‘‘(1) IN
GENERAL.—The portion of any dis-
tribution from an individual security account under 
section 253 of the Social Security Act which is at-
tributable to amounts contributed to such account 
under section 3101(a)(2) (other than subparagraph 
(C) thereof) and section 1401(a)(2) (other than sub-
paragraph (C) thereof), together with earnings 
thereon, shall be includible in gross income as a so-
cial security benefit for purposes of section 86. 
‘‘(2) VOLUNTARY
CONTRIBUTIONS.—The por-
tion of any distribution from an individual security 
account under section 253 of the Social Security Act 
which is attributable to amounts contributed to such 
account 
under 
section 
3101(a)(2)(C), 
section 
1401(a)(2)(C), and section 6402(l), together with 
earnings thereon, shall not be includible in gross in-
come. 
‘‘(3) PERIOD IN WHICH DISTRIBUTIONS MUST 
BE MADE FROM ACCOUNT OF DECEDENT.—In the 
case of amounts remaining in an individual security 
account from which distributions began before the 
death of the beneficiary, rules similar to the rules of 
section 401(a)(9)(B) shall apply to distributions of 
such remaining amounts.
‘‘(4) ROLLOVERS.—Paragraph (1) shall not 
apply to amounts rolled over under subsection (c)(2) 
in a direct transfer by the Commissioner of Social 
Security, under regulations which the Commissioner 
shall prescribe. 
‘‘(f) ACCOUNT BENEFICIARY.—For purposes of this 
section, the account beneficiary is the individual for whose 
benefit the individual security account is established.’’. 
(2) CLERICAL
AMENDMENT.—The table of 
parts for subchapter F of chapter 1 of the Internal 
Revenue Code of 1986 is amended by adding after 
the item relating to part VIII the following new 
item:
‘‘PART IX. INDIVIDUAL SECURITY SYSTEM’’.
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to taxable years begin-
ning after December 31, 2005. 
SEC. 3. MINIMUM SOCIAL SECURITY BENEFIT. 
Section 215 of the Social Security Act (42 U.S.C. 
415) is amended by adding at the end the following: 
‘‘Minimum Monthly Insurance Benefit 
‘‘(j)(1) Notwithstanding the preceding provisions of 
this section—
‘‘(A) the primary insurance amount of a quali-
fied individual shall be equal to the greater of—
‘‘(i) the primary insurance amount deter-
mined under this section (without regard to this 
subsection), or 
‘‘(ii) 1⁄12 of the applicable percentage of 
the applicable amount, and 
rounded, if not a multiple of $0.10, to the next lower 
multiple of $0.10, and thereafter increased as pro-
vided in subsection (i), and 
‘‘(B) any recomputation of the primary insur-
ance amount of a qualified individual shall not result 
in a primary insurance amount less than the pri-
mary insurance amount as in effect immediately 
prior to such recomputation. 
‘‘(2) For purposes of this subsection—
‘‘(A) The term ‘qualified individual’ means an 
individual—
‘‘(i) who initially becomes eligible for old-
age or disability insurance benefits, or dies (be-
fore becoming eligible for such benefits) for a 
month beginning after December 31, 2009, and 
‘‘(ii) who, in the case of any such indi-
vidual other than an individual eligible for old-
age insurance benefits, has quarters of coverage 
greater in number than the number of such in-
dividual’s elapsed years (as defined in sub-
section (a)(1)(C)(ii)). 
‘‘(B) The term ‘applicable amount’ means, in 
connection with an individual—
‘‘(i) in any case in which the year of such 
individual’s initial eligibility is prior to 2014, 
$8,825, adjusted annually, for each year after 
2003 and before the earlier of—
‘‘(I) the year of the individual’s initial 
eligibility, or 
‘‘(II) 2014, 
by the CPI increase percentage determined 
under section 215(i) for such year, or 
‘‘(ii) in any case in which the year of such 
individual’s initial eligibility is after 2013, the 
dollar amount determined under clause (i) for 
2013, multiplied by the percentage (rounded to 
the nearest one-tenth of 1 percent) by which 
the national average wage index (as defined in 
section 209(k)(1)) for the second year prior to 
the year of such individual’s initial eligibility ex-
ceeds such index for 2011. 
‘‘(C)(i) In the case of a qualified individual de-
scribed in subparagraph (A)(i), the term ‘applicable 
percentage’ means the sum of—
‘‘(I) the product derived by multi-
plying 2.0 percent by the number of such 
individual’s quarters of coverage in excess 
of 40, to the extent that the number of 
such quarters of coverage does not exceed 
80, and 
‘‘(II) the product derived by multi-
plying 0.5 percent by the number of such 
individual’s quarters of coverage, to the ex-
tent that the number of such quarters of 
coverage is in excess of 80 but does not ex-
ceed 160. 
‘‘(ii) In the case of a qualified individual de-
scribed in subparagraph (A)(ii), the term ‘applicable 
percentage’ means the sum of—
‘‘(I) the product derived by multiplying the 
higher pro-rated percentage increment by the 
number of such individual’s quarters of cov-
erage, to the extent that the number of such 
quarters of coverage exceeds the number of 
such individual’s elapsed years (as defined in 
subsection (a)(10(C)(ii)) but does not exceed 
twice the number of such elapsed years, and 
‘‘(II) the product derived by multiplying 
the lower pro-rated percentage increment by the
number of such individual’s quarters of cov-
erage, to the extent that the number of such 
quarters of coverage exceeds twice the number 
of such elapsed years but does not exceed 4 
times the number of such elapsed years. 
‘‘(iii) For purposes of clause (ii)—
‘‘(I) the higher pro-rated percentage incre-
ment, in connection with the qualified indi-
vidual, is the quotient obtained by dividing 80 
percent by the number of the individual’s 
elapsed years, and 
‘‘(II) the lower pro-rated percentage incre-
ment, in connection with the qualified indi-
vidual, is the quotient obtained by dividing 40 
percent by twice the number of the individual’s 
elapsed years, 
each of which is rounded, if a multiple of 0.05 per-
cent and not of 0.10 percent, to the next higher mul-
tiple of 0.10 percent, and in any other case to the 
next higher multiple of 0.10 percent. 
‘‘(3) In the case of a qualified individual who becomes 
eligible for old-age or disability insurance benefits, or who 
dies (before becoming eligible to such benefits) in a year 
prior to 2014, in lieu of the amount otherwise determined 
under paragraph (1)(A)(ii), the amount provided under
paragraph (1)(A)(ii) shall be deemed to be equal to the 
the product derived by multiplying such amount otherwise 
determined by the percentage set forth in the following 
table in connection with such year, rounded, if not a mul-
tiple of $0.10, to the next lower multiple of $0.10.
The applicable 
‘‘If the year is: 
percentage is: 
2010 ...................................................................................................
2011 ...................................................................................................
2012 ...................................................................................................
2013 ...................................................................................................
80.’’.
SEC. 4. REDUCTION IN THE AMOUNT OF CERTAIN TRANS-
FERS TO MEDICARE TRUST FUND. 
Subparagraph (A) of section 121(e)(1) of the Social 
Security Amendments of 1983 (42 U.S.C. 401 note), as 
amended by section 13215(c)(1) of the Omnibus Budget 
Reconciliation Act of 1993, is amended—
(1) in clause (ii), by striking ‘‘the amounts’’ 
and inserting ‘‘the applicable percentage of the 
amounts’’; and 
(2) by adding at the end the following: ‘‘For 
purposes of clause (ii), the applicable percentage for 
a year is equal to 100 percent, reduced (but not 
below zero) by 10 percentage points for each year 
after 2010.’’.
SEC. 
5. 
REVISED 
FORMULA 
FOR 
AVERAGE 
INDEXED 
MONTHLY EARNINGS. 
(a) IN GENERAL.—So much of subsection (b) of sec-
tion 215 of the Social Security Act (42 U.S.C. 415) as 
precedes paragraph (3) is amended to read as follows: 
‘‘Average Indexed Monthly Earnings; Average Monthly 
Wage 
‘‘(b)(1)(A) In the case of an individual who is entitled 
to old-age insurance benefits (except as provided in para-
graph (2)(C)), or who has died (before becoming eligible 
for such benefits or disability insurance benefits), such in-
dividual’s average indexed monthly earnings shall be equal 
to the quotient obtained by dividing—
‘‘(i) the total (after adjustment under 
paragraph (3)) of his wages paid in and self-
employment income credited to his computation 
base years (determined under subparagraph 
(C)(i)), by 
‘‘(ii) the product derived by multiplying—
‘‘(I) the number of such individual’s 
elapsed years (determined under subpara-
graph (C)(ii)), by 
‘‘(II) 12. 
‘‘(B)(i) For purposes of clause (i) of subparagraph 
(A), in the case of an individual who becomes eligible for 
old-age insurance benefits, or dies (before becoming eligi-
ble for such benefits or disability insurance benefits), in 
any calendar year after 2004 and before 2013, if the num-
ber of such individual’s computation base years exceed in 
number the maximum number for such calendar year, 
those computation base years referred to in such clause 
shall consist only of those computation base years, equal 
in number to such maximum number, for which the total 
of such individual’s wages and self-employment income, 
after adjustment under paragraph (3), is the largest. For 
purposes of this clause, the maximum number for a cal-
endar year is the maximum number set forth in connection 
with such calendar year in the following table:
The maximum 
‘‘If the calendar year is: 
number of years is: 
2005 or 2006 .....................................................................................
2007 or 2008 .....................................................................................
2009 or 2010 .....................................................................................
2011 or 2012 .....................................................................................
43.
‘‘(ii) For purposes of subclause (I) of subparagraph 
(A)(ii), in the case of an individual who becomes eligible 
for old-age insurance benefits, or dies (before becoming 
eligible for such benefits or disability insurance benefits), 
in any calendar year after 2004, if the number of such 
individual’s elapsed years exceed in number the maximum 
number for such calendar year, the number of elapsed 
years referred to in such subclause shall be deemed equal 
to such maximum number. For purposes of this clause, 
the maximum number for a calendar year is the maximum
number set forth in connection with such calendar year 
in the following table:
The maximum 
‘‘If the calendar year is: 
number of years is: 
2005 or 2006 .....................................................................................
2007 or 2008 .....................................................................................
2009 or 2010 .....................................................................................
2011 or 2012 .....................................................................................
after 2012 ..........................................................................................
40.
‘‘(C) For purposes of this subsection with respect to 
any individual—
‘‘(i) the term ‘computation base year’ means 
any calendar year after 1950 and before—
‘‘(I) in the case of an individual entitled to 
old-age insurance benefits or disability insur-
ance benefits, the year in which occurred 
(whether by reason of section 202(j)(1) or oth-
erwise) the first month of that entitlement, or 
‘‘(II) in the case of an individual who has 
died (without having become entitled to old-age 
insurance benefits), the year succeeding the 
year of his death, 
except that such term excludes any calendar year en-
tirely included in a period of disability, and 
‘‘(ii) the term ‘elapsed year’ means (except as 
otherwise provided by section 104(j)(2) of the Social 
Security Amendments of 1972) a calendar year—
‘‘(I) after 1950 (or, if later, the year in 
which the individual attained age 21), and
‘‘(II) before the year in which the indi-
vidual died, or, if it occurred earlier (but after 
1960), the year in which he attained age 62; 
except that such term excludes any calendar year 
any part of which is included in a period of dis-
ability. 
‘‘(2)(A) In the case of an individual who is entitled 
to disability insurance benefits, such individual’s average 
indexed monthly earnings shall be equal to the quotient 
obtained by dividing—
‘‘(i) the total (after adjustment under para-
graph (3)) of his wages paid in, and self-employment 
income credited to, those of his computation base 
years 
(determined 
under 
paragraph 
(1)(C)(i)) 
which—
‘‘(I) are elapsed years (determined under 
paragraph (1)(C)(ii)), 
‘‘(II) occurred prior to his current period 
of disability, and 
‘‘(III) are equal in number to the reduced 
number determined under subparagraph (B), 
for which the total of such individual’s wages and 
self-employment income, after adjustment under 
paragraph (3), is the largest, by 
‘‘(ii) the product derived by multiplying—
‘‘(I) the number of the individual’s elapsed 
years, by 
‘‘(II) 12. 
‘‘(B) The reduced number of an individual’s elapsed 
years, determined under this subparagraph for purposes 
of subparagraph (A)(i)(III), is the number of such elapsed 
years, reduced by the number of years equal to one-fifth 
of such number of elapsed years (disregarding any result-
ing fractional part of a year), but not by more than 5 
years. 
‘‘(C)(i) This paragraph, once applicable with respect 
to any individual, shall continue to apply for purposes of 
determining such individual’s primary insurance amount 
for purposes of any subsequent eligibility for disability or 
old-age insurance benefits, unless, prior to the month in 
which such eligibility begins, there occurs a period of at 
least 12 consecutive months for which he was not entitled 
to a disability or an old-age insurance benefit. 
‘‘(ii) If an individual to which this paragraph applies 
is living with a child (of such individual or his or her 
spouse) under the age of 3 in any calendar year which 
is included in such individual’s elapsed years, but which 
is not disregarded pursuant to subparagraphs (A)(i) and 
(B) by reason of the reduction in the number of such indi-
vidual’s elapsed years under subparagraph (B), the num-
ber by which the number of such elapsed years is reduced 
under subparagraph (B) shall be increased by one (up to 
a combined total not exceeding 3) for each such calendar 
year, except that—
‘‘(I) no calendar year shall be disregarded by 
reason of this clause (in determining elapsed years 
to be taken into account under subparagraph (A)(i)) 
unless the individual was living with such child sub-
stantially throughout the period in which the child 
was alive and under the age of 3 in such year and 
the individual had no earnings as described in sec-
tion 203(f)(5) in such year, 
‘‘(II) the particular calendar years to be dis-
regarded under this clause (in determining such 
elapsed years) shall be those years (not otherwise 
disregarded under subparagraph (B)) which, before 
the application of section 215(f), meet the conditions 
of subclause (I), and 
‘‘(III) this clause shall apply only to the extent 
that its application would not result in a lower pri-
mary insurance amount. 
‘‘(D) The reduction in the number of elapsed years 
taken into account under subparagraph (A)(i) resulting 
from the application of subparagraphs (B) and (C) shall
not in any case reduce the number of elapsed years taken 
into account under subparagraph (A)(i) to less than 2.’’. 
(b) 
CONFORMING
AMENDMENT.—Section 
215(b)(3)(A) of such Act (42 U.S.C. 415(b)(3)(A)) is 
amended by striking ‘‘for purposes of the selection there-
from of benefit computation years under paragraph (2)’’ 
and inserting ‘‘for purposes of paragraphs (1)(B)(i) and 
(2)(A)(i)’’. 
(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply with respect to individuals ini-
tially becoming eligible for old-age or disability insurance 
benefits, or dying (before becoming eligible for such bene-
fits), in any calendar year after 2008. For purposes of 
this subsection, and individual shall be deemed eligible for 
a benefit for a month if, upon filing application therefor 
in such month, such individual would be entitled to such 
benefit for such month. 
SEC. 6. ACTUARIAL ADJUSTMENT FOR RETIREMENT. 
(a) EARLY RETIREMENT.—
(1) IN GENERAL.—Section 202(q) of the Social 
Security Act (42 U.S.C. 402(q)) is amended—
(A) in paragraph (1)(A), by striking ‘‘5⁄9’’ 
and inserting ‘‘the applicable old-age benefit 
fraction 
(determined 
under 
paragraph 
(12)(A))’’, and by striking ‘‘25⁄36’’ and inserting
‘‘the applicable spousal benefit fraction (deter-
mined under paragraph (12)(B))’’; and 
(B) by adding at the end the following: 
‘‘(12) For purposes of paragraph (1)(A)—
‘‘(A) the ‘applicable old-age benefit fraction’ for 
an individual who attains the age of 62 in—
‘‘(i) any year before 2006, is 5⁄9; 
‘‘(ii) 2006, is 7⁄12; 
‘‘(iii) 2007, is 11⁄18; 
‘‘(iv) 2008, is 23⁄36; 
‘‘(v) 2009, is 2⁄3; and 
‘‘(vi) 2010 or any succeeding year, is 25⁄36; 
and 
‘‘(B) the ‘applicable spousal benefit fraction’ for 
an individual who becomes eligible for wife’s or hus-
band’s insurance benefits in—
‘‘(i) any year before 2006, is 25⁄36; 
‘‘(ii) 2006, is 35⁄48; 
‘‘(iii) 2007, is 55⁄72; 
‘‘(iv) 2008, is 115⁄144; 
‘‘(v) 2009, is 5⁄6; and 
‘‘(vi) 2010 or any succeeding year, is 
125⁄144.’’.
(2) MONTHS BEYOND FIRST 36 MONTHS.—Sec-
tion 202(q) of such Act (42 U.S.C. 402(q)(9)) (as 
amended by paragraph (1)) is amended—
(A) in paragraph (9)(A), by striking ‘‘five-
twelfths’’ and inserting ‘‘the applicable fraction 
(determined under paragraph (13))’’; and 
(B) by adding at the end the following: 
‘‘(13) For purposes of paragraph (9)(A), the ‘applica-
ble fraction’ for an individual who becomes eligible for old-
age, wife’s, or husband’s insurance benefits in—
‘‘(A) any year before 2006, is 5⁄12; 
‘‘(B) 2006, is 16⁄36; 
‘‘(C) 2007, is 16⁄36; 
‘‘(D) 2008, is 17⁄36; 
‘‘(E) 2009, is 17⁄36; and 
‘‘(F) 2010 or any succeeding year, is 1⁄2.’’. 
(3) ELIGIBILITY.—Section 202(q) of such Act 
(as amended by the preceding provisions of this sub-
section) is amended further by adding at the end the 
following new paragraph: 
‘‘(14) For purposes of this subsection, an individual 
shall be deemed eligible for a benefit for a month if, upon 
filing application therefor in such month, such individual 
would be entitled to such benefit for such month.’’.
(4) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to individuals who, in 
connection with old-age, wife’s, and husband’s insur-
ance benefits under title II of the Social Security 
Act, become eligible for such benefits (within the 
meaning of section 202(q)(14) of such Act (as 
amended by this subsection) in years after 2005. 
(b) DELAYED RETIREMENT.—Section 202(w)(6) of 
the Social Security Act (42 U.S.C. 402(w)(6)) is amend-
ed—
(1) in subparagraph (C), by striking ‘‘and’’ at 
the end; 
(2) in subparagraph (D), by striking ‘‘2004.’’ 
and inserting ‘‘2004 and before 2009;’’; and 
(3) by adding at the end the following: 
‘‘(E) 17⁄24 of 1 percent in the case of an indi-
vidual who attains the age of 62 in a calendar year 
after 2008 and before 2011; 
‘‘(F) 3⁄4 of 1 percent in the case of an indi-
vidual who attains the age of 62 in a calendar year 
after 2010 and before 2013; 
‘‘(G) 19⁄24 of 1 percent in the case of an indi-
vidual who attains the age of 62 in a calendar year 
after 2012 and before 2015; and
‘‘(H) 5⁄6 of 1 percent in the case of an indi-
vidual who attains the age of 62 in a calendar year 
after 2014.’’. 
SEC. 7. CORRECTIONS FOR CPI OVERSTATEMENT IN COST-
OF-LIVING INDEXATION. 
(a) MODIFICATIONS
TO
COST-OF-LIVING
INDEX-
ATION OF SOCIAL SECURITY BENEFITS.—
(1) IN GENERAL.—Section 215(i)(1)(D) of the 
Social Security Act (42 U.S.C. 415(i)(1)(D)) is 
amended to read as follows: 
‘‘(D) the term ‘CPI increase percentage’, with 
respect to a base quarter or cost-of-living computa-
tion quarter in any calendar year, means the per-
centage (rounded to the nearest one-tenth of 1 per-
cent) by which the Chained Consumer Price Index 
for All Urban Consumers (published by the Bureau 
of Labor Statistics of the Department of Labor) for 
the such base quarter or cost-of-living computation 
quarter exceeds such index for the later of—
‘‘(i) the most recent calendar quarter 
(prior to such base quarter or cost-of-living 
computation quarter) which was a base quarter 
under subparagraph (A)(ii), or 
‘‘(ii) the most recent cost-of-living com-
putation quarter under subparagraph (B);’’.
(2) DEFINITIONS.—Section 215(i)(1)(G) of 
such Act (42 U.S.C. 415(i)(1)(G)) is amended to 
read as follows: 
‘‘(G) the Chained Consumer Price Index for All 
Urban Consumers for a base quarter, a cost-of-living 
computation quarter, or any other calendar quarter 
shall be the arithmetical mean of such index (pub-
lished by the Bureau of Labor Statistics of the De-
partment of Labor as of the end of such quarter) for 
the 3 months in such quarter.’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply with respect to in-
creases under section 215(i) of the Social Security 
Act effective with the month of December of years 
after 2004. 
(b) CONSUMER PRICE INDEX ADJUSTMENTS APPLI-
CABLE
TO
THE
INTERNAL
REVENUE
CODE
PROVI-
SIONS.—
(1) IN
GENERAL.—Paragraph (3) of section 
1(f) of the Internal Revenue Code of 1986 (defining 
Consumer Price Index) is amended to read as fol-
lows: 
‘‘(3) COST-OF-LIVING ADJUSTMENT.—