INCOME AND DISBURSEMENTS

Program expenditures during the fiscal year totaled $4,436 million, of which $4,333 million was for benefit payments and $103 million for administrative expenses. Total receipts were $5,534 million, including $5,087 million in net contributions, $438 million in interest on investments, and $10 million in transfers from the railroad retirement account. Receipts exceeded disbursements by $1,098 million, the amount of the increase in the trust fund during the year. At the end of June 1955, the fund totaled $21.1 billion.

On June 30, all assets of the fund, except $560 million held in cash, were invested in United States Government securities as required by law; $2.3 billion were invested in public issues (identical with similar bonds owned by private investors), and $18.2 billion were invested in special certificates of indebtedness bearing interest at the average rate paid on the total interest-bearing Federal debt at the time they were issued. The average interest rate on all investments of the trust fund at the end of the fiscal year was about 2.3 percent.

Administering the Program

EFFECTUATING THE 1954 AMENDMENTS

Immediately after enactment of the amendments, recruitment objectives were established for each part of the Bureau; these objectives were related to anticipated loads, the ability to recruit qualified personnel, and the rate at which new staff could be successfully trained and absorbed. The net personnel increase required by the 1954 amendments was approximately 3,400. This brought Bureau staff at the end of the fiscal year to just over 17,600 employees-the staff needed for operations at the new and continuing workload level at which the Bureau will operate.

Training on the amendment provisions and on new policies and procedures was essential for both experienced and new personnel. One device followed was to train groups of key supervisory and technical people, who then carried the new knowledge back through the supervisory line and to all parts of the country to people already on the Bureau's staff. Central office training classes were established in Baltimore for new employees. More than 1,200 new field employees received intensive instruction in these courses during the fiscal year.

One of the first tasks required by the amendments was the conversion of the monthly benefit checks of over 6.5 million beneficiaries to the new higher amounts. This operation was completed in time to permit release of the September checks when they were due. This was accomplished through timely procedural planning and testing,

the maximum use of mechanical methods for the actual conversion, and close synchronization of operations with those in the Treasury Department's disbursing offices.

The burden of administration stemming from the amendments was greatest during the period from January 1, 1955, to the end of the fiscal year. In the first 3 months of 1955, over 100,000 more claims applications were received than in the first 3 months of 1954. Because this influx of claims was concentrated in such a short period of time, pending loads in the district offices rose to unprecedented levels. By June 30, 1955, substantial inroads had been made in this backlog, but the district office pending load was still high.

ADMINISTERING THE DISABILITY "FREEZE"

Under the new disability "freeze" provision, persons having both substantial and recent covered work prior to disablement are eligible to have their insurance rights frozen during the period in which longcontinuing total disability prevents them from performing any substantial gainful work. Adoption of the disability freeze provision not only created an entirely new area of program administration for the Bureau, but also, for the first time, provided for Federal-State administration of a phase of the old-age and survivors insurance program. The law directs the Secretary of Health, Education, and Welfare to enter into agreements with vocational rehabilitation agencies or other appropriate State agencies to make determinations of disability for freeze purposes.

A new division in the Bureau of Old-Age and Survivors Insurance— the Division of Disability Operations-was assigned primary responsibility for making determinations in cases not covered by State agreements and for reviewing certain disability determinations made by State agencies. The Division received substantial help in the development of policies and procedures from a committee appointed by the State Vocational Rehabilitation Council, from constituents in the Department-particularly from the Office of Vocational Rehabilitationand from other departments and agencies. To assist in the development of medical standards and policies, a Medical Advisory Committee to the Social Security Administration was appointed. This Committee, composed of members of the medical and related professions having a common interest in the problems of the disabled, provided consultation on medical policies involved in making disability determinations and technical advice on the formulation of medical guides and standards. The Medical Advisory Committee is expected to continue beyond this initial year of operations to evaluate the medical aspects of the administration of the freeze and will assist the Bureau in preparing medical policies and procedures and in solving problems that have medical content.

A major phase in preparing to administer the freeze was the negotiation of agreements with individual States to make determinations of disability. The Governors of all States were asked to designate an appropriate agency or agencies for this purpose. At the end of the fiscal year, designations had been received from all but two jurisdictions. In 42 States the vocational rehabilitation agency was designated; in four the vocational rehabilitation agency and either the public welfare agency or a special agency for the rehabilitation of the blind; and in five the public welfare agency. Agreements with 38 States and advances of funds were approved by the Commissioner by the end of the year. Under the law, the State agencies may elect to exclude certain cases from the agreement. In general, cases where disability began many years in the past and cases where the disabled individual is an old-age insurance beneficiary and therefore may be eligible for an immediate increase in benefits were currently excluded from the agreements.

In addition to speeding work on negotiations of agreements and providing State agencies with funds with which to start operations, the Bureau made intensive efforts during the second half of the fiscal year to identify potential applicants and to process freeze applications. District offices identified several hundred thousand potential applicants and accepted 143,000 freeze applications before the end of the fiscal year. Because an old-age insurance beneficiary who had been disabled before he attained age 65 could, through the freeze, receive an increase in his benefit amount beginning with the month of July, priority was given to the securing and processing of applications from these older people.

The 1954 amendments included a statement of policy to the effect that disabled individuals applying for a determination of disability under the freeze should be promptly referred to State vocational rehabilitation agencies for rehabilitation services, to the end that the maximum number of disabled individuals may be restored to productive activity. To carry out this policy, the Bureau, early in the fiscal year, began describing the services available under State vocational rehabilitation programs to each disabled person inquiring about the freeze. Concurrently, contacts were made with State rehabilitation agencies to work out arrangements for making prompt and effective referrals. As these arrangements were completed State agencies began receiving information on many thousands of disabled individuals, including many who were not freeze applicants. Although it is too early to assess accurately the substantial values that will result from this process, experience thus far has shown that a large proportion of the disabled persons referred were not previously known to vocational rehabilitation agencies.

The Division of Disability Operations began making tentative determinations on cases in March. About 62,000 applications were received in the Division before the close of the fiscal year. Although only a scattering of determinations had been completed by State agencies, the volume will grow rapidly as the agencies become staffed and trained.

In July 1955 the benefit checks of more than 13,000 old-age insurance beneficiaries were raised as the result of the freeze; additional cases were in process. The average July rise was $10.43 (in some cases a portion of the increase was attributable to the drop-out provision in the 1954 amendments). Dependents of old-age insurance beneficiaries entitled to the freeze received proportionate increases in their benefits.

OTHER ADMINISTRATIVE DEVELOPMENTS

Several years of detailed research have gone into the study of the possible application of large-scale electronic data-processing equipment to the Bureau's earnings record operation. Studies culminated this year in the selection of data-processing equipment which will be installed in the latter part of fiscal year 1956 for maintaining earnings records and for properly crediting earnings items reported incorrectly by employers. This equipment, using magnetic tape to record earnings information, will eliminate the setting up of a second summary punchcard file for approximately 80 million accounts on July 1, 1956, which would otherwise have been necessary in order to include the additional data required by the 1954 amendments in making benefit computations. In addition, its use in the operation to properly credit incorrectly reported earnings items will reduce the number of items that cannot be credited and will cut the cost of the operation substantially. Within a year after initial installation, the use of the equipment will be extended to the Bureau's statistical operations, where increased efficiency will result.

Another major subject of study over the past several years has been the plan to combine social security reporting with reporting for income-tax withholding purposes. Under that plan the quarterly wage reports now filed for social security purposes would be eliminated for those employers whose employees were also subject to income-tax withholding. The withholding-tax statements (Forms W2) filed by the employer once a year for each employee would be used to maintain the wage records necessary in the old-age and survivors insurance program. Under agreement with the Treasury Department, the copies of the Forms W-2 filed by employees with their income-tax returns would also be sent to the Bureau of Old-Age and Survivors Insurance for withholding-tax verification purposes.

The plan is expected to reduce the reporting burden of employers (about 200 million wage items would be eliminated), to provide an automatic method whereby employees may verify annually the accuracy of reports of their earnings under old-age and survivors insurance, to effect improvements in efficiency in the Government's processing operations, and to strengthen social security tax and withholding tax administration.

Adoption of legislation to carry out the proposal has been recommended by the President and a bill (H. R. 7770) embodying the plan has been introduced in the House of Representatives.

In September 1952, the House Appropriations Committee initiated studies of the possibility of check writing by benefit payment agencies to replace the current practice of certification by agencies and disbursement by the Treasury Department. Subsequent to experiments by the Railroad Retirement Board, the Bureau of Old-Age and Survivors Insurance with the Treasury Department and the General Accounting Office studied possible applications of this procedure to the old-age and survivors insurance area offices. As a result of these studies the Bureau's Birmingham Area Office in July 1955 assumed the responsibility, on an experimental basis, for writing benefit checks. In the 1956 appropriations bill the Congress authorized expenditure of $3,870,000, in addition to amounts previously authorized, for a building to house all of the Baltimore operations of the Bureau, and also authorized the use for construction of funds previously authorized to be used in preparing for construction and not required for that purpose. The limit of cost as established by this congressional action is $25,370,000. During the year the Government acquired title to the site for the building, on the outskirts of Baltimore.

Financing the Program

In setting the schedule of contribution rates in the 1954 amendments Congress again made clear its intent that the old-age and survivors insurance program is to be self-supporting from contributions of covered workers and employers. The rates in the schedule were arrived at after careful review of long-range actuarial cost estimates. According to these estimates, the level-premium cost of the program after 1952 on an intermediate basis, assuming interest at 2.4 percent and earnings at the levels that prevailed during 1951 and 1952 (the latest then available), was 7.50 percent of payroll. The level contribution rate equivalent to the graduated rates in the law was estimated at 7.12 percent of payroll, so that there was an estimated deficit of 0.38 percent.