Statement by Dr. Shirley Charter,
Commissioner of Social Security
before the Senate Finance Committee
Subcommittee on Social Security and Family Policy

April 7, 1995

Mr. Chairman and Members of the Subcommittee:

Thank you for the opportunity to appear here today to iscuss the status of Social Security's Old Age and Survivors nsurance (OASI) and Disability Insurance (DI) trust funds.

I would like to focus first on the findings published in the 1995 Annual Report of the Board of Trustees, which was issued several days ago. I would then like to discuss steps we have aken, with the help of Congress, to address the short-term insolvency of the DI fund, and finally, I will also discuss the need to establish a climate of bipartisan consideration to ensure the long-term financial solvency of both the OASI and DI trust funds.

The 1995 Trustees Report

The Trustees' Report notes that, during calendar year 1994, OASDI benefits amounting to $316.8 billion were paid to retired and disabled workers and their families, and to survivors of deceased workers. At the end of last year, almost 43 million people were receiving OASDI benefits. In addition, almost 140 illion people worked in jobs covered by the OASDI program and paid OASDI contributions on their earnings. Income to the combined trust funds totaled $381.1 billion in 1994, and expenditures--the amount paid in benefits and administrative expenses--totalled $323 billion. I am pleased that the $2.7 billion cost of administering the OASDI program in 1994 was less than 1 percent of benefits paid during the year.

The Trustees develop three alternative sets of estimates based on varying economic and demographic assumptions to show a range of possibilities regarding the financial conditions of the trust funds. Designated as alternatives I, II, and III, these estimates range from low cost (alternative I) to high cost (alternative III). Alternative II, the intermediate set of assumptions, reflects the Trustees' best estimate of what future experience will be. I would like to stress, however, that these projections are not certainties, but only estimates based on anticipated trends and occurrences. The projections take into account fertility rates, mortality rates, net immigration rates, productivity increases, labor force participation rates, unemployment rates, consumer Price Index and other factors difficult to predict.

Under the 1995 Trustees' Report's intermediate assumptions, he assets of the combined OASI and DI trust funds are expected o grow until 2020, and then to decline until they would be exhausted in 2030, one year later than was projected in last year's Report. While in my testimony I will focus on the intermediate assumptions, it is worth noting that, even under the high-cost alternative III assumptions, the combined funds would high-cost alternative III assumptions, the combined funds would be sufficient to pay benefits for more than 20 years.

Impact of Trends and the Trustees' Report

Mr. Chairman, as you requested in your letter of invitation to today's hearing, I would like to address the issue of past or future trends, and how we view their impact.

Every year the Trustees' Report takes a "snapshot" view of the status of the trust funds based on both positive and negative economic and demographic assumptions over a 75-year period. These assumptions take into account future trends that are supported by recent experience and future expectations, and, as I mentioned previously, represent estimates of what impact such trends will have on the Social Security program in both the short range and the long range. Of course, it is not possible to predict with certainty whether experience or expectations based on a few years represents a long-term trend or an unusual occurrence. Thus, the Report does not necessarily signal either the beginning of a trend or the continuation of one.

For instance, one of the most widely publicized trends in recent years is the growth in the number of people receiving disability benefits, which rose from 2.9 million in 1989 to 3.9 million in 1994. This growth represents an increase of 34 percent. However, while there are some indications that the growth in the program has slowed (applications and awards for disability benefits have remained about the same in 1993 and 1994), it is not appropriate to draw irrevocable conclusions for the long term based on this experience because the Trustees reevaluate these assumptions every year.

The 1994 Trustees' Report estimated that the combined OASI and DI trust funds would be exhausted in 2029. Because the 1993 Report had estimated that the trust funds would be exhausted in 2036--7 years later than the 1994 Report--there were concerns that the 1995 Trustees' Report would change the projected year of exhaustion to a still earlier year. This proved not to be the case, however, since the year of exhaustion improved slightly to 2030, one year later than last year's Report.

This change is primarily the result of recent economic and demographic experience which was more favorable than was assumed in last year's report. The economic experience included faster growth in the labor force, a lower unemployment rate, faster economic growth, faster growth in real wages, and slower growth in prices.

The demographic experience included revised intercensal estimates of the historical population and new postcensal estimates by the Bureau of the Census, which show fewer people at older ages than did earlier estimates. Other demographic changes include higher projected mortality rates, reflecting the latest data that show higher than expected mortality in 1992 and 1993.

Also, near-term birth rates were projected to be slightly higher based on recent experience.

A key change in the long-range intermediate assumptions is an increase in annual net immigration. The net number of immigrants assumed to enter the U. s. population each year was increased by 50,000, an increase consistent with estimates based on recent data from the Immigration and Naturalization Service.

While we need to be concerned about short-term trends such as the growth in the disability program, and understand the factors that underlie them, we should be careful to keep them in perspective. Our most important goal should be to ensure the long range solvency of the Social Security program. The value of the Trustees' Report is that it provides us with the best estimate of the program's long-range status.

Maintaining Financial Solvency

Clearly, the long-term financing issue that confronts Social Security requires careful consideration. Fortunately, we have the time we need to take measured and thoughtful action. In fact, the current Trustees' Report estimates reinforce the idea that we have time for thoughtful measured bipartisan Consideration. No short term crisis exists and we should avoid creating an atmosphere where potentially rash and hasty decisions might be made.

This is not to say that reforms should be delayed until a crisis occurs--they should not. Social Security is very important for everyone in the Nation. After careful deliberation, any adjustments necessary to strengthen the program should be made in a way that will allow time for individuals to make the necessary changes in their future retirement.

Mr. Chairman, history has shown us that successful efforts to reform the Social Security system are the fruit of careful evaluation, bipartisan concern, and discussion. of the issues among the Congress, the Administration, aryd the To ensure there is sufficient funding of the Social Security program for all future generations, we should take a comprehensive, bipartisan approach to considering changes in the program.

The Advisory Council on Social Security is currently examining proposals for improving the Social Security program and the new Social Security Advisory Board will also be looking at these important issues. When I met with the Advisory Council, I emphasized the importance of their primary task, which is to focus on Social Security financing and to develop recommendations for improving the long-range financial status of the OASDI program.

It is impossible to overstate the importance of the work no eing done by the Advisory Council. Reform of Social Security as generally not taken place without being preceded by ecommendations from the Advisory Council on Social Security or imilar bipartisan panel. The Advisory Council is nearing ompletion of its work and I look forward to their findings and recommendations which we will review with the Congress.

Mr. Chairman, I strongly believe that changes in the Social ecurity program should be made solely to strengthen the program ot to meet short-term budgetary goals. It is unacceptable to ake changes in Social Security in order to make a contribution o reduce the general fund deficit, including deficits in other ntitlement programs. As a self-financed program, Social ecurity has always paid its own way. Any adjustments must be esigned to ensure the adequacy of the program for future enerations, not to achieve short-term budgetary goals.

Thank you again for the opportunity to discuss the status o he Social Security trust funds. I look forward to working with ou to strengthen the program for future generations of American orkers and their families.