Social Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues
Social Security Reform:
Legal Analysis of
Social Security Benefit
Updated January 31, 2008
Kathleen S. Swendiman and Thomas J. Nicola
American Law Division
Social Security Reform: Legal Analysis of Social
Security Benefit Entitlement Issues
Calculations indicating that in the long run the Social Security program will not
be financially sustainable under the present statutory scheme have fueled the current
debate regarding Social Security reform. 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, the fact that Social Security benefits are financed by taxes on an
employee’s wages 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 to legislatively 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 a 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 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.
Congressional Authority To Modify Entitlements.....................2
Congressional Guarantee of Social Security Benefit Payments...........6
Congressional Power To Modify Its Own Contracts...............6
Congressional Power To Promise Future Deference...............8
Payment of Social Security Benefits From the Trust Fund in
Case of Exhaustion........................................9
Social Security Reform: Legal Analysis of
Social Security Benefit Entitlement Issues
Calculations indicating that in the long run the current Social Security program
will not be financially sustainable under the present statutory scheme have fueled the
current debate regarding Social Security reform.1 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.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
1 See CRS Report RL33514, Social Security Reform: What Would Happen if the Trust Funds
Ran Out? by Kathleen Romig.
2 For more information, see CRS Report RL33544, Social Security Reform: Current Issues
and Reform, by Dawn Nuschler, and CRS Report RL31498, Social Security Reform:
Economic Issues, by Jane Gravelle and Marc Labonte.
3 Section 201 et seq. of the Social Security Act, 42 U.S.C. § 401 et seq.
4 Richardson v. Belcher, 404 U.S. 78 (1971). In addition, Section 1104, 42 U.S.C. § 1304
explicitly states “The right to alter, amend, or repeal any provision of this Act is hereby
reserved to the Congress.”
Congressional Authority To Modify Entitlements
The Supreme Court’s landmark decision in Flemming v. Nestor,5 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, 42 U.S.C. §402(a), that terminated Social Security benefits
to a person deported for membership in the Communist Party. Nestor had, at one
time, 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 under the Fifth Amendment.6
The Court, however, disagreed. Justice Harlan wrote:
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.
Flemming at 610-611.
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.7 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 three-judge district
5 363 U.S. 603 (1960).
6 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
7 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.th
3d 812 (7 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.
court in National Association of Retired Federal Employees v. Horner.8 The district
court in that case upheld a provision of the Balanced Budget and Emergency Deficit
Control Act,9 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 twelve 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.”10 Horner at 514. It
cited an earlier case, Stouper v. Jones, 284 F.2d 240 (D.C. Cir. 1960), 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 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. Stouper at 242.
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).” 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
8 633 F. Supp. 511 (D.D.C. 1986), aff’d. 479 U.S. 878 (1986).
9 P.L. 99-177, known as the Gramm-Rudmann-Hollings Act.
10 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.
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.” Id.
The U.S. Supreme Court has also 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.11
In doing so, the Court held that the Social Security program was 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.”12 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:13
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, 302 U.S. 74 (1937) a retired school teacher challenged
the constitutionality of a state statute that reduced her retirement annuity from $1500
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 contractual or vested rights but merely declares a policy
until the legislature shall ordain otherwise.”14
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.15 “[O]ur cases are clear that legislation
11 301 U.S. 619 (1937).
12 Id. at 635.
13 Flemming at 610.
14 Id. at 79.
15 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
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.
While acknowledging this latitude, the Supreme Court in Flemming nonetheless
indicated that congressional action may be subject to some constitutional restraint:16
“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
inquires 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 . 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.
Thus, only if Congress were to act in a totally irrational and arbitrary manner
would due process considerations invalidate a subsequent amendment.17 The Court
reiterated this view in United States Railroad Retirement Board v. Fritz, 449 U.S.
166 (1980), wherein it 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. However, 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.”
The Court added that drawing lines between categories of beneficiaries “is a matter
for legislative, rather than judicial, consideration.” Id. at 179-180.18
coverage agreement, California claimed a “taking of private property” under the Fifth
Amendment. However, 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.
16 Flemming at 611. Note, however, that once a beneficiary receives an actual benefit
payment, 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 Boardst
of Rhode Island Employees’ Retirement System, 172 F. 3d 22, 300 (1 Cir. 1999).
17 “[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.,
18 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
Congressional Guarantee of Social Security
The Social Security program has faced funding shortfalls in the past and
Congress has enacted a variety of measures to deal with financial imbalances.19
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 could legislatively create a new, legally
enforceable right to the receipt of a certain level of benefits by individuals eligible20
for Social Security benefits. 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, 290 U.S. 398 (1934), this
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.
19 See CRS Report RL33544, Social Security Reform: Current Issues and Reform, by Dawn
20 Examples of this may be found in two 109th Congress bills: S. 1750, which proposed to
create 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. No similar bills have been introduced inth
the 110 Congress as of the date of this report.
stricture is not very severe, save for state efforts to avoid their own contracts. United
States Trust Co. v. New Jersey, 431 U.S. 1 (1977). As for the federal government,
there is no such clause, the right being 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. PBGC v. R.A.
Gray & Co., 467 U.S. 717. 732-33 (1984). Even 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), 12 Wall. (79 U.S.) 457 (1871), 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., 294 U.S. 240 (1935),
Congress was held to have the authority to invalidate provisions in private contracts
calling for payment in gold coin. But when the federal government seeks to abrogate
its own contracts in order to serve its own financial purposes or to increase the public
fisc, a more searching scrutiny, and usually invalidation, follows. 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); Lynch v. United States, 292 U.S.
571 (1931) (statute abrogating contracts of war risk insurance held invalid as applied
to outstanding policies).21
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. Horowitz v. United States, 267 U.S. 458 (1925); Deming
v. United States, 1 Ct. Cl. 190 (1865). See United States v. Winstar Corp. 518 U. S.
839, 894-910 (1996) (plurality opinion of Justice Souter); and id., 932-935 (Chief
Justice Rehnquist dissenting). In Horowitz, the federal government had contracted
with the claimant for silk products and for the shipment of silk within a certain time.
But the United States Railroad Administration placed an embargo on shipments of
silk by freight, and 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.” Supra, 267 U.S., 461.22
21 The subject of the Lynch case, war risk term insurance policies for which the insured,
former military personnel, had paid monthly premiums, were found to be 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.
22 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 “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
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 is arguably 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 §1104
of the Social Security Act, 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
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 that23
the legislative enactment cannot be repealed or altered. “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.” Fletcher v. Peck, 6 Cr. (10 U.S.) 87, 135 (1810) (Chief
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. And, 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.
Perry v. United States, Lynch v. United States, Sinking Fund Cases, discussed, supra.
However, where the federal government acts as lawmaker exercising its sovereign
powers to provide for the general welfare, 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
congress could be nullified by ‘prophetic discernment.’” (Emphasis supplied; footnote
23 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.
Agencies Opposed to Social Security Entrapment, 477 U.S. 41, 52 (1986) (internal
quotation marks omitted).
Illustrating this principle is the Supreme Court’s holding in Stone v. Mississippi,
101 U.S. 814 (1880), in which the legislature entered into a contract with a company
to operate a lottery within the State. The following year a constitutional amendment
was adopted by the State’s voters abolishing lotteries. Quoting a state case, the Court
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. Id., 817-818.
These and other cases that might be cited24 demonstrate the limited role contract
principles play in matters affecting the governmental functions, rather than the
proprietary functions, of the states and the federal government. In essence, absent the
kind of promise involving the essence of contracts covered by the Contracts Clause,
say, a guarantee of the “full faith and credit” of the United States in backing bonds,
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. However, the weight of judicial
authority 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 whether that possibility would
affect the legal right of beneficiaries to receive full Social Security benefits.25 On
24 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 previously authorized in legislation. Whenever congress decides to suspend or
repeal a statute in effect, “[t]here can be no doubt that ... it could accomplish its purpose by
an amendment to an appropriation bill, or otherwise.”
25 See CRS Report RL33514, What Would Happen if the Trust Funds Ran Out? by Kathleen
May 1, 2007, the Trustees of the Social Security Trust Funds stated that the funds26
... are projected to become exhausted and thus unable to pay scheduled benefits
in full on a timely basis in 2041 under the long-range intermediate assumptions.
... Based on the Trustees’ best estimate, program cost will exceed tax revenues
starting in 2017 and throughout the remainder of the 75-year projection period.
Social Security’s combined trust funds are projected to allow full payment of
benefits until they become exhausted in 2041. At that time annual tax income to
the trust funds is projected to equal about 75 percent of program costs.
Separately, the OASI and DI funds are projected to have sufficient funds to pay
full benefits on time until 2042 and 2026, respectively. By 2081, however,
annual tax income is projected to be only about 70 percent as large as the annual
cost of the OASDI program.
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 and the self-employed pay taxes on wages and self-employment
income under the Federal Insurance Contributions Act (FICA) and the Self-
Employed Contributions Act (SECA), respectively. Taxes paid now finance benefits
for today’s beneficiaries. A full 100% of these payroll taxes is appropriated to the
Social Security Trust Funds.27 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.28
Moreover, amounts credited to the funds are the only source of funds to pay
Social Security is a statutory entitlement program.30 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.”31 Budget authority is the authority provided
by law to enter into obligations that will result in immediate or future outlays
involving federal government funds.32
26 Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance
Trust Funds, The 2007 Annual Report of the Board of Trustees of the Federal Old-Age and
Survivors Insurance and Disability Insurance Trust Funds 3 and 16 (2007). The Annual
Report is available at [http://www.socialsecurity.gov/OACT/TR/TR07/trTOC.html].
27 Section 201(a) and (d) of the Social Security Act, 42 U.S.C. § 401(a) and (b).
28 Section 201(f) of the Social Security Act, 42 U.S.C. § 401(f).
29 Section 201(h) of the Social Security Act, 42 U.S.C. § 401(h).
30 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 or disability benefit, respectively.
31 2 U.S.C. §§ 622(9) and 651(c)(2)(C).
32 2 U.S.C. § 622(2).
According to a publication of the General Accountability Office, formerly the
General Accounting Office,33
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.”
... 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 temporary pending receipt of sufficient funds to honor the
underlying obligation. The recipient would remain legally entitled to the
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, 31 U.S.C.
§ 1341, 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
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.34
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.35 An officer or
33 Office of the General Counsel, General Accounting Office, I Principles of Appropriations
Law 3-49 and 3-49, n. 40. (3d ed. 2004).
34 Section 201(h) of the Social Security Act, 42 U.S.C. § 401(h).
35 31 U.S.C. § 1349.
employee who knowingly and willfully violates the act can be fined not more than
$5000, imprisoned for not more than two years, or both.36
After the Social Security Trust Funds become insolvent (i.e., unable to pay
scheduled benefits in full on a timely basis), it appears that beneficiaries who would
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. Walker, 53 U.S. (11 How.)
272, 275 (1850), 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,
496 U.S. 414, 424-426 (1990). 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 the Trust Funds and the full benefit amount.
The Old Age, Survivors 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 has, however, reserved
the “right to alter, amend, or repeal any provision of this (Social Security) Act” and
the U.S. Supreme Court has affirmed Congress’s power to modify provisions of the
Social Security Act in Flemming v. Nestor, 363 U.S. 603 (1960), and in 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 to legislatively 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 a obligation, courts would be unlikely to find
Congress’s unilateral promise to constitute 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,
however such 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.
36 31 U.S.C. § 1350.
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 2040). 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 the Social Security Trust Funds 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 the Trust Funds and the full benefit amount.