Unprecedented Growth in Social Security's "Earnings Suspense File"
By Mary Johnson, Social Security and Medicare Policy Analyst
Summary
A huge inconsistency between U.S. immigration law and Social Security threatens to undermine the income security of millions of U.S. senior citizens and the disabled. In 2004 Congress passed legislation requiring immigrants to have work authorization at the time a Social Security number is assigned or at some later time, in order to become entitled under Social Security.(1) Therefore, immigrants who obtain authorization to work in this country may eventually claim benefits based on all earnings.
Despite tightening the law, Congress did not fix a policy loophole that would be inadvertently triggered with the passage of comprehensive immigration reform legislation. When determining entitlement for insured status, and when calculating the initial retirement benefit, the Social Security Administration (SSA) uses all reported earnings from covered employment in the United States, even if the earnings were from illegal or "unauthorized" work. (2)
This policy benefits immigrants who have broken U.S. immigration and employment laws and have worked using a stolen or fraudulent Social Security number. In addition, this policy flaw raises questions as to whether Social Security eligibility acts as an incentive for more illegal immigration in the future.
Although immigration law forbids work without authorization, immigrants do find jobs, and the majority of employers report their earnings to SSA. Each year SSA receives hundreds of millions of W-2s. When the name and Social Security number (SSN) do not match SSA's records, the W-2 is held in the Earnings Suspense File (ESF). Recent data indicates that in recent years the ESF is growing at an unprecedented pace and the cumulative wages represented is now $585 billion. These wages can later be reinstated to valid Social Security numbers when immigrants gain work authorization. Because earnings are used to determine both the number of quarters of coverage worked for insured status, and the initial retirement benefit, this poses a substantial liability to the Social Security Trust Fund and would worsen its solvency.
It's widely anticipated that benefits will be cut, perhaps significantly, for retirees at some point in the relatively near future, and that significantly higher taxes will be needed. In addition, this inconsistency between Social Security and immigration law suggests that newly work-authorized immigrants may benefit in the future, at least to some extent, at the expense of native-born U.S. workers and retirees who paid into the system legally over their entire working careers.
"Guest Worker" Immigration Reform Would Give Access to Social Security
Congress is considering comprehensive immigration reform that would provide work authorization and with it, valid Social Security numbers, to an estimated 12 million immigrants working in this country illegally.(3) In 2004 Congress passed the Social Security Protection Act (P.L. 108-203) requiring immigrants to have work authorization at the time a SSN is assigned or at some later time, in order to become entitled under Social Security. (4)
Despite tightening the law, Congress did not fix a policy loophole that would be inadvertently triggered with the passage of comprehensive immigration reform legislation. When determining entitlement for insured status (10 years), and in calculating the initial retirement benefit amount, the Social Security Administration uses all reported earnings from covered employment in the United States, even if the earnings were from illegal or "unauthorized" work.
Although immigration law forbids work without authorization, immigrants do find jobs and employers report their earnings to SSA. Currently there are no official published data on the amount of money paid into the Social Security system by aliens whether legal or illegal.(5) Social Security’s Chief Actuary, Stephen C. Goss, however, has been quoted in the news media as saying that about three quarters of “other–than–legal” immigrants pay payroll taxes.(6)
False and invalid Social Security numbers SSNs are supplied to employers virtually without any serious or immediate consequence. Illegal immigrants work using numbers belonging to another person, numbers that have been made up, by using "non-work" SSNs. Employers report the wages using these numbers or in some cases where no number exists, file the reports using a series of zeros in the SSN box (000-00-000).(7) In addition, immigrants who are in the U.S. illegally may work under one or more aliases. The unauthorized wages earned and reported under invalid SSNs represent a rapidly growing future benefit liability should Congress enact immigration reform that gives work authorization to immigrants working in this country illegally today.
The Potential Cost to Social Security Trust Fund Is Growing At An Unprecedented Pace
To date, no government agency has released any complete estimate of the potential cost of illegal earnings to the Social Security Trust Fund. The best indication of the potential cost is contained in the Social Security Administration's "earnings suspense file" (ESF).
Each year SSA receives hundreds of millions of employer reported W2s. When Social Security receives a name or SSN on a W-2 that does not match SSA's records, the wage report goes into the ESF while the SSA attempts to reconcile the discrepancy. In recent years the file has been growing at an unprecedented pace—the fastest since the inception of Social Security in 1937.
Earnings reports with incorrect or incomplete information have been a long–standing problem. They can be caused by something as simple as a transposed Social Security number, or a name change when a woman gets married or divorced. Accurate earnings are critical in order to calculate benefits for workers and their dependents. The most recent data indicates there has been a significant jump in both the number of these mismatched reports and the value of wages. SSA Inspector General Patrick P. O'Carroll stated in testimony before Congress that "we believe the chief cause of wage items being posted to the [earnings suspense file] instead of an individual's earnings record is unauthorized work by noncitizens."(8)
During the most recent years for which data are available (2000-2004), the total number of mismatched wage reports jumped from 217 million at the end of 1999 to 264 million by 2004, an average of more than 9.3 million per year—82% higher than during the 1990's and more than double the rate of the 1980's.
Wages in the ESF since the end of 1999 grew by $283.20 billion to $585 billion, nearly doubling from $301.8 billion. In other words, it took 63 years to accumulate $301.8 billion in wages in the ESF. In the five most recent years, the amount of wages rose by 93%. This growth is illustrated in the charts in Tables 1, 2 and 3, which follow.
Fraudulent Use of Social Security Numbers Is Not Penalized
Mismatched earnings reports remain in the ESF until SSA obtains evidence to link the unidentified earnings to a valid SSN — a process termed "earnings reinstatement."(14) When SSA encounters reports that don't match its records, SSA goes through an involved, and time-consuming attempt to make a match. Reinstatements can occur any time, even years later.
Immigration reform that provides work authorization, and a pending Social Security Totalization Agreement with Mexico, could mean that a very substantial amount of earnings in the ESF file would be reinstated in the future. Because earnings are used to determine both the number of quarters of coverage worked for insured status, and is used to calculate the initial benefit, this poses a substantial liability to the Social Security Trust Fund worsening its solvency.
Once non-citizen workers obtain a valid SSN, they can provide SSA with evidence of earnings reports from unauthorized employment prior to receiving their SSN. Their earnings will be reinstated under their valid SSN. In addition when a person files for benefits, a SSA employee reviews the earnings record with the worker and assists to establish any earnings that are not shown or are not correctly posted.
The entire process is done at the taxpayer's expense. Non-citizens who worked under fraudulent or invalid Social Security numbers, are not penalized. This occurs even though the use of a non-valid fraudulent SSN is in violation of 1988 identity theft laws. The 1988 law made it a federal crime when a person "knowingly transfers or uses, without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable State or local law." (15)
Minimal Workplace Enforcement—A Contributing Factor
In 2005 the Government Accountability Office (GAO) released a report documenting the growth of the ESF saying a number of factors contribute to the earnings reports, particularly minimal work site immigration enforcement(16) efforts. The GAO also reported that the percentage of foreign-born persons receiving reinstatements has grown dramatically over time from about 8% in 1986 to nearly 21% in 2003. The country of birth of foreign-born receiving the greatest number reinstatements is Mexico.
The extent of probable illegal work related to such reinstatements has also been growing. "With more recent work years and earnings, the percentage of reinstatements to foreign-born persons with work activity prior to SSN issuance is significantly higher—an average of about 32% of such reinstatement occurring between 1986-2003. Further, in some years, these reinstatements for potentially unauthorized work have been in excess of 50% of all reinstatements to foreign-born recipients," the GAO said.(17)
These trends are likely to continue a rapid climb in years to come. The first jump in the ESF coincided with the big increase in illegal immigration of 1970's. When Congress overhauled immigration laws in 1986, amnesty was offered to immigrants who could prove they were longtime, law-abiding residents. About 3.1 million were legalized, twice as many as the government expected. Because the law had no provisions for any new workers to enter, illegal immigration continued.(8)
High Cost of Illegal Work for Social Security Trust Fund
By 2012, in just five years, the first wave of those former illegal immigrants who came to the U.S. in the 1970's at age 20, and became legal permanent residents in 1986, will turn 62 and old enough to file claims for Social Security. As immigrants draw close to retirement age they are more likely to check their Social Security records and request reinstatement of any unauthorized earnings for which they have evidence. This comes during the same period that Baby Boomers start retiring, and assets of the Social Security Trust Fund begin to decline.
The potential cost in benefits based on illegal work is substantial. Failure to address this inconsistency of law could result in newly legalized immigrants receiving benefits for earnings received while breaking U.S. laws, at the same time U.S. workers and senior citizens who paid into the system legally over their entire careers receive benefit cuts and higher taxes.
Conclusion
Congress should end this inconsistency between immigration law and Social Security by modifying current laws. Legislation should prohibit the crediting of unauthorized earnings for the purposes of benefit entitlement and the calculation of retirement benefits.
(1) Statement of the Honorable Patrick P. O’Carroll, Inspector General, Social
(2 )Security Administration Before the Subcommittee on Social Security of the House Committee on Ways and Means, March 02, 2006
(3) Cost Estimate of S. 2611, Congressional Budget Office, August 18, 2006, page 5.
(4)“Social Security Benefits For Noncitizens,” Congressional Research Service, July 20, 2006, RL32004.
(5)“Social Security Benefits for Noncitizens: Current Policy and Legislation,” Congressional Research Service, July 20, 2006, RL32004.
(6)“Illegal Immigrants Are Bolstering Social Security With Billions,” Eduardo Porter, The New York Times, April 5, 2005.
(7) Immigrants may be lawfully in the country, but not authorized to work. “Non-work” Social Security numbers are prominently marked “NOT VALID FOR WORK PURPOSES.”
(8) Statement of the Honorable Patrick P. O’Carroll, Inspector General, Social Security Administration Before the Subcommittee on Oversight of the House Committee on Ways and Means, February 16, 2006.
(9) Social Security Administration Benefits Related to Unauthorized Work, James G. Huse, Jr., Inspector General, Social Security Administration, March 2003, A-03-03-23053.
(10) “IRS Needs to Consider Options For Revision Regulations to Increase the Accuracy of Social Security Numbers on Wage Statements,” Government Accountability Office, August 2004, GAO-04-712, page6.
(11) “Better Coordination Among Federal Agencies Could Reduce Unidentified Earnings Reports,” Government Accountability Office, February 2005, GAO 05-154, page 1.
(12) “Social Security Benefits for Noncitizens: Current Policy and Legislation,” Congressional Research Service, July 20, 2006, RL32004.
(13) “Information About the Earnings Suspense File,” email from Mark Hinkle, Social Security Administration, March 9, 2007.
(14) “Better Coordination Among Federal Agencies Could Reduce Unidentified Earnings Reports,” GAO, February 20005, GAO-05-154, page 1.
(15) P.L. 105-318, 18 U.S.C. Section 1028(a)(7).
(16) “Better Coordination Among Federal Agencies Could Reduce Unidentified Earnings Reports,” GAO, February 20005, GAO-05-154, page 27 and 28.
(17) Ibid. page 20 and 21.
(18) “Debate Persists on Worker Amnesty,” June Kronholz, The Wall Street Journal, December 16, 2005.
March 2007
