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Wednesday, December 8, 2010

Social Security: The Minimum Benefit Provision

Alison M. Shelton
Analyst in Income Security

Social Security has had a minimum benefit provision since 1939. Social Security’s minimum benefit provision originally took the form of a floor—that is, a fixed dollar amount—below which benefits could not fall. Congress has modified this provision over the years to change its key parameters, formula, and overall goals.

Under current law, Social Security’s minimum benefit provision is known as the “Special Minimum Primary Insurance Amount,” or “Special Minimum PIA.” Congress created the Special Minimum PIA in 1972 and it became effective for new beneficiaries starting in January 1973. The Special Minimum PIA was created to answer concerns that the 1939 minimum benefit structure in the form of a “floor” provided a windfall to some persons who had a sporadic attachment to the workforce, for example, for persons with only a few years of work in Social Security-covered employment.

The Special Minimum PIA may be paid to workers with more than 10 years in Social Security covered employment. The benefit amount paid to a retired worker is based on, and rises with, the number of years he or she worked in covered employment. The Special Minimum PIA is payable if the benefit amount is higher than the benefit computed under the regular Social Security benefit formula.

The Special Minimum PIA reaches fewer beneficiaries every year. It is likely to cease raising benefits for workers turning 62 in 2012, according to the Social Security Administration. This is because Special Minimum PIA benefits, which are indexed to price inflation, have risen more slowly than regular Social Security benefits, which are indexed to wage inflation. Historically, wage inflation has been higher than price inflation. Consequently, for almost all new beneficiaries today, benefits are larger under the regular benefit formula than under the Special Minimum PIA.

Some recent proposals would reform the Special Minimum PIA, or would create a new minimum benefit in Social Security. These proposals are aimed at reaching more beneficiaries, at providing a higher initial minimum benefit level, or at both goals. This renewed interest has been sparked in part by Social Security proposals that would reduce the traditional benefit and/or introduce an element of market risk to future benefits. Another reason for renewed interest in Social Security minimum benefits is concern over poverty rates among beneficiaries who had low wages throughout their careers. In particular, increasing numbers of single older women have had low earnings throughout their careers and do not qualify for Social Security spousal or survivor benefits because they never married or divorced before 10 years of marriage.

Date of Report: December 6, 2010
Number of Pages: 35
Order Number: R41518
Price: $29.95

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