2018 OASDI Trustees Report

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IV. ACTUARIAL ESTIMATES
This chapter presents actuarial estimates of the future financial condition of the Social Security program. These estimates show the income, cost, and asset reserves or unfunded obligation of the OASI and DI Trust Funds: (1) in dollars over the 10‑year short-range period; and (2) as a percentage of taxable payroll, as a percentage of gross domestic product, and in present-value dollars over the 75‑year long-range period. In addition, the chapter discusses a variety of measures of the adequacy of current program financing. This report distinguishes between: (1) the cost (obligations) of the program, which includes all future benefits scheduled under current law; and (2) expenditures (disbursements), which include actual payments for the past plus only the portion of projected program cost that would be payable with the financing provisions in current law.
This chapter presents the estimates and measures of trust fund financial adequacy for the short-range period (2018 through 2027) first, followed by estimates and measures of actuarial status for the long-range period (2018 through 2092). Summary measures are also provided for trust fund status over the infinite horizon. As described in chapter II of this report, these estimates depend upon a broad set of demographic, economic, and programmatic factors. This chapter presents estimates under three sets of assumptions to show a wide range of possible outcomes, because assumptions related to these factors are subject to uncertainty. The intermediate set of assumptions, designated as alternative II, reflects the Trustees’ best estimate of future experience; the low-cost alternative I is significantly more optimistic and the high-cost alternative III is significantly more pessimistic for the trust funds’ future financial outlook. The tables of this report show the intermediate estimates first, followed by the low-cost and high-cost estimates. Chapter V describes these three sets of assumptions, along with the actuarial methods used to produce the estimates. Appendix D and appendix E present two additional methods to illustrate the uncertainty of the projections. Appendix D presents sensitivity analyses of the effects of variation in individual factors and appendix  E presents probability distributions generated by a stochastic model.
In this report, the DI Trust Fund reserve depletion date is again extended, as it was for the last two reports. The experience for disability beneficiaries and benefit levels following the last economic recession has not followed expectations, so substantial revisions have been required in the reports of 2016, 2017, and 2018.
In 2014, initial disability applications to the states’ Disability Determination Services (DDS) dropped by 4.2 percent. For the 2015 report, the Trustees assumed that applications would drop by another 1.0 percent in 2015, but the decline was actually 4.7 percent. This larger-than-anticipated decline in applications extended reserve depletion by about one year, in addition to the six-year extension due to the reallocation of tax rates included in the Bipartisan Budget Act of 2015. Together, these changes extended the DI Trust Fund reserve depletion year from 2016 for the 2015 report to 2023 for the 2016 report. The change in the reserve depletion date due to DI application experience in the 2016 report was relatively modest, because the Trustees had assumed a 9.1 percent rebound in applications for 2016. However, applications instead dropped again in 2016, by 7.2 percent. Largely on this basis, the 2017 report assumed a more gradual rise in applications after the very low level in 2016, with an increase of only 2.6 percent for 2017. This more gradual path resulted in an additional five-year extension of the projected DI reserve depletion date, to 2028 for the 2017 report.
However, applications once again dropped in 2017, by 4.2 percent, a yet lower starting point. For this report, the Trustees have assumed a steeper rise in applications and incidence rates in order to reach the unchanged ultimate levels of incidence rates by 2027. Even with this steep rise, applications and incidence rates are lower in this year’s report than in last year’s report for much of the first ten years of the projection period. The extension of the reserve depletion date from 2028 to 2032 for this report owes largely to this further drop in applications in 2017, partially mitigated by the more rapid rebound to the ultimate assumed level.
A further mitigating factor is that SSA expects to reduce the number of disability claims that are pending an Administrative Law Judge hearing over the next several years. The reduction has already begun, with the number of disability claims pending a hearing dropping somewhat in 2017. This effort to reduce the number of cases pending a hearing halted a steady rise in pending cases that started in 2011 in the wake of the recession. SSA projects that the number of cases pending a hearing will be reduced to the minimum level for cases in process, thus eliminating the “backlog” by the end of 2021. While this increase in hearings decisions through 2021 will tend to elevate benefit awards and incidence rates temporarily, it will also change the balance between benefit awards made at the DDS and at the hearings. This is significant, because the average monthly benefit level for claims awarded at hearings tends to be lower than for claims awarded earlier at the DDS. While the number of pending hearings was increasing between 2011 and 2016, and relatively few hearings decisions were made, benefit awards were made disproportionately from the earlier adjudicative DDS stages, so the average benefit level was relatively high. With the number of pending hearings dropping in 2017, at about the pace of declining initial disability applications, a more normal balance between hearing and earlier DDS awards has been restored. For 2017 and later, average awarded monthly benefit levels have been reduced somewhat below the levels anticipated in the 2017 report, because that report did not fully take into account the temporarily elevated level of recent average awarded monthly benefit amounts.
The effects of these factors related to disabled-worker beneficiaries and benefit levels, which are partially offset by lower payroll tax revenue in the near term, extended the projected year of DI Trust Fund reserve depletion another four years, to 2032.
A. SHORT-RANGE ESTIMATES
The Trustees consider the trust funds to be solvent at any point in time if the funds can pay scheduled benefits in full on a timely basis. A standard measure for assessing solvency is the “ trust fund ratio,” which is the reserves in a fund at the beginning of a year (not including advance tax transfers) expressed as a percentage of the cost during the year. A positive trust fund ratio indicates that the trust fund was solvent at the end of the prior year. The trust fund ratio represents the proportion of a year’s cost which the reserves available at the beginning of that year can cover. The Trustees assume that a trust fund ratio of 100 percent of annual program cost provides a reasonable “contingency reserve.” Maintaining a reasonable contingency reserve is important because the trust funds do not have borrowing authority. After reserves are depleted, the trust funds would be unable to pay benefits in full on a timely basis if annual revenue were less than annual cost. Unexpected events, such as severe economic recessions, can quickly diminish reserves. In such cases, a reasonable contingency reserve can maintain the ability to pay scheduled benefits while giving lawmakers time to address possible changes to the program.
The test of short-range financial adequacy applies to the OASI and DI Trust Funds individually and combined on a hypothetical basis.1 If the estimated trust fund ratio is at least 100 percent at the beginning of the projection period, the test requires that it remain at or above 100 percent throughout the 10-year period. If the ratio is initially less than 100 percent, then it must reach at least 100 percent within 5 years (without reserve depletion at any time during this period) and then remain at or above 100 percent throughout the remainder of the 10-year period. This test is applied using the estimates based on the intermediate assumptions. If either trust fund fails this test, then program solvency in the next 10 years is in question, and lawmakers should take prompt action to improve short-range financial adequacy.
1. Operations of the OASI Trust Fund
This subsection presents estimates, based on the assumptions described in chapter V, of the operations and financial status of the OASI Trust Fund for the period 2018 through 2027. These estimates assume that there are no further changes in the statutory provisions and regulations under which the OASDI program currently operates beyond the changes since last year’s report indicated in section III. B.2
Estimates of the OASI Trust Fund operations presented in Table  IV.A1 indicate that the asset reserves of the OASI Trust Fund are projected to decrease in all years after 2019 under the intermediate assumptions, increase in all years after 2018 under the low-cost assumptions, and decrease in all years through 2027 under the high-cost assumptions. Trust fund ratios decline throughout the 10-year projection period under all three sets of assumptions. Based on the intermediate assumptions, the reserves of the OASI Trust Fund continue to exceed 100 percent of annual cost through 2027. Consequently, the OASI Trust Fund satisfies the test of short-range financial adequacy. See figure  IV.A1 for an illustration of these results.
Table IV.A1.—Operations of the OASI Trust Fund, Calendar Years 2013-2027 a 
Costb
GF
reim-
burse-
mentsc
Taxa-
tion of
bene-fitsd
Trust
fund
ratio e
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f

a
Appendix A presents a detailed description of the components of income and cost, along with complete historical values.

b
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.

c
Includes reimbursements from the General Fund of the Treasury to the OASI Trust Fund for: (1) the cost of benefits to certain uninsured persons who attained age 72 before 1968; (2) the cost of payroll tax credits provided to employees in 1984 and self-employed persons in 1984-89 by Public Law 98-21; (3) the cost in 2009-17 of excluding certain self-employment earnings from SECA taxes under Public Law 110-246; and (4) payroll tax revenue forgone under the provisions of Public Laws 111-147, 111-312, 112-78, and 112-96.

d
Revenue from taxation of benefits is the amount that would be assessed on benefit amounts scheduled in the law.

e
The “Trust fund ratio” column represents reserves at the beginning of a year (which are identical to reserves at the end of the prior year shown in the “Amount at end of year” column) as a percentage of cost for the year.

f
Between -$50 million and $50 million.
Note: Totals do not necessarily equal the sums of rounded components.
 

The estimated income shown in table IV.A1 increases annually under each set of assumptions throughout the short-range projection period, with the exception of a small decrease in 2018 for the high-cost alternative. The estimated increases in income result primarily from the projected increases in OASDI taxable earnings. Employment increases in every year through 2027 for all three alternatives, with the exception of small decreases in covered employment in 2019 and 2020 for the high-cost alternative: the number of persons with taxable earnings increases under alternatives I, II, and III from 173 million during calendar year 2017 to about 189 million, 185 million, and 181 million, respectively, in 2027. The total annual amount of taxable earnings increases in every year through 2027 for each alternative. Total earnings increase from $6,983 billion in 2017 to $13,196 billion, $11,229 billion, and $9,491 billion in 2027, on the basis of alternatives I, II, and III, respectively. These increases in taxable earnings are due primarily to: (1) projected increases in employment levels as the working age population increases; (2) trend increases in average earnings in covered employment (reflecting both real growth and price inflation); (3) increases in the contribution and benefit base under the automatic-adjustment provisions; and (4) growth in employment and average earnings, temporarily higher than trend, as the economy continues to recover from the severe economic downturn that began in late 2007.
Interest earnings contribute to the overall projected level of trust fund income during this period. Interest income declines generally at a slow rate under the intermediate assumptions and much faster under the high-cost assumptions, and increases generally under the low-cost assumptions, due to the net effects of changes in reserve levels and the patterns of projected interest rates. Under the intermediate assumptions, interest also declines as a share of total OASI Trust Fund income reaching 6 percent of total trust fund income for 2027, as compared to 10 percent for 2017.
Rising OASI cost from 2017 through 2027 reflects automatic benefit increases as well as the upward trend in the number of beneficiaries and in the average monthly earnings underlying benefits. The steady growth in the number of OASI beneficiaries since 2009 and the expected future growth result both from the increase in the aged population and from the increase in the proportion of the population that is eligible for benefits.
The Treasury invests OASI income in financial securities, generally special public-debt obligations of the U.S. Government. The revenue used to make these purchases flows to the General Fund of the Treasury. The trust fund earns interest on these securities, and the Treasury invests the proceeds from maturing securities in new securities if not immediately needed to pay program costs. Program expenditures require the redemption of trust fund securities, generally prior to maturity, to cover the payments made by the General Fund of the Treasury on behalf of the trust fund.3
2. Operations of the DI Trust Fund
Table  IV.A2 shows the estimated operations and financial status of the DI Trust Fund during calendar years 2018 through 2027 under the three sets of assumptions, together with values for actual experience during 2013 through 2017. Non-interest income for DI is much higher in 2016 through 2018 than in 2015, due to the temporary payroll tax rate reallocation from OASI to DI. As a result, DI Trust Fund reserves increase in 2018 under each alternative. After returning to the ultimate allocation of tax rates in 2019, non-interest income is again less than DI cost except under the low-cost alternative. Non-interest income increases steadily thereafter under each alternative, due to most of the same factors described previously for the OASI Trust Fund.  DI cost grows steadily throughout the period under each alternative. Under the intermediate assumptions, reserves decline after 2018, but remain positive through 2027. Under the high-cost assumptions, DI reserves decline after 2018 until depletion in the fourth quarter of 2022. Under the low-cost assumptions, reserves increase throughout the short-range projection period except for a small decrease in 2019.
Taxa-
tion of
bene-fitsd
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
g
g
g
g
f
g
g
g
g
g
f
g
g
g
g
g
f
g
g
g
g
g
f
g
g
g
g
g
f
g
g
g
g

a
The DI Trust Fund reserves become depleted in the fourth quarter of 2022 under the high-cost assumptions. For any period during which reserves would be depleted, scheduled benefits could not be paid in full on a timely basis, income from taxing benefits would be less than would apply to scheduled benefits, and interest on trust fund reserves would be negligible. Appendix A presents a detailed description of the components of income and cost, along with complete historical values.

b
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.

c
Includes reimbursements from the General Fund of the Treasury to the DI Trust Fund for: (1) the cost of payroll tax credits provided to employees in 1984 and self-employed persons in 1984-89 by Public Law 98-21; (2) the cost in 2009-17 of excluding certain self-employment earnings from SECA taxes under Public Law 110‑246; and (3) payroll tax revenue forgone under the provisions of Public Laws 111-147, 111-312, 112-78, and 112-96.

d
Revenue from taxation of benefits is the amount that would be assessed on benefit amounts scheduled in the law.

e
The “Trust fund ratio” column represents reserves at the beginning of a year (which are identical to reserves at the end of the prior year shown in the “Amount at end of year” column) as a percentage of cost for the year.

f
Between -$50 million and $50 million.

g
While the fund is depleted, values under current law would reflect permissible expenditures only, which would be less than the cost of scheduled benefits shown in this table.
Note: Totals do not necessarily equal the sums of rounded components.

For the future, DI cost is projected to increase in part due to increases in average benefit levels resulting from: (1) automatic benefit increases and (2) projected increases in the amounts of average monthly earnings on which benefits are based. Future changes in DI cost also reflect changes in the number of DI beneficiaries in current-payment status. In 2017, the number of DI beneficiaries in current-payment status continued the declining trend of the prior three years. Under the intermediate assumptions, that number of DI beneficiaries is projected to drop further through the end of 2018, remain around the same level through 2020, then increase through the remainder of the short-range projection period. The increases after 2020 are at a much slower rate than was experienced on average from 1990 to 2010, due in large part to long-anticipated demographic trends and expected economic conditions, and in part to an expected continuation of recent low incidence rates through the first few years of the short-range period as discussed in section  V.C.5.
At the beginning of calendar year 2017, the reserves of the DI Trust Fund represented 32 percent of annual cost. During 2017, DI income substantially exceeded cost, and the estimated trust fund ratio for the beginning of 2018 increased to about 48 percent. Under the intermediate assumptions, the temporary reallocation of the payroll tax rate from OASI to DI causes DI total income to exceed cost in 2018, and reserves to increase to a level of 62 percent of annual cost at the beginning of 2019. Thereafter, cost exceeds total income throughout the short-range projection period and trust fund reserves steadily decline.
Because the reserves of the DI Trust Fund at the beginning of 2018 were less than the estimated annual cost for 2018, and are projected to remain below annual cost throughout the short-range period under the intermediate assumptions, the DI Trust Fund fails the Trustees’ test of short-range financial adequacy.
3. Operations of the Combined OASI and DI Trust Funds
Table IV.A3 shows the estimated operations and status of the combined OASI and DI Trust Funds for calendar years 2018 through 2027 under the three alternatives, together with actual experience in 2013 through 2017. Income and cost for the OASI Trust Fund represent over 80 percent of the corresponding amounts for the combined OASI and DI Trust Funds. Therefore, based on the relative strength of the OASI Trust Fund over the next 10 years, the combined OASI and DI Trust Funds would have sufficient financial resources to pay all scheduled benefits through the end of the short-range period, although it is important to note that under current law, one trust fund cannot share financial resources with another trust fund. In addition, the combined OASI and DI Trust Funds would satisfy the test of short-range financial adequacy.
Table IV.A3.—Operations of the Combined OASI and DI Trust Funds,
Calendar Years 2013-2027a 
GF
reim-
burse-
mentsc
Taxa-
tion
of bene-fitsd
Trust
fund
ratio e
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f