2015 OASDI Trustees Report

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B. LONG-RANGE ESTIMATES
The Trustees use three types of financial measures to assess the actuarial status of the Social Security trust funds under the financing approach specified in current law: (1) annual cash-flow measures, including income rates, cost rates, and balances; (2) trust fund ratios; and (3) summary measures such as actuarial balances and unfunded obligations.
The difference between the annual income rate and annual cost rate, both expressed as percentages of taxable payroll, is the annual balance. The level and trend of the annual balances at the end of the 75-year projection period are factors that the Trustees use to assess the financial condition of the program.
The trust fund ratio for a year is the proportion of the year’s projected cost that could be paid with funds available at the beginning of the year. Critical factors considered by the Trustees in assessing actuarial status include: (1) the level and year of maximum trust fund ratio, (2) the year of depletion of the fund reserves and the percent of scheduled benefits that is still payable after reserves are depleted, and (3) the stability of the trust fund ratio at the end of the long-range period.
Solvency at any point in time requires that sufficient financial resources are available to pay all scheduled benefits at that time. Solvency is generally indicated by a positive trust fund ratio. “Sustainable solvency” for the financing of the program under a specified set of assumptions has been achieved when the projected trust fund ratio is positive throughout the 75‑year projection period and is either stable or rising at the end of the period.
Summarized measures for any period indicate whether projected income is sufficient, on average, for the whole period. Summarized measures can only indicate the solvency status of a fund for the end of the period. The Trustees summarize the total income and cost over valuation periods that extend through 75 years and over the infinite horizon.1 This section presents two summarized measures: the actuarial balance and the open group unfunded obligation. The actuarial balance indicates the size of any surplus or shortfall as a percentage of the taxable payroll over the period. The open group unfunded obligation indicates the size of any shortfall in present-value dollars.
This section also includes additional information that the Trustees use to assess the financial status of the Social Security program, including: (1) a comparison of the number of beneficiaries to the number of covered workers, (2) the test of long-range close actuarial balance, and (3) the reasons for the change in the actuarial balance from the last report.
1. Annual Income Rates, Cost Rates, and Balances
The concepts of income rate and cost rate, expressed as percentages of taxable payroll, are important in the consideration of the long-range actuarial status of the trust funds. The annual income rate is the ratio of all non-interest income to the OASDI taxable payroll for the year. Non-interest income includes payroll taxes, taxes on scheduled benefits, and any general fund transfers or reimbursements. The OASDI taxable payroll consists of the total earnings subject to OASDI taxes with some relatively small adjustments.2 The annual cost rate is the ratio of the cost of the program to the taxable payroll for the year. The cost includes scheduled benefits, administrative expenses, net interchange with the Railroad Retirement program, and payments for vocational rehabilitation services for disabled beneficiaries. For any year, the income rate minus the cost rate is the “balance” for the year.
Table IV.B1 presents a comparison of the estimated annual income rates and cost rates by trust fund and alternative. Table IV.B2 shows the separate components of the annual income rates.
Under the intermediate assumptions, the Trustees project that the OASI income rate will rise at a very gradual rate from 11.01 percent of taxable payroll for 2015 to 11.46 percent for 2089. Income from taxation of benefits causes this increase for two main reasons: (1) total benefits are rising faster than payroll; and (2) the benefit-taxation threshold amounts are fixed (not indexed), and therefore an increasing share of total benefits will be subject to tax as incomes and benefits rise. The pattern of the cost rate is much different. The OASI cost rate is projected to decrease from 2015 to 2016 primarily because the projected percentage increase in average taxable earnings is greater than the projected increase in the average benefit from 2015 to 2016. From 2016 to 2035, the cost rate rises rapidly 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 declines because the aging baby-boom generation is gradually replaced at retirement ages by historically low-birth-rate generations born between 1966 and 1989, causing the beneficiary-to-worker ratio to decline. After 2050, the projected OASI cost rate generally rises slowly, reaching 15.70 percent of taxable payroll for 2089, primarily because of projected reductions in death rates.
Projections of income rates under the low-cost and high-cost sets of assumptions are similar to those projected for the intermediate assumptions, because income rates are largely a reflection of the payroll tax rates specified in the law, with the gradual change from taxation of benefits noted above. In contrast, OASI cost rates for the low-cost and high-cost assumptions are significantly different from those projected for the intermediate assumptions. For the low-cost assumptions, the OASI cost rate decreases through 2018, and then rises until it peaks in 2034 at 12.40 percent of payroll. The cost rate then declines to 11.56 percent for 2053, rises to 11.78 percent for 2071, and generally decreases to 11.52 percent for 2089, at which point the income rate reaches 11.22 percent. For the high-cost assumptions, the OASI cost rate rises throughout the 75-year period. It rises relatively rapidly through about 2035 because of the aging of the baby-boom generation. Thereafter, the cost rate continues to rise and reaches 22.06 percent of payroll for 2089, at which point the income rate reaches 11.82 percent.
The pattern of the projected OASI annual balance is important in the analysis of the financial condition of the program. Under the intermediate assumptions, the annual balance is negative throughout the projection period. This annual deficit declines from 0.77 percent of payroll for 2015 to 0.58 percent of payroll for 2016 and then rises relatively rapidly to 3.30 percent for 2038. The annual deficit then declines to 3.00 percent of payroll for 2050, and generally rises thereafter, reaching 4.24 percent of taxable payroll for 2089.
Under the low-cost assumptions, OASI annual deficits are smaller throughout the projection period relative to the intermediate assumptions. The annual deficit declines to 0.07 percent of payroll for 2018, rises to 1.16 percent for 2034, and then declines for most years thereafter, reaching a deficit of 0.31 percent of payroll for 2089. Under the high-cost assumptions, the OASI balance worsens throughout the projection period. Annual deficits rise to 2.00 percent for 2020, 6.45 percent for 2050, and 10.25 percent of payroll for 2089.
Income
rate 1

1
Income rates include certain reimbursements from the General Fund of the Treasury.

2
The Trustees project the annual balance to be negative for a temporary period and return to positive levels before the end of the projection period.

Notes:
1. The income rate excludes interest income.
2. Revisions of taxable payroll may change some historical values.
3. Totals do not necessarily equal the sums of rounded components.
The DI cost rate rose substantially from 1.09 percent of taxable payroll for 1990 to 1.88 percent of taxable payroll for 2007 as the baby boom generation moved into prime disability ages, and further to a peak of 2.47 percent for 2012 due to the recent economic recession. Under the intermediate assumptions, the projected DI cost rate declines from 2.47 percent for 2012 to 2.06 percent for 2024. From 2024 to 2040, the DI cost rate stays relatively stable and then generally increases to 2.27 percent for 2089. The income rate increases only very slightly from 1.81 percent of taxable payroll for 2015 to 1.86 percent for 2089. The projected annual deficit generally declines from 0.54 percent for 2015 to a low of 0.21 percent for 2032, and then generally increases to 0.41 percent for 2089.
Under the low-cost assumptions, the DI cost rate declines from 2.47 percent of payroll for 2012 to 1.48 percent for 2039, and remains relatively stable thereafter, reaching 1.54 percent for 2089. The annual balance is negative for the first 5 years and is positive throughout the remainder of the long-range period. Under the high-cost assumptions, the DI cost rate generally rises from 2016 through the end of the projection period, reaching 3.21 percent for 2089. The annual deficit is 0.60 percent for 2015, 1.16 percent for 2050, and 1.33 percent for 2089.
Figure IV.B1 shows the patterns of the OASI and DI annual cost rates. Annual DI cost rates rose substantially between 1990 and 2010 in large part due to: (1) aging of the working population as the baby-boom generation moved from ages 25-44 in 1990, where disability prevalence is low, to ages 45-64 in 2010, where disability prevalence is much higher; (2) a substantial increase in the percentage of women insured for DI benefits as a result of increased and more consistent rates of employment; and (3) increased disability incidence rates for women to a level similar to those for men by 2010. After 2010, all of these factors stabilize, and therefore the DI cost rate stabilizes also. Annual OASI cost rates follow a similar pattern to that for DI, but displaced 20 to 25 years later, because the baby-boom generation enters retirement ages 20 to 25 years after entering prime disability ages. Figure IV.B1 shows only the income rates for alternative II because the variation in income rates by alternative is very small. Income rates generally increase slowly for each of the alternatives over the long-range period. Taxation of benefits, which is a relatively small portion of income, is the main source of both the increases in the income rate and the variation among the alternatives. Increases in income from taxation of benefits reflect: (1) increases in the total amount of benefits paid and (2) the increasing share of individual benefits that will be subject to taxation because benefit taxation threshold amounts are not indexed.
Figure IV.B1 shows the patterns of the annual balances for OASI and DI. For each alternative and for historical data, the magnitude of each of the positive balances, as a percentage of taxable payroll, is the distance between the appropriate cost-rate curve and the income-rate curve above it. The magnitude of each of the deficits is the distance between the appropriate cost-rate curve and the income-rate curve below it. Annual balances follow closely the pattern of annual cost rates after 1990 because the payroll tax rate does not change for the OASDI program, with only small variations in the allocation between DI and OASI. The pattern of the projected OASDI annual balances is important to the analysis of the financial condition of the Social Security program as a whole.
In the future, the costs of OASI, DI, and the theoretical combined OASDI programs as a percentage of taxable payroll are unlikely to fall outside the range encompassed by alternatives I and III because alternatives I and III define a wide range of demographic and economic conditions.
Long-range OASDI cost and income are most often expressed as percentages of taxable payroll. However, the Trustees also present cost and income as shares of gross domestic product (GDP), the value of goods and services produced during the year in the United States. Under alternative II, the Trustees project the OASDI cost to decrease from 4.98 percent of GDP for 2015 to 4.89 percent of GDP for 2016, and then increase to a peak of 6.05 percent for 2037. After 2037, OASDI cost as a percentage of GDP declines to a low of 5.93 percent for 2050 and thereafter generally increases slowly, reaching 6.19 percent by 2089. Appendix G presents full estimates of income and cost relative to GDP.
Table IV.B2 contains historical and projected annual income rates and their components by trust fund and alternative. The annual income rates consist of the scheduled payroll tax rates, the rates of income from taxation of benefits, and the rates of income from general fund reimbursements. Projected income from taxation of benefits increases over time for reasons discussed on page 52. Historical general fund reimbursements include temporary reductions in revenue due to reduced payroll tax rates and certain other miscellaneous items.
General Fund Reim-burse-ments1
Total2

1
Includes payroll tax revenue forgone under the provisions of Public Laws 111-147, 111-312, 112-78, and 112-96, and other miscellaneous reimbursements.

2
Values exclude interest income.

3
Between -0.005 and 0.005 percent of taxable payroll.

Note: Totals do not necessarily equal the sums of rounded components.
2. Comparison of Workers to Beneficiaries
Under the intermediate assumptions, the Trustees project the OASDI cost rate will remain relatively stable through 2017 as the economy continues to recover. The cost rate then rises rapidly between 2018 and 2035, primarily because the number of beneficiaries rises much more rapidly than the number of covered workers as the baby-boom generation retires. The ratio of OASDI beneficiaries to workers is dominated by the OASI program because all workers eventually die or retire, but only a small minority become disabled. The trends described below are primarily due to demographic changes and thus affect the DI program roughly 20 years earlier than the OASI and OASDI programs. The baby-boom generation had lower fertility rates than their parents, and the Trustees expect that lower fertility rates will persist for all future generations; therefore, the ratio of OASDI beneficiaries to workers will rise rapidly and reach a permanently higher level after the baby-boom generation retires. Due to increasing longevity, the ratio of beneficiaries to workers will generally rise slowly thereafter. Table IV.B3 provides a comparison of the numbers of covered workers and beneficiaries.
Covered
workers 1
(in thousands)
Beneficiaries 2 (in thousands)
OASDI3

1
Workers who are paid at some time during the year for employment on which OASDI taxes are due.

2
Beneficiaries with monthly benefits in current-payment status as of June 30.

3
This column is the sum of OASI and DI beneficiaries. A small number of beneficiaries receive benefits from both funds.

Notes:
1. The number of beneficiaries does not include uninsured individuals who receive benefits under Section 228 of the Social Security Act. The General Fund of the Treasury reimburses the trust funds for the costs of most of these individuals.
2. Historical covered worker and beneficiary data are subject to revision.
3. Totals do not necessarily equal the sums of rounded components.
The effect of the demographic shift under the three alternatives on the OASDI cost rates is clear when one considers the projected number of OASDI beneficiaries per 100 covered workers. Compared to the 2014 level of 35 beneficiaries per 100 covered workers, the Trustees project that this ratio rises to 47 by 2035 under the intermediate assumptions because the growth in beneficiaries greatly exceeds the growth in workers. By 2090, this projected ratio rises further under the intermediate and high-cost assumptions, reaching 51 under the intermediate assumptions and 64 under the high-cost assumptions. Under the low-cost assumptions, this ratio rises to 44 by 2035 and then declines, reaching 41 by 2090. Figure IV.B2 shows beneficiaries per 100 covered workers.
For each alternative, the curve in figure IV.B2 is strikingly similar to the corresponding cost-rate curve in figure IV.B1. This similarity emphasizes the extent to which the cost rate is determined by the age distribution of the population. The cost rate is essentially the product of the number of beneficiaries and their average benefit, divided by the product of the number of covered workers and their average taxable earnings. For this reason, the pattern of the annual cost rates is similar to that of the annual ratios of beneficiaries to workers.
Table IV.B3 also shows the number of covered workers per OASDI beneficiary, which was about 2.8 for 2014. Under the low-cost assumptions, this ratio declines to 2.3 for 2031, generally rises from 2031 through 2083, and then declines to 2.4 for 2090. Under the intermediate assumptions, this ratio declines generally throughout the long-range period, reaching 2.1 for 2035 and 2.0 by 2090. Under the high-cost assumptions, this ratio decreases steadily to 1.6 by 2090.
3. Trust Fund Ratios and Test of Long-Range Close Actuarial Balance
Trust fund ratios are critical indicators of the adequacy of the financial resources of the Social Security program. The trust fund ratio for a year is the amount of asset reserves in a fund at the beginning of a year expressed as a percentage of the cost for the year. Under present law, the OASI and DI Trust Funds do not have the authority to borrow other than in the form of advance tax transfers, which are limited to expected taxes for the current calendar month. If reserves held in either trust fund become depleted during a year, and continuing tax revenues fall short of the cost of scheduled benefits, then full scheduled benefits would not be payable on a timely basis. For this reason, the trust fund ratio is a very critical financial measure.
The trust fund ratio serves an additional important purpose in assessing the actuarial status of the program. If the projected trust fund ratio is positive throughout the period and is either level or increasing at the end of the period, then projected adequacy for the long-range period is likely to continue for subsequent reports. Under these conditions, the program has achieved sustainable solvency.3
Table IV.B4 shows the Trustees’ projections of trust fund ratios by alternative, without regard to advance tax transfers that would be effected, for the separate and theoretical combined OASI and DI Trust Funds. The table also shows the years of trust fund reserve depletion and the percentage of scheduled benefits that would be payable thereafter, by alternative.
Under the intermediate assumptions, the OASI trust fund ratio has declined since 2011 and continues to decline from 362 percent at the beginning of 2015 until the trust fund reserves become depleted in 2035 (one year later than projected in last year’s report), at which time 77 percent of scheduled benefits would be payable. The DI trust fund ratio has been declining steadily since 2003 (at first slowly and then more rapidly due to the recent recession), and continues to decline from 40 percent at the beginning of 2015 until the trust fund reserves become depleted in the fourth quarter of 2016, at which time 81 percent of scheduled benefits would be payable.
Under the intermediate assumptions, the trust fund ratio for the combined OASI and DI Trust Funds declines from 308 percent at the beginning of 2015 until the combined fund reserves become depleted in 2034 (one year later than projected in last year’s report), at which time 79 percent of scheduled benefits would be payable.
Under the low-cost assumptions, the trust fund ratio for the DI program declines from 41 percent at the beginning of 2015 to 8 percent at the beginning of 2017. DI fund reserves become depleted in the fourth quarter of 2017. However, cumulative income would be sufficient to pay all benefit obligations at the end of 2023. The DI trust fund ratio is positive again at the beginning of 2024 and remains positive throughout the rest of the projection period. After 2024, the trust fund ratio increases through the end of the long-range projection period, reaching the extremely high level of 1,821 percent for 2090. For the OASI program, the trust fund ratio declines steadily, from 362 for 2015 to 13 for 2090. The expectation would be for the OASI Trust Fund reserves to deplete shortly after the 75-year projection period. For the theoretical combined OASDI program, the trust fund ratio declines from 309 percent for 2015 to a low of 163 percent in 2045, then rises thereafter reaching 226 percent by 2090. Because the trust fund ratio is positive throughout the projection period and increasing at the end of the period, under the low-cost assumptions, only the theoretical combined OASDI program achieves sustainable solvency.
Under the high-cost assumptions, the OASI trust fund ratio declines continually until reserves become depleted in 2030, at which time 69 percent of scheduled benefits would still be payable. The DI trust fund ratio declines from 40 percent for 2015 until reserves become depleted in the third quarter of 2016, at which time 75 percent of scheduled benefits would still be payable. The theoretical combined OASI and DI trust fund ratio declines from 307 percent for 2015 until reserves become depleted in 2028, at which time 71 percent of scheduled benefits would still be payable.
The Trustees project permanent trust fund reserve depletion for the 75-year projection period with the exceptions of the theoretical combined OASDI Trust Fund and the individual OASI and DI Trust Funds under the low-cost assumptions. It is therefore very likely that lawmakers will need to increase income, reduce program costs, or both, in order to maintain solvency for the trust funds. The stochastic projections discussed in appendix E suggest that trust fund reserve depletion is highly probable by mid-century.
Even under the high-cost assumptions, however, the theoretical combined OASI and DI Trust Fund reserves on hand plus their estimated future income are sufficient to fully cover their combined cost until 2028. Under the intermediate assumptions, the combined starting fund reserves plus estimated future income are sufficient to fully cover cost until 2034. In the 2014 report, the Trustees projected that the combined trust fund reserves would become depleted in 2028 and 2033 under the high-cost and intermediate assumptions, respectively, and would achieve sustainable solvency under the low-cost assumptions.

1
Trust fund reserves would be depleted at the beginning of this year.

2
Trust fund reserves would not be depleted within the projection period.

3
Trust fund reserves would be depleted for a temporary period, and return to positive levels before the end of the period.

Note: The definition of trust fund ratio appears in the Glossary. The ratios shown for the combined trust funds for years after reserve depletion of either the DI or OASI Trust Fund are theoretical.
Since 2013, when the Trustees modified the test of long-range close actuarial balance, the standard for each trust fund requires meeting two conditions: (1) the short-range test of financial adequacy is satisfied; and (2) the trust fund ratios stay above zero throughout the 75-year projection period, allowing scheduled benefits to be paid in a timely manner throughout the period. As discussed in section IV.A, the DI Trust Fund fails the short-range test of financial adequacy under the intermediate assumptions because trust fund reserves become depleted in the fourth quarter of 2016. Under the intermediate assumptions, the OASI Trust Fund reserves become depleted in 2035, and the theoretical combined OASI and DI Trust Fund reserves become depleted in 2034. Therefore, the OASI, DI, and combined OASI and DI Trust Funds all fail the long-range test of close actuarial balance.
Figure IV.B3 illustrates the trust fund ratios for the separate OASI and DI Trust Funds for each of the alternative sets of assumptions. DI Trust Fund status is more uncertain than OASI Trust Fund status because there is a high degree of uncertainty associated with future disability prevalence. A graph of the trust fund ratios for the combined trust funds appears in figure II.D7.
4. Summarized Income Rates, Summarized Cost Rates, and Actuarial Balances
Summarized values for the full 75-year period are useful in analyzing the program’s long-range financial adequacy over the period as a whole, both under present law and under proposed modifications to the law. All annual amounts included in a summarized value are present-value discounted to the valuation date. It is important to note that the actuarial balance indicates the solvency status of the fund only for the very end of the period.
Table IV.B5 presents summarized income rates, summarized cost rates, and actuarial balances for 25-year, 50-year, and 75-year valuation periods. Summarized income rates are the sum of the present value of non-interest income for a period (which includes scheduled payroll taxes, the projected income from the taxation of scheduled benefits, and reimbursements from the General Fund of the Treasury) and the starting trust fund asset reserves, expressed as a percentage of the present value of taxable payroll over the period. Under current law, the total OASDI payroll tax rate will remain at 12.4 percent in the future. In contrast, the Trustees expect income from taxation of benefits, expressed as a percentage of taxable payroll, to increase in most years of the long-range period for the two reasons discussed earlier on page 52. Summarized cost rates are the sum of the present value of cost for a period (which includes scheduled benefits, administrative expenses, net interchange with the Railroad Retirement program, and payments for vocational rehabilitation services for disabled beneficiaries) and the present value of the cost of reaching a target trust fund of 100 percent of annual cost at the end of the period, expressed as a percentage of the present value of taxable payroll over the period.
The actuarial balance for a valuation period is equal to the difference between the summarized income rate and the summarized cost rate for the period. An actuarial balance of zero for any period indicates that cost for the period could be met for the period as a whole (but not necessarily at all points within the period), with a remaining trust fund reserve at the end of the period equal to 100 percent of the following year’s cost. A negative actuarial balance for a period indicates that the present value of income to the program plus the existing trust fund is less than the present value of the cost of the program plus the cost of reaching a target trust fund reserve of 1 year’s cost by the end of the period. Generally, a trust fund is deemed to be adequately financed for a period if the actuarial balance is zero or positive, meaning that the reserves at the end of the period are at least equal to annual cost. Solvency is still possible with a small negative actuarial balance where reserves are still positive.
Table IV.B5 contains summarized rates for the intermediate, low-cost, and high-cost assumptions. The low-cost and high-cost assumptions define a wide range of possibilities. Financial outcomes as good as the low-cost scenario or as bad as the high-cost scenario are unlikely to occur.
For the 25-year valuation period, the OASDI program has an actuarial balance of 0.37 percent of taxable payroll under the low-cost assumptions, ‑1.39 percent under the intermediate assumptions, and -3.51 percent under the high-cost assumptions. These balances indicate that the program is adequately financed for the 25‑year valuation period under only the low-cost assumptions.
For the 50‑year valuation period, the OASDI program has actuarial balances of 0.19 percent under the low-cost assumptions, ‑2.23 percent under the intermediate assumptions, and ‑5.25 percent under the high-cost assumptions. These actuarial balances mean that the OASDI program is adequately financed for the 50‑year valuation period under only the low-cost assumptions.
For the entire 75-year valuation period, the combined OASDI program has actuarial balances of 0.16 percent of taxable payroll under the low-cost assumptions, ‑2.68 percent under the intermediate assumptions, and ‑6.31 percent under the high-cost assumptions. These balances indicate that the combined OASDI program is adequately financed for the 75-year valuation period under only the low-cost assumptions.
Assuming the intermediate assumptions accurately capture future demographic and economic trends, solvency for the program over the next 75 years could be restored using a variety of approaches. For example, revenues could be increased in a manner equivalent to an immediate and permanent increase in the combined Social Security payroll tax rate from 12.40 percent to 15.02 percent (a relative increase of 21.1 percent), cost could be reduced in a manner equivalent to an immediate and permanent reduction in scheduled benefits of 16.4 percent, or some combination of approaches could be used.
However, eliminating the actuarial deficit for the next 75-year valuation period requires raising payroll taxes or lowering benefits by more than is required just to achieve solvency, because the actuarial deficit includes the cost of attaining a target trust fund equal to 100 percent of annual program cost by the end of the period. The actuarial deficit could be eliminated for the 75-year period by increasing revenues in a manner equivalent to an immediate and permanent increase in the combined payroll tax from 12.40 percent to 15.18 percent (a relative increase of 22.4 percent),4 reducing cost in a manner equivalent to an immediate reduction in scheduled benefits of 17.2 percent, or some combination of approaches could be used.
Under the intermediate assumptions, the OASDI program has large annual deficits toward the end of the long-range period that are increasing and reach 4.65 percent of payroll for 2089 (see table IV.B1). These large deficits indicate that annual cost continues to exceed non-interest income after 2089, so continued adequate financing would require larger changes than those needed to maintain solvency for the 75-year period. Over the period extending through the infinite horizon, the actuarial deficit is 3.9 percent of payroll under the intermediate assumptions.
The financial shortfall of the DI program is worse than that of the OASI program for the first 25 years when measured relative to the level of program cost. Summarized over the full 75-year period, however, long-range deficits for the OASI and DI programs under intermediate assumptions are more similar measured relative to the level of program cost. Increases in longevity after 2027, when the disability conversion age remains fixed, have a greater effect on OASI cost than on DI cost. As a result of this greater effect on OASI cost, the financial status of the OASI program in the later portion of the 75‑year projection period is worse than the financial status of the DI program.
Note: Totals do not necessarily equal the sums of rounded components.
Table IV.B6 presents the components and the calculation of the long-range (75-year) actuarial balance under the intermediate assumptions. The present value of future cost less future non-interest income over the long-range period, minus the amount of trust fund asset reserves at the beginning of the projection period, amounts to $10.7 trillion for the OASDI program. This amount is the 75-year “open group unfunded obligation” (see row H). The actuarial deficit (which is the negative of the actuarial balance) combines this unfunded obligation with the present value of the ending target trust fund and expresses the total as a percentage of the present value of the taxable payroll for the period. The present value of future non-interest income minus cost, plus starting trust fund reserves, minus the present value of the ending target trust fund, is ‑$11.3 trillion for the OASDI program. The actuarial balance , expressed as a percentage of taxable payroll for the period, is ‑2.68 percent.
E.

1
The calculation of the actuarial balance includes the cost of accumulating a target trust fund reserve equal to 100 percent of annual cost at the end of the period.

Note: Totals do not necessarily equal the sums of rounded components.
The open group unfunded obligation (row H in the table above) increased from $10.6 trillion shown in last year's report to $10.7 trillion in this report. If there had been no changes in starting values, assumptions, laws, or methods for this report, then the open group unfunded obligation would have increased to $11.1 trillion solely due to the change in the valuation period. This expected increase in the unfunded obligation occurs because: (1) the unfunded obligation is now discounted to January 1, 2015, rather than to January 1, 2014, which tends to increase the unfunded obligation by the annual nominal interest rate; and (2) the unfunded obligation now includes an additional year (2089). However, changes in assumptions, methods, and starting values resulted in a net $0.5 trillion decrease in the unfunded obligation.
The change in the actuarial deficit can be explained in a similar way. The actuarial deficit was 2.88 percent of payroll in last year’s report, and was expected to increase to a deficit of 2.94 percent of payroll solely due to the change in the valuation period. Changes in assumptions, methods, and starting values combined to account for the decrease in the actuarial deficit, down to 2.68 percent of payroll. For additional details on these changes, see section IV.B.6.
5. Additional Measures of OASDI Unfunded Obligations
A negative actuarial balance (i.e., an actuarial deficit) is one measure of the unfunded obligation of the program. This subsection presents additional measures of OASDI unfunded obligations under the intermediate assumptions.
a. Open Group Unfunded Obligations
Consistent with practice since 1965, this report focuses on a 75-year open group valuation to evaluate the long-run financial status of the OASDI program. The open group valuation includes non-interest income and cost for past, current, and future participants through the year 2089. The present value of the open group unfunded obligation for the program is $10.7 trillion over 2015-89. The open group unfunded obligation measures the adequacy of financing over the period as a whole for a program financed on a pay-as-you-go basis. On this basis, payroll taxes and scheduled benefits for all participants are included through 2089.
The 75-year unfunded obligation is equivalent to 2.5 percent of future OASDI taxable payroll and 0.9 percent of GDP through 2089. The 75-year unfunded obligation as a percentage of taxable payroll is less than the actuarial deficit, because the unfunded obligation excludes the ending target trust fund value (see table IV.B6).
Consideration of summary measures alone (such as the actuarial balance and open group unfunded obligation) for a 75-year period can lead to incorrect perceptions and to policy prescriptions that do not achieve sustainable solvency. These concerns can be addressed by considering the trend in trust fund ratios toward the end of the period. (See the discussion of “sustainable solvency” beginning on page 51.)
Another measure of trust fund finances, discussed in Appendix F, is the infinite horizon unfunded obligation, which takes account of all annual balances, even those after 75 years. The extension of the time period past 75 years assumes that the current-law OASDI program and the demographic and economic trends used for the 75‑year projection continue indefinitely. This infinite horizon unfunded obligation is estimated to be 3.9 percent of taxable payroll or 1.3 percent of GDP. Of course, the degree of uncertainty associated with estimates increases substantially for years further in the future.
6. Reasons for Change in Actuarial Balance From Last Report
Table IV.B7 shows the effects of changes on the long-range actuarial balance, by category, between last year’s report and this report.
Valuation period 1

1
The change in the 75-year valuation period from last year’s report to this report means that the 75-year actuarial balance now includes the relatively large negative annual balance for 2088. This change in the valuation period results in a larger long-range actuarial deficit. The actuarial deficit includes the trust fund reserve at the beginning of the projection period.

Note: Totals do not necessarily equal the sums of rounded components.
If the assumptions, methods, starting values, and the law had all remained unchanged from last year’s Trustees Report, the long-range OASDI actuarial balance would have decreased (become more negative) by 0.06 percent of taxable payroll solely due to the change in the valuation period. However, as described below, projections in this report also reflect changes in law, data, assumptions, and methods. These changes combine to improve the long-range OASDI actuarial balance, from -2.88 percent of taxable payroll in last year’s report to -2.68 percent in this report.
Since the last report, no law was enacted that is expected to have a significant effect on the long-range cost of the OASDI program. However, on November 20, 2014, the President announced a series of executive actions on immigration, which are expected to have a significant effect on the long-range income and cost of the OASDI program. These executive actions include enhancing security at our nation’s borders, expanding the existing program for certain undocumented children, creating a new program for certain undocumented parents that provides them with protection from deportation and with the opportunity to work legally, and allowing an estimated additional 10,000 entrepreneurs to enter the country as legal permanent residents each year. Due to a federal court order, implementation of the actions affecting undocumented children and parents is on hold at the time of this report. However, the estimates in this report assume this court order will be temporary and that the executive actions will proceed by the end of 2015. The effects of these actions are projected to increase the long-range OASDI actuarial balance by 0.02 percent of taxable payroll.
Changing the 75-year valuation period from 2014-88 to 2015-89 decreased the projected long-range OASDI actuarial balance by 0.06 percent of taxable payroll. This decrease is mainly the result of including the relatively large negative annual balance for 2089 in this year’s 75-year projection period. Note that the annual balance for 2014 is not excluded from the calculation of this year’s long-range OASDI actuarial balance because this calculation includes trust fund asset reserves at the beginning of the projection period. These reserves at the start of the period reflect the program’s net financial flows for all past years up to the start of the projection period.
Ultimate demographic assumptions are unchanged from those in last year’s report. However, updating the starting and historical values, and the transition to ultimate assumed levels, combined to decrease the long-range OASDI actuarial balance by 0.03 percent of taxable payroll. The following paragraph describes three of the demographic changes that had significant effects on the long-range OASDI actuarial balance.
First, final fertility (birth) data for 2012 and preliminary data for 2013 indicate slightly lower birth rates than were assumed for last year’s report for these years. As in last year’s report, the estimates reflect: (1) the effect of the recent economic recession on the total fertility rate for recent years and (2) the assumption that the total fertility rate will rebound to a level above the ultimate level and will subsequently decline to the ultimate level. However, in this year’s report, the total fertility rate reaches the ultimate level in 2027, which is eleven years earlier than in last year’s report. These changes in historical and projected birth rates decreased the long-range OASDI actuarial balance by about 0.04 percent of taxable payroll. Second, incorporating mortality data obtained from Medicare experience at ages 65 and older for 2012 resulted in slightly higher death rates for 2012 and a slightly slower rate of decline in mortality over the next 25 years than were projected in last year’s report. Incorporating mortality data obtained from the National Centers for Health Statistics at ages under 65 for 2011 resulted in slightly lower death rates for 2011 and a slightly faster rate of decline in mortality over the next 25 years than were projected in last year’s report. These updated data combined to increase the long-range OASDI actuarial balance by about 0.02 percent of taxable payroll. Third, revising historical legal immigration to include single age data (rather than 5-year age groups); including more recent marriage, legal immigration, and other-than-legal immigration data; and revising historical data since 2001 (to be more consistent with the most recent estimates from the Census Bureau) combined to decrease the long-range OASDI actuarial balance by 0.01 percent of taxable payroll.
The only ultimate economic assumption in this year’s report that changed from the value used in last year’s report is the average annual real wage differential. The ultimate average real wage differential is 1.17 percent per year for the intermediate assumptions in this report, rather than 1.13 percent in last year’s report. This change increased the long-range OASDI actuarial balance by 0.06 percent of taxable payroll. The higher real wage differential assumption is more consistent with recent experience and expectations of slower growth in employer sponsored group health insurance premiums from the Centers for Medicare and Medicaid Services. Because these premiums are not subject to the payroll tax, slower growth in these premiums means that a greater share of employee compensation will be in the form of wages that are subject to the payroll tax.
In addition, updated starting values and changes in near-term economic assumptions combined for a net increase in the long-range OASDI actuarial balance of 0.04 percent of taxable payroll. One major factor contributing to this change is the projected relationship between average taxable earnings and the average wage index. Compared to last year’s report, the ratio of average taxable earnings to the average wage index averages about 0.6 percentage point higher during the long-range period, resulting in higher payroll taxes (directly related to average taxable earnings) relative to benefit levels (directly related to the average wage index). The change in this relationship is mainly due to the Bureau of Labor Statistics’ revisions to historical data on proprietor income. This change increased the long-range OASDI actuarial balance by 0.05 percent of taxable payroll. Another factor, which offsets most of this increase, is revised projections of the proportion of wages posted to the Earnings Suspense File.5 For several years, the proportion of actual wages posted to the suspense file has been significantly less than projected. Thus, compared to last year’s report, the projected suspense file contains fewer wage items, which is consistent with having fewer workers (many of whom are undocumented immigrants) with wages on the suspense file and more of these workers with earnings in the underground economy. This revision decreased the long-range OASDI actuarial balance by 0.05 percent of taxable payroll. Other smaller changes in starting values and near-term growth assumptions combined to increase the long-range OASDI actuarial balance by 0.04 percent of taxable payroll.
The projections in this report also reflect several methodological improvements and updates of program-specific data. These methodological changes, updates, and interactions combined to increase the long-range OASDI actuarial balance by 0.17 percent of taxable payroll. Descriptions of five significant methodological changes and updates follow.
This year’s report includes two significant methodological improvements for projecting the earnings levels of future cohorts of newly entitled worker beneficiaries, using a 10-percent sample of actual worker beneficiaries newly entitled in 2008 as a basis. The first improvement changed the projection of earnings histories of worker beneficiaries to be more consistent with: (1) the projected employment and earnings by single year of age and gender used in estimating payroll tax revenue and (2) the projected distribution by single year of age and gender of newly entitled worker beneficiaries for each projection year. This method improvement increased the long-range OASDI actuarial balance by 0.07 percent of taxable payroll. Another improvement in projecting these earnings changed the relative earnings levels in the projection for those over age 65 to those age 65 and younger. In the prior report, the projection method included an adjustment to lower the earnings levels for older workers due to the expectation of more part-time employment at these older ages. Because data on actual earnings levels have not shown this expected drop in average earnings at older ages, this adjustment is removed for the projections in this year’s report. As a result, slightly more annual earnings are allocated to older workers and slightly less are allocated to younger workers, and overall average benefit levels are slightly reduced, because the effect on benefit levels of additional earnings tends to be larger for workers under age 65 than for workers over age 65. This method improvement increased the long-range OASDI actuarial balance by 0.03 percent of taxable payroll.
A third methodological improvement lowers the projected insured rate for some immigrants. The affected group of immigrants includes those working in covered employment with a temporary visa that allows them to work and those working in covered employment without current legal work authorization. For this group, the ratio of insured individuals to covered workers was changed from being the same as the ratio of insured to covered workers for all permanent legal residents and citizens of the same age and sex (legal ratio) to being three-fourths of the legal ratio. This method improvement increased the long-range OASDI actuarial balance by 0.03 percent of taxable payroll.
The fourth significant change is an update that resulted in an increase in income from taxation of benefits in this year’s report. Recent data and estimates provided by the Office of Tax Analysis at the Department of Treasury indicate higher levels of revenue from taxation of OASDI benefits than projected in last year’s report. The increase in the ultimate projected ratio of income from taxation of benefits to benefits resulted in an increase in the long-range OASDI actuarial balance of 0.03 percent of taxable payroll.
Finally, changes in projected OASI beneficiaries and benefit levels over the first 10 years of the projection period, updating programmatic data, other small methodological improvements, and interactions increased the long-range OASDI actuarial balance by a net of 0.01 percent of taxable payroll.
Figure IV.B4 compares the annual cash-flow balances for this report and the prior year’s report for the combined OASDI program over the long-range (75-year) projection period. The figure illustrates the annual effects of the changes described earlier in this section.
This pattern of differences between the annual balances (income rate minus cost rate) in the two reports is due to the changes described earlier in this section. Except for 2015, the annual balances are higher each year in this year’s report and average 0.31 percentage point higher over the 75-year projection period. Differences between the annual balances in the two reports are mainly due to the change in the projected real wage differential, the revised economic starting levels, and the revised methods for projecting newly entitled worker beneficiaries. Most of these changes and revisions have a positive effect on the projections. For 2088, the projected annual deficit is 4.61 percent of taxable payroll in this report, compared to 4.90 percent in last year's report.

1
See Appendix F.

2
Adjustments include adding deemed wage credits based on military service for 1983-2001 and reflecting the lower effective tax rates (as compared to the combined employee-employer rate) that apply to multiple-employer “excess wages.” Lower rates also applied to net earnings from self-employment before 1984 and to income from tips before 1988.

3
As noted in greater detail in the 2015 Medicare Trustees Report, “The trust fund perspective does not encompass the interrelationship between the Medicare and Social Security trust funds and the overall Federal budget.” For an explanation of that relationship, see appendix F of the 2015 Medicare Trustees Report.

4
The indicated increase in the payroll tax rate of 2.78 percent is somewhat larger than the 2.68 percent 75‑year actuarial deficit because the indicated increase reflects a behavioral response to tax rate changes. In particular, the calculation assumes that an increase in payroll taxes results in a small shift of wages and salaries to forms of employee compensation that are not subject to the payroll tax.

5
When earnings are reported for individuals whose identity cannot be verified based on the Social Security Administration’s name and Social Security number records, those earnings are stored on the suspense file. When the individual’s identity is verified, the earnings are transferred from the suspense file to the Master Earnings File.


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