B. HISTORY OF ACTUARIAL STATUS ESTIMATESThis appendix chronicles the history of the OASDI actuarial balance and the year of combined OASI and DI Trust Fund exhaustion since 1982. The actuarial balance is the principal summary measure of long-range actuarial status. The 1983 report was the last report for which the actuarial balance was positive. Section IV.B.4 defines actuarial balance in detail. The two basic components of actuarial balance are the summarized income rate and the summarized cost rate, both of which are expressed as percentages of taxable payroll. For any given period, the actuarial balance is the difference between the present value of non-interest income for the period and the present value of the cost for the period, each divided by the present value of taxable payroll for all years in the period. The computation of the actuarial balance also includes:

• The amount of the trust fund balances on hand at the beginning of the valuation period in the reports for 1988 and later; and

• The present value of a target trust fund balance equal to 100 percent of the annual cost to be reached and maintained at the end of the valuation period in the reports for 1991 and later.Reports prior to 1973 used the current method of calculating the actuarial balance based on present values, but the reports of 1973-87 did not. During that period, the reports used the average-cost method, a simpler method which approximates the results of the present-value approach. Under the average-cost method, the sum of the annual cost rates over the 75-year projection period was divided by the total number of years, 75, to obtain the average cost rate per year. A similar computation produced the average income rate. The actuarial balance was the difference between the average income rate and the average cost rate.When the 1973 report introduced the average-cost method, the long-range financing of the program was more nearly on a pay-as-you-go basis. Also, the long-range demographic and economic assumptions in that report produced an annual rate of growth in taxable payroll which was about the same as the annual rate at which the trust funds earned interest. In either situation (i.e., pay-as-you-go financing, where the annual income rate is the same as the annual cost rate, or an annual rate of growth in taxable payroll equal to the annual interest rate), the average-cost method produces the same result as the present-value method. However, by 1988, neither of these situations still existed.After the 1977 and 1983 Social Security Amendments, estimates showed substantial increases in the trust funds continuing well into the 21st century. These laws changed the program’s financing from essentially pay-as-you-go to partial advance funding. Also, the reports from 1973-87 phased in reductions in long-range fertility rates and average real-wage growth, which produced an annual rate of growth in long-range taxable earnings which was significantly lower than the assumed interest rate. As a result of the difference between this rate of growth and the assumed interest rate, the results of the average-cost method and the present-value method in the reports for 1973‑87 began to diverge, and by 1988 they were quite different. While the average-cost method still accounted for most of the effects of the assumed interest rate, it no longer accounted for all of the interest effects. The present-value method, by contrast, accounts for the full effect of the assumed interest rates. The 1988 report reintroduced the present-value method of calculating the actuarial balance in order to fully reflect the effects of interest.A positive actuarial balance indicates that estimated income is more than sufficient to meet estimated trust fund obligations for the period as a whole. A negative actuarial balance indicates that estimated income is insufficient to meet estimated trust fund obligations for the entire period. An actuarial balance of zero indicates that the estimated income exactly matches estimated trust fund obligations for the period.Table VI.B1 contains the estimated OASDI actuarial balances, summarized income rates, and summarized cost rates for the 1982 report through the current report. The reports computed these values on the basis of the intermediate assumptions, which recent reports refer to as alternative II and reports prior to 1991 referred to as alternative II-B.

Table VI.B1.—Long-Range OASDI Actuarial Balances and Trust Fund Exhaustion Dates as Shown in the Trustees Reports for 1982-2012^{} Summarized

income rate Summarized

cost rate Actuarial

balance Change from

previous year Year of combined trust fund exhaustion

The reports compute the actuarial balance and year of trust fund exhaustion based on the intermediate assumptions, which the 1982-90 reports referred to as alternative II-B and the 1991 and later reports refer to as alternative II.

Between -0.005 and 0.005 percent of taxable payroll.

For several of the years included in the table, significant legislative changes or definitional changes affected the estimated actuarial balance. The Social Security Amendments of 1983 accounted for the largest single change in recent history: the actuarial balance of ‑1.82 for the 1982 report improved to +0.02 for the 1983 report. In 1985, the estimated actuarial balance changed largely because of an adjustment made to the method for estimating the age distribution of immigrants.Rebenchmarking of the National Income and Product Accounts and changes in demographic assumptions contributed to the change in the actuarial balance for 1987. Various changes in assumptions and methods for the 1988 report had roughly offsetting effects on the actuarial balance. In 1989 and 1990, changes in economic assumptions accounted for most of the changes in the estimated actuarial balance.In 1991, the effect of legislation, changes in economic assumptions, and the introduction of the cost of reaching and maintaining an ending target trust fund combined to produce the change in the actuarial balance. In 1992, changes in disability assumptions and the method for projecting average benefit levels accounted for most of the change in the actuarial balance. In 1993, numerous small changes in assumptions and methods had offsetting effects on the actuarial balance. In 1994, changes in the real-wage assumptions, disability rates, and the earnings sample used for projecting average benefit levels accounted for most of the change in the actuarial balance. In 1995, numerous small changes had largely offsetting effects on the actuarial balance, including a substantial reallocation of the payroll tax rate, which reduced the OASI actuarial balance, but increased the DI actuarial balance.In 1996, a change in the method of projecting dually-entitled beneficiaries produced a large increase in the actuarial balance, which almost totally offset decreases produced by changes in the valuation period and in the demographic and economic assumptions. Various changes in assumptions and methods for the 1997 report had roughly offsetting effects on the actuarial balance. In 1998, increases caused by changes in the economic assumptions, although partially offset by decreases produced by changes in the valuation period and in the demographic assumptions, accounted for most of the changes in the estimated actuarial balance. In 1999, increases caused by changes in the economic assumptions (related to improvements in the CPI by the Bureau of Labor Statistics) accounted for most of the changes in the estimated actuarial balance.For the 2000 report, changes in economic assumptions and methodology caused increases in the actuarial balance, although reductions in the balance caused by the change in valuation period and changes in demographic assumptions partially offset these increases. For the 2001 report, increases caused by changes in the demographic starting values, although partially offset by a decrease produced by the change in the valuation period, accounted for most of the changes in the estimated actuarial balance. For the 2002 report, changes in the valuation period and the demographic assumptions—both decreases in the actuarial balance—were offset by changes in the economic assumptions, while an increase due to disability assumptions was slightly more than offset by a decrease due to changes in the projection methods and data. For the 2003 report, an increase due to the change in program assumptions was more than offset by decreases due to the change in valuation period and changes in demographic assumptions. In the 2004 report, increases due to changing the method of projecting benefit levels for higher earners more than offset decreases in the actuarial balance arising from the change in the valuation period and the net effect of other changes in programmatic data and methods.For the 2005 report, an increase due to changing the method of projecting future average benefit levels was more than offset by decreases due to changes in the valuation period, updated starting values for the economic assumptions, and other methodological changes. In 2006, decreases in the actuarial balance due to the change in the valuation period, a reduction in the ultimate annual real interest rate, and improvements in calculating mortality for disabled workers, were greater in aggregate than increases in the actuarial balance due to changes in demographic starting values and the ultimate total fertility rate, as well as other programmatic data and method changes. For the 2007 report, increases in the actuarial balance arising from revised disability incidence rate assumptions, improvements in average benefit level projections, and changes in near-term economic projections, more than offset decreases in the balance due to the valuation period change and updated historical mortality data.For the 2008 report, the large increase in the actuarial balance was primarily due to changes in immigration projection methods and assumptions. These changes more than offset the decreases in the actuarial balance due to the change in the valuation period and the lower starting and ultimate mortality rates. In 2009, changes in starting values and near-term economic assumptions due to the economic recession, faster ultimate rates of decline in death rates for ages 65-84, and the change in the valuation period accounted for most of the large decrease in the actuarial balance. Legislative changes, in particular the estimated effects of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, were the main reason for the increase in the actuarial balance for the 2010 report. The change in the valuation period partially offset this increase; there were also changes in several assumptions, methods, and recent data which had largely offsetting effects.For the 2011 report, changes in mortality projections, due to new starting values and revised methods, were the most significant of several factors contributing to the increase in the deficit. These mortality changes resulted in lower death rates for the population age 65 and over. Adding to this negative effect were near-term lower levels of net other immigration and real earnings than assumed in the 2010 report.

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