2014 OASDI Trustees Report

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B. LONG-RANGE ESTIMATES
The Trustees use three types of financial measures to assess the actuarial status of the Social Security trust funds under the financing approach specified in current law: (1) annual cash-flow measures, including income rates, cost rates, and balances; (2) trust fund ratios; and (3) summary measures such as actuarial balances and unfunded obligations.
The difference between the annual income rate and annual cost rate, both expressed as percentages of taxable payroll, is the annual balance. The level and trend of the annual balances at the end of the 75-year projection period are factors that the Trustees use to assess the financial condition of the program.
The trust fund ratio for a year is the proportion of the year’s projected cost that could be paid with funds available at the beginning of the year. Critical factors considered by the Trustees in assessing actuarial status include: (1) the level and year of maximum trust fund ratio; (2) the year of depletion of the fund reserves and the percent of scheduled benefits that is still payable after reserves are depleted; and (3) the stability of the trust fund ratio at the end of the long-range period.
Solvency at any point in time requires that sufficient financial resources are available to pay all scheduled benefits at that time. Solvency is generally indicated by a positive trust fund ratio. “Sustainable solvency” for the financing of the program under a specified set of assumptions has been achieved when the projected trust fund ratio is positive throughout the 75‑year projection period and is either stable or rising at the end of the period.
Summarized measures for any period indicate whether projected income is sufficient, on average, for the whole period. Summarized measures can only indicate the solvency status of a fund for the end of the period. The Trustees summarize the total income and cost over valuation periods that extend through 75 years and over the infinite horizon1. This section presents two summarized measures: (1) the actuarial balance; and (2) the open group unfunded obligation. The actuarial balance indicates the size of any surplus or shortfall as a percentage of the taxable payroll over the period. The open group unfunded obligation indicates the size of any shortfall in present-value dollars.
This section also includes additional information that the Trustees use to assess the financial status of the Social Security program, including: (1) a comparison of the number of beneficiaries to the number of covered workers; (2) the test of long-range close actuarial balance; and (3) the reasons for the change in the actuarial balance from the last report.
1. Annual Income Rates, Cost Rates, and Balances
The concepts of income rate and cost rate, expressed as percentages of taxable payroll, are important in the consideration of the long-range actuarial status of the trust funds. The annual income rate is the ratio of all non-interest income to the OASDI taxable payroll for the year. Non-interest income includes payroll taxes, taxes on scheduled benefits, and any general fund transfers or reimbursements. The OASDI taxable payroll consists of the total earnings subject to OASDI taxes with some relatively small adjustments.2 The annual cost rate is the ratio of the cost of the program to the taxable payroll for the year. The cost includes scheduled benefits, administrative expenses, net interchange with the Railroad Retirement program, and payments for vocational rehabilitation services for disabled beneficiaries. For any year, the income rate minus the cost rate is the “balance” for the year.
Table IV.B1 presents a comparison of the estimated annual income rates and cost rates by trust fund and alternative. Table VI.G8 shows detailed long-range projections of trust fund operations in current dollar amounts.
Under the intermediate assumptions, the Trustees project that the OASI income rate will rise at a very gradual rate from 10.87 percent of taxable payroll for 2014 to 11.43 percent for 2088. Income from taxation of benefits causes this increase for two main reasons: (1) total benefits are rising faster than payroll; and (2) the benefit-taxation threshold amounts are fixed (not indexed), and therefore an increasing share of total benefits will be subject to tax as incomes and benefits rise. The pattern of the cost rate is much different. The OASI cost rate is projected to increase relatively slowly from 11.58 percent of payroll for 2014 to 11.86 percent of payroll for 2018, as the economic recovery through this period largely offsets the effects of the aging population. From 2018 to 2035, the cost rate rises rapidly because the retirement of the baby-boom generation will increase the number of beneficiaries much faster than the number of workers increases, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages. From 2037 to 2051, the cost rate declines because the aging baby-boom generation is gradually replaced at retirement ages by historically low-birth-rate generations born between 1966 and 1989, causing the beneficiary-to-worker ratio to decline. After 2051, the projected OASI cost rate generally rises slowly, reaching 15.88 percent of taxable payroll for 2088, primarily because of projected reductions in death rates.
The Trustees’ projections of income rates under the low-cost and high-cost sets of assumptions are similar to those projected for the intermediate assumptions, because income rates are largely a reflection of the payroll tax rates specified in the law, with the gradual change from taxation of benefits noted above. In contrast, OASI cost rates for the low-cost and high-cost assumptions are significantly different from those projected for the intermediate assumptions. For the low-cost assumptions, the OASI cost rate decreases through 2017, and then rises until it peaks in 2034 at 12.77 percent of payroll. Thereafter, the cost rate generally declines until it reaches 11.29 percent of payroll for 2088, at which point the income rate reaches 11.18 percent. For the high-cost assumptions, the OASI cost rate rises throughout the 75-year period. It rises relatively rapidly through about 2035 because of the aging of the baby-boom generation. Thereafter, the cost rate continues to rise and reaches 23.24 percent of payroll for 2088, at which point the income rate reaches 11.83 percent.
The pattern of the projected OASI annual balance is important in the analysis of the financial condition of the program. Under the intermediate assumptions, the annual balance is negative throughout the projection period. This annual deficit rises slowly from 0.71 percent of payroll for 2014 to 0.76 percent for 2018, and then rapidly to 3.71 percent for 2037. The annual deficit then declines to 3.33 percent of payroll for 2051, and generally rises thereafter, reaching 4.45 percent of taxable payroll for 2088.
Under the low-cost assumptions, the Trustees project smaller negative OASI annual deficits throughout the projection period. The annual deficit declines to 0.08 percent of payroll for 2017, rises to 1.54 percent for 2034, and then declines for most years thereafter, reaching a deficit of 0.12 percent of payroll for 2088. Under the high-cost assumptions, the OASI balance worsens throughout the projection period. Annual deficits rise to 2.24 percent for 2020, 6.85 percent for 2050, and 11.41 percent of payroll for 2088.
Income ratea

a
Income rates include certain reimbursements from the General Fund of the Treasury.

b
The Trustees project the annual balance to be negative for a temporary period and return to positive levels before the end of the projection period.

Notes:
1. The income rate excludes interest income.
2. Revisions of taxable payroll may change some historical values.
3. Totals do not necessarily equal the sums of rounded components.
The DI cost rate rose substantially from 1.09 percent of taxable payroll for 1990 to 1.88 percent of taxable payroll for 2007 as the baby boom generation moved into prime disability ages, and further to a peak of 2.46 percent for 2012 due to the recent economic recession. Under the intermediate assumptions, the projected DI cost rate declines from 2.46 percent for 2012 to 2.09 percent for 2021. From 2021 to 2040, the DI cost rate stays relatively stable and then generally increases to 2.31 percent for 2088. The income rate increases only very slightly from 1.80 percent of taxable payroll for 2014 to 1.86 percent for 2088. The projected annual deficit declines from 0.58 percent for 2014 to a low of 0.23 percent for 2038, and then increases to 0.45 percent for 2088.
Under the low-cost assumptions, the DI cost rate declines from 2.46 percent of payroll for 2012 to 1.49 percent for 2039, and remains relatively stable thereafter, reaching 1.52 percent for 2088. The annual balance is negative for the first 6 years and is positive throughout the remainder of the long-range period. Under the high-cost assumptions, the DI cost rate generally rises from 2018 through the end of the projection period, reaching 3.35 percent for 2088. The annual deficit is 0.64 percent for 2014, 1.19 percent for 2050, and 1.46 percent for 2088.
Figure IV.B1 shows the patterns of the OASI and DI annual cost rates. Annual DI cost rates rose substantially between 1990 and 2010 in large part due to: (1) aging of the working population as the baby-boom generation moved from ages 25-44 in 1990, where disability prevalence is low, to ages 45-64 in 2010, where disability prevalence is much higher; (2) a substantial increase in the percentage of women insured for DI benefits as a result of increased and more consistent rates of employment; and (3) increased disability incidence rates for women to a level similar to those for men by 2010. After 2010, all of these factors stabilize, and therefore the DI cost rate stabilizes also. Annual OASI cost rates follow a similar pattern to that for DI, but displaced 20 to 25 years later, because the baby-boom generation enters retirement ages 20 to 25 years after entering prime disability ages. Figure IV.B1 shows only the income rates for alternative II because the variation in income rates by alternative is very small. Income rates generally increase slowly for each of the alternatives over the long-range period. Taxation of benefits, which is a relatively small portion of income, is the main source of both the increases in the income rate and the variation among the alternatives. Increases in income from taxation of benefits reflect: (1) increases in the total amount of benefits paid; and (2) the increasing share of individual benefits that will be subject to taxation because benefit taxation threshold amounts are not indexed.
Figure IV.B1 shows the patterns of the annual balances for OASI and DI. For each alternative and for historical data, the magnitude of each of the positive balances, as a percentage of taxable payroll, is the distance between the appropriate cost-rate curve and the income-rate curve above it. The magnitude of each of the deficits is the distance between the appropriate cost-rate curve and the income-rate curve below it. Annual balances follow closely the pattern of annual cost rates after 1990 because the payroll tax rate does not change for the OASDI program, with only small variations in the allocation between DI and OASI. The pattern of the projected OASDI annual balances is important to the analysis of the financial condition of the Social Security program as a whole.
In the future, the costs of OASI, DI, and the theoretical combined OASDI programs as a percentage of taxable payroll are unlikely to fall outside the range encompassed by alternatives I and III because alternatives I and III define a wide range of demographic and economic conditions.
Long-range OASDI cost and income are most often expressed as percentages of taxable payroll. However, the Trustees also present cost and income as shares of gross domestic product (GDP), the value of goods and services produced during the year in the United States. Under alternative II, the Trustees project the OASDI cost to rise from 4.92 percent of GDP for 2014 to a peak of 6.16 percent for 2037. After 2037, OASDI cost as a percentage of GDP declines to a low of 5.96 percent for 2052 and thereafter generally increases slowly, reaching 6.12 percent by 2088. Appendix G presents full estimates of income and cost relative to GDP.
2. Comparison of Workers to Beneficiaries
Under the intermediate assumptions, the Trustees project the OASDI cost rate will remain relatively stable through 2018 as the economy recovers. The cost rate then rises rapidly between 2018 and 2035, primarily because the number of beneficiaries rises much more rapidly than the number of covered workers as the baby-boom generation retires. The ratio of OASDI beneficiaries to workers is dominated by the OASI program because all workers eventually die or retire, but only a small minority become disabled. The trends described below are primarily due to demographic changes and thus affect the DI program roughly 20 years earlier than the OASI and OASDI programs. The baby-boom generation had lower fertility rates than their parents, and the Trustees expect those lower fertility rates to persist; therefore, the ratio of OASDI beneficiaries to workers will rise rapidly and reach a permanently higher level after the baby-boom generation retires. Due to increasing longevity, the ratio of beneficiaries to workers will generally rise slowly thereafter. Table IV.B2 provides a comparison of the numbers of covered workers and beneficiaries.
Covered
workers a
(in thousands)
Beneficiaries b (in thousands)

a
Workers who are paid at some time during the year for employment on which OASDI taxes are due.

b
Beneficiaries with monthly benefits in current-payment status as of June 30.

Notes:
1. The number of beneficiaries does not include uninsured individuals who receive benefits under Section 228 of the Social Security Act. The General Fund of the Treasury reimburses the trust funds for the costs of most of these individuals.
2. Historical covered worker and beneficiary data are subject to revision.
3. Totals do not necessarily equal the sums of rounded components.
The effect of the demographic shift under the three alternatives on the OASDI cost rates is clear when one considers the projected number of OASDI beneficiaries per 100 covered workers. Compared to the 2013 level of 35 beneficiaries per 100 covered workers, the Trustees project that this ratio rises to 48 by 2035 under the intermediate assumptions because the growth in beneficiaries greatly exceeds the growth in workers. By 2090, this projected ratio rises further under the intermediate and high-cost assumptions, reaching 51 under the intermediate assumptions and 66 under the high-cost assumptions. Under the low-cost assumptions, this ratio rises to 44 by 2035 and then declines, reaching a stable level of about 40 after 2076. Figure IV.B2 shows beneficiaries per 100 covered workers.
For each alternative, the curve in figure IV.B2 is strikingly similar to the corresponding cost-rate curve in figure IV.B1. This similarity emphasizes the extent to which the cost rate is determined by the age distribution of the population. The cost rate is essentially the product of the number of beneficiaries and their average benefit, divided by the product of the number of covered workers and their average taxable earnings. For this reason, the pattern of the annual cost rates is similar to that of the annual ratios of beneficiaries to workers.
Table IV.B2 also shows the number of covered workers per OASDI beneficiary, which was about 2.8 for 2013. Under the low-cost assumptions, this ratio declines to 2.3 by 2035, and then generally rises throughout the remainder of the period, reaching 2.5 by 2090. Under the intermediate assumptions, this ratio declines generally throughout the long-range period, reaching 2.1 for 2035 and 2.0 by 2090. Under the high-cost assumptions, this ratio decreases steadily to 1.5 by 2090.
3. Trust Fund Ratios and Test of Long-Range Close Actuarial Balance
Trust fund ratios are critical indicators of the adequacy of the financial resources of the Social Security program. The trust fund ratio for a year is the amount of asset reserves in a fund at the beginning of a year expressed as a percentage of the cost for the year. Under present law, the OASI and DI Trust Funds do not have the authority to borrow other than in the form of advance tax transfers, which are limited to expected taxes for the current calendar month. If reserves held in either trust fund become depleted during a year, and continuing tax revenues fall short of the cost of scheduled benefits, then full scheduled benefits would not be payable on a timely basis. For this reason, the trust fund ratio is the most critical financial measure.
The trust fund ratio serves an additional important purpose in assessing the actuarial status of the program. If the projected trust fund ratio is positive throughout the period and is either level or increasing at the end of the period, then projected adequacy for the long-range period is likely to continue for subsequent reports. Under these conditions, the program has achieved sustainable solvency.3
Table IV.B3 shows the Trustees’ projections of trust fund ratios by alternative, without regard to advance tax transfers that would be effected, for the separate and theoretical combined OASI and DI Trust Funds. The table also shows the years of trust fund reserve depletion and the percentage of scheduled benefits that would be payable thereafter, by alternative.
Under the intermediate assumptions, the OASI Trust Fund ratio has declined since 2011 and continues to decline from 373 percent at the beginning of 2014 until the trust fund reserves become depleted in 2034 (one year earlier than projected in last year’s report), at which time 75 percent of scheduled benefits would be payable. The DI trust fund ratio has been declining steadily since 2003 (at first slowly and then more rapidly due to the recent recession), and continues to decline from 62 percent at the beginning of 2014 until the trust fund reserves become depleted in the fourth quarter of 2016, at which time 81 percent of scheduled benefits would be payable.
Under the intermediate assumptions, the trust fund ratio for the combined OASI and DI Trust Funds declines from 320 percent at the beginning of 2014 until the combined fund reserves become depleted in 2033, at which time 77 percent of scheduled benefits would be payable. This is the same depletion year that was shown in last year’s report.
Under the low-cost assumptions, the trust fund ratio for the DI program declines to 2 percent in 2020, requiring advance tax transfers to pay full scheduled benefits in 2019 and 2020. After 2020, the trust fund ratio increases through the end of the long-range projection period, reaching the extremely high level of 1,761 percent for 2089. For the OASI program, the trust fund ratio declines steadily until the trust fund reserves become depleted in 2059, at which time 94 percent of scheduled benefits would still be payable. For the combined OASDI program, the trust fund ratio declines from 321 percent for 2014 to a low of 74 percent in 2074, then rises thereafter reaching 102 percent by 2089. Because the trust fund ratio is positive throughout the projection period and increasing at the end of the period, under the low-cost assumptions, the combined OASDI program and the DI program achieve sustainable solvency. However, the DI trust fund ratio falls very close to zero percent for some early years of the projection period.
Under the high-cost assumptions, the OASI trust fund ratio declines continually until reserves become depleted in 2029, at which time 68 percent of scheduled benefits would still be payable. The DI trust fund ratio declines from 61 percent for 2014 until reserves become depleted in 2016, at which time 73 percent of scheduled benefits would still be payable. The combined OASI and DI trust fund ratio declines from 320 percent for 2014 until reserves become depleted in 2028, at which time 69 percent of scheduled benefits would still be payable.
The Trustees project trust fund reserve depletion within the 75-year projection period with the exceptions of the combined OASDI Trust Fund and the DI Trust Fund under the low-cost assumptions. It is therefore very likely that lawmakers will need to increase income, reduce program costs, or both, in order to maintain solvency for the trust funds. The stochastic projections discussed in appendix E suggest that trust fund reserve depletion is highly probable by mid-century.
Even under the high-cost assumptions, however, the combined OASI and DI Trust Fund reserves on hand plus their estimated future income are sufficient to fully cover their combined cost until 2028. Under the intermediate assumptions, the combined starting fund reserves plus estimated future income are sufficient to fully cover cost until 2033. In the 2013 report, the Trustees projected that the combined trust fund reserves would become depleted in 2027, 2033, and 2068 under the high-cost, intermediate, and low-cost assumptions, respectively.

a
The Trustees estimate that the trust fund reserves will be depleted by the beginning of this year.

b
The Trustees estimate that the trust fund reserves will not be depleted within the projection period.

Note: The definition of trust fund ratio appears in the Glossary. The ratios shown for the combined trust funds for years after reserve depletion of either the DI or OASI Trust Fund are theoretical.
The test of long-range close actuarial balance for each trust fund requires meeting two conditions: (1) the short-range test of financial adequacy is satisfied; and (2) the trust fund ratios stay above zero throughout the 75-year projection period, allowing scheduled benefits to be paid in a timely manner throughout the period. As discussed in section IV.A, the DI Trust Fund fails the short-range test of financial adequacy under the intermediate assumptions because trust fund reserves become depleted in the fourth quarter of 2016. Under the intermediate assumptions, the OASI trust fund reserves become depleted in 2034, and the combined OASI and DI trust fund reserves become depleted in 2033. Therefore, the OASI, DI, and combined OASI and DI Trust Funds all fail the long-range test of close actuarial balance.
Beginning with the 2013 report, the Trustees modified the test of long-range close actuarial balance to require solvency throughout the 75-year projection period. The old test allowed for a negative actuarial balance of up to 5 percent of the summarized cost rate for the full 75-year period. The Trustees modified the test to make it simpler and to be more consistent with the actuarial measures presented in this report.
Figure IV.B3 illustrates the trust fund ratios for the separate OASI and DI Trust Funds for each of the alternative sets of assumptions. DI Trust Fund status is more uncertain than OASI Trust Fund status because there is a high degree of uncertainty associated with future disability prevalence. A graph of the trust fund ratios for the combined trust funds appears in figure II.D7.
4. Summarized Income Rates, Summarized Cost Rates, and Actuarial Balances
Summarized values for the full 75-year period are useful in analyzing the program’s long-range financial adequacy over the period as a whole, both under present law and under proposed modifications to the law. All annual amounts included in a summarized value are present-value discounted to the valuation date. It is important to note that the actuarial balance indicates the solvency status of the fund only for the very end of the period.
Table IV.B4 presents summarized income rates, summarized cost rates, and actuarial balances for 25-year, 50-year, and 75-year valuation periods. Summarized income rates are the sum of the present value of non-interest income for a period (which includes scheduled payroll taxes, the projected income from the taxation of scheduled benefits, and reimbursements from the General Fund of the Treasury) and the starting trust fund asset reserves, expressed as a percentage of the present value of taxable payroll over the period. Under current law, the total OASDI payroll tax rate will remain at 12.4 percent in the future. In contrast, the Trustees expect income from taxation of benefits, expressed as a percentage of taxable payroll, to increase in most years of the long-range period for the two reasons discussed earlier on page 54. Summarized cost rates are the sum of the present value of cost for a period (which includes scheduled benefits, administrative expenses, net interchange with the Railroad Retirement program, and payments for vocational rehabilitation services for disabled beneficiaries) and the present value of the cost of reaching a target trust fund of 100 percent of annual cost at the end of the period, expressed as a percentage of the present value of taxable payroll over the period.
The actuarial balance for a valuation period is equal to the difference between the summarized income rate and the summarized cost rate for the period. An actuarial balance of zero for any period indicates that cost for the period could be met for the period as a whole (but not necessarily at all points within the period), with a remaining trust fund reserve at the end of the period equal to 100 percent of the following year’s cost. A negative actuarial balance for a period indicates that the present value of income to the program plus the existing trust fund is less than the present value of the cost of the program plus the cost of reaching a target trust fund reserve of 1 year’s cost by the end of the period. Generally, a trust fund is deemed to be adequately financed for a period if the actuarial balance is zero or positive, meaning that the reserves at the end of the period are at least equal to annual cost. Solvency is still possible with a small negative actuarial balance where reserves are still positive.
Table IV.B4 contains summarized rates for the intermediate, low-cost, and high-cost assumptions. The low-cost and high-cost assumptions define a wide range of possibilities. Financial outcomes as good as the low-cost scenario or as bad as the high-cost scenario are unlikely to occur.
For the 25-year valuation period, the OASDI program has an actuarial balance of 0.21 percent of taxable payroll under the low-cost assumptions, ‑1.50 percent under the intermediate assumptions, and -3.55 percent under the high-cost assumptions. These balances indicate that the program is adequately financed for the 25‑year valuation period under only the low-cost projections.
For the 50‑year valuation period, the OASDI program has actuarial balances of ‑0.04 percent under the low-cost assumptions, ‑2.42 percent under the intermediate assumptions, and ‑5.40 percent under the high-cost assumptions. These actuarial deficits mean that the program is not adequately financed for the 50‑year valuation period under the intermediate and high-cost sets of assumptions. Under the low-cost assumptions, trust fund reserves are not expected to deplete within the 50-year period but do fall below the target level of 100 percent of annual cost by the end of this period.
For the entire 75-year valuation period, the combined OASDI program has actuarial balances between 0.000 and 0.005 percent of taxable payroll under the low-cost assumptions, ‑2.88 percent under the intermediate assumptions, and ‑6.56 percent under the high-cost assumptions. These balances indicate that the combined OASDI program is adequately financed for the 75-year valuation period under only the low-cost assumptions.
Assuming the intermediate assumptions accurately capture future demographic and economic trends, solvency for the program over the next 75 years could be restored using a variety of approaches. For example, revenues could be increased in a manner equivalent to an immediate and permanent increase in the combined Social Security payroll tax rate from 12.40 percent to 15.23 percent (a relative increase of 22.8 percent), cost could be reduced in a manner equivalent to an immediate and permanent reduction in scheduled benefits of 17.4 percent, or some combination of approaches could be used.
However, eliminating the actuarial deficit for the next 75-year valuation period requires raising payroll taxes or lowering benefits by more than is required just to achieve solvency, because the actuarial deficit includes the cost of attaining a target trust fund ratio equal to 100 percent of annual program cost by the end of the period. The actuarial deficit could be eliminated for the 75-year period by increasing revenues in a manner equivalent to an immediate and permanent increase in the combined payroll tax from 12.40 percent to 15.39 percent (a relative increase of 24.1 percent),4 reducing cost in a manner equivalent to an immediate reduction in scheduled benefits of 18.2 percent, or some combination of approaches could be used.
Under the intermediate assumptions, the OASDI program has large annual deficits toward the end of the long-range period that are increasing and reach 4.90 percent of payroll for 2088 (see table IV.B1). These large deficits indicate that annual cost continues to exceed non-interest income after 2088, so continued adequate financing would require larger changes than those needed to maintain solvency for the 75-year period. Over the period extending through the infinite horizon, the actuarial deficit is 4.1 percent of payroll under the intermediate assumptions.
The financial shortfall of the DI program is worse than that of the OASI program for the first 25 years when measured relative to the level of program cost. Summarized over the full 75-year period, however, long-range deficits for the OASI and DI programs under intermediate assumptions are more similar measured relative to the level of program cost. Increases in longevity after 2027, when the disability conversion age remains fixed, have a greater effect on OASI cost than on DI cost. As a result of this greater effect on OASI cost, the financial status of the OASI program in the later portion of the 75‑year projection period is worse than the financial status of the DI program.

a
Between 0 and 0.005 percent of taxable payroll.

Note: Totals do not necessarily equal the sums of rounded components.
Table IV.B5 presents the components and the calculation of the long-range (75-year) actuarial balance under the intermediate assumptions. The present value of future cost less future non-interest income over the long-range period, minus the amount of trust fund asset reserves at the beginning of the projection period, amounts to $10.6 trillion for the OASDI program. This amount is the 75-year “open group unfunded obligation” (see row H). The actuarial deficit (which is the negative of the actuarial balance) combines this unfunded obligation with the present value of the ending target trust fund and expresses the total as a percentage of the present value of the taxable payroll for the period. The present value of future non-interest income minus cost, plus starting trust fund reserves, minus the present value of the ending target trust fund, is ‑$11.1 trillion for the OASDI program. The actuarial balance , expressed as a percentage of taxable payroll for the period, is ‑2.88 percent.
E.

a
The calculation of the actuarial balance includes the cost of accumulating a target trust fund reserve equal to 100 percent of annual cost at the end of the period.

Note: Totals do not necessarily equal the sums of rounded components.
The open group unfunded obligation (row H in the table above) increased from $9.6 trillion shown in last year's report to $10.6 trillion in this report. If there had been no changes in starting values, assumptions, laws, or methods for this report, then the open group unfunded obligation would have increased to $10.1 trillion solely due to the change in the valuation period. This expected increase in the unfunded obligation occurs because: (1) the unfunded obligation is now discounted to January 1, 2014, rather than to January 1, 2013, which tends to increase the unfunded obligation by the annual nominal interest rate; and (2) the unfunded obligation now includes an additional year (2088). However, changes in assumptions, methods, and starting values resulted in a net additional $0.5 trillion increase in the unfunded obligation.
The change in the actuarial deficit can be explained in a similar way. The actuarial deficit was 2.72 percent of payroll in last year’s report, and was expected to increase to a deficit of 2.78 percent of payroll solely due to the change in the valuation period. Changes in assumptions, methods, and starting values combined to account for the rest of the change in the actuarial deficit, up to 2.88 percent of payroll. For additional details on these changes, see section IV.B.6.
5. Additional Measures of OASDI Unfunded Obligations
A negative actuarial balance (i.e., an actuarial deficit) is one measure of the unfunded obligation of the program. This subsection presents additional measures of OASDI unfunded obligations under the intermediate assumptions.
a. Open Group Unfunded Obligations
Consistent with practice since 1965, this report focuses on a 75-year open group valuation to evaluate the long-run financial status of the OASDI program. The open group valuation includes non-interest income and cost for past, current, and future participants through the year 2088. The present value of the open group unfunded obligation for the program is $10.6 trillion over 2014-88. The open group unfunded obligation measures the adequacy of financing over the period as a whole for a program financed on a pay-as-you-go basis. On this basis, payroll taxes and scheduled benefits for all participants are included through 2088.
The 75-year unfunded obligation is equivalent to 2.7 percent of future OASDI taxable payroll and 1.0 percent of GDP through 2088. The 75-year unfunded obligation as a percentage of taxable payroll is less than the actuarial deficit, because the unfunded obligation excludes the ending target trust fund value (see table IV.B5).
Consideration of summary measures alone (such as the actuarial balance and open group unfunded obligation) for a 75-year period can lead to incorrect perceptions and to policy prescriptions that do not achieve sustainable solvency. These concerns can be addressed by considering the trend in trust fund ratios toward the end of the period. See the discussion of “sustainable solvency” beginning on page 49.
Another measure of trust fund finances, discussed in Appendix F, is the infinite horizon unfunded obligation, which takes account of all annual balances, even those after 75 years. The extension of the time period past 75 years assumes that the current-law OASDI program and the demographic and economic trends used for the 75‑year projection continue indefinitely. This infinite horizon unfunded obligation is estimated to be 4.1 percent of taxable payroll or 1.4 percent of GDP. Of course, the degree of uncertainty associated with estimates increases substantially for years further in the future.
6. Reasons for Change in Actuarial Balance From Last Report
Table IV.B6 shows the effects of changes on the long-range actuarial balance, by category, between last year’s report and this report.
Valuation period a

a
The change in the 75-year valuation period from last year’s report to this report means that the 75-year actuarial balance now includes the relatively large negative annual balance for 2088. This change in the valuation period results in a larger long-range actuarial deficit. The actuarial deficit includes the trust fund reserve at the beginning of the projection period.

Note: Totals do not necessarily equal the sums of rounded components.
If the assumptions, methods, starting values, and the law had all remained unchanged from last year’s Trustees Report, the long-range OASDI actuarial balance would have decreased (become more negative) by 0.06 percent of taxable payroll solely due to the change in the valuation period. However, as described below, this report includes changes in law, data, assumptions, and methods. These changes combine to decrease the long-range OASDI actuarial balance, from -2.72 percent of taxable payroll in last year's report to -2.88 percent in this report.
Since the last report, no laws have been enacted that are expected to have significant effects on the long-range cost of the OASDI program. However, the Supreme Court’s decision in the United States v. Windsor case, in June 2013, is projected to have a small but significant effect on the long-range cost of the OASDI program. This decision repealed parts of the Defense of Marriage Act, which affects the payment of federal benefits based on same-sex marriages. The extent to which OASDI benefits based on marriage will be available to same-sex couples is still not completely clear. SSA has issued guidelines, approved by the Department of Justice, for certain benefits for same-sex couples who were legally married when the insured account holder resided in a State or jurisdiction that recognized same-sex marriages at the time of application or death. Expansion of this authority to other same-sex couples and to other benefits is under review at the Department of Justice. For the estimates in this report, the Trustees have assumed that Social Security will expand its guidelines to recognize all auxiliary beneficiaries for such marriages and that same-sex marriages will eventually be recognized in all States. This projected expansion of benefits decreases the long-range OASDI actuarial balance by 0.01 percent of taxable payroll.
Changing the 75-year valuation period from 2013-87 to 2014-88 decreased the projected long-range OASDI actuarial balance by 0.06 percent of taxable payroll. This decrease is the result of including the relatively large negative annual balance for 2088 in this year’s 75-year projection period. Note that the annual balance for 2013 is not excluded from this year’s 75-year projection period because the actuarial balance includes trust fund asset reserves at the beginning of the projection period. These reserves at the start of the period reflect the program’s net financial flows for all past years up to the start of the projection period.
The Trustees did not change any of the ultimate demographic assumptions for this year’s report. However, updating the starting and historical values, and the way these values transition to ultimate assumed levels, combined to increase the long-range OASDI actuarial balance by 0.04 percent of taxable payroll. The following paragraph describes three demographic changes that had significant effects on the long-range OASDI actuarial balance.
First, preliminary fertility (birth) data for 2012 indicated lower birth rates than were assumed for last year’s report. The Trustees recognize the effect of the recent economic recession on the total fertility rate for 2012 and assume the path of the total fertility rate over the first several years of the projection period will reflect the economic recovery. The additional fertility data and the altered path of fertility over the first 25 years of the projection period combined to decrease the long-range actuarial balance by 0.01 percent of taxable payroll. Second, because the National Center for Health Statistics (NCHS) no longer collects detailed divorce data (by age of husband crossed with age of wife), these data are now obtained from certain States. These new detailed historical divorce data, two years of additional total divorce data from the NCHS, and revisions in the assumed path of the age-sex-adjusted divorce rate over the first 25 years of the projection period combined to increase the long-range OASDI actuarial balance by 0.02 percent of taxable payroll. Third, revising historical data since 2001 (to be more consistent with the most recent estimates from the Bureau of the Census) and smoothing the historical distribution of the married population by age of husband and age of wife (to provide a more reasonable distribution for the projections) combined to increase the long-range OASDI actuarial balance by 0.03 percent of taxable payroll.
The Trustees changed one of the ultimate economic assumptions this year: the annual rate of change in the Consumer Price Index (CPI-W). The Trustees now assume an ultimate average increase of 2.7 percent per year, rather than 2.8 percent in last year’s report. This change decreased the long-range OASDI actuarial balance by 0.02 percent of taxable payroll. Lowering the ultimate average annual increase in the CPI-W makes it more comparable to recent historical annual increases. The CPI-W grew at an average annual rate of 2.8 percent over the last thirty years (1982 to 2012) and 2.4 percent over the last twenty years (1992 to 2012).
Additionally, updated starting values and changes in near-term economic assumptions combined for a net decrease in the long-range OASDI actuarial balance of 0.08 percent of payroll. One major factor contributing to this change is the projected relationship between average taxable earnings and the average wage index. Compared to last year’s report, the ratio of average taxable earnings to the average wage index is lower by 1.9 percent in 2012 and 1.5 percent in 2013. This ratio remains about 1 percent lower throughout the long-range period, resulting in lower payroll taxes (directly related to average taxable earnings) relative to benefit levels (directly related to the average wage index). Additionally, the estimated level of full-employment GDP relative to actual GDP in recent years is assumed to be about 1 percent lower in this year’s report. This change reflects the fact that GDP growth, relative to the decline in the unemployment rate, has not been as strong so far in this economic recovery as had been experienced in prior recoveries. As a result, full-employment GDP is projected to be permanently lower by about 1 percent.
The Trustees did not change ultimate disability incidence or termination rates from those in the prior report. However, slightly lower near-term incidence rates reflecting recent experience and updated starting levels of beneficiaries and benefit levels combined to increase the long-range OASDI actuarial balance by 0.02 percent of taxable payroll.
The projections in this report also reflect several methodological improvements and updates of program-specific data. These methodological changes, updates, and interactions combined to decrease the long-range OASDI actuarial balance by 0.05 percent of taxable payroll. Descriptions of four significant methodological changes and updates follow.
The first methodological improvement alters the projected labor force participation rates to better reflect future trends in marital status and longevity on these rates. Projected labor force participation rates for the population age 55 and older are slightly lower in this year’s report in order to better reflect the difference in participation rates between never-married and married populations. This first methodological improvement also alters the projection of increases in the labor force participation rates for older workers due to projected improvement in life expectancy. The calibration year for the age-specific relationship between the labor force participation rate and life expectancy is changed from 2008 to 2050. Changing the calibration year replaces the dated historical relationships with relationships that are projected to evolve over the course of the projection period. These changes in labor force participation rates decreased the long-range OASDI actuarial balance by 0.05 percent of taxable payroll.
The second methodological improvement revises the treatment of the “other immigrant” population in three ways. First, the other immigrant population is divided into three distinct groups with differing employment and average earnings levels: (1) those with temporary legal status, (2) those never authorized to be in the country, and (3) those who had temporary legal status previously but are no longer authorized to be in the country. Second, the assumed age-sex distribution of other immigrants entering the country was revised, resulting in a slightly lower average age at entry. Third, the projections of other immigrants leaving the country were modified to reflect only rates of exit from the other-immigrant resident population, rather than a combination of exit rates from current residents and recent arrivals. The combined effect of these three components on the long-range OASDI actuarial balance is negligible (between -0.005 and 0.005 percent of taxable payroll).
The third significant change increases the income from taxation of benefits. Based on estimates provided by the Office of Tax Analysis at the Department of Treasury, the ultimate projected ratio of income from taxation of benefits to total benefits was increased. This change increased the long-range OASDI actuarial balance by about 0.02 percent of taxable payroll.
Finally, changes in projected OASI beneficiaries and benefit levels over the first 10 years of the projection period, updating programmatic data, other small methodological improvements, and interactions decreased the long-range OASDI actuarial balance by about 0.02 percent of taxable payroll.
Figure IV.B4 compares the annual cash-flow balances for this report and the prior year’s report for the combined OASDI program over the long-range (75-year) projection period. The figure illustrates the annual effects of the changes described earlier in this section.
Compared to last year’s report, the annual balance (income rate minus cost rate) in this year’s report is about 0.1 percentage point more negative throughout the projection period, primarily reflecting revised economic and programmatic starting levels. In particular, the level of average taxable earnings is significantly lower in the initial years of the projection period. Compared to last year’s report, real growth in average taxable earnings for 2013 is 0.4 percent lower and real earnings growth over the period from 2013 through 2023 is 1 percent lower. By 2087, the annual deficit is 4.85 percent of taxable payroll in this report, compared to 4.77 percent in last year's report.
 

1
See Appendix F.

2
Adjustments include adding deemed wage credits based on military service for 1983-2001 and reflecting the lower effective tax rates (as compared to the combined employee-employer rate) that apply to multiple-employer “excess wages.” Lower rates also applied to net earnings from self-employment before 1984 and to income from tips before 1988.

3
As noted in greater detail in the 2014 Medicare Trustees Report, “The trust fund perspective does not encompass the interrelationship between the Medicare and Social Security trust funds and the overall Federal budget.” For an explanation of that relationship, see appendix F of the 2014 Medicare Trustees Report.

4
The indicated increase in the payroll tax rate of 2.99 percent is somewhat larger than the 2.88 percent 75‑year actuarial deficit because the indicated increase reflects a behavioral response to tax rate changes. In particular, the calculation assumes that an increase in payroll taxes results in a small shift of wages and salaries to forms of employee compensation that are not subject to the payroll tax.


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