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.

V. ESTIMATES BASED ON ALTERNATIVE ASSUMPTIONS

B. HIGH-COST ASSUMPTIONS

Economic and Demographic Assumptions

Table V.B1 shows the various high-cost economic assumptions. The level of economic activity is assumed to be lower than the intermediate projection. A recession is assumed to begin in the second quarter of 2001 and continues for three quarters, with recovery in the first quarter of 2002. A second recession is assumed to occur beginning in the first quarter of 2004 and continues for four quarters. This is followed by modest economic growth through the end of the short-range period. The annual percent increase in covered wages is higher than the intermediate set beginning in 2003, reaching a level of 4.9 percent by the end of the period. The ultimate level of CPI is a full percentage point higher under high-cost resulting in a real wage differential of 0.6 percent by the end of the period. Nominal interest rates for invested assets of the trust funds are expected to be higher, as are annual unemployment rates.

Table V.B2 shows average annual wages are slightly lower than the intermediate projection through 2004, then slightly higher from 2005 through 2010.

Tables V.B3 and V.B4 show the program amounts. Compared to the intermediate projection, benefit increases are higher due to higher rates of inflation. Annual increases in amounts that are based on automatic-adjustment provisions follow the same pattern of increase in the average wage index, lagged by 2 years.

Tables V.B5 and V.B6 show high-cost demographic and programmatic assumptions. By 2010, the fertility rate of 1.92 is slightly lower than the rate of 2.02 for the intermediate set. Mortality rates are lower under high-cost assumptions, resulting in higher program costs. Life expectancy at age 65 is roughly 5 months higher for males, and 7 months higher for females by 2010. Immigration is estimated to be lower by 245,000 annually under high-cost.

Coverage rates are lower under high-cost assumptions because of the higher unemployment rates. About 0.9 percent less of the population is working in covered employment by 2010. Insured rates are about the same as in the intermediate set. Disability incidence rates are higher and termination rates are lower.

Benefit Payments

The numbers of OASI and DI beneficiaries and benefit payments are projected by methods identical to those described in section III. Tables V.B7 and V.B8 summarize the number of beneficiaries and benefit payments based on high-cost assumptions.

The total number of OASDI beneficiaries is nearly 1.5 million higher by the end of 2010, compared to the intermediate projection. The estimated number of retired workers is greater because of lower assumed mortality rates. The number of disabled workers is higher because of higher incidence rates and lower termination rates under high-cost assumptions.

Higher benefit amounts are also predicted under high-cost assumptions, due to higher inflation and wage growth. More beneficiaries combined with higher benefits result in higher total benefit payments-roughly $815 billion in 2010 for the combined OASI and DI Trust Funds, compared to $728 billion based on intermediate assumptions.

Trust Fund Status

The progress of the OASI and DI Trust Funds is projected by methods identical to those described in section IV. Tables V.B9, V.B10 and V.B11 show the progress of the OASI, DI, and combined funds. Assets are projected to increase more slowly under the high-cost assumptions-roughly $2.9 trillion combined by the end of 2010, compared to $3.4 trillion based on intermediate assumptions.

Table V.B12 shows the status of the trust funds as measured by trust fund ratios. OASI and DI trust fund ratios reach 369 and 110 percent, respectively, by the beginning of 2010, compared to 453 and 249 percent under intermediate projections. Trust fund ratios are displayed graphically in Figures 9-11 at the end of this section.

Table V.B13 shows annual income rates and cost rates for the trust funds. As expected, lower balances result under the high-cost alternative-0.30 percent of taxable payroll by 2010 for the OASDI program, compared to 1.46 percent under intermediate projections.

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December 26, 2001