United States General Accounting Office 

GAO Report to Congressional Requesters 

September 2003 SOCIAL SECURITY 

Proposed Totalization 

Agreement with 

Mexico Presents 

Unique Challenges 

GAO-03-993 

Highlights of GAO-03-993, a report to 

congressional requesters 

Totalization agreements foster 

international commerce, protect 

benefits for persons who have 

worked in foreign countries, and 

eliminate dual social security taxes 

that employers and their employees 

pay when they operate and reside 

in countries with parallel social 

security systems. Because 

Mexicans are believed to represent 

a large share of the millions of 

unauthorized workers present in 

the United States, a totalization 

agreement with Mexico has raised 

concerns that they would become 

newly eligible for social security 

benefits. To shed light on the 

possible impacts, you asked GAO 

to (1) describe the Social Security 

Administration’s (SSA) processes 

for developing the agreement with 

Mexico, (2) explain how the 

agreement might affect the 

payment of benefits to Mexican 

citizens, and (3) assess the cost 

estimate for such an agreement. 

GAO recommends that SSA (1) 

establish a formal process to 

identify and assess risks of 

proposed agreements, (2) make 

future reports to the Congress on 

these agreements more consistent 

and informative, and (3) work with 

the Office of the Chief Actuary to 

improve the cost estimates for 

agreements. SSA disagreed that 

additional processes were needed 

to assess risks, but it agreed that 

cost estimates should be more 

consistent and that it should 

regularly re-examine the accuracy 

of its estimates. 

www.gao.gov/cgi-bin/getrpt?GAO-03-993. 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Barbara D. 

Bovbjerg, (202) 512-7215, 

bovbjergb@gao.gov. 

September 2003 

SOCIAL SECURITY 

Proposed Totalization Agreement with 

Mexico Presents Unique Challenges 

SSA has no written policies or procedures it follows when entering into 

totalization agreements, and the actions it took to assess the integrity and 

compatibility of Mexico’s social security system were limited and neither 

transparent nor well-documented. SSA followed the same procedures for the 

proposed Mexican agreement that it used in all prior agreements. SSA 

officials told GAO that they briefly toured Mexican facilities, observed how 

its automated systems functioned, and identified the type of data maintained 

on Mexican workers. However, SSA provided no information showing that it 

assessed the reliability of Mexican earnings data and the internal controls 

used to ensure the integrity of information that SSA will rely on to pay social 

security benefits. 

The proposed agreement will likely increase the number of unauthorized 

Mexican workers and family members eligible for social security benefits. 

Mexican workers who ordinarily could not receive social security retirement 

benefits because they lack the required 40 coverage credits for U.S. earnings 

could qualify for partial social security benefits with as few as 6 coverage 

credits. In addition, under the proposed agreement, more family members of 

covered Mexican workers would become newly entitled because the 

agreements usually waive rules that prevent payments to noncitizens’ 

dependents and survivors living outside the United States. 

The cost of such an agreement is highly uncertain. In March 2003, the Office 

of the Chief Actuary estimated that the cost of the Mexican agreement would 

be $78 million in the first year and would grow to $650 million (in constant 

2002 dollars) in 2050. The actuarial cost estimate assumes the initial number 

of newly eligible Mexican beneficiaries is equivalent to the 50,000 

beneficiaries living in Mexico today and would grow sixfold over time. 

However, this proxy figure does not directly consider the estimated millions 

of current and former unauthorized workers and family members from 

Mexico and appears small in comparison with those estimates. The estimate 

also inherently assumes that the behavior of Mexican citizens would not 

change and does not recognize that an agreement would create an additional 

incentive for unauthorized workers to enter the United States to work and 

maintain documentation to claim their earnings under a false identity. 

Although the actuarial estimate indicates that the agreement would not 

generate a measurable long-term impact on the actuarial balance of the trust 

funds, a subsequent sensitivity analysis performed at GAO’s request shows 

that a measurable impact would occur with an increase of more than 25 

percent in the estimate of initial, new beneficiaries. For prior agreements, 

error rates associated with estimating the expected number of new 

beneficiaries have frequently exceeded 25 percent, even in cases where 

uncertainties about the number of unauthorized workers were less 

prevalent. Because of the significant number of unauthorized Mexican 

workers in the United States, the estimated cost of the proposed totalization 

agreement is even more uncertain than in prior agreements. 
Contents 


Letter 

Results in Brief 


Background


SSA’s Process for Developing Agreements Is Not Thorough or Well-


Documented 

Totalization Agreements Will Increase Benefit Payments to 

Mexican Citizens 

Poor Data Undermine the Reliability of SSA’s Cost Estimate 

Conclusions 

Recommendations 

Agency Comments and Our Evaluation 

1 

2 

3 

6 

7 

9 

14 

15 

16 

Appendix I 	 Comparison of Totalized and Minimum Social 

Security Benefits 

Appendix II Comments from the Social Security Administration 

Tables 

Table 1: Existing Totalization Agreements between the United 

States and Other Countries and Year of Effective Date of 

the Original Agreements 5 

Table 2: Precision of OCACT’s Cost Estimates for 11 Prior 

Totalization Agreements 14 

Table 3: Monthly Social Security Benefits Payable in 2003 at 

Different Earnings and Coverage Levels under a 

Totalization Agreement and Compared to the Minimum 

Benefit Payable 20 

Page i GAO-03-993 Social Security 

20 

21 
Abbreviations 

INS Immigration and Naturalization Service 


NAFTA North American Free Trade Agreement 


OCACT Office of the Chief Actuary 


SSA Social Security Administration 


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Page ii GAO-03-993 Social Security 
United States General Accounting Office 

Washington, DC 20548 

September 30, 2003 


The Honorable F. James Sensenbrenner, Jr. 


Chairman 


Committee on the Judiciary 


House of Representatives 


The Honorable E. Clay Shaw, Jr. 


Chairman 


Subcommittee on Social Security 


Committee on Ways and Means 


House of Representatives 


Totalization agreements foster international commerce and protect 


benefits for persons who have worked in foreign countries in two ways. 


First, the agreements eliminate dual social security taxes that


multinational employers and their employees must pay when they operate


and reside in countries with parallel social security programs. Second, the 


agreements help to fill gaps in benefit protection for persons who have 


worked in different countries for portions of their careers. Since 1977, the 


United States has entered into 20 totalization agreements. 


Over the last year, the United States has been negotiating a totalization 


agreement with Mexico that has received considerable attention among 


the media and others regarding its potential impacts. Because Mexicans 


represent a large share of the millions of unauthorized workers present in 


the United States, a totalization agreement with Mexico has raised 


concerns that many such workers would become newly eligible for social


security benefits at a time when long-term trust fund solvency is 


threatened. To shed light on the possible impacts of such an agreement, 


you asked us to (1) describe the Social Security Administration’s (SSA) 


processes for developing the proposed agreement with Mexico, (2) explain 


how the agreement might affect the payment of social security benefits to


Mexican citizens, and (3) assess SSA’s cost estimates for such an 


agreement. 


To address these objectives, we reviewed existing totalization agreements


and the laws governing them; interviewed and obtained key 


documentation from SSA, Department of State, and Mexican Embassy 


personnel; and reviewed a range of demographic data and estimates 


addressing Mexican immigration. We also examined SSA’s actuarial cost 


Page 1 GAO-03-993 Social Security 
Results in Brief 

estimates and supporting documentation for the proposed Mexican 

agreement. We conducted our work between January and August 2003, in 

accordance with generally accepted government auditing standards. 

SSA has no written policies or procedures outlining the specific steps it 

follows when entering into totalization agreements, and the actions it took 

to assess the integrity and compatibility of Mexico’s social security system 

were limited and neither transparent nor well-documented. SSA said the 

process it used to develop the proposed totalization agreement with 

Mexico was the same as for prior totalization agreements. SSA officials 

told us that they briefly toured Mexican facilities, observed how their 

automated systems functioned, and identified the type of data maintained 

on Mexican workers. However, SSA provided no information showing that 

it assessed the reliability of Mexican earnings data and the internal 

controls Mexico uses to ensure the integrity of information that SSA will 

rely on to pay social security benefits. 

The proposed agreement will increase the number of Mexican workers 

and family members eligible for social security benefits. Mexican workers 

who ordinarily could not receive benefits because they lack the required 

40 coverage credits for U.S. earnings could qualify for partial Social 

Security benefits with as few as 6 coverage credits. In addition, under the 

proposed agreement, more family members of covered Mexican workers 

would also become newly entitled because of the waiver of rules that 

prevent payment to noncitizens’ dependents and survivors living outside 

the United States. 

The cost of a totalization agreement with Mexico is highly uncertain. In 

March 2003, the Office of the Chief Actuary (OCACT) estimated that the 

cost of the Mexican agreement would be $78 million in the first year of the 

agreement and would grow to $650 million (in constant 2002 dollars) in 

2050. SSA’s actuarial cost estimate assumes the initial number of newly 

eligible Mexican beneficiaries is equivalent to the 50,000 beneficiaries 

living in Mexico today and would grow sixfold over time. However, this 

proxy figure does not directly consider the estimated millions of current 

and former unauthorized workers and family members from Mexico and 

appears small in comparison with those estimates. Although the actuarial 

estimate indicates that the agreement would not generate a measurable 

impact on the long-range actuarial balance of the trust funds, an increase 

of more than 25 percent in the estimate of initial, new beneficiaries would 

generate a measurable impact. For prior agreements, error rates 

associated with estimating the expected number of new beneficiaries have 

Page 2 GAO-03-993 Social Security 
frequently exceeded 25 percent, even in cases where uncertainties about 

the number of unauthorized workers were less prevalent. Because of the 

significant number of unauthorized Mexican workers in the United States, 

the estimated cost of the proposed totalization agreement is even more 

uncertain than for the prior agreements. 

This report recommends that SSA establish formal processes for entering 

into totalization agreements that include mechanisms to assess the risks 

associated with such agreements and to document the range of analyses 

SSA conducts. The report also recommends that reports of proposed 

agreements be enhanced to make them more consistent and informative 

and that SSA establish a regular process to reassess the accuracy of its 

actuarial estimates. SSA and the OCACT commented on this report. SSA 

said that the report did not sufficiently discuss the benefits of totalization 

agreements and that its current process for evaluating whether to enter 

into negotiations for totalization agreements was sufficient to identify and 

assess risks. Our report specifically notes that such agreements foster 

international commerce, protect benefits for persons who have worked in 

foreign countries, eliminate dual social security taxes, and foster enhanced 

diplomatic relations. With regard to SSA’s current processes, we could 

find no specific references to SSA examining data reliability and program 

integrity. We are hopeful that SSA will conduct such examinations of the 

Mexican Social Security system before submitting a proposed agreement 

to the Congress for its review. OCACT generally agreed with our 

recommendations and noted that they are consistent with current 

practices. OCACT, however, took exception to the implication of our 

statement that its estimated cost was more likely to be understated than 

overstated. Our intent was not to imply that the OCACT estimate was 

biased. Accordingly, we have revised our report to state the very large 

difference between estimated and potential beneficiaries underscores the 

uncertainty of the estimate, and the potential costs of an agreement could 

be higher than OCACT projects. The full text of SSA’s and OCACT’s 

comments appears in appendix II. The State Department was also 

provided a copy of the draft report for review and advised us that it had no 

comments. 

Background 	 SSA administers the Old Age, Survivors, and Disability Insurance programs 

under Title II of the Social Security Act. About 96 percent of the nation’s 

work force is in social security-covered employment and pays tax on its 

Page 3 GAO-03-993 Social Security 
annual earnings. When workers pay social security taxes, they earn 

coverage credits, and 40 credits—equal to at least 10 years of work— 

entitle them to social security benefits when they reach retirement age.1 

In 1977, the Congress authorized the President to enter into totalization 

agreements with other countries. These bilateral agreements are intended 

to accomplish three purposes. First, they eliminate dual social security 

coverage and taxes that multinational employers and employees 

encounter when they operate and their workers temporarily reside and 

work for the corporation, usually no more than 5 years, in a foreign 

country with its own social security program. Under the agreements, U.S. 

employers and their workers sent temporarily abroad would benefit by 

paying only U.S. social security taxes, and foreign businesses and their 

workers would benefit by paying only social security taxes to their home 

country. Second, the agreements provide benefit protection to workers 

who have divided their careers between the United States and a foreign 

country, but lack enough coverage under either social security system to 

qualify for benefits, despite paying taxes into both systems. Totalization 

agreements allow such workers to combine (totalize) work credits earned 

in both countries to meet minimum benefit qualification requirements. 

Third, most totalization agreements improve the portability of social 

security benefits by removing rules that suspend benefits to noncitizens 

who live outside the benefit-paying country. 

By law, proposed agreements are sent to the Congress, which has 60 

legislative days to review them. The agreements become effective unless 

either House of the Congress adopts a resolution of disapproval. Table 1 

shows agreements in effect and the years they became effective. 

1

Different requirements govern the number of coverage credits necessary to receive 

disability and survivors benefits for workers who become disabled or die with relatively 

short work careers. 

Page 4 GAO-03-993 Social Security 
Table 1: Existing Totalization Agreements between the United States and Other 

Countries and Year of Effective Date of the Original Agreements 

Countries Year 

Italy 1978 

Germany 1979 

Switzerland 1980 

Belgium 1984 

Norway 1984 

Canada 1984 

United Kingdom 1985 

Sweden 1987 

Spain 1988 

France 1988 

Portugal 1989 

Netherlands 1990 

Austria 1991 

Finland 1992 

Ireland 1993 

Luxembourg 1993 

Greece 1994 

South Korea 2001 

Chile 2001 

Australia 2002 

Source: SSA. 

To qualify for totalized U.S. social security benefits, a worker must have at 

least 6 but no more than 39 U.S. coverage credits. Benefit amounts are 

based on the portion of time a foreign citizen worked in the United States, 

and thus, are almost always lower than full social security benefits. The 

average monthly, totalized social security benefit at the end of 2001 was 

$162, compared with the average nontotalized monthly social security 

benefit of $825. In 2001, SSA paid about $173 million under totalization 

agreements to about 89,000 persons, including their dependents. 

(Appendix I compares the amount of U.S. totalized benefits for different 

coverage credits and earnings levels with a minimum benefit that would be 

paid to a worker with 40 credits.) 

Under U.S. law, immigrants may not work in the United States unless 

specifically authorized. Nevertheless, immigrants often do work without 

authorization and pay social security taxes. Under the Social Security Act, 

Page 5 GAO-03-993 Social Security 
SSA’s Process for 

Developing 

Agreements Is Not 

Thorough or WellDocumented 

all earnings from covered employment in the United States count towards 

earning social security benefits, regardless of the lawful presence of the 

worker, his or her citizenship status, or country of residence. Immigrants 

become entitled to benefits from unauthorized work if they can prove that 

the earnings and related contributions belong to them. However, they 

cannot collect such benefits unless they are either legally present in the 

United States or living in a country where SSA is authorized to pay them 

their benefits. Mexico is such a country. 

A lack of transparency in SSA’s processes, and the limited nature of its 

review of Mexico’s program, cause us to question the extent to which SSA 

will be positioned to respond to potential program risks should a 

totalization agreement with Mexico take place. SSA officials told us that 

the process used to develop the proposed totalization agreement with 

Mexico was the same as for prior agreements with other countries. The 

process—which is not specified by law or outlined in written policies and 

procedures—is informal, and the steps SSA takes when entering into 

agreements are neither transparent nor well-documented. 

Current law does not prescribe how SSA should select potential 

agreement countries. According to SSA, interest in a Mexican agreement 

dates back more than 20 years. SSA officials noted that increased business 

interaction between the two countries due to the North American Free 

Trade Agreement (NAFTA) was a factor in the renewed negotiations. In 

addition, because there is a totalization agreement with Canada, our other 

NAFTA partner, SSA believed that equity concerns required consideration 

of an agreement with Mexico. In February 2002, SSA sought clearance 

from the Department of State to begin such negotiations. 

The law also does not specify which elements of other countries’ social 

security systems must be evaluated during totalization agreement 

negotiations. SSA officials met with Mexican officials to exchange 

narrative information on their respective programs. Senior SSA officials 

also visited Mexico for 2 days in August 2002. During their visit, these 

officials told us that they toured social security facilities, observed how 

Mexico’s automated social security systems functioned, and identified the 

type of data maintained on Mexican workers. SSA took no technical staff 

on this visit to assess system controls or data integrity processes. In effect, 

SSA only briefly observed the operations of the Mexican social security 

program. Moreover, SSA did not document its efforts or perform any 

additional analyses then, or at a later time, to assess the integrity of 

Mexico’s social security data and the controls over that data. In particular, 

Page 6 GAO-03-993 Social Security 
SSA officials provided no evidence that they examined key elements of 

Mexico’ s program, such as its controls over the posting of earnings and its 

processes for obtaining key birth and death information for Mexican 

citizens. Nor did SSA evaluate how access to Mexican data and records is 

controlled and monitored to prevent unauthorized use or whether internal 

and external audit functions exist to evaluate operations. 

Because all totalization agreements represent a financial commitment with 

implications for social security tax revenues and benefit outlays, a 

reasonable level of due diligence and analysis is necessary to help federal 

managers identify issues that could affect benefit payment accuracy or 

expose the nation’s system to undue risk. Our Internal Control 

Management and Evaluation Tool provides a risk assessment framework 

to help federal managers mitigate fraud, waste, abuse, and 

mismanagement in public programs, such as social security. A key 

component of this framework is the identification of internal and external 

risks that could impede the achievement of objectives at both the entity 

and program levels. Identified risks should then be analyzed for their 

potential effect and an approach devised to mitigate them. 

SSA did not conduct these types of analyses in previous agreements or in 

the case of the proposed Mexican agreement, despite documented 

concerns among Mexican government officials and others regarding the 

integrity of Mexico’s records, such as those for birth, death, and marriage, 

as well as its controls over assigning unique identification numbers to 

workers for benefit purposes. Such information will likely play a role in 

SSA’s ability to accurately determine Mexican workers’ initial and 

continuing eligibility for benefits under a totalization agreement. 

A totalization agreement with Mexico will increase the number of Mexican 

citizens who will be paid U.S. social security benefits in two ways. First, 

the agreement will make it easier for Mexican workers to qualify for 

benefits. Second, it will remove some nonpayment restrictions that affect 

benefit payments to non-U.S. citizens’ family members residing in another 

country, thus providing U.S. social security benefits to more survivors and 

dependents of entitled Mexican workers. 

Under current law, a worker must earn sufficient coverage credits to 

qualify for benefits under the U.S. Social Security program. For example, a 

worker who was born in 1929 or later generally needs 40 coverage credits 

to be insured for retirement benefits. Credits are based on a worker’s 

annual earnings in social security-covered employment. At most, 4 credits 

can be earned per year so that it takes at least 10 years of covered earnings 

Totalization 

Agreements Will 

Increase Benefit 

Payments to Mexican 

Citizens 

Page 7 GAO-03-993 Social Security 
in the United States for a worker to accumulate the necessary 40 credits 

and become insured for retirement benefits. 

Currently, social security credits are earned by anyone who has worked in 

covered employment in the United States. This is true even if the person 

was unauthorized to work when he or she earned coverage credits. For 

example, noncitizens, including Mexicans, who are at least 62 years old 

and lawfully present in the United States, will receive retirement benefits 

today as long as they meet the coverage credit threshold. Even Mexican 

citizens who are not lawfully present in this country can receive social 

security benefits earned through unauthorized employment if they later 

return to live in Mexico. Similarly, under current law, noncitizen 

dependents and survivors can also receive social security benefits under 

some circumstances. 

Totalization agreements generally expand benefits to both authorized and 

unauthorized workers and create new groups of beneficiaries. This would 

be the case for a totalization agreement with Mexico if it follows the same 

pattern as all prior totalization agreements. Mexican citizens with fewer 

than 40 coverage credits will be permitted to combine their annual 

earnings under their home country’s social security program with their 

annual earnings under the U.S. Social Security program to meet the 40-

credit requirement.2

 In addition, more family members of covered workers 

will qualify for dependent and survivor benefits. Totalization agreements 

generally override Social Security Act provisions that prohibit benefit 

payments to noncitizens’ dependents and survivors who reside outside the 

United States for more than 6 months, unless they can prove that they 

lived in the United States for 5 years in a close family relationship with the 

covered worker. If a totalization agreement with Mexico is structured like 

others already in force, the 5-year rule for dependents and survivors will 

be waived. 

However, it is important to understand that not all unauthorized Mexican 

citizens who have worked in the United States will receive totalization 

benefits. Some will have earned at least 40 coverage credits and can 

receive social security benefits without a totalization agreement. Still 

others may have worked under false identities and may not be able to 

2

Under an agreement, U.S. citizens will also be able to receive totalized Mexican benefits. 

The amount of time needed to qualify for Mexican social security benefits is about 9.6 years 

under the former pay-as-you-go plan that closed in July 1997 and 24 years under the defined 

contribution plan that replaced it. 

Page 8 GAO-03-993 Social Security 
Poor Data Undermine 

the Reliability of SSA’s 

Cost Estimate 

prove that they have the necessary coverage credits to be entitled to 

benefits. Others still may not accumulate sufficient credits under the 

Mexican social security system to totalize with their U.S. social security 

coverage. 

The cost of a totalization agreement with Mexico is highly uncertain. In 

March 2003, the Office of the Chief Actuary estimated that the cost of the 

Mexican agreement would be $78 million in the first year and would grow 

$650 million (in constant 2002 dollars) in 2050. SSA’s actuarial cost 

estimate assumes the initial number of newly eligible Mexican 

beneficiaries was equivalent to the 50,000 beneficiaries living in Mexico 

today and would grow sixfold over time. However, this proxy figure is not 

directly related to the estimated millions of current and former 

unauthorized workers and their family members from Mexico and appears 

small in comparison to those estimates. Furthermore, even if the baseline 

estimate is used, a sensitivity analysis performed by OCACT shows that an 

increase of more than 25 percent—or 13,000 new beneficiaries—would 

produce a measurable impact on the long-range actuarial balance of the 

trust funds. Our review of cost estimates for prior totalization agreements 

shows that the actual number of beneficiaries has frequently been 

underestimated and far exceeded the original actuarial estimates. 

Actuarial Estimates Are 

Based on Varied Data 

Sources 

OCACT develops estimates of expected costs of totalization agreements 

by analyzing pertinent data from prior agreements, work visas issued, 

foreign corporations operating in the United States, and U.S. Census data. 

Because of extensive unauthorized immigration from Mexico, OCACT 

concluded that U.S. Census data, that would typically be used to estimate 

the number of new beneficiaries under an agreement, were not reliable. 

Instead, OCACT used the number of fully insured beneficiaries—U.S. 

citizens and others living in Mexico—currently receiving U.S. social 

security benefits as a proxy for the number of Mexican citizens who would 

initially receive totalized benefits. The principal basis for this assumption 

was a 1997 study of Mexican immigration patterns conducted by a private 

nonprofit organization.3

 This study indicated that the percentage of 

Mexican immigrants who returned to Mexico after more than 10 years and, 

3

Belinda I. Reyes, Dynamics of Immigration: Return Migration to Western Mexico, Public 

Policy Institute of California, January 1997. 

Page 9 GAO-03-993 Social Security 
therefore, could qualify for benefits is roughly equal to the percentage that 

returned after staying 2 to 9 years and would not have the required credits. 

Thus, OCACT assumed that the potential totalized initial new beneficiaries 

would be equivalent to the 50,000 persons currently receiving benefits in 

Mexico. 

For the proposed Mexican agreement, both a short-term (covering the first 

8 years of the agreement) and a long-term (covering 75 years) cost 

estimate were developed.

4

 The estimated cost to the Social Security Trust 

Funds would be about $78 million in the first year of the agreement. For 

the long-term cost estimate, OCACT projected that the number of 

beneficiaries would ultimately increase sixfold to 300,000 over a 45-year 

period after the agreement took effect and equal about $650 million (in 

constant 2002 dollars) in 2050. However, the actuarial analysis notes that 

the methodology was indirect and involved considerable uncertainty. 

As a rough check on the reasonableness of using current beneficiaries in 

Mexico for its cost estimate, OCACT analyzed totalized beneficiary data 

for Canadian citizens because Canada, like Mexico, is a NAFTA trading 

partner and shares a large contiguous border. After determining the ratio 

of Canadians receiving totalized versus fully insured benefits, OCACT 

applied this ratio to the number of Mexican-born U.S. social security 

beneficiaries and found that about 37,000 beneficiaries would be expected 

under the agreement initially, if the Canadian experience proves predictive 

of the Mexican outcome. According to OCACT, this comparison increased 

its confidence that the assumed 50,000 new beneficiaries under the 

agreement was within a reasonable range. 

Estimated Cost of Mexican Limited data about unauthorized workers make any estimate of the 

Agreement Is Highly expected costs of a Mexican totalization agreement highly uncertain. A 

Uncertain significant variable of any totalization agreement cost estimate is the 

identification of the number of potential beneficiaries. Estimates of the 

number of unauthorized Mexican immigrants living in the United States 

4

For prior agreements with other countries, the OCACT developed only short-term 

estimates covering periods ranging from 1 to 5 years because it was determined that the 

number of expected beneficiaries were too few to have a measurable cost impact on the 

long-range actuarial balance of the trust funds. 

Page 10 GAO-03-993 Social Security 
vary5

 The federal government’s estimate was published in January 2003 

and comes from the former Immigration and Naturalization Service (INS)

6 

INS estimated that, as of January 2000, about 5 million, or 69 percent of all 

unauthorized immigrants in the United States, were from Mexico. INS’s 

estimate also indicated that this figure was expected to increase by about 

240,000 persons annually. 

The INS estimate, however, does not include unauthorized Mexican 

workers and family members who no longer live in the United States and 

could also conceivably benefit from a totalization agreement. Economic 

disparity between the United States and Mexico has fostered longstanding 

immigration from Mexico to the United States dating back many decades. 

Various studies also show that fewer than a third of Mexican immigrants 

stay more than 10 years in the United States, the minimum amount of time 

needed to qualify for social security retirement benefits.7

 For cost analysis 

purposes, little is known about the population of former immigrants who 

have returned to Mexico in terms of their age, work history, dependents, 

and social security coverage. These factors increase the inherent 

uncertainty of any long-range forecasts with regard to Mexico. It is under 

this backdrop that OCACT set about developing an estimate of the costs of 

the potential totalization agreement. 

We have several concerns about OCACT’s estimate of the number of 

expected beneficiaries and cost of an agreement with Mexico. First, the 

use of the 50,000 fully insured beneficiaries receiving benefits in Mexico as 

a proxy for individuals who might initially benefit from an agreement, does 

not directly consider the estimated millions of unauthorized Mexican 

immigrants in the United States and Mexico who are not fully insured and 

might receive totalized benefits. Furthermore, despite the availability of 

key data about earnings, work histories, years of employment, and 

dependents for the 50,000 fully insured beneficiaries, OCACT did not 

analyze this population to determine whether they represented a good 

5

For example, the Pew Hispanic Center estimated that there are between 3.4 and 5.7 million 

unauthorized Mexican citizens in the United States and the Urban Institute has estimated 

that there are more than 4 million. 

6

In March 2003, INS functions were transferred to the Department of Homeland Security. 

Responsibility for deriving these estimates now lies with the Under Secretary Management, 

Office of Immigration Statistics. 

7

Reyes (1997), p. 13 lists several studies that document the temporary and circular nature 

of Mexican migration to the United States. 

Page 11 GAO-03-993 Social Security 
proxy for individuals likely to qualify for totalized benefits. The cost 

estimate also inherently assumes that the behavior of Mexican citizens 

would not change after a totalization agreement goes into effect. Under 

totalization, unauthorized workers would have an additional incentive to 

enter the United States to work and to maintain the appropriate 

documentation necessary to claim their earnings under a false identity. 

Thus, a large number of Mexican citizens have likely earned some social 

security coverage credits through both authorized and unauthorized work 

to meet the 40-credit threshold requirement and are not directly accounted 

for in SSA’s estimate. 

Second, SSA’s reasonableness check using Canadian data faces similar 

questions. While Mexico and Canada are NAFTA partners and share a 

common border with the United States, there is a dramatic difference in 

the extent of unauthorized immigration from these two countries and, in 

our view, the Canadian experience is not a good predictor of experience 

under an agreement with Mexico. Recent INS data show that Mexican 

citizens account for about 69 percent of unauthorized U.S. immigrants, 

whereas Canadian citizens account for less than 1 percent, and all other 

totalization agreement countries combined account for less than 3 percent. 

It is this population of unauthorized immigrants that makes estimating the 

cost of a totalization agreement with Mexico particularly problematic. 

Finally, even though SSA’s actuarial analysis increases the number of 

beneficiaries sixfold over time, the expected 300,000 beneficiaries in 2050 

represents only about 6 percent of the estimated number of unauthorized 

Mexicans in the United States today, and thus appears relatively low. 

Although it would be unreasonable to expect all unauthorized Mexicans in 

the United States to qualify for totalized benefits, the very large difference 

between estimated and potential beneficiaries underscores the uncertainty 

of the estimate and the potential costs of an agreement could be higher 

than OCACT projects. 

Indeed, it would take only a relatively small increase in new beneficiaries 

from the original actuarial assumption of 50,000 initial new beneficiaries to 

have a measurable impact on the long-range actuarial balance of the trust 

funds. OCACT has estimated that the agreement would not generate a 

measurable impact on the long-range actuarial balance. However, a 

subsequent sensitivity analysis performed at our request shows that a 

measurable impact on the long-range actuarial balance of the trust funds 

will occur if the baseline figure is underestimated by more than 

25 percent—just 13,000 additional beneficiaries above the estimated 

50,000 new beneficiaries. 

Page 12 GAO-03-993 Social Security 
Our analysis of past actuarial estimates of expected beneficiaries under 

totalization agreements shows that exceeding the 25 percent threshold has 

not been unusual, even in agreements where uncertainty about the number 

of unauthorized workers is substantially less.8 Our review of prior 

estimates shows that OCACT frequently either overestimated or 

underestimated the number of expected beneficiaries, usually by more 

than 25 percent (see table 2). In fact, where underestimates occurred, the 

differences were huge, involving several orders of magnitude. However, it 

is important to note that the number of estimated beneficiaries for prior 

agreements is substantially smaller than for the proposed Mexican 

agreement. Therefore, the differences in actual beneficiaries from 

estimated beneficiaries have a higher proportional impact. Furthermore, 

OCACT has not underestimated the number of expected beneficiaries for 

the agreements we analyzed since the 1991 agreement with Austria. 

Nevertheless, the numerous uncertainties and data gaps associated with 

the Mexican agreement elevate the risks associated with any cost 

estimate. 

8

OCACT staff told us that it would be best to look at precision of past estimates by 

comparing the estimated number of beneficiaries for the last year of the estimate with 

actual data for that same year. We were able to make this comparison for 11 countries. 

Page 13 GAO-03-993 Social Security 
Table 2: Precision of OCACT’s Cost Estimates for 11 Prior Totalization Agreements 

Beneficiaries 

Country 

Effective year 

of agreement Estimated Actual 

Percent actual 

beneficiaries is 

greater/(less) than 

estimated 

beneficiaries 

United Kingdom 1985 3,500 2,084 (40) 

Sweden 1987 100 211 

Spain 1988 300 377 

France 1988 200 968 

Portugal 1989 100 701 

Netherlands 1990 100 310 

Austria 1991 100 314 

Finland 1992 100 38 (62) 

Luxembourg 1993 40 12 (70) 

Ireland 1993 1,100 515 (53) 

Greece 1994 1,000 918 (8) 

Conclusions 

Source: GAO analysis. 

Note: Actual data were not available for years prior to 1987 so comparisons for six earlier agreements 

could not be made. Also, comparison could not be made for the three recent agreements. 

Totalization agreements between the United States and other countries 

often foster enhanced diplomatic relations and provide mutually beneficial 

business, tax, and other incentives to employers and employees affected 

by these agreements. At the same time, the agreements impose a financial 

cost to both countries’ social security programs. SSA’s processes for 

entering into these agreements have been informal and have not included 

specific steps to assess and mitigate potential risks. Regardless of the 

country under consideration, sound management practices dictate that 

SSA managers have a risk management process in place to ensure that the 

interests of the United States and the Social Security Trust Funds are 

protected. 

Most totalization agreements have been with countries that are 

geographically distant to the United States, have developed economies, 

and represent only a fraction of the estimated unauthorized immigrants in 

the United States. Still, all agreements include some level of uncertainty 

and require due diligence on SSA’s part to alleviate those uncertainties. An 

agreement with Mexico, however, presents unique and difficult challenges 

for SSA because so little is known about the size, work history, earnings, 

Page 14 GAO-03-993 Social Security 

111 

26 

384 

601 

210 

214 
and dependents of the unauthorized Mexican population. Furthermore, a 

common border and economic disparity between the United States and 

Mexico have fostered significant and longstanding unauthorized 

immigration into the United States, making an agreement with Mexico 

potentially far more costly than any other. Thus, for the Mexican 

agreement, additional analyses to assess risks and costs may be called for. 

A revised approach for entering into totalization agreements with all 

countries would enhance the quality of information provided to the 

Congress, which is tasked with reviewing these vital long-term 

commitments. A more thorough prospective analysis will also provide a 

better basis for determining whether agreements under consideration 

meet the mutual economic and business needs of all parties. Finally, 

current solvency issues require the Congress to think carefully about 

future trust fund commitments resulting from totalization agreements. 

Having more timely and complete information on the benefits, costs, and 

risks associated with each agreement can only serve to better inform their 

decisions. 

Recommendations 
 In light of the potential impact of totalization agreements on the Social 

Security Trust Funds, we recommend that the Commissioner of Social 

Security 

• 	 establish a formal process to identify and assess the major risks associated 

with entering into agreements with other countries. Such a process should 

include mechanisms to assess the integrity of a country’s retirement data 

and records, as well as a means for documenting the range of analyses 

conducted by SSA; 

• 	 enhance future reports to the Congress for proposed totalization 

agreements with other countries by making them more consistent and 

informative. Such reports should include consistent time periods for 

estimating both the short- and long-term effects on the trust fund and, as 

appropriate, include data on how alternative assumptions or sensitivity 

analyses could affect costs and potential beneficiaries; and 

• 	 work with the Office of the Chief Actuary to establish a regular process 

that examines original projected costs and beneficiaries affected versus 

what actually transpired over time and use this information, as 

appropriate, to adjust future estimating methods for totalization 

agreements. 

Page 15 GAO-03-993 Social Security 
Agency Comments 


and Our Evaluation 


We obtained written comments on a draft of this report from the 

Commissioner of SSA, as well as OCACT. The full texts of these comments 

are reproduced in appendix II. We made limited changes to the report as 

appropriate. The State Department was also provided a copy of the draft 

report for review and advised us that it had no comments. 

SSA said that the report did not sufficiently discuss the benefits of 

totalization agreements to U.S. workers and employers and disagreed with 

our recommendation that the agency establish a formal process to identify 

and assess the major risks associated with entering into agreements with 

other countries. The agency noted that its current informal process for 

evaluating whether to enter into negotiations for totalization agreements 

was sufficient to identify and assess risks. 

Regarding the potential benefits of totalization agreements, our report 

specifically notes that such agreements foster international commerce, 

protect benefits for persons who have worked in foreign countries, and 

eliminate dual social security taxes for multinational employers and 

employees. Our concluding remarks also note that totalization agreements 

often foster enhanced diplomatic relations between participating 

countries. However, these agreements also have costs to the U.S. social 

security system, and we continue to believe that SSA should take steps to 

assess and mitigate risk during the negotiation process rather than after an 

agreement is signed. 

SSA also noted that it has specific criteria it follows when deciding 

whether to enter into totalization agreements with other countries and that 

the agency received detailed information on Mexico’s social security 

system during its 2-day visit to Mexico City. In reviewing SSA’s criteria, we 

could find no specific reference to data reliability and program integrity as 

a factor in negotiations. Further, our review of the activities surrounding 

SSA’s visit to Mexico and the limited documentation SSA received from 

Mexican social security officials shows that data integrity issues and 

systems controls were not sufficiently examined. In its comments, SSA 

notes that it is currently in the process of scheduling additional visits to 

Mexican facilities outside of Mexico City and will utilize SSA technical 

staff to further examine Mexico’s social security system. We are hopeful 

that—prior to submitting a proposed agreement with Mexico—SSA will 

take additional steps to assess key data it will rely on to determine 

Mexican worker’s initial and continuing eligibility for U.S. totalized 

benefits and that it will sufficiently document its efforts. Enhancing its due 

diligence efforts and formalizing this process to include all future 

totalization agreements would further improve SSA’s risk assessment 

efforts. 

Page 16 GAO-03-993 Social Security 
OCACT generally agreed with our recommendations that cost estimates 

for future totalization agreements should be more consistent and 

informative and that such agreements should be regularly analyzed to 

examine the differences between original projections and actual 

experience as an aid to making better estimates. OCACT noted that, 

consistent with the U.S./Mexican totalization agreement, all future 

potential agreements would include both long-range (75 year) and shortrange (10 year) cost projections. OCACT also noted that regularly 

examining the differences between original projections and actual 

experience for future totalization agreements made sense and was 

consistent with current practice. Although we could find no evidence 

during our review that such analyses had occurred on a systematic basis, 

we are pleased to hear that such analyses are now being done and are 

hopeful that OCACT will both complete them in the future and document 

and make available the results. 

Both SSA and OCACT disagreed with our analysis and conclusions 

regarding the estimates of the potential cost of a totalization agreement 

with Mexico, as well as our statement that any difference between 

estimated and actual costs will be on the high side. OCACT noted that, 

given the relative uncertainty of the data, this outcome is possible, but that 

our statement inaccurately implied that there was evidence that OCACT 

estimates are more likely to be understated than overstated. OCACT went 

on to note that a number of factors suggest that OCACT’s estimate of 

50,000 new beneficiaries, which will increase sixfold to 300,000 by 2050, 

could indeed be too high. 

Our intent was not to imply that OCACT’s estimate was biased. Thus, we 

have revised our report to state that, given the large disparity between the 

estimated beneficiaries and the large number of undocumented Mexican 

workers, the potential cost of an agreement could be higher than OCACT 

projects. However, we continue to believe that a totalization agreement 

with Mexico is both qualitatively and quantitatively different than any 

other agreement signed to date, especially regarding estimating the 

potential impact of millions of unauthorized workers and their families. 

Thus, in assessing the risks of a totalization agreement with Mexico, we 

believe it is important to discuss the potentially significant impact that any 

underestimate of beneficiaries could have on the Social Security Trust 

Funds. As table 2 shows, error rates associated with SSA’s estimates of 

potential beneficiaries under prior agreements have often been 

substantial, even in cases where uncertainties about the number of 

unauthorized workers were less prevalent. OCACT’s comment that “taken 

as a whole” its estimate of initial beneficiaries differs from actual initial 

beneficiaries by only 3 percent is misleading because it nets overestimates 

Page 17 GAO-03-993 Social Security 
against underestimates. OCACT prepares estimates of initial beneficiaries 

for each proposed agreement with an individual country. Thus, any 

comparison of estimated to actual initial beneficiaries should be on a 

country-by-country basis, rather than by aggregating the error rates for all 

agreements. 

Finally, in response to our concern that the OCACT’s original baseline 

estimate of 50,000 first-year totalization beneficiaries did not directly 

consider millions of current and former unauthorized Mexican workers, 

OCACT said that this estimate was based on the best available data. 

OCACT’s comments also included excerpted text from the original 

estimate in order to illustrate the analyses and assumptions that supported 

using the 50,000 individuals already receiving Old-Age, Survivors, and 

Disability Insurance benefits in Mexico as a proxy for potential totalization 

beneficiaries. We acknowledge the data limitations facing OCACT as well 

as its good faith effort to reasonably estimate the costs of a totalization 

agreement with Mexico. However, based on our audit work—which 

involved a thorough review of the full text of the actuarial estimate, 

numerous in-depth interviews with OCACT officials to discuss issues of 

concern, and regular consultation with our own Chief Actuary—it seems 

reasonable to examine all sources of data and address the estimates of 

unauthorized Mexican immigrants directly to provide a more complete 

picture of possible outcomes from an agreement with Mexico. We 

continue to believe that, given the magnitude of the proposed Mexican 

agreement relative to other totalization agreements, it is not unreasonable 

to expect that OCACT should develop and use a variety of approaches to 

estimate potential costs and perhaps develop a range of cost estimates 

based on those data sources and alternative assumptions. Such efforts 

would better serve the information needs of the Congress in the event that 

an agreement is ultimately submitted for its review. 

We are sending copies of this report to the House and Senate committees 

with oversight responsibilities for the Social Security Administration. We 

will also make copies available to other interested parties upon request. In 

addition, the report will be available at no charge on GAO’s Web site at 

http://www.gao.gov. If you or your offices have any questions concerning 

this report, please call me or Daniel Bertoni, Assistant Director, on 

Page 18 GAO-03-993 Social Security 
(202) 512-7215. Other major contributors to this report are Patrick 

Dibattista, Gerard Grant, Daniel Schwimer, William Staab, and Paul 

Wright. 

Barbara D. Bovbjerg 

Director, Education, Workforce, 

and Income Security Issues 

Page 19 GAO-03-993 Social Security 
Appendix I: Comparison of Totalized and 

Minimum Social Security Benefits 

Table 3: Monthly Social Security Benefits Payable in 2003 at Different Earnings and 

Coverage Levels under a Totalization Agreement and Compared to the Minimum 

Benefit Payable 

Monthly totalized social security 

retirement benefit for the credits 

earned 

Monthly social 

security benefit 

Social security earnings with 40 credits 

levela 8 credits 20 credits 36 credits earned 

Low earnings $39.00 $99.00 $178.00 $296.00 

Average earnings $65.00 $163.00 $294.00 $561.00 

High earnings $85.00 $212.00 $382.00 $702.00 

Maximum earnings $94.00 $237.00 $427.00 $899.00 

Source: Office of International Programs, SSA. 

a

A low earnings level equals 45 percent below the national average wages for each year. An average 

earnings level equals the national average wages for each year. A high earnings level equals 60 

percent above the national average wages for each year. A maximum earnings level equals the 

maximum taxable amount of covered earnings for each year. 

Page 20 GAO-03-993 Social Secur 
Appendix II: Comments from the Social 

Security Administration 

Page 21 GAO-03-993 Social Security 
Appendix II: Comments from the Social Security 

Administration 

Page 22 GAO-03-993 Social Security 
Appendix II: Comments from the Social Security 

Administration 

Page 23 GAO-03-993 Social Security 
Appendix II: Comments from the Social Security 

Administration 

Page 24 GAO-03-993 Social Security 
Appendix II: Comments from the Social Security 

Administration 

Page 25 GAO-03-993 Social Security 
Appendix II: Comments from the Social Security 

Administration 

Page 26 GAO-03-993 Social Security 
Appendix II: Comments from the Social Security 

Administration 

Page 27 GAO-03-993 Social Security 
Appendix II: Comments from the Social Security 

Administration 

Page 28 GAO-03-993 Social Security 
Appendix II: Comments from the Social Security 

Administration 

Page 29 GAO-03-993 Social Security 
Appendix II: Comments from the Social Security 

Administration 

(130233) Page 30 GAO-03-993 Social Security 
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