This chapter presents the estimates and measures of trust fund financial adequacy for the short range period (2014‑23) first, followed by estimates and measures of
actuarial status for the long range period (2014‑88). Summary measures are also provided for trust fund status over the infinite horizon. As described in the Overview chapter 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 or large changes in other trends, 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 2014-23. These estimates assume that there are no changes in the statutory provisions and regulations under which the OASDI program currently operates.
1
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 2023. 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 2023 for all three alternatives. The number of persons with taxable earnings increases on the basis of alternatives I, II, and III from 163 million during calendar year 2013 to about 185 million, 181 million, and 176 million, respectively, in 2023. The total annual amount of taxable earnings increases in every year through 2023 for each alternative. Total earnings increase from $5,913 billion in 2013 to $11,737 billion, $9,937 billion, and $8,459 billion in 2023, 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 recovers from the economic recession.
Rising OASI cost during 2014-23 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 2014-23 under the three sets of assumptions, together with values for actual experience during 2009-13. Non-interest income increases steadily after 2013 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 or OASI cost, but remains greater than DI income. As a result, after having reached a maximum in 2008, DI Trust Fund reserves continue to decrease after 2013 under each alternative. Under the
intermediate assumptions, reserves continue to decline until their projected depletion in the fourth quarter of 2016. Under the low-cost assumptions, reserves begin to increase again after reaching a low point in 2019; reserves are at such low levels in 2019 and 2020 that the DI trust fund requires advance tax transfers
2 to pay scheduled benefits in a timely fashion. Under the high-cost assumptions, DI reserves decline steadily until
depletion in the second quarter of 2016.
Table IV.A3 shows the estimated operations and status of the combined OASI and DI Trust Funds for calendar years 2014-23 under the three alternatives, together with actual experience in 2009‑13. 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 and would satisfy the short-range test of financial adequacy under all three alternative sets of assumptions. Under current law, one trust fund cannot share financial resources with another trust fund.
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 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 2022 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 2023 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 DI trust fund ratio increased by 9 percentage points due to lower-than-expected disability incidence rates experienced since last year. The overall 9-percentage-point decrease in the DI trust fund ratio is the net effect of this change in disability incidence and the other factors described above for the OASI Trust Fund.
