SSR 74-18: SECTIONS 203(b), 204(b), 209, and 210(a)(8)(A) (42 U.S.C. 403(b), 404(b), 409, and 410(a)(8)(A)). -- COVERAGE FOR MEMBERS OF RELIGIOUS ORDERS SUBJECT TO VOW-OF-POVERTY DEDUCTIONS -- EFFECT OF RETROACTIVE WAGE CREDITS

20 CFR 404.401(c) and 404.415

SSR 74-18

R, who has taken a vow of poverty as a member of a religious order,

became entitled to retirement insurance benefits in November 1966. Section

123 of the Social Security Amendments of 1972 (P.L. 92-603), enacted

October 30, 1972, provides that services performed by a member of a

religious order who has taken a vow of poverty which are in the exercise

of the duties required by the order will be covered under social security

as employment for the order if the order irrevocably elects coverage for

its entire active membership and lay employees. Further, section 123

permits an order to elect up to five years of retroactive coverage for

those persons who were active members when the work was performed and who

are alive on the first day of the quarter in which the order files a

certificate of election of coverage.

On March 6, 1972, the religious order of which R was a member filed a

certificate of election of coverage in accordance with the above cited

amendment provision. As a result of this action, R may be credited with

"wages" for the years 1968-1972 for services performed in the exercise of

duties required by the order. Under section 3121(i)(4) of the Internal

Revenue Code and section 209 of the Social Security Act, last paragraph,

as amended by section 123 of the 1972 Amendments, where an individual is a

member of a religious order and subject to a vow of poverty, "wages" shall

include the fair market value of any board, lodging, clothing and other

perquisites furnished to him by the order, except that the amount shall

not be less than $100 a month.) The crediting of wages retroactively to R

as a result of her order's election of coverage would enable R to receive

increases in her retirement benefits on the basis of recomputations for

each year from 1969

hall

include the fair market value of any board, lodging, clothing and other

perquisites furnished to him by the order, except that the amount shall

not be less than $100 a month.) The crediting of wages retroactively to R

as a result of her order's election of coverage would enable R to receive

increases in her retirement benefits on the basis of recomputations for

each year from 1969. Since the reporting of retroactively covered wages

will also result in earnings being credited to R which exceed the

permissible limit under the retirement test, the question presented is

whether work deductions under section 203(b) of the Act must be imposed

because of such "retroactive" excess earnings.

Section 123 of Public Law 92-603, while (1) extending coverage and (2)

providing retroactive coverage in certain circumstances, makes no

reference to whether, as a result of the retroactive wage credits,

deductions are to be imposed retroactively under section 203 of the Act.

The House and Senate Reports, in discussing section 123, make the

following statements:

When section 218, providing for voluntary agreements for coverage of

State and local employees was added to the Social Security Act by the 1950

Amendments, the Social Security Administration determined that deductions

should not be imposed for months within the retroactive period. This

conclusion was based primarily on the facts that (1) benefit payments

during the retroactive period were correct when made, and (2) the

subsequent legislative action, purporting to have retroactive effect only with respect to coverage , would not render the previous

payments erroneous. In other words, if later legislation is to deprive an

individual of all or part of a benefit he previously received (and to

which he was clearly entitled under prior law), there must, as a

minimum , be a clear expression of the legislative intent sanctioning

such retroactive diminution of the prior right

ct only with respect to coverage , would not render the previous

payments erroneous. In other words, if later legislation is to deprive an

individual of all or part of a benefit he previously received (and to

which he was clearly entitled under prior law), there must, as a

minimum , be a clear expression of the legislative intent sanctioning

such retroactive diminution of the prior right. Even when such legislative

intent is clear, the Due Process Clause of the Constitution arguably would

preclude the defeasance of such prior right. Cf. Flemming v.

Nestor , 363 U.S. 603, 611 (1960) rehearing denied 364 U.S. 854

(1960).

As in the case of the 1950 Amendments which permitted a State to elect to

have coverage apply for limited retroactive periods for employees included

in the agreement, the 1972 Amendments extending retroactive coverage on an

elective basis to members of certain religious orders, provides no

indication that Congress intended that where an agreement providing

coverage was made retroactive, deductions should likewise be imposed

retroactively. With respect to the 1950 Amendments, any retrospective

deductions, as opposed to coverage, would have to be supplied by

implication, and in view of the long-standing and universally recognized

precedents in law that a statute will be construed as prospective only

unless the intent to make it retrospective clearly appears, we concluded

that the Amendments conferred no authority on the Administration to impose

retroactive deductions. Statutes are not to be applied retroactively

"unless the words used are so clear, strong and imperative that no other

meaning can be annexed to them, or unless the intention of the legislature

cannot be otherwise satisfied." United States F & G Co. v. United

States for the Use and Benefit of Struthers Wells Co., 209 U.S. 306,

314 (1908). See also deRodufla v. United States , 461 F.2d 1240,

1247 (D. C. Cir. 1972).

ed retroactively

"unless the words used are so clear, strong and imperative that no other

meaning can be annexed to them, or unless the intention of the legislature

cannot be otherwise satisfied." United States F & G Co. v. United

States for the Use and Benefit of Struthers Wells Co., 209 U.S. 306,

314 (1908). See also deRodufla v. United States , 461 F.2d 1240,

1247 (D. C. Cir. 1972).

The same conclusion is valid with respect to section 123 of the 1972

Amendments, which provides social security coverage for members of certain

religious orders for the first time. The express language of the section

provides only an extension of coverage and the option to receive

retroactive coverage in certain instances, and the accompanying committee

reports state that coverage may be retroactive so that the adverse effects

of late entry into the social security system may be reduced. In the

absence of any legislative indications to the contrary, it would be

inconsistent with the purpose of the amendment to extend coverage and

then, without express statutory authority, reduce or deny any resulting

benefits by imposing deductions.

The foregoing rationale is applicable not only to the situation where a

beneficiary became entitled to and received retirement insurance benefits

prior to receiving any retroactive wage credits, but also to those

situations where an individual, on the basis of the retroactive wage

credits, acquires insured status and concomitant entitlement to retirement

insurance benefits during the retroactive period. Where entitlement occurs

during the retroactive period, there will have been no correctly made

benefit payments, and retroactive deductions because of excess earnings,

therefore, would not constitute taking away or diminishing something the

beneficiary previously had been entitled to and received

and concomitant entitlement to retirement

insurance benefits during the retroactive period. Where entitlement occurs

during the retroactive period, there will have been no correctly made

benefit payments, and retroactive deductions because of excess earnings,

therefore, would not constitute taking away or diminishing something the

beneficiary previously had been entitled to and received. But because such

an individual could not have known prior to the election of coverage that

the fair market value of any board, lodging, clothing and other

perquisites furnished by the order would be considered "wages and possible

excess earnings for social security purposes, the imposition of

retroactive deductions would be unnecessarily restrictive in the absence

of any language in the governing amendment directing such action.

Inherent in the above interpretation is the fact that a religious order

whose members are required to take a vow of poverty must file a

certificate electing coverage and until such an election is made there are

neither "wages" nor "excess earnings." Until such election, individual

members of the order have no way of knowing that services performed for

the order may be covered under social security as employment or that the

annual earnings test would be applied where an order designates a

retroactive effective date for such coverage.

Accordingly, it is held that when an order elects to receive

coverage retroactively, it would be inconsistent with the extension of

coverage to impose deductions because of excess earnings accrued during

the retroactive period.