Short-Range Actuarial Projections of the Old-Age, Survivors, and Disability Insurance Program, 2001
Actuarial Study No. 115
Chris Motsiopoulos and Tim Zayatz, A.S.A.
The financial status of the Old-Age, Survivors, and Disability Insurance (OASDI) program is evaluated on the basis of estimates made over several time periods: the next 10 years (short range), and the next 75 years (long range). The long-range period is further broken down into 25-year subperiods. Short-range estimates provide an indicator of the program's ability to pay benefits over the next several years. By monitoring these estimates, the short-range staff of the Office of the Chief Actuary can identify the possible need for legislative action in the near future. In contrast, long-range estimates provide tools for evaluating the size of the financial obligation that the OASDI program will place on future generations, and for determining whether current provisions for financing will be adequate in the long term.
A number of different measures are used to assess the financial status of the trust funds over the next 75 years:
The trust fund ratio is the ratio of (i) trust fund assets at the beginning of the year, to (ii) benefit payments and administrative expenses, or "outgo" during the year.
The income rate for any year is the ratio of (i) payroll taxes collected on covered earnings plus income taxes collected from the taxation of OASDI benefits, to (ii) earnings in covered employment that are taxable under the OASDI program, or "taxable payroll".
To assess the overall financial balance for the long range, we calculate summarized income rates and cost rates for the full 75-year period. In addition, the summarized income rate is augmented by the value of trust fund assets on hand at the beginning of the period. Similarly, the summarized cost rate is adjusted to include the additional cost of accumulating end-of-period assets equal to 100 percent of the following year's outgo. The difference between the summarized income and cost rates for the 75-year valuation period is called the actuarial balance. Based on the 2001 Trustees Report1 intermediate set of assumptions, an actuarial deficit of 1.86 percent of taxable payroll is projected. This represents the difference between the summarized income rate of 13.58 percent, and the corresponding cost rate of 15.44 percent. Previous actuarial studies have described the methods used in preparing the long-range estimates of the financial status of the OASDI program.2
The short-range financial status is generally measured by the trust fund ratio, as previously defined. The short-range test of financial adequacy is met if either of the following is satisfied:
The trust fund ratio is initially less, but attains 100 percent within the first 5 years and remains at or above 100 percent with sufficient income to pay benefits on time every month during the entire 10-year projection.
The annual Trustees Report contains short-range and long-range projections of the operations of the OASI and DI Trust Funds, based on three different sets of economic, demographic, and programmatic assumptions. The different sets of assumptions are classified as low-cost, intermediate, and high-cost. Although projections in the Trustees Report are shown on an annual basis, most figures in the short-range period are actually prepared on a semiannual, quarterly, or monthly basis. This study presents much of the detail not included in the annual report, along with discussions of the current methods used in the short-range projections.
1 The 2001 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (March 19, 2001).
2 Actuarial Study No. 91: Long-Range Estimates of the Financial Status of the Old-Age, Survivors, and Disability Insurance Program, 1983 (Stephen Goss, April 1984).
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December 26, 2001