1997 OASDI Trustees Report

I. CONCLUSION

As we have reported for the last several years, the combined OASI and DI Trust Funds are adequately financed over the next 10 years, and for many years thereafter, but the program is not in close actuarial balance over the next 75 years. Thus, the combined funds meet the short-term solvency test under all three sets of assumptions, but not the long-term test.

1. Short-Term Status

At the beginning of 1997, the combined assets of the trust funds represented 153 percent of estimated expenditures in 1997. Under both the intermediate and low cost assumptions, the combined funds, as well as the ratio of fund assets at the beginning of a year to annual expenditures, are projected to grow during the next 10 years and for several years thereafter. However, under the high cost assumptions, while the assets of the combined funds continue to grow throughout the next 10 years, the trust fund ratio would be lower at the beginning of 2002, and each year thereafter, than it was at the beginning of the previous year. Both the OASI and DI Trust Funds separately meet the short-term solvency test.

2. Long-Term Status

Although the combined trust funds are well financed over the next 10 years, the OASDI program is not in close actuarial balance over the full 75-year projection period and therefore does not meet the long-term solvency test. The estimated actuarial balance is a deficit of 2.23 percent of taxable payroll over the next 75 years, based on the intermediate assumptions. The combined OASI and DI Trust Funds would become exhausted in 2029 without corrective legislation. At that time, annual tax revenues of the combined trust funds would be less than expenditures by 4.26 percent of taxable earnings and would be sufficient to cover only about 3/4 of annual expenditures.

The intermediate estimates indicate that the combined trust funds would be sufficient to enable the timely payment of benefits for the next 32 years. Relative to annual expenditures, the combined trust funds would continue to grow during the next 14 years, reaching a peak of about 2.6 times annual expenditures. Considering each fund separately, the OASI Trust Fund would have sufficient funds for the next 34 years, and the DI Trust Fund for the next 18 years, to enable timely payment of benefits. Based on the high cost assumptions, the combined funds would be sufficient to enable the timely payment of benefits only for the next 21 years.

For each of the next 15 years, OASDI income from contributions on earnings and income taxes on benefits is expected to exceed total expenditures. Starting in about 2010, however, OASDI costs, relative to taxable earnings, are expected to begin increasing rapidly as the "baby-boom" generation reaches retirement age. In contrast, the program's income from contributions on taxable earnings and income taxes on benefits will remain a relatively constant percentage of taxable payroll.

Therefore, the OASDI cost rate is estimated to exceed the income rate from 2012 through the end of the projection period, with the shortfall reaching 5.90 percent of taxable earnings by 2071, the last year of the 75-year period. Based on the less favorable conditions assumed for the high cost estimates, the crossover point would be reached in 2001, and the shortfall would grow eventually to be 15.09 percent of taxable earnings by 2071.

Although OASDI annual balances become negative in 2012 in the intermediate case, the availability of interest earnings results in continued trust fund growth until 2019. Because expenditures are estimated to increase faster than assets, however, OASDI assets would decline relative to annual expenditures, from about 2.6 to about 2.1 times annual expenditures, during the same period.

3. Recommendations

In view of the lack of close actuarial balance in the OASDI program over the next 75 years, we again urge that the long-range deficits of both the OASI and DI Trust Funds be addressed in a timely way. Because the DI Trust Fund is expected to be depleted several years earlier than the OASI Trust Fund, and because DI program growth has fluctuated widely in the past, it is essential that the DI program's future experience be monitored closely.

It is important to address both the OASI and DI problems soon to allow time for phasing in any necessary changes and for workers to adjust their retirement plans to take account of those changes. The proposals in the recent Advisory Council Report and others being advanced by public officials and private organizations should be carefully evaluated by the government and the public. It is essential that the financial status of the Social Security program be strengthened and maintained.

However, we continue to believe there is ample time to discuss and evaluate alternative solutions with deliberation and care. The size of the long-range deficit is such that long-range balance can be restored within the framework of the present program, or through plans that involve some structural change. Nonetheless, the impact of any required changes will be less disruptive the sooner they are enacted.

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