2016 OASDI Trustees Report

B. HISTORY OF ACTUARIAL STATUS ESTIMATES

This appendix chronicles the history of the OASDI actuarial balance and the year of combined OASI and DI Trust Fund reserve depletion since 1982. The actuarial balance is the principal summary measure of long-range actuarial status. The 1983 report was the last report for which the actuarial balance was positive. The two basic components of actuarial balance are the summarized income rate and the summarized cost rate, both of which are expressed as percentages of taxable payroll. Section IV.B.4 defines summarized income rate, summarized cost rate, and actuarial balance in detail. For any given period, the actuarial balance is the difference between the present value of non-interest income for the period and the present value of the cost for the period, each divided by the present value of taxable payroll for all years in the period. The computation of the actuarial balance also includes:

•	In the reports for 1988 and later, the amount of the trust fund asset reserves on hand at the beginning of the valuation period; and

•	In the reports for 1991 and later, the present value of a target trust fund asset reserve equal to 100 percent of the annual cost to be reached and maintained at the end of the valuation period.

Reports prior to 1973 used the current method of calculating the actuarial balance based on present values, but the reports of 1973-87 did not. During that period, the reports used the average-cost method, a simpler method which approximates the results of the present-value approach. Under the average-cost method, the sum of the annual cost rates over the 75-year projection period was divided by the total number of years, 75, to obtain the average cost rate per year. A similar computation produced the average income rate. The actuarial balance was the difference between the average income rate and the average cost rate.

When the 1973 report introduced the average-cost method, the long-range financing of the program was more nearly on a pay-as-you-go basis. Also, the long-range demographic and economic assumptions in that report produced an annual rate of growth in taxable payroll which was about the same as the annual rate at which the trust funds earned interest. In either situation (i.e., pay-as-you-go financing, where the annual income rate is the same as the annual cost rate, or an annual rate of growth in taxable payroll equal to the annual interest rate), the average-cost method produces the same result as the present-value method. However, by 1988, neither of these situations still existed.

After the 1977 and 1983 Social Security Amendments, estimates showed substantial increases in the trust funds continuing well into the 21st century. These laws changed the program’s financing from essentially pay-as-you-go to partial advance funding. Also, the reports from 1973 through 1987 phased in reductions in long-range fertility rates and average real-wage growth, which produced an annual rate of growth in long-range taxable earnings which was significantly lower than the assumed interest rate. As a result of the difference between this rate of growth and the assumed interest rate, the results of the average-cost method and the present-value method in the reports for 1973 through 1987 began to diverge, and by 1988 they were quite different. While the average-cost method still accounted for most of the effects of the assumed interest rate, it no longer accounted for all of the interest effects. The present-value method, by contrast, accounts for the full effect of the assumed interest rates. The 1988 report reintroduced the present-value method of calculating the actuarial balance in order to fully reflect the effects of interest.

A positive actuarial balance indicates that estimated income is more than sufficient to meet estimated trust fund obligations for the period as a whole. A negative actuarial balance indicates that estimated income is insufficient to meet estimated trust fund obligations for the entire period. An actuarial balance of zero indicates that the estimated income exactly matches estimated trust fund obligations for the period.

Table VI.B1 contains the estimated OASDI actuarial balances, summarized income rates, and summarized cost rates for the 1982 report through the current report. The reports presented these values on the basis of the intermediate assumptions, which recent reports refer to as alternative II and reports prior to 1991 referred to as alternative II-B.

Table VI.B1.—Long-Range OASDI Actuarial Balances  and Trust Fund Reserve Depletion Dates as Shown in the Trustees Reports for 1982-2016^a

[As a percentage of taxable payroll]

Year of report	Summarized income rate	Summarized cost rate	Actuarial balanceb	Change from previous yearc	Year of combined trust fund reserve depletion
1982	12.27	14.09	-1.82	d	1983
1983	12.87	12.84	+.02	+1.84	solvent
1984	12.90	12.95	-.06	-.08	solvent
1985	12.94	13.35	-.41	-.35	2049
1986	12.96	13.40	-.44	-.03	2051
1987	12.89	13.51	-.62	-.18	2051
1988	12.94	13.52	-.58	+.04	2048
1989	13.02	13.72	-.70	-.13	2046
1990	13.04	13.95	-.91	-.21	2043
1991	13.11	14.19	-1.08	-.17	2041
1992	13.16	14.63	-1.46	-.38	2036
1993	13.21	14.67	-1.46	d	2036
1994	13.24	15.37	-2.13	-.66	2029
1995	13.27	15.44	-2.17	-.04	2030
1996	13.33	15.52	-2.19	-.02	2029
1997	13.37	15.60	-2.23	-.03	2029
1998	13.45	15.64	-2.19	+.04	2032
1999	13.49	15.56	-2.07	+.12	2034
2000	13.51	15.40	-1.89	+.17	2037
2001	13.58	15.44	-1.86	+.03	2038
2002	13.72	15.59	-1.87	-.01	2041
2003	13.78	15.70	-1.92	-.04	2042
2004	13.84	15.73	-1.89	+.03	2042
2005	13.87	15.79	-1.92	-.04	2041
2006	13.88	15.90	-2.02	-.09	2040
2007	13.92	15.87	-1.95	+.06	2041
2008	13.94	15.63	-1.70	+.26	2041
2009	14.02	16.02	-2.00	-.30	2037
2010	14.01	15.93	-1.92	+.08	2037
2011	14.02	16.25	-2.22	-.30	2036
2012	14.02	16.69	-2.67	-.44	2033
2013	13.88	16.60	-2.72	-.05	2033
2014	13.89	16.77	-2.88	-.16	2033
2015	13.86	16.55	-2.68	+.20	2034
2016	13.84	16.50	-2.66	+.02	2034

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a

The reports compute the actuarial balance and year of trust fund reserve depletion based on the intermediate assumptions, which the 1982-90 reports referred to as alternative II-B and the 1991 and later reports refer to as alternative II.

b

The definition and method of calculating the actuarial balance were changed in 1988 and 1991. See text for details.

c

A detailed year-by-year breakdown of the reasons for the changes in the actuarial balance since the 1983 Trustees Report may be found in Actuarial Note 2016.8 at www.ssa.gov/OACT/NOTES/ran8/.

d

Between -0.005 and 0.005 percent of taxable payroll.

Note: Totals do not necessarily equal the sums of rounded components.

For several of the years included in the table, significant legislative changes or definitional changes affected the estimated actuarial balance. The Social Security Amendments of 1983 accounted for the largest single change in recent history: the actuarial balance of ‑1.82 for the 1982 report improved to +0.02 for the 1983 report. In 1985, the estimated actuarial balance changed largely because of an adjustment made to the method for estimating the age distribution of immigrants.

Rebenchmarking of the National Income and Product Accounts and changes in demographic assumptions contributed to the change in the actuarial balance for 1987. Various changes in assumptions and methods for the 1988 report had roughly offsetting effects on the actuarial balance. In 1989 and 1990, changes in economic assumptions accounted for most of the changes in the estimated actuarial balance.

In 1991, the effect of legislation, changes in economic assumptions, and the introduction of the cost of reaching and maintaining an ending target trust fund combined to produce the change in the actuarial balance. In 1992, changes in disability assumptions and the method for projecting average benefit levels accounted for most of the change in the actuarial balance. In 1993, numerous small changes in assumptions and methods had offsetting effects on the actuarial balance. In 1994, changes in the real-wage assumptions, disability rates, and the earnings sample used for projecting average benefit levels accounted for most of the change in the actuarial balance. In 1995, numerous small changes had largely offsetting effects on the actuarial balance, including a substantial reallocation of the payroll tax rate, which reduced the OASI actuarial balance, but increased the DI actuarial balance.

In 1996, a change in the method of projecting dually-entitled beneficiaries produced a large increase in the actuarial balance, which almost totally offset decreases produced by changes in the valuation period and in the demographic and economic assumptions. Various changes in assumptions and methods for the 1997 report had roughly offsetting effects on the actuarial balance. In 1998, increases caused by changes in the economic assumptions, although partially offset by decreases produced by changes in the valuation period and in the demographic assumptions, accounted for most of the changes in the estimated actuarial balance. In 1999, increases caused by changes in the economic assumptions (related to improvements in the CPI by the Bureau of Labor Statistics) accounted for most of the changes in the estimated actuarial balance.

For the 2000 report, changes in economic assumptions and methodology caused increases in the actuarial balance, although reductions in the balance caused by the change in valuation period and changes in demographic assumptions partially offset these increases. For the 2001 report, increases caused by changes in the demographic starting values, although partially offset by a decrease produced by the change in the valuation period, accounted for most of the changes in the estimated actuarial balance. For the 2002 report, changes in the valuation period and the demographic assumptions—both decreases in the actuarial balance—were offset by changes in the economic assumptions, while an increase due to disability assumptions was slightly more than offset by a decrease due to changes in the projection methods and data. For the 2003 report, an increase due to the change in program assumptions was more than offset by decreases due to the change in valuation period and changes in demographic assumptions. In the 2004 report, increases due to changing the method of projecting benefit levels for higher earners more than offset decreases in the actuarial balance arising from the change in the valuation period and the net effect of other changes in programmatic data and methods.

For the 2005 report, an increase due to changing the method of projecting future average benefit levels was more than offset by decreases due to changes in the valuation period, updated starting values for the economic assumptions, and other methodological changes. In 2006, decreases in the actuarial balance due to the change in the valuation period, a reduction in the ultimate annual real interest rate, and improvements in calculating mortality for disabled workers, were greater in aggregate than increases in the actuarial balance due to changes in demographic starting values and the ultimate total fertility rate, as well as other programmatic data and method changes. For the 2007 report, increases in the actuarial balance arising from revised disability incidence rate assumptions, improvements in average benefit level projections, and changes in near-term economic projections, more than offset decreases in the balance due to the valuation period change and updated historical mortality data.

For the 2008 report, the large increase in the actuarial balance was primarily due to changes in immigration projection methods and assumptions. These changes more than offset the decreases in the actuarial balance due to the change in the valuation period and the lower starting and ultimate mortality rates. In 2009, changes in starting values and near-term economic assumptions due to the economic recession, faster ultimate rates of decline in death rates for ages 65-84, and the change in the valuation period accounted for most of the large decrease in the actuarial balance. Legislative changes, in particular the estimated effects of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, were the main reason for the increase in the actuarial balance for the 2010 report. The change in the valuation period partially offset this increase; there were also changes in several assumptions, methods, and recent data which had largely offsetting effects.

For the 2011 report, changes in mortality projections, due to new starting values and revised methods, were the most significant of several factors contributing to the increase in the deficit. These mortality changes resulted in lower death rates for the population age 65 and over. Adding to this negative effect were near-term lower levels of net other immigration and real earnings than assumed in the 2010 report.

For the 2012 report, changes in economic assumptions and starting values accounted for about half of the decrease in actuarial balance. Updating starting economic data resulted in higher benefit levels, lower payroll taxes, and lower real interest rates in the short term than projected in the previous year. Other factors worsening the actuarial balance were the change in valuation period, changes to starting demographic values, changes to ultimate disability incidence assumptions, and methodology changes and data updates.

For the 2013 report, the change in valuation period accounted for the entire net change in the actuarial balance. The effects of substantially lower death rates for 2009 than previously projected and the American Taxpayer Relief Act of 2012 (which lowered the Federal marginal income tax rates) were offset by updates of program-specific data and methodology improvements. The primary factors improving the actuarial balance were changes in ultimate age-sex specific unemployment rates, changes in modeling the number of workers insured, changes in average benefit levels due to the update of the sample, changes in projections of income from taxation of benefits, and other method changes and data updates.

For the 2014 report, changes in economic data and assumptions accounted for the majority of the net change in the actuarial balance. In particular, the 2014 report includes a lower projected ratio of average taxable earnings to the average wage index throughout the long-range period, resulting in lower payroll taxes relative to benefit levels. In addition, the estimated level of full-employment (potential) GDP is about 1 percent lower in the 2014 report, resulting in lower earnings and payroll taxes for the future. This change reflects the fact that GDP growth has not been as strong so far in the economic recovery as had been experienced in prior recoveries. Other factors worsening the actuarial balance were the change in the valuation period and various methodology improvements and data updates.

For the 2015 report, methodological improvements and updates of programmatic data accounted for the majority of the net increase in the actuarial balance. The most significant methodological changes were improvements to the method for projecting earnings levels of newly entitled worker beneficiaries, using a 10-percent sample of actual worker beneficiaries. Also increasing the actuarial balance were a lower assumed ultimate average wage differential and changes in near-term economic assumptions. These increases were offset somewhat by the change in the valuation period and updates to historical and near-term projected birth rates.

Section IV.B.6 describes changes affecting the actuarial balance shown for the 2016 report.