This chapter presents the estimates and measures of trust fund financial adequacy for the short-range period (2015‑24) first, followed by estimates and measures of
actuarial status for the long-range period (2015‑89). Summary measures are also provided for trust fund status over the infinite horizon. As described in chapter
II of this report, these estimates depend upon a broad set of
demographic, economic, and programmatic factors. This chapter presents estimates under three sets of assumptions to show a wide range of possible outcomes, because assumptions related to these factors are subject to uncertainty. The intermediate set of assumptions, designated as
alternative II, reflects the Trustees’ best estimate of future experience; the low-cost
alternative I is significantly more optimistic and the high-cost
alternative III is significantly more pessimistic for the trust funds’ future financial outlook. The tables of this report show the intermediate estimates first, followed by the low-cost and high-cost estimates. Chapter
V describes these three sets of assumptions, along with the actuarial methods used to produce the estimates. Appendix
D and appendix
E present two additional methods to illustrate the uncertainty of the projections. Appendix
D presents sensitivity analyses of the effects of variation in individual factors and appendix
E presents probability distributions generated by a stochastic model.
The Trustees consider the trust funds to be fully solvent if the funds can pay scheduled benefits in full on a timely basis. A standard method of assessing solvency is the “trust fund ratio,” which is the
reserves in a fund at the beginning of a year (which do not include advance tax transfers) expressed as a percentage of the cost during the year. The trust fund ratio represents the proportion of a year’s cost which the
reserves available at the beginning of that year can cover. The Trustees assume that a trust fund ratio of 100 percent of annual program cost provides a reasonable “contingency reserve.” Maintaining a reasonable contingency reserve is important because the trust funds do not have borrowing authority. After reserves are depleted, the trust funds would be unable to pay benefits in full on a timely basis if annual revenue were less than annual cost. Unexpected events, such as severe economic recessions, can quickly deplete reserves. In such cases, a reasonable contingency reserve can maintain the ability to pay scheduled benefits while giving lawmakers time to address possible changes to the program.
This subsection presents estimates, based on the assumptions described in chapter V, of the operations and financial status of the OASI Trust Fund for the period 2015-24. These estimates assume that there are no changes in the statutory provisions and regulations under which the OASDI program currently operates.
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Table IV.A1 shows these estimates, which indicate that the asset reserves of the OASI Trust Fund continue to increase through 2021 under the intermediate assumptions, throughout the next 10 years under the low-cost assumptions, and through 2016 under the high-cost assumptions. However, trust fund ratios decline throughout the 10-year period under all three sets of assumptions. Based on the intermediate assumptions, the reserves of the OASI Trust Fund continue to exceed 100 percent of annual cost by a large amount through the end of 2024. Consequently, the OASI Trust Fund satisfies the test of short-range financial adequacy by a wide margin. Table
IV.A1 also indicates that the OASI Trust Fund would satisfy the short-range test even under the high-cost assumptions. See figure
IV.A1 for an illustration of these results.
The estimated income shown in table IV.A1 increases annually under each set of assumptions throughout the short-range projection period. The estimated increases in income reflect increases in estimated OASDI
taxable earnings and growth in
interest earnings on the invested reserves in the trust fund. Employment increases in every year through 2024 for all three alternatives: the number of persons with taxable earnings increases on the basis of alternatives I, II, and III from 166 million during calendar year 2014 to about 188 million, 184 million, and 179 million, respectively, in 2024. The total annual amount of taxable earnings increases in every year through 2024 for each alternative. Total earnings increase from $6,163 billion in 2014 to $12,253 billion, $10,512 billion, and $8,962 billion in 2024, on the basis of alternatives I, II, and III, respectively. These increases in taxable earnings are due primarily to: (1) projected increases in employment levels as the working age
population increases; (2) trend increases in average earnings in
covered employment (reflecting both real growth and price inflation); (3) increases in the
contribution and benefit base under the automatic-adjustment provisions; and (4) growth in employment and average earnings, temporarily higher than trend, as the economy continues to recover from the severe economic downturn that began in late 2007.
Rising OASI cost during 2015-24 reflects automatic benefit increases as well as the upward trend in the number of beneficiaries and in the average monthly earnings underlying benefits. The growth in the number of beneficiaries since 2009 and the expected future growth result both from the increase in the aged population and from the increase in the proportion of the population that is eligible for benefits.
Table IV.A2 shows the estimated operations and financial status of the DI Trust Fund during calendar years 2015-24 under the three sets of assumptions, together with values for actual experience during 2010-14. Non-interest income increases steadily after 2014 under each alternative, due to most of the same factors described previously for the OASI Trust Fund. DI cost grows at a slower rate than DI income, but remains greater than DI income. As a result, after having reached a maximum in 2008, DI Trust Fund reserves continue to decrease after 2014 under each alternative. Under the
intermediate assumptions, reserves continue to decline until their projected depletion in the fourth quarter of 2016. Under the high-cost assumptions, DI reserves decline steadily until
depletion in the third quarter of 2016. Under both the intermediate and high-cost assumptions, reserves are projected to remain depleted through 2024.
Table IV.A3 shows the estimated operations and status of the theoretical combined OASI and DI Trust Funds for calendar years 2015-24 under the three alternatives, together with actual experience in 2010‑14. Income and cost for the OASI Trust Fund represent over 80 percent of the corresponding amounts for the combined OASI and DI Trust Funds. Therefore, based on the relative strength of the OASI Trust Fund over the next 10 years, the combined OASI and DI Trust Funds would have sufficient financial resources to pay all scheduled benefits through the end of the short-range period, although it is important to note that under current law, one trust fund cannot share financial resources with another trust fund. In addition, the combined OASI and DI Trust Funds would satisfy the short-range test of financial adequacy under the intermediate and low-cost assumptions. However, under the high-cost assumptions, reserves are projected to drop to about 95 percent of annual cost by the end of 2024, and hence the combined funds would not satisfy the short-range test of financial adequacy.
Table IV.A4 presents an analysis of the factors underlying the changes in the intermediate estimates over the short-range projection period for the OASI, DI, and the theoretical combined funds from last year’s report to this report.
Table IV.A4 also shows corresponding estimates of the factors underlying the changes in the financial projections for the DI Trust Fund and for the combined OASI and DI Trust Funds. The ratios at the beginning of 2023 for the DI Trust Fund and the combined OASI and DI Trust Funds in last year’s report, as well as the corresponding ratios for the beginning of 2024 in this year’s report, are theoretical because the Trustees project that the DI Trust Fund reserves will be depleted prior to the end of the short-range projection period. The 10 percentage point decrease in the DI trust fund ratio is the net effect of offsetting increases and decreases from the factors described in the prior section for the OASI Trust Fund, the largest of which was the decrease caused by changing the valuation period.
