2016 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 horizon.1 This section presents two summarized measures: the actuarial balance and 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 IV.B2 shows the separate components of the annual income rates.
Table IV.B1 presents a comparison of the estimated annual income rates and cost rates by trust fund and alternative. Table IV.B2 shows the separate components of the annual income rates.
Under the intermediate assumptions, the Trustees project that the OASI income rate will decline from 11.15 percent of payroll for 2015 to 10.58 percent of payroll for 2016. This temporary reduction results from the payroll tax rate reallocation of 0.57 percentage point from OASI to DI for 2016 through 2018 enacted in the Bipartisan Budget Act of 2015. After returning to the pre-reallocation level for 2019, the income rate will rise at a very gradual rate to 11.47 percent of taxable payroll for 2090. 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 decrease from 20163 to 2017 primarily because the projected percentage increase in average taxable earnings is greater than the projected increase in the average benefit from 2016 to 2017, largely due to the small 0.2 percentage point projected COLA for December 2016. From 2017 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 2038 to 2051, the cost rate declines because the aging baby-boom generation is gradually replaced at retirement ages by the historically low-birth-rate generation born between 1966 and 1989. After 2051, the projected OASI cost rate generally rises slowly, reaching 15.42 percent of taxable payroll for 2090, primarily because of projected reductions in death rates at higher ages.
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 2033 at 12.43 percent of payroll. The cost rate then declines to 11.41 percent for 2054, rises to 11.57 percent for 2070, and declines again to 11.17 percent for 2084 before rising to 11.31 percent for 2090, at which point the income rate reaches 11.23 percent. For the high-cost assumptions, the OASI cost rate rises throughout the 75-year period. It rises relatively rapidly through about 2039 because of the aging of the baby-boom generation. Thereafter, the cost rate continues to rise and reaches 21.71 percent of payroll for 2090, 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 is temporarily higher for years 2016 through 2018 because of the 0.57‑percentage-point payroll tax rate reallocation from OASI to DI. After returning to the pre-reallocation level for 2019, the annual deficit then rises relatively rapidly from 0.76 percent for 2019 to 3.20 percent for 2038. It then declines to 2.81 percent of payroll for 2051, and generally rises thereafter, reaching 3.96 percent of taxable payroll for 2090.
Under the low-cost assumptions, after the 2016-2018 payroll tax rate reallocation period, the annual deficit rises from 0.23 percent of payroll for 2019 to 1.17 percent of payroll for 2033. Then the annual deficit generally declines until it becomes a positive annual balance for 2082. The annual balance turns negative again for 2088, reaching a deficit of 0.09 percent of payroll for 2090. Under the high-cost assumptions, the OASI balance worsens throughout the projection period. Annual deficits rise to 1.84 percent for 2020, 6.22 percent for 2050, and 9.87 percent of payroll for 2090.
Income
rate a
Cost
rateb

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

b
Benefit payments which were scheduled to be paid on January 3 for some past and future years were actually paid on December 31 as required by the statutory provision for early delivery of benefit payments when the normal payment delivery date is a Saturday, Sunday, or legal public holiday. For comparability with the values for historical years and the projections in this report, all trust fund operations and asset reserves reflect the 12 months of benefits scheduled for payment each year.

c
The annual balance is projected 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 2.47 percent for 2012 due to the recent economic recession. Under the intermediate assumptions, the projected DI cost rate generally declines to 1.99 percent for 2032, and then generally increases gradually to 2.19 percent for 2056. From 2056 to 2079, the DI cost rate stays relatively stable before increasing slowly to 2.25 percent of payroll for 2090. Because of the temporary 2016-18 payroll tax rate reallocation, the income rate increases to between 2.37 and 2.40 percent of payroll for those years. The income rate drops to 1.85 percent of payroll for 2019 and then increases only very slightly to 1.86 percent for 2090. The annual balance is positive for years 2016 through 2018, reflecting the reallocation. Thereafter, the annual deficit reappears, but generally declines from 0.26 percent for 2019 to a low of 0.15 percent for 2032, and then generally increases to 0.39 percent for 2090.
Under the low-cost assumptions, the DI cost rate declines from 2.47 percent of payroll for 2012 to 1.47 percent for 2039, and remains relatively stable thereafter, reaching 1.53 percent for 2090. The annual balance is positive for 2016 through 2018, negative for 2019 through 2020, and is positive throughout the remainder of the long-range period. Under the high-cost assumptions, the DI cost rate generally rises throughout the projection period, reaching 3.18 percent for 2090. The annual deficit is negative from 2019 through the remainder of the projection period, reaching 0.53 percent for 2019, 1.13 percent for 2050, and 1.30 percent for 2090.
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 except for the 2016-2018 payroll tax rate reallocation. 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 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 decrease from about 5.0 percent of GDP for 2016 to about 4.9 percent of GDP for 2017, and then increase to a peak of about 6.0 percent for 2037. After 2037, OASDI cost as a percentage of GDP declines to a low of about 5.9 percent for 2051 and thereafter generally increases slowly, reaching about 6.1 percent by 2090. Appendix G presents full estimates of income and cost relative to GDP.
Table IV.B2 contains historical and projected annual income rates and their components by trust fund and alternative. The annual income rates consist of the scheduled payroll tax rates, the rates of income from taxation of benefits, and the rates of income from General Fund reimbursements. Projected income from taxation of benefits increases over time for reasons discussed on page 56. Historical General Fund reimbursements include temporary reductions in revenue due to reduced payroll tax rates and certain other miscellaneous items.
General Fund Reim-burse-mentsa
Totalb

a
Includes payroll tax revenue forgone under the provisions of Public Laws 111-147, 111-312, 112-78, and 112-96, and other miscellaneous reimbursements.

b
Values exclude interest income.

c
Between -0.005 and 0.005 percent of taxable payroll.

Note: Totals do not necessarily equal the sums of rounded components.
2. Comparison of Workers to Beneficiaries
Under the intermediate assumptions, the Trustees project the OASDI cost rate will rise rapidly between 2017 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 relatively 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 that lower fertility rates will persist for all future generations; 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.B3 provides a comparison of the numbers of covered workers and beneficiaries.
Covered
workersa
(in thousands)
Beneficiariesb (in thousands)
OASDIc

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.

c
This column is the sum of OASI and DI beneficiaries. A small number of beneficiaries receive benefits from both funds.

Notes:
1. The number of beneficiaries does not include uninsured individuals who received benefits under Section 228 of the Social Security Act. The General Fund of the Treasury reimbursed 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 2015 level of 35 beneficiaries per 100 covered workers, the Trustees project that this ratio rises to 46 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 50 under the intermediate assumptions and 63 under the high-cost assumptions. Under the low-cost assumptions, this ratio rises to 43 by 2035 and then declines, reaching 40 by 2090. 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.B3 also shows the number of covered workers per OASDI beneficiary, which was about 2.8 for 2015. Under the low-cost assumptions, this ratio declines to 2.3 for 2035, generally rises from 2035 through 2080, and remains relatively stable at 2.5 through 2090. Under the intermediate assumptions, this ratio declines generally throughout the long-range period, reaching 2.2 for 2035 and 2.0 by 2090. Under the high-cost assumptions, this ratio decreases steadily to 1.6 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 a very 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.
Table IV.B4 shows the Trustees’ projections of trust fund ratios by alternative, without regard to advance tax transfers that would be effected, for the separate and 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 357 percent at the beginning of 20164 until the trust fund reserves become depleted in 2035 (the same year as projected in last year’s report), at which time 77 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 reduced employment and increased disability claims during the recent recession), reaching 21 percent at the beginning of 2016. The 0.57-percentage-point reallocation of payroll tax rate (for 2016 through 2018) from OASI to DI will increase the trust fund ratio to 48 percent at the beginning of 2019. After 2019, the trust fund ratio declines until the trust fund reserves become depleted in 2023, at which time 89 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 303 percent at the beginning of 2016 until the combined fund reserves become depleted in 2034 (the same year as projected in last year’s report), at which time 79 percent of scheduled benefits would be payable.
Under the low-cost assumptions, the trust fund ratio for the DI program increases from 22 percent at the beginning of 2016 to 66 percent at the beginning of 2019, again reflecting the temporary payroll tax rate reallocation. The DI trust fund ratio is then stable through 2023 and thereafter increases through the end of the long-range projection period, reaching the extremely high level of 1,930 percent for 2091. For the OASI program, the trust fund ratio generally declines steadily, from 357 percent for 2016 to 35 percent for 2091. The expectation would be for the OASI Trust Fund reserves to become depleted several years after the 75-year projection period. For the combined OASDI program, the trust fund ratio declines from 304 percent for 2016 to a low of 142 percent in 2044, then rises thereafter reaching 260 percent by 2091. 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 DI program and the combined OASDI program achieve sustainable solvency.
Under the high-cost assumptions, the OASI trust fund ratio declines continually until reserves become depleted in 2030, at which time 69 percent of scheduled benefits would still be payable. The DI trust fund ratio stays relatively stable between 21 and 25 percent through 2019 because of the payroll tax rate reallocation, but reserves decline quickly after that and become depleted in 2020. At that time, 76 percent of scheduled benefits would still be payable. The combined OASI and DI trust fund ratio declines from 302 percent for 2016 until reserves become depleted in 2029, at which time 71 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 Funds and the individual OASI and DI Trust Funds 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 2029. Under the intermediate assumptions, the combined starting fund reserves plus estimated future income are sufficient to fully cover cost until 2034. In the 2015 report, the Trustees projected that the combined trust fund reserves would become depleted in 2028 and 2034 under the high-cost and intermediate assumptions, respectively, and would achieve sustainable solvency under the low-cost assumptions.
Table IV.B4.—Trust Fund Ratios, Calendar Years 2016-2090a

a
Benefit payments which were scheduled to be paid on January 3 for some past and future years were actually paid on December 31 as required by the statutory provision for early delivery of benefit payments when the normal payment delivery date is a Saturday, Sunday, or legal public holiday. For comparability with the values for historical years and the projections in this report, all trust fund ratios reflect the 12 months of benefits scheduled for payment each year.

b
Trust fund reserves would be depleted at the beginning of this year.

c
Trust fund reserves would 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 hypothetical.
Since 2013, when the Trustees modified the test of long-range close actuarial balance, the standard for each trust fund requires meeting two conditions: (1) the test of short-range 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 test of short-range financial adequacy under the intermediate assumptions because trust fund reserves become depleted in the third quarter of 2023. Under the intermediate assumptions, the OASI Trust Fund reserves become depleted in 2035, and the combined OASI and DI Trust Fund reserves become depleted in 2034. Therefore, the OASI, DI, and combined OASI and DI Trust Funds all fail the long-range test of close actuarial balance.
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.B5 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 53. 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. Note that solvency is possible with a small negative actuarial balance where reserves are still positive.5
Table IV.B5 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 0.24 percent of taxable payroll under the low-cost assumptions, ‑1.48 percent under the intermediate assumptions, and -3.53 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 assumptions.
For the 50‑year valuation period, the OASDI program has actuarial balances of 0.19 percent under the low-cost assumptions, ‑2.23 percent under the intermediate assumptions, and ‑5.23 percent under the high-cost assumptions. These actuarial balances mean that the OASDI program is adequately financed for the 50‑year valuation period under only the low-cost assumptions.
For the entire 75-year valuation period, the combined OASDI program has actuarial balances of 0.22 percent of taxable payroll under the low-cost assumptions, ‑2.66 percent under the intermediate assumptions, and ‑6.30 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 14.98 percent (a relative increase of 20.8 percent), cost could be reduced in a manner equivalent to an immediate and permanent reduction in scheduled benefits of about 16 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 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 15.15 percent (a relative increase of 22.2 percent),6 reducing cost in a manner equivalent to an immediate reduction in scheduled benefits of about 17 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 4.35 percent of payroll for 2090 (see table IV.B1). These large deficits indicate that annual cost continues to exceed non-interest income after 2090, 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 4.0 percent of payroll under the intermediate assumptions.
Under the intermediate assumptions, the financial shortfall of the DI program is larger 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, the financial shortfall for the OASI program is larger than that of the DI program, measured relative to the level of program cost. Increases in longevity after 2027, when the age of conversion from disabled-worker benefits to retired-worker benefits 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 shortfall for the OASI program in the later portion of the 75‑year projection period is larger than the financial shortfall for the DI program.
Beginning
asset reservesa

a
Benefit payments which were scheduled to be paid on January 3 for some past and future years were actually paid on December 31 as required by the statutory provision for early delivery of benefit payments when the normal payment delivery date is a Saturday, Sunday, or legal public holiday. For comparability with the values for historical years and the projections in this report, all trust fund operations and asset reserves reflect the 12 months of benefits scheduled for payment each year.

Note: Totals do not necessarily equal the sums of rounded components.
5. Open Group Unfunded Obligation
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 2090. 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 2090.
The open group unfunded obligation increased from $10.7 trillion shown in last year's report to $11.4 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 $11.2 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, 2016, rather than to January 1, 2015, which tends to increase the unfunded obligation by the annual nominal interest rate; and (2) the unfunded obligation now includes an additional year (2090). However, changes in the law, assumptions, methods, and starting values resulted in a net $0.2 trillion increase in the unfunded obligation.
The 75-year unfunded obligation is equivalent to 2.49 percent of future OASDI taxable payroll and 0.9 percent of GDP through 2090. These percentages were 2.53 and 0.9, respectively, for last year’s report. The 75-year unfunded obligation as a percentage of taxable payroll is less than the actuarial deficit, because the unfunded obligation excludes the cost of having an ending target trust fund value.
The actuarial deficit was 2.68 percent of payroll in last year’s report, and was expected to increase to a deficit of 2.74 percent of payroll solely due to the change in the valuation period. Changes in the law, assumptions, methods, and starting values combined to account for a 0.08 percent decrease (improvement) in the actuarial deficit to 2.66 percent of payroll. For additional details on these changes, see section IV.B.6.
As mentioned above, the open group unfunded obligation expressed in dollars increased (worsened) more than would be expected from changing the valuation period alone. In large part, this increase occurred because near-term and ultimate real interest rates are significantly reduced in this report, thus discounting more distant years’ annual shortfalls less. The actuarial balance, in contrast, increased (improved) relative to the change based on the valuation period effect alone. Lower interest rates have a much smaller worsening effect on the actuarial balance because interest rate changes affect the numerator and denominator similarly.
Table IV.B6 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 $11.4 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 ‑$12.1 trillion for the OASDI program.
E.

a
Less than $0.5 billion.

b
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.
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 52.)
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 4.0 percent of taxable payroll or 1.4 percent of GDP. These percentages were 3.9 and 1.3, respectively, for last year’s report. 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.B7 shows the effects of changes on the long-range actuarial balance under the intermediate assumptions, 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 2090. 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, projections in this report also reflect changes in law, data, assumptions, and methods. These changes, including the change in the valuation period, combined to improve the long-range OASDI actuarial balance, from -2.68 percent of taxable payroll in last year’s report to -2.66 percent in this report.
Since the last report, one law was enacted that is expected to have a significant effect on the long-range cost of the OASDI program. On November 2, 2015, the President signed into law Public Law 114-74, the Bipartisan Budget Act of 2015. Several sections of the law had significant effects on long-range actuarial status, including:
Overall, the effects of this law are projected to increase the long-range OASDI actuarial balance by 0.03 percent of taxable payroll.
Changing the 75-year valuation period from 2015 through 2089 to 2016 through 2090 decreased (worsened) the projected long-range OASDI actuarial balance by 0.06 percent of taxable payroll. This decrease is mainly the result of including the relatively large negative annual balance for 2090 in this year’s 75-year projection period. Note that the actuarial balance calculation 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, including 2015.
With the exception of a small change in marriage rates, ultimate demographic assumptions are unchanged from those in last year’s report. All changes in demographic data and assumptions combined to have a negligible net effect on the long-range OASDI actuarial balance. The following paragraph describes four of the demographic assumptions and data changes that, individually, had significant effects on the long-range OASDI actuarial balance.
First, final fertility (birth) data for 2013 and 2014 indicate slightly lower birth rates than were assumed for last year’s report for these years. The data also show an increase in birth rates starting in 2014, one year later than assumed in last year’s report. As in last year’s report, the estimates reflect: (1) the effect of the recent economic recession on the total fertility rate for recent years and (2) the assumption that the total fertility rate will rebound to a level temporarily above the ultimate level and will subsequently decline to the ultimate level. This year’s estimates use a slightly smaller rebound in the path to the ultimate total fertility rate, which is again reached in 2027. These changes in historical and projected birth rates decreased the long-range OASDI actuarial balance by about 0.03 percent of taxable payroll. Second, incorporating mortality data obtained from the National Center for Health Statistics at ages under 65 for 2012 and 2013 and from Medicare experience at ages 65 and older for 2013 resulted in slightly higher death rates than were projected in last year’s report. These updated data combined to increase the long-range OASDI actuarial balance by about 0.04 percent of taxable payroll. Third, the assumed ultimate marriage rates were decreased somewhat to reflect a continuation of recent trends. This change increased the actuarial balance by 0.01 percent of taxable payroll. Fourth, including more recent legal and other-than-legal immigration data and updating historical population data combined to decrease the long-range OASDI actuarial balance by 0.02 percent of taxable payroll.
Overall, changes in ultimate and near-term economic data and assumptions decreased the actuarial balance by 0.07 percent of payroll. The following paragraph describes the ultimate economic assumptions that had significant effects on the long-range OASDI actuarial balance.
Three ultimate economic assumptions in this year’s report were changed from the values used in last year’s report. First, the ultimate rate of price inflation (CPI-W) was lowered by 0.1 percentage point, from 2.7 percent for last year’s report to 2.6 percent for this year’s report. While very low inflation in recent years is reflective of U.S. and international supply and demand factors that have been affected by the global recession, the average rate of change in the CPI-W over the last two complete business cycles (from 1989 to 2007) is 2.63 percent. This change decreases the OASDI actuarial balance by 0.02 percent of payroll. Second, the ultimate average real wage differential is 1.20 percent per year in this report, increased from the 1.17 percent in last year’s report. This change increased the long-range OASDI actuarial balance by 0.05 percent of taxable payroll. The higher real wage differential assumption is based on new projections by the Centers for Medicare and Medicaid Services of slower growth in employer sponsored group health insurance premiums. Because these premiums are not subject to the payroll tax, slower growth in these premiums means that a greater share of employee compensation will be in the form of wages that are subject to the payroll tax. Third, the ultimate real interest rate was lowered by 0.2 percentage point, from 2.9 percent for last year’s report to 2.7 percent for this year’s report. Real interest rates have been low since 2000, and particularly low since the start of the recent recession. An ongoing and much-debated question among experts is how much of this change is cyclic or a temporary response to extraordinary events, versus a fundamental permanent change. The Trustees believe that lowering the long-term ultimate real interest rate somewhat is appropriate at this time. This change decreased the OASDI actuarial balance by 0.08 percent of payroll.
In addition to the three changes in ultimate economic assumptions, updated starting values and changes in near-term economic assumptions combined to decrease the long-range OASDI actuarial balance slightly. In particular, this report reflects the July 2015 revisions in historical GDP estimated by the Bureau of Economic Analysis of the Department of Commerce and further assumed reductions in the ultimate level of actual and potential GDP of about 0.8 percent. Beyond this revision, a further reduction in the ultimate level of actual and potential GDP of about 1 percent is assumed. Thus, by the end of the short-range period (2025) and for all years thereafter, projected GDP in 2009 dollars is about 1.8 percent below the level in last year's report. These changes to assumed actual and potential GDP decreased the actuarial balance by about 0.03 percent of taxable payroll. Other changes to starting values and near-term economic assumptions combined for a net increase the actuarial balance of 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, programmatic data updates, and interactions combined to increase the long-range OASDI actuarial balance by 0.11 percent of taxable payroll. Descriptions of six significant methodological changes and programmatic data updates follow.
First, for this year’s report, the transition from recent mortality rates to the ultimate rates starts sooner, immediately after the year of final data. The approach used for the 2015 report extended the trend of the last 10 years through the valuation year for the report and only thereafter started the transition to assumed ultimate rates of decline. The new approach will make the projections less influenced by recent fluctuations in the rate of improvement in mortality, thus diminishing volatility from one report to the next. This methodological improvement increased the long-range OASDI actuarial balance by 0.03 percent of taxable payroll.
Second, several improvements were made to immigration methods. Historical non-immigrant population counts were revised to match recent totals provided by the Department of Homeland Security. In addition, emigration rates for the never-authorized and visa-overstayer populations were recalibrated to reflect a longer historical period and to be less influenced by the high emigration rates experienced during the recent recession. Finally, the method for projecting emigration of the never-authorized population was altered to reflect lower rates of emigration for those who have resided here longer. These methodological improvements increased the long-range OASDI actuarial balance by 0.09 percent of taxable payroll.
The third significant change was an improvement in the method for disaggregating the other-than-legal population in order to assign them appropriate earnings and quarters of coverage. This change led to a small decrease in the number of covered workers and number of insured workers, and decreased the actuarial balance by 0.01 percent of payroll.
Fourth, enhancements were made to methods for modeling the number of beneficiaries utilizing “claiming strategies” to better reflect their growing popularity and the growth in the underlying population eligible to use the strategies. This year’s report also incorporates new historical data, which allowed projection of “deemed filer” aged spouses by sex and marital status. These improved methods for modeling claiming strategies were incorporated prior to estimating the effects of elimination of such strategies per the Bipartisan Budget Act of 2015, described above. These methodological changes decreased the actuarial balance by 0.01 percent of payroll, which was offset by the changes made as a part of the Bipartisan Budget Act of 2015.
The fifth significant change relates to the long-range model for projecting average benefit levels of retired worker and disabled-worker beneficiaries newly entitled for benefits, which is based on a large sample of 10 percent of all newly entitled retired-worker beneficiaries in a recent year. The sample used in the 2015 report was for worker beneficiaries newly entitled in 2008. This year’s report uses the results from worker beneficiaries newly entitled in 2013. In addition, the method used to determine initial entitlements was improved, primarily to take into account the recent increase of “file and suspend” cases, which were not fully included under the previous methodology. Using this more recent sample and the associated method improvement increased the OASDI actuarial balance by 0.02 percent of payroll.
The sixth significant change is a programmatic data update that resulted in an increase in income from taxation of benefits in this year’s report. Recent data and estimates provided by the Office of Tax Analysis at the Department of Treasury indicate higher levels of revenue from taxation of OASDI benefits than projected in last year’s report. The increase in the near-term and ultimate projected ratios of income from taxation of benefits to benefits resulted in an increase in the long-range OASDI actuarial balance of 0.03 percent of taxable payroll.
In addition to these six significant methodological changes and programmatic data updates, changes in projected OASI and DI beneficiaries and benefit levels over the first 10 years of the projection period, updating other programmatic data, other small methodological improvements, and interactions combined to decrease the long-range OASDI actuarial balance by 0.04 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.
This pattern of differences between the annual balances (income rate minus cost rate) in the two reports is due to the changes described earlier in this section. The annual balances are higher (less negative) each year in this year’s report, with the exception of 2016 and 2023 through 2029, and average 0.20 percentage point higher over the 75-year projection period. For 2089, the projected annual deficit is 4.30 percent of taxable payroll in this report, compared to 4.65 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
Amounts for 2015 and 2016 are adjusted to include in 2016 operations those benefit payments regularly scheduled in the law to be paid on January 3, 2016, which were actually paid on December 31, 2015 as required by the statutory provision for early benefit payments when the normal delivery date is on a weekend or holiday. Such shifts in payments across calendar years have occurred in the past and will occur periodically in the future whenever January 3rd falls on a Sunday. In order to provide a consistent perspective on trust fund operations over time, all trust fund operations in each year reflect the 12 months of benefits that are regularly scheduled for payment in that year.

4
If the scheduled January 3, 2016 payment, actually paid on December 31, 2015, were counted as reducing trust fund reserves at the end of 2015 for presentation in this report, then the OASI trust fund ratio shown for 2016 would be 355 percent.

5
A program is solvent over any period for which the trust fund maintains a positive level of asset reserves. In contrast, the actuarial balance for a period includes the cost of having a target fund equal to 100 percent of the following year’s cost at the end of the period. Therefore, if a program ends the period with reserves that are positive but not sufficient to cover the following year’s costs, it will be solvent at the end of the period and yet still have a small negative actuarial balance for that period.

6
The indicated increase in the payroll tax rate of 2.75 percent is somewhat larger than the 2.66 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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