II. OVERVIEW

At the end of 2014, the OASDI program was providing benefit payments¹ to about 59 million people: 42 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 11 million disabled workers and dependents of disabled workers. During the year, an estimated 166 million people had earnings covered by Social Security and paid payroll taxes on those earnings. Total expenditures in 2014 were $859 billion. Total income was $884 billion, which consisted of $786 billion in non-interest income and $98 billion in interest earnings. Asset reserves held in special issue U.S. Treasury securities grew from $2,764 billion at the beginning of the year to $2,789 billion at the end of the year.

Social Security’s cost exceeded its tax income in 2014, and also exceeded its non-interest income, as it has since 2010. This relationship is projected to continue throughout the short-range period (2015 through 2024) and beyond. The 2014 deficit of tax income relative to cost was $74 billion and the deficit of non-interest income relative to cost was $73 billion. In recent years, OASDI tax income and non-interest income have differed as a result of a temporary reduction in the Social Security payroll tax for 2011 and 2012, offset by reimbursements from the General Fund of the Treasury to the Social Security trust funds. These reimbursements were less than $1 billion in 2014. For 2015, the deficit of tax income (and non-interest income) is projected to be approximately $84 billion.

The Trustees project that the asset reserves of the OASI Trust Fund, together with continuing program income, will be adequate to cover program costs over the next 10 years under the intermediate assumptions. However, the projected reserves of the DI Trust Fund decline steadily from 40 percent of annual cost at the beginning of 2015 until the trust fund reserves are depleted in the fourth quarter of 2016. At the time reserves are depleted, continuing income to the DI Trust Fund would be sufficient to pay 81 percent of scheduled DI benefits. The DI Trust Fund does not satisfy the short-range test of financial adequacy. Figure II.D3 illustrates the implications of reserve depletion for the DI Trust Fund.

To illustrate the actuarial status of the program as a whole, the fund operations are often combined on a theoretical basis. However, if the DI Trust Fund reserves were to be depleted as currently projected, the values shown here on a “theoretical combined” basis would not reflect the aggregated operation of the OASI and DI Trust Funds under current law. This is because the OASI and DI Trust Funds are distinct legal entities which operate independently. In addition, the projections presented here for the theoretical combined trust funds assume full scheduled DI benefits would be paid, while under current law only the portion of the benefits that could be financed from DI Trust Fund income would be paid after DI Trust Fund reserve depletion. Implicitly, the values shown for the theoretical combined trust funds assume the law will have been changed to permit the payment of scheduled DI benefits after DI’s current-law projected reserve depletion date of 2016.

The projected reserves of the theoretical combined OASI and DI Trust Funds are adequate over the next 10 years under the intermediate assumptions. The ratio of reserves to cost remains above 100 percent through 2024, declining from 308 percent of annual cost at the beginning of 2015 to 173 percent at the beginning of 2024. For last year’s report, the Trustees projected that combined reserves would be 306 percent of annual cost at the beginning of 2015 and 171 percent at the beginning of 2024.

The theoretical combined reserves are projected to increase from $2,789 billion at the beginning of 2015 to $2,855 billion at the beginning of 2020. Reserves increase through 2019 because annual cost is less than total income for 2015 through 2019. At the same time, however, the ratio of reserves to cost declines, from 308 percent of annual cost for 2015 to 233 percent for 2020. Beginning in 2020, annual cost exceeds total income, and therefore the combined reserves begin to decline, reaching $2,611 billion at the end of 2024.

The projected annual OASDI cost exceeds non-interest income throughout the long-range period (2015 through 2089) under the intermediate assumptions. The dollar level of the theoretical combined trust fund reserves declines beginning in 2020 until reserves become depleted in 2034. Figure II.D2 shows the implications of reserve depletion for the theoretical combined OASDI Trust Funds. Considered separately, the DI Trust Fund reserves become depleted in the fourth quarter of 2016 and the OASI Trust Fund reserves become depleted in 2035. The projected reserve depletion years were 2033 for OASDI, 2016 for DI, and 2034 for OASI in last year’s report.

Projected OASDI cost generally increases more rapidly than projected non-interest income through 2037 primarily because the retirement of the baby-boom generation will increase the number of beneficiaries much faster than the number of workers increases, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages. From 2038 to 2050, the cost rate (the ratio of program cost to taxable payroll) generally declines because the aging baby-boom generation is gradually replaced at retirement ages by historically low-birth-rate generations, causing the beneficiary-to-worker ratio to decline. Thereafter, increases in life expectancy cause OASDI cost to increase generally relative to non-interest income, but more slowly than between 2010 and 2038.

The projected OASDI annual cost rate increases from 14.13 percent of taxable payroll for 2015 to 16.73 percent for 2038 and to 17.97 percent for 2089, a level that is 4.65 percent of taxable payroll more than the projected income rate (the ratio of non-interest income to taxable payroll) for 2089. For last year’s report, the Trustees estimated the OASDI cost for 2089 at 18.24 percent, or 4.95 percent of payroll more than the annual income rate for that year. Expressed in relation to the projected gross domestic product (GDP), OASDI cost generally rises from 5.0 percent of GDP for 2015 to about 6.0 percent by 2035, then declines to 5.9 percent by 2050, and then generally increases to 6.2 percent by 2089.

For the 75‑year projection period, the actuarial deficit is 2.68 percent of taxable payroll, 0.20 percentage point smaller than in last year’s report. The open group unfunded obligation for OASDI over the 75‑year period is $10.7 trillion in present value and is $0.1 trillion more than the measured level of $10.6 trillion a year ago. If the assumptions, methods, starting values, and the law had all remained unchanged, the actuarial deficit would have increased to 2.94 percent of taxable payroll and the unfunded obligation would have risen to about $11.1 trillion due to the change in the valuation date. The offsetting decreases in the actuarial deficit and the unfunded obligation are primarily due to changes in methods, starting values, and economic assumptions.

Under the intermediate assumptions, the Trustees project that annual cost for the OASDI program will exceed non-interest income in 2015 and remain higher throughout the remainder of the long-range period. The DI Trust Fund reserves become depleted in the fourth quarter of 2016, at which time continuing income to the DI Trust Fund would be sufficient to pay 81 percent of DI benefits. Therefore, legislative action is needed as soon as possible to address the DI program’s financial imbalance.

Assuming as previously mentioned that the law were changed to permit the payment of currently scheduled benefits after DI’s current-law projected reserve depletion date of 2016 while leaving scheduled OASI benefits and combined OASDI scheduled revenues unchanged, then the projected theoretical combined OASI and DI Trust Fund asset reserves would increase through 2019, begin to decline in 2020, and become depleted and unable to pay scheduled benefits in full on a timely basis in 2034. At the time of depletion of these theoretical combined reserves, continuing income to the combined trust funds would be sufficient to pay 79 percent of scheduled benefits.

In 1994, when the DI Trust Fund reserves last came this close to depletion, the Trustees recommended a “reallocation of contribution rates between the OASI and DI Trust Funds”, and that “the Advisory Council on Social Security conduct an extensive review of Social Security financing issues and develop recommendations for restoring the long-range balance of the OASDI program.” Lawmakers responded later in 1994 to part of these recommendations by reallocating the payroll tax rate between OASI and DI. After this legislation and the subsequent release of the 1994-96 Advisory Council’s report of recommendations, the Trustees stated in their 1997 annual report, “we again urge that the long-range deficits of both the OASI and DI Trust Funds be addressed in a timely way” with particular attention to DI 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.” Twenty years after the tax reallocation that was intended to create the time and opportunity for such reforms, the Trustees reiterate the call for legislation to achieve long-range financial stability, though there are fewer reform options available now than there were in the 1990s, when the projected date of reserve depletion was more distant. Given the short time now remaining before projected DI Trust Fund reserve depletion, such legislation may now need to include some reallocation of resources between the two trust funds. Reallocation of resources in the absence of substantive reforms might, on the other hand, serve to delay DI reforms and much needed corrections for OASDI as a whole.

For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.62 percentage points² (from its current level of 12.40 percent to 15.02 percent, a relative increase of 21.1 percent); (2) scheduled benefits during the period would have to be reduced by an amount equivalent to an immediate and permanent reduction of 16.4 percent applied to all current and future beneficiaries, or 19.6 percent if the reductions were applied only to those who become initially eligible for benefits in 2015 or later; or (3) some combination of these approaches would have to be adopted.


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2015 OASDI Trustees Report