Social Security helps tens of millions of Americans, but the U.S. isn't the only country in the world with a system to provide similar benefits to workers. Dozens of countries around the world offer the same sort of coverage that Social Security does. With the workplace growing increasingly global, there's a greater amount of migration between different countries, and it's important to coordinate benefits to ensure fair and equitable treatment for workers who spend all or part of their careers in different jurisdictions.
For years, the federal government has worked with foreign nations toward the goal of establishing agreements that allow their respective programs to support those with ties to more than one country. Despite rising tensions about nationalism and immigration policy, the Trump administration announced earlier this week that it would continue that effort, adding another country to the list of bilateral agreements that the U.S. has established over the past 40 years.
Uruguay joins the group
President Trump sent a message to Congress last week that transmitted a Social Security Totalization Agreement with the South American nation of Uruguay. Those agreements had been signed in Uruguay in early January 2017, just days before the president took office.
According to the transmission message, the agreement with Uruguay closely resembles similar totalization agreements that the U.S. has entered into with a host of other partners. Within South America, the U.S. has such agreements only with Chile, but more than two dozen other countries have had bilateral agreements that in the case of Italy date back to 1978.
Why bilateral agreements are important
Social Security totalization agreements are intended to achieve two valuable policy objectives. During a worker's career, these agreements seek to eliminate any potential for double taxation. Without such rules, a worker from another country who works within the U.S. might be forced not only to pay Social Security payroll taxes but also further taxes to the worker's home nation.
Later, when it comes time for Social Security and similar programs to provide benefits to workers, the agreements will ensure that there aren't any gaps in coverage that stem from a person's having worked in both countries over the course of a career. For example, Social Security in the U.S. typically requires that a worker obtain 40 work credits over the course of 10 years or more of qualifying work before being eligible to receive retirement benefits. If that same rule applied in a worker's home country, then someone who worked nine years in the U.S. and nine years in the other country might well not qualify for benefits in either under regular rules, even with a total of 18 years of qualifying coverage.
How totalization agreements fix potential problems
Totalization agreements ensure that such cases are handled fairly. For instance, with respect to work coverage, an agreement will typically count work in a foreign treaty country for purposes of determining eligibility and complying with the 40-credit rule. Conversely, the foreign country can also choose under the agreement to honor the work that someone has done in the U.S. toward their eligibility.
In general, Social Security uses a territoriality rule in determining coverage. Under the basic rule, Social Security will apply to those working in the U.S., while the coverage laws of the foreign country will apply to those who work there. That determination is made irrespective of citizenship -- again as long as the foreign country has an agreement with the U.S. that so provides. Exceptions apply in most countries to those sent on temporary assignment for periods of five years or less.
A system that works well -- for those in the in-crowd
Social Security totalization agreements aren't particularly controversial, and the reason why is simple: They tend to make situations clearer for residents of all countries involved in them. Yet to date, the vast majority of agreements are with nations in Europe, with only Canada, South Korea, Australia, and Japan having joined the two South American nations beyond Europe's borders.
The lack of agreements with Mexico as well as nations in Africa, Central America, the Caribbean, and large stretches of Asia could pose unnecessary obstacles to workers seeking to be part of the labor markets of multiple countries. As globalization takes further hold, finding ways to reach similar agreements will be a crucial part of building trust and a healthy flow of labor across the globe. A failure to reach accords over time could add even more complexity to the immigration debate.