2004 OASDI Trustees Report 

VI. APPENDICES
This appendix chronicles the history of the principal summary measure of longrange actuarial status, namely the actuarial balance, since 1983. The 1983 report was the last report for which the actuarial balance was positive. Actuarial balance is defined in detail in chapter IV, Actuarial Estimates. Conceptually, the two basic components of actuarial balance are the summarized income rate and the summarized cost rate. Both rates are expressed as percentages of taxable payroll. For any given period, the actuarial balance is the difference between the present value of tax income for the period, and the present value of the cost for the period, each divided by the present value of taxable payroll for all years in the period. Also included in the calculation of the actuarial balance are:
It should be noted that the current method of calculating the actuarial balance based on present values, though used prior to the 1973 Annual Report, was not used for the annual reports of 197387. Instead, a simpler method that approximates the results of the presentvalue approach, called the averagecost method, was used during that period. Under the averagecost method, the sum of the annual cost rates (which are expressed as percentages of taxable payroll) over the 75year projection period was divided by the total number of years, 75, to obtain the average cost rate per year. The average income rate was similarly calculated, and the difference between the average income rate and the average cost rate was called the actuarial balance.
In 1973, when the averagecost method was first used, the longrange financing of the program was more nearly on a payasyougo basis. Also, based on the longrange demographic and economic assumptions then being used, the annual rate of growth in taxable payroll was about the same as the annual rate at which the trust funds earned interest. In either situation (i.e., payasyougo financing, where the annual income rate is the same as the annual cost rate, or an annual rate of growth in taxable payroll equal to the annual interest rate), the averagecost method produces the same result as the presentvalue method. However, by 1988, neither of these situations still existed.
As a result of legislation enacted in 1977 and in 1983, substantial increases in the trust funds were estimated to occur well into the 21st century, so that the program was partially advance funded, rather than being funded on a payasyougo basis. Also, because of reductions in longrange fertility rates and average realwage growth that were assumed in the annual reports over the period 197387, the annual rate of growth in taxable earnings assumed for the long range became significantly lower than the assumed interest rate. Therefore, during the period 197387, the results of the averagecost method and the presentvalue method began to diverge, and by 1988 they were quite different. While the averagecost method still accounted for most of the effects of the assumed interest rate, it no longer accounted for all of the interest effects. The presentvalue method, of course, does account for the full effect of the assumed interest rates. So, in 1988, the presentvalue method of calculating the actuarial balance was reintroduced.
A positive actuarial balance indicates that estimated income is more than sufficient to meet estimated trust fund obligations for the period as a whole. A negative actuarial balance indicates that estimated income is insufficient to meet estimated trust fund obligations for the entire period. An actuarial balance of zero indicates that the estimated income exactly matches estimated trust fund obligations for the period.
Table VI.B1 shows the estimated OASDI actuarial balances, as well as the summarized income and cost rates, for the annual reports 19832003, along with the estimates for the current report. The values shown are based on the alternative II assumptions, or alternative IIB for years prior to 1991.
Year of report

Summarized
income rate 
Summarized
cost rate 
Actuarial
balance 
Change from
previous year 

1983

12.87

12.84

+0.02

+1.84

1984

12.90

12.95

.06

.08

1985

12.94

13.35

.41

.35






1986

12.96

13.40

.44

.03

1987

12.89

13.51

.62

.18

1988

12.94

13.52

.58

+.04

1989

13.02

13.72

.70

.13

1990

13.04

13.95

.91

.21






1991

13.11

14.19

1.08

.17

1992

13.16

14.63

1.46

.38

1993

13.21

14.67

1.46


1994

13.24

15.37

2.13

.66

1995

13.27

15.44

2.17

.04






1996

13.33

15.52

2.19

.02

1997

13.37

15.60

2.23

.03

1998

13.45

15.64

2.19

+.04

1999

13.49

15.56

2.07

+.12

2000

13.51

15.40

1.89

+.17






2001

13.58

15.44

1.86

+.03

2002

13.72

15.59

1.87

.01

2003

13.78

15.70

1.92

.04

2004

13.84

15.73

1.89

+.03

1Values shown are based on the alternative II assumptions for 19912004, and on the alternative IIB assumptions for 198290. 2Between 0.005 and 0.005 percent of taxable payroll. 
Note: Totals do not necessarily equal the sums of rounded components.
For several of the years included in the table, significant legislative changes or definitional changes affected the estimated actuarial balance. The Social Security Amendments of 1983 accounted for the largest single change in recent history. The actuarial balance of 1.82 for the 1982 report improved to +0.02 for the 1983 report. In 1985, the estimated actuarial balance changed largely because of an adjustment made to the method for estimating the age distribution of immigrants.
Rebenchmarking of the National Income and Product Accounts and changes in demographic assumptions contributed to the change in the actuarial balance for 1987. Various changes in assumptions and methods for the 1988 report had roughly offsetting effects on the actuarial balance. In 1989 and 1990, changes in economic assumptions accounted for most of the changes in the estimated actuarial balance. In 1991, the effect of legislation, changes in economic assumptions, and the introduction of the cost of reaching and maintaining an ending trust fund target combined to produce the change in the actuarial balance. In 1992, changes in disability assumptions and the method for projecting average benefit levels accounted for most of the change in the actuarial balance. In 1993, numerous small changes in assumptions and methods had offsetting effects on the actuarial balance. In 1994, changes in the realwage assumptions, disability rates, and the earnings sample used for projecting average benefit levels accounted for most of the change in the actuarial balance. In 1995, numerous small changes had largely offsetting effects on the actuarial balance, including a substantial reallocation of the payroll tax rate, which reduced the OASI actuarial balance, but increased the DI actuarial balance. In 1996, a change in the method of projecting duallyentitled beneficiaries produced a large increase in the actuarial balance, which almost totally offset decreases produced by changes in the valuation period and in the demographic and economic assumptions. Various changes in assumptions and methods for the 1997 report had roughly offsetting effects on the actuarial balance. In 1998, increases caused by changes in the economic assumptions, although partially offset by decreases produced by changes in the valuation period and in the demographic assumptions, accounted for most of the changes in the estimated actuarial balance. In 1999, increases caused by changes in the economic assumptions (related to improvements in the CPI by the Bureau of Labor Statistics) accounted for most of the changes in the estimated actuarial balance. For the 2000 report, changes in the actuarial balance resulted from changes in economic assumptions and methodology; however, these increases in the balance were partially offset by reductions caused by the change in valuation period and changes in demographic assumptions. For the 2001 report, increases caused by changes in the demographic starting values, although partially offset by a decrease produced by the change in the valuation period, accounted for most of the changes in the estimated actuarial balance. For the 2002 report, the changes in the valuation period and the demographic assumptionsboth decreases in the actuarial balancewere offset by changes in the economic assumptions, while the increase due to disability assumptions was slightly more than offset by the decrease due to changes in the projection methods and data. For the 2003 report, the increase due to the change in program assumptions was more than offset by decreases due to the change in valuation period and changes in demographic assumptions. Changes affecting the actuarial balance shown for the 2004 report are described in section IV.B.8.
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