Though the Social Security disability fund will reach insolvency in 2016, benefits will not be stopped. A reduction in benefits is possible, but not likely. Social Security is a “paygo” system, so payroll taxes received from workers and employers each year are paid out to disabled beneficiaries in the same year. If the Disability Fund does reach a balance of zero, it will be unable to make up for any shortfall between the taxes received from workers and employers that year, and the benefits being paid out to disabled citizens the same year.
The Disability Fund has had a balance for many years because in prior years the amounts collected from workers and employers each year exceeded the amounts paid out to disabled beneficiaries, and the excess was collected in the Disability Fund. In recent years the tax receipts from workers and employers have been less than the amounts paid out to disabled beneficiaries, and so the Disability Fund has been used to make up the difference, in turn lowering the balance in the fund.
It has been estimated that the Fund will get to zero in late 2016. It is also estimated that in 2016 the payroll taxes received from workers will amount to about 20% less than the benefits due to be paid out to disabled beneficiaries. In that way, a shortfall of 20% is possible. The Disability Fund may not reach zero, as the scenario described involves projections and estimates that include a prediction as to the health of the economy (recent robust job growth in the economy means higher receipts of payroll taxes) and the disability beneficiary population (which may now be peaking).
Even if the Disability Fund does reach zero next year, full disability benefits could be paid if Congress authorizes a transfer from the Retirement Fund. A transfer, called “reallocation” has been authorized by Congress many times over the years. If Congress does not authorize a transfer, Social Security may be required to reduce the benefit amounts by 20%, the amount by which disability payments to beneficiaries are estimated to exceed ongoing payroll tax receipts after the Disability Fund is exhausted in 2016. If reallocation is not authorized, Social Security structural reform may be required. More on that in the next post.
Applying for disability benefits from Social Security can be confusing and discouraging. If you are in Massachusetts, Rhode Island or New Hampshire, a Keefe Disability Law attorney may help you. Learn more about this by calling our firm today at (888) 904-6847 for a free consultation.