.

Finally, plaintiffs allege that they are denied due process because the
deduction of earned income is on a monthly not an annual accounting basis.
This point is nearly frivolous. Any accounting period is ex necessitate to
some extent arbitrary. But a Congressional choice keyed to a monthly
calendar does not deny due process merely because it makes it possible for
some persons to schedule their work to minimize their deductions.

Complaint dismissed for failure to state a cause of action.
s on a monthly not an annual accounting basis.
This point is nearly frivolous. Any accounting period is ex necessitate to
some extent arbitrary. But a Congressional choice keyed to a monthly
calendar does not deny due process merely because it makes it possible for
some persons to schedule their work to minimize their deductions.

Complaint dismissed for failure to state a cause of action.

[1] Thus neither Gainville nor
Saponaro alleges that he is a fully insured individual. Neither Kramer nor
Camer alleges that he will be deterred from earning income. Gainville does
not allege that he has been deprived of benefits.

## Nearby sections

- [SSR 60-26 SSR 60-26. EARNINGS -- CHRISTMAS CASH BONUS](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_60_26.md)
- [SSR 61-40 SSR 61-40. EFFECT OF SOLDIERS' AND SAILORS' CIVIL RELIEF ACT](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_61_40.md)
- [SSR 61-57 SSR 61-57. COMPUTATION OF EARNINGS](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_61_57.md)
- [SSR 61-60 SSR 61-60. COMPUTING TIME PERIOD FOR REOPENING DETERMINATION](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_61_60.md)
- [SSR 62-7 SSR 62-7. REDUCTION OF BENEFITS AND AMOUNT OF DEDUCTION WHERE FAMILY MAXIMUM INVOLVED](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_62_7.md)
- [SSR 62-8 SSR 62-8. WORK DEDUCTIONS -- PARTNERSHIP -- HUSBAND AND WIFE](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_62_8.md)
- [SSR 62-9 SSR 62-9. WORK DEDUCTIONS -- RETIREMENT PAY](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_62_9.md)
- [SSR 62-10 SSR 62-10. WORK DEDUCTIONS -- VACATION PAY](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_62_10.md)
- [SSR 62-60 SSR 62-60: RESCINDED 1989](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_62_60.md)
- [SSR 62-61 SSR 62-61: Rescinded 1984](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_62_61.md)
- [SSR 64-38c SSR 64-38c: SECTIONS 203 and 211. -- WORK DEDUCTIONS -- SUBSTANTIAL SERVICES IN SELF-EMPLOYMENT -- TRANSFER OF BUSINESS](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_64_38c.md)
- [SSR 64-58 SSR 64-58: SECTIONS 203(b) and (f). -- WORK DEDUCTIONS -- EXCESS EARNINGS IN YEAR ENTITLEMENT TERMINATES](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_64_58.md)
- [SSR 65-6 SSR 65-6: SECTION 203. -- NET EARNINGS FROM SELF-EMPLOYMENT -- SUBSTANTIAL SERVICES FOR DEDUCTION PURPOSES](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_65_6.md)
- [SSR 65-23c SSR 65-23c: SECTIONS 203(b) and (f) and 211. -- WORK DEDUCTIONS -- TRANSFER OF BUSINESS -- SUBSTANTIAL SERVICES IN SELF-EMPLOYMENT](https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_65_23c.md)

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_72_5c. Check the current official text before relying on it. Not legal advice.