Future Beneficiaries aComputed as of the beneficiary's last month of eligibility or as late as August 1985. Unless these 62 beneficiaries identify the missing earnings, the under- Some individuals face reduced benefits or ineligibility because of uncredited earnings. If these individuals' survivors were eligible for benefits in January 1984, when we measured the potential effect on benefits, they would have received benefits lower than they were entitled to. Furthermore, a few individuals' survivors would have been found ineligible for benefits when, in fact, they were eligible if the uncredited earnings were included. We identified 5,714 employees whose earnings were not credited to their We found that the uncredited wages could affect 3,510 employees' survivors (three of every five) by an average of about $17 per month. See appendix V for more details on the potential monthly benefit effect of uncredited wages. Further, the wages that were not credited but should have been were necessary for 60 employees; without these earnings their survivors would not have been eligible for any benefits. Similarly, of the 7,100 self-employed whose earnings were earlier identified as uncredited in 1979, 4,472 (two of every three) could have had Uncredited Earnings Affect Social Security Retention of Some Tax survivors affected by the uncredited earnings. The average monthly benefit effect was $7.30. See appendix VI for more details on the potential monthly benefit effect for survivors of individuals we identified during a previous review (cited in ch. 1) as having uncredited selfemployment earnings. The Social Security Act, section 201(a), specifies that tax money should Before 1978, both IRS and SSA used the same quarterly reports of We asked SSA and IRS what constitutes a reasonable time period for certification, but neither specified a time period. SSA responded: "Given the Uncredited Earnings Affect Social Security problems we have faced with reconciliation since the advent of annual wage reporting, we have no experience upon which to determine what a reasonable time period may be, but we support the development of a reasonable time period goal." IRS responded: "Since no time frame is specified by law, we accept the current certification time period presently being followed by DHHS." We believe it reasonable that, as a guideline, the maximum time period for certification should correspond to the present duration that employers are required by IRS to retain employees' records of earnings. Current IRS instructions state that employers should retain employees' earnings records for 4 years. We also asked the following question: “Must SSA return to the Treasury trust fund credits for earnings that exceed amounts [SSA is] able to certify?" SSA said: "The Social Security Act (Section 201(a)) requires that the taxes appropriated to the Old-Aged and Survivors Insurance, Disability Insurance, and Hospital Insurance trust funds be determined by the Secretary of the Treasury by applying the applicable rates of tax to wages and self-employment income certified by the Secretary of HHS. The Secretary of HHS is to certify wage data to Treasury based on 'records of wages established and maintained' by the Secretary of HHS. The taxes are initially appropriated to the trust funds on an estimated basis. Periodic adjustments are subsequently made to the extent that the estimates are found to differ from the amounts of taxes actually payable as determined from reported earnings. "For calendar years 1978-1985, adjustments have been made on the basis of wages reported to IRS on form 941. These wage data have been 'certified' as interim data. The wages paid in recent years have not been certified to Treasury in the same sense that wages certified before 1978 were certified because the data do not represent individual employee 'records maintained and established by the Secretary of HHS.' When the earnings are fully certified based on HHS records (finalizing HHS wage data is dependent on the reconciliation process), any excess of the previously appropriated taxes, over and above the taxes determined from the certified earnings, must be returned to the general fund of the Treasury. Similarly, any excess of taxes determined from the certified wages, over and above the previously appropriated taxes, must also be appropriated from the general fund to the trust funds. "Before earnings are certified for any of the years 1978 or later, any remaining unreconciled wage reports will be added to the Nondetailed Employee Report file, a file of undistributed wage items. Any wages in this file will be included in the earnings certified to the Treasury. At this time, it is not known whether the certification of earnings for those years will actually result in a return to the general fund or an additional appropriation to the trust funds." Uncredited Earnings Affect Social Security SSA's response recognizes that (1) its certifications since 1978 are "interim" because they are not based on records established and maintained by the Secretary of HHS as provided in the law; (2) making its earnings data final, and thus achieving final certification, is dependent on completing the reconciliation process; (3) its final certification should be based on individual employee records maintained and established by SSA (on behalf of HHS); and (4) the IRS 941 data are not individual employee records. SSA's creation of an employer suspense account file, referred to by SSA as a Nondetailed Employee Report file, places unreconciled earnings recorded by IRS into an SSA file. However, use of such a file for certification would not be an adequate basis for final certification because after reconciliation is completed, the remaining unreconcilable earnings (1) would be total earnings amounts reported by employers and not amounts creditable to individuals' earnings records and (2) could have already been credited to individuals' records. Chapter 4 Causes of the Problem and Attempts at Resolution SSA and IRS have not adequately resolved differences in employers' earnings reports, nor have they addressed the causes of the differences. Many causes have contributed to the current problem. The change in employer reporting requirements and weaknesses in SSA's internal controls resulted in larger than anticipated numbers of employers' reports that had to be reconciled. The resultant need for larger than anticipated resources was not addressed by either agency. Changes in SSA's leadership and management's inability to resolve conflicting organizational priorities also contributed to the problem. The unreconciled backlogged reports have prevented identification of the underlying causes of employer reporting differences, which must be known before plans can be developed to prevent or detect future occurrences. After nearly 6 years of its own studies and discussions with IRS, SSA has begun to reconcile some earnings differences and has developed a reconciliation plan. The plan, however, does not address (1) all the backlogged earnings reports and (2) what to do about employers who are unable or unwilling to help SSA. Furthermore, because employers retain records for a limited time, information needed to reconcile some older reports may not be available. Some Causes of With the advent of a new system of combined annual wage reporting in 1978, SSA started experiencing a substantial growth in the number of missing and discrepant employers' earnings reports. The change to a new system required a change in earnings reporting, contributing to this growth. SSA has twice conducted studies of the reasons for this growth, but it has not been able to fully determine what they are. However, SSA has identified weaknesses in its earnings recording system that may further contribute to the uncredited earnings problem. Changes in Reporting The number of missing and discrepant reports climbed from 171,000 in |