The 19th century chancellor Otto von Bismarck is credited with inventing social insurance–benefits for workers in formal wage employment financed by dedicated taxes on wages. But this model is increasingly unsuitable for the modern world of work, where formal employer-employee relationships are rare.
One alternative is a universal basic income that could reduce payroll taxes while expanding coverage beyond workers in contracted and regulated standard employment relationships.
Benefits
The ביטוח לאומי program is based on the simple idea that while you work, you pay into the system. Then, when you retire or become disabled, you and your family will receive monthly checks based on your reported earnings. Your SSA Claim Account Number, which contains nine digits plus a suffix, tells you what type of Social Security benefits you’ll get.
Most people who work in the private sector participate in a defined benefit plan, which promises you a certain dollar amount at retirement based on your salary and years of service. You can also find out about a defined contribution plan, which gives you control over your retirement savings.
Social Security also pays benefits to the blind, aged and disabled, and their families. The disability benefit is called Supplemental Security Income (SSI).
A person must meet certain rules to qualify for SSI. Generally, a person must have limited resources and assets to qualify for SSI. Some income is excluded from the SSI resource limit, such as wages and some other types of public assistance payments. SSI also has special rules that apply to students, parents and trustees of special needs trusts.
The California Alternative Payment (CAPI) program provides supplemental cash benefits for age, blind and disabled non-citizens who were ineligible for federal SSI/SSP as of August 1996 due to immigration status. CAPI is a 100% state-funded program. Your county social services agency must review your CAPI eligibility at least once every 12 months and whenever you report a change in your situation such as a move, an increase or decrease in income, a new spouse or other additions to the household.
Taxes
As you work, you pay taxes into the Social Security system, and you receive benefits when you retire or become disabled. You and your family may also be eligible to receive benefits if you or a spouse dies. Your tax situation is based on your years of earnings and the options you choose in retirement. For more information, see the PSERS pamphlet Let’s Talk About Taxes (05-10022).
If you have elected to receive a lump sum or annuity payment, a percentage of each monthly amount is withheld for federal and state income tax. The withholding amounts are based on your marital status and the number of allowances you claim. You can change your withholding amounts by logging into your myASRS account. A 1099-R tax statement showing the amount withheld is mailed each January for the previous year. A downloadable version is available in mid-February in your myASRS account.
In addition to the taxable portion of your pension, you may have to pay a 10% early distribution tax for payments you receive before age 59 1/2. Generally, payments from the WRS made after you separate from service are not subject to an early distribution tax. In addition, SBP premiums are paid out of your retirement pay, which makes them less taxable than the cost of similar coverage from private insurance companies.
Eligibility
When you work, Social Security taxes are taken out of your paycheck. That money helps pay for your benefits when you retire. Eligibility is based on the number of years you have worked and your income level.
If you have 30 or more years of credited service, you are eligible to receive your full retirement benefit under either Article 14 or Article 15. If you leave Federal service before meeting the age and service requirements for an immediate annuity, you can still get a service retirement benefit by following the rules in either Article 14.
All cash wages are considered Social Security wages unless they are specifically excluded by law. Wages include salaries, hourly pay, bonuses, overtime, and other payments for services performed. The value of certain forms of compensation, such as life insurance and disability income, are included in the total amount of wages you have earned.
A person with disabilities who is receiving SSI can go to school without it reducing her monthly benefit. However, the student and any family members or trustees of a special needs trust for her must understand how financial aid, employment earnings, housing allowances and other resources may affect her eligibility.
Spouses of deceased insured workers can receive survivors benefits if they were married for 10 years or more. Dependent children (under age 18 or disabled before age 22) and parents of a deceased insured worker who provided more than one-half of their support can receive benefits based on the worker’s record.
Retirement
Unlike many private pensions, Social Security is not means-tested and the system is run efficiently by a professional staff. This combination of factors makes Social Security very popular and politically stable. Large majorities oppose cuts to the program.
Most State and local government employees have Social Security protection because their States entered into special agreements with the Social Security Administration or passed federal legislation that extends coverage. In addition, most Federal employees are covered because they work for a government agency that participates in the Social Security system or contributes to the Thrift Savings Plan (TSP) and/or Federal Flexible Spending Account program (FSAFEDS).
The average Social Security retirement benefit is modest by international standards. Among retiree households at the bottom of the income distribution, most received no pension income in 2015.
SBP provides a unique combination of benefits. It is similar to life insurance, protecting survivors against a premature death. However, it also protects against an even greater risk – outliving their benefits. Unlike many other insurance plans, which pay fixed amounts that can run out years before the survivor dies, SBP offers cost-of-living adjustments to keep pace with inflation.
Most retirees elect to pay for SBP through a deduction from their monthly retirement check. The amount of the deduction is based on the option chosen at retirement and may change periodically.