*This is a selection from the book titled "Catastrophe Claims: Insurance Coverage for Natural and Man-Made Disasters," Chapter 18A by Dennis J. Wall (©May 2017, Thomson Reuters). This selection is reprinted with permission of Thomson Reuters. Any further reproduction without the consent of the publisher is expressly prohibited.
§ 18A:3 The price to pay for taking it away: Social Security as every qualifying individual's enforceable right.
The people affected by Social Security, and the effects upon them of changes to the Social Security system, are most clearly considered from the perspective of Social Security being made completely unavailable or taken away. That perspective provides the clearest analysis of whether there is a right to Social Security.
The groups affected break down into the following three, in basic and general terms:
- Those receiving old-age insurance benefits from Social Security;
- Those who have not yet attempted to receive Social Security old-age insurance benefits, or have not applied, but are currently eligible to receive them; and
- Those who have not yet applied for old-age insurance benefits from Social Security, and are eligible to receive them in the future, but are contributing now.
It is generally agreed that the United States Supreme Court will be the ultimate authority on the question of whether anyone has a constitutionally protected right to receive Social Security old-age insurance benefits. In the absence of U.S. Supreme Court authority directly on point, it is necessary to reason by analogy to similar cases decided on related points of law and governed by the same or similar overarching guiding principles as govern the outcome of the question at issue here: whether there is a constitutionally protected right to receive Social Security old-age insurance benefits on the part of any of the three groups of persons we have identified here.
Not all the cases, including cases decided in lower courts, will be examined here. This is an outline, not a lawyer's argument, in any event. Lawyer's arguments depend upon future cases. Like any Chapter of a treatise on law, this Chapter is intended as a starting point for research, not necessarily the end.
The class of people receiving benefits. This group of people may be seen as having the strongest claim to a right to old-age insurance benefits. By definition, they are people who have already begun to receive Social Security benefits, so for them ending Social Security is a matter of taking something away from them.
However, a majority of the Supreme Court in a 5-to-4 decision in 1960 apparently agreed that the interest a worker has in continuing to receive Social Security benefits that have already begun, is a "noncontractual" interest. Workers generally receive old-age insurance benefits out of all proportion to the ordinarily much smaller amount of their accumulated payroll contributions. The amount most workers receive in insurance benefits may even be out of proportion to the total contributions made by their employers added to the total amount of their own individual contributions.
For this reason, Mr. Justice Harlan wrote for the 5-Justice majority in Flemming v. Nestor[1] that a person receiving old-age insurance benefits under Social Security is not in a position that could be "soundly analogized" to the position of a person holding an annuity. The stated reason, and the only reason given in the opinion, to distinguish insurance annuities from old-age insurance benefits, is that the person holding an annuity paid premiums for it, so, as Mr. Justice Harlan wrote, her or his "right to benefits is bottomed on his contractual premium payments."[2]
There are many grounds on which Justice Harlan's opinion has been criticized and evaluated since 1960. Like many of the Court's opinions even tangentially involving any aspect of Social Security, it has attracted many citations by lower courts and commentators.
A prominent ground on which it has been distinguished, is that the case involved the termination of an individual's Social Security benefits when he was deported. The individual whose rights were at issue in that case apparently became eligible for Social Security some seven months before he was deported. The decision went off on Due Process grounds inasmuch as the deported individual did not receive a hearing before his benefits were terminated.[3] In the course of addressing the Due Process issues in that case, the majority in Flemming refused to impose a "property interest" analysis upon the complex framework of the Social Security Act:
To engraft upon the Social Security system a concept of ‘accrued property rights' would deprive it of the flexibility and boldness in adjustment to everchanging conditions which it demands.[4]
Mr. Justice Harlan's opinion betrays a misunderstanding of annuities. It is a misunderstanding that many people in power had and still have about Social Security old-age insurance.
Next: The Price to Pay for Taking it Away: It's Everyone's Insurance.
Please Read The Disclaimer. This Blog ©2017 by Dennis J. Wall. All Rights Reserved.
[1] Flemming v. Nestor, 363 U.S. 603, 80 S. Ct. 1367 (1960).
[2] Flemming v. Nestor, 363 U.S. 603, 610, 80 S. Ct. 1367, 1372 (1960). Justice Harlan expressed this understanding of an annuity in the majority opinion immediately after he wrote that a worker's contributions to the Social Security system by taxation do not reflect the payments she or he receives from Social Security. In full context, Justice Harlan wrote, for the majority in this case:
But each worker's benefits, though flowing from the contributions he made to the national economy while actively employed, are not dependent on the degree to which he was called upon to support the system by taxation. It is apparent that the noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments.
Flemming v. Nestor, 363 U.S. 603, 609-10, 80 S. Ct. 1367, 1372 (1960) (emphasis added). What is missing from this comparison is that the holder of an annuity does not receive payments in proportion to her or his premium payments, either.
The framework of the Social Security system was set up as a reflection of employees' contributions to the economy of the United States, and not as a reflection of the amount of payroll taxes they contribute to the Social Security system. Simply stated, the people who wrote the Social Security program recognized that contributions to the U.S. economy and contributions to the Social Security system are not to be conflated because they simply are not the same thing:
This is the approach of contract, not of benevolence.
* * *
Our approach is that, within limits, the individual worker establishes the level to his protection by his individual contribution to our economy. I want to emphasize the distinction, "to our economy," not "to the system." Not to the Treasury of the United States but to our economy.
- Douglas Brown, "The Idea of Social Security," speech at the Meeting of the Bureau of Old-Age and Survivors Insurance in Baltimore, Maryland on November 7, 1957, accessible online as the "original version" of this 1957 speech, at https://www.ssa.gov/history/brown3.html, last accessed on Monday, January 9, 2017. (Emphasis in original.)
[3] As the majority wrote under the circumstances of that case:
We must conclude that a person covered by the Act has not such a right in benefit payments as would make every defeasance of ‘accrued’ interests violative of the Due Process Clause of the Fifth Amendment.
Flemming v. Nestor, 363 U.S. 603, 611, 80 S. Ct. 1367, 1373 (1960) (emphasis added). The emphasized word, "every," indicates of course that in other cases where the federal government takes away old-age insurance benefits, then even in the majority view in this case the Due Process clause of the Fifth Amendment may be violated. Commentators have noticed this obviously intentional nuance in Justice Harlan's opinion, of course.
It is beyond the scope of this book to consider whether Flemming v. Nestor was correctly decided in 1960, or whether it retains any continuing validity now. It is assumed for purposes of the discussion here, that the decision is still valid. It is after all a decision of the Supreme Court of the United States and for that reason alone cannot be ignored. However, it is appropriate to observe that the individual whose rights were adjudicated in that case, Mr. Ephram Nestor, was deported in July, 1956 at the height of the "Red scare." Mr. Nestor was from Bulgaria who had been a member of the Communist Party. He terminated his membership in the Communist Party 17 years before he was deported. See Flemming v. Nestor, 363 U.S. 603, 605, 80 S. Ct. 1367, 1370 (1960).
[4] Flemming v. Nestor, 363 U.S. 603, 611, 80 S. Ct. 1367, 1372 (1960).
Comments