Factors to Be Examined in Terminating a Social Security Coverage Agreement

Abstract

A brief review of the social security legislation which allows certain employers to terminate participation in the social security program is presented. It is established that many employers who have terminated participation have not adequately examined the effects of termination. Thus, this paper considers the development of a set of factors which employers who are considering termination can utilize in making an informed decision. Upon investigation of the subject, it has been found that the following factors should be considered by those contemplating termination: incidence of taxation, external costs and benefits, historical perspective, prospects for the future, loss of benefits, alternative benefit plans, and group characteristics. Since its inception in 1937, social security (i.e., OASDHI) has been the subject of controversy. Much of this controversy stems from the basic concept of social security which provides for a loose relationship between individual contributions and the benefits payable on behalf of any one insured.' The social security program has been designed to balance individual equity with social adequacy. Thus, the idea has been fostered that since only a certain amount of individual equity is present, a certain amount of individual inequity also must exist. These alleged individual inequities of social security have received considerable attention in recent years because of the large increases in social security taxes.2 Gary W. Eldred, Ph.D., is Assistant Professor of Insurance in the University of South Carolina. This paper was presented at the 1974 annual meeting of the Risk Theory Seminar. ISee Social Security Programs in the United States, (U.S. Department of Health, Education, and Welfare Social Security Administration, 1973), p. 22-42. 2For example, total social security payroll tax revenues have increased from approximately $325 million in 1940 to $31 billion in 1968 and are expected to equal $67.2 billion in 1974. Supplementing these amounts have been tax transfers from the general revenues in every year since 1966. Tax collections not only have increased in the aggregate as the result of having more covered employees, but also large tax increases have been implemented for individual employees and employers. Since 1970, social security taxes have more than doubled for those employees earning in excess of the wage base ($343.20 to $772.20). Increases in taxes also have been experienced by lower income workers because the rate of taxation has increased from 3.125 percent in 1962 to 4.8 percent in 1970 to the present 5.85 percent. A further depressing point to many workers in the $8,000 to $13,000 income bracket is the fact that they see themselves as being locked into paying social security taxes