By Owen Jollie
The lack of a social security totalization agreement has long been near the top of India’s relatively short list of economic grievances with the United States. When President Obama visited India in January 2015, he and Prime Minister Modi issued a highly detailed joint statement. The eleventh point in the statement concerned the issue of totalization—it read: “The two sides agreed to hold a discussion on the elements required in both countries to pursue an India-U.S. Totalisation Agreement.” While this agreement is a minor breakthrough, the obstacles to reaching a totalization agreement remain high. Technical barriers, combined with the lack of a powerful motive on the U.S. side, have proven significant hurdles.
First, it is important to understand what exactly a totalization agreement is, and what it covers. The word “totalization” is generally used as short form for a social security cooperation agreement. Preexisting agreements, of which the United States has 25 in force and India has nine in force, aim at accomplishing a combination of two main goals. The first is to avoid double taxation by parallel social security systems. Without a totalization agreement, employers of overseas workers are compelled to pay a contribution to the social security system of the host country and the home country—inevitably the worker will only receive benefits from one of these plans depending on the country of retirement. The second is the totalization of contributions to multiple systems. This is where the agreement gets its name, and refers to the process of combining credits earned in two systems to calculate a pension scheme for an individual upon retirement. Companies employing Indian workers in the U.S. are reported to lose over $1 billion annually in the absence of a totalization agreement.
According to the Department of State Visa Office, in 2013, Indian workers received two-thirds of the roughly 150,000 H1B visas issued last year, inclusive of renewals. U.S. officials consistently note that Indian workers are treated the same as any other international worker, and that requiring them to pay social security is something required of all other workers in the United States —whether foreign nationals or U.S. citizens. They also claim that the logjam in reaching an agreement stems from the incompatibility of the two systems. In a press release back in 2012, former assistant secretary of state for South and Central Asian affairs Robert Blake stated exactly this. President Obama’s commitment to finding an alternative solution during his Republic Day visit indicates the first softening of this position.
The contours of a future U.S.-India Totalization Agreement are unclear at this stage. Two relevant case studies that demonstrate what current agreements look like are the United States and India’s agreements with Canada. An important point in each of these agreements is a division of social security payments that avoids double payment. In the United States’ agreement with Canada, employers pay social security payments to one of the two countries based on duration of employment in that country and whether the country is the employer’s home country. If this provision were included in a U.S.-India agreement, American employers employing Indian workers in the United States would only pay into the U.S. social security system and medicare, and Indian employers employing Indian workers in the United States would only pay into the Indian retirement pension system for employment periods under five years. For longer employment terms, they would pay into the U.S. system. The agreement between India and Canada is structured similarly, but takes into account only the worker’s home country, not the employer’s. In this case, if the worker is employed abroad less than five years, that worker pays into the home social security system regardless of the employer’s home country.
It is also important to consider some of the technical issues that could block the passage of an India-U.S. totalization agreement. Not only does U.S. Congress have to pass the law, but it also must stand up to the technical requirements outlined in the Social Security Act in the United States. In order for the United States to sign an agreement with another country, the foreign social security system must be considered to have “general application.” Whether or not India’s growing pension system qualifies under this requirement remains a matter of debate.
With President Obama and Prime Minister Modi agreeing to hold talks on social security totalization, many businesses, especially Indian firms employing Indians in the United States, are hopeful that change may come soon. However, with an increasing proportion of H1B visas being allotted to Indian workers, it does not appear that the economic costs associated with dual social security payments are high enough to deter employment. To counter the apathy of American policymakers on this issue, Indian policymakers have privately hinted at linking the totalization agreement with the bilateral investment treaty (BIT) the United States is working to sign with India. Without a significant incentive like the BIT, there might not be enough pressure on U.S. officials to move forward on the issue for the time being.