2020 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 fund reserves 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 is 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.
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 several summarized measures, including 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 annual income rate minus the annual cost rate is the annual “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 increase from 10.99 percent of payroll for 2019 to 11.17 percent of payroll for 2020. The income rate increases in 2020 because of an adjustment made to previous years’ estimates of payroll tax contributions. After declining in 2021, the OASI income rate then generally rises at a very gradual rate to 11.58 percent of taxable payroll for 2094. Income from taxation of benefits causes a gradual increase in the OASI income rate for two main reasons: (1) total scheduled benefits are rising faster than payroll; and (2) the ratio of total income tax on benefits to total benefits increases over time for reasons discussed in detail on page 150.
From 2020 to 2038, the OASI cost rate rises rapidly because the retirement of the baby-boom generation will continue to 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 2040 to 2051, the cost rate declines because the aging baby-boom generation is gradually replaced at retirement ages by the lower-birth-rate generations that followed. The OASI cost rate rises from 14.81 percent in 2051 to 16.20 percent in 2078, then generally declines to 15.89 percent in 2094.
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 changes 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 rises from 11.84 percent in 2020 until it peaks in 2034 at 12.84 percent of payroll. The cost rate then declines to 11.98 percent for 2055, rises to 12.27 percent for 2074, and mostly declines to 11.53 percent in 2094, at which point the income rate reaches 11.30 percent. For the high-cost assumptions, the OASI cost rate rises throughout the 75-year period. It rises relatively rapidly through about 2040 because of the aging of the baby-boom generation. Thereafter, the cost rate continues to rise and reaches 22.63 percent of payroll for 2094, at which point the income rate reaches 12.00 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. The annual deficit rises relatively rapidly from 0.88 percent for 2020 to 3.54 percent for 2040. It then declines to 3.32 percent of payroll for 2051, rises to 4.61 percent for 2078, and generally declines thereafter, reaching 4.31 percent of taxable payroll for 2094.
Under the low-cost assumptions, the OASI annual deficit decreases from 0.93 percent of payroll in 2019 to 0.76 percent in 2020, and then generally rises to 1.50 percent of payroll for 2034. After 2034, the annual deficit declines to 0.66 percent of payroll for 2055, rises to 0.93 percent in 2074, and then mostly declines until reaching 0.23 percent of payroll in 2094. Under the high-cost assumptions, the OASI balance worsens throughout the projection period. Annual deficits rise to 3.18 percent for 2025, 6.64 percent for 2050, and 10.63 percent of payroll for 2094.
Income
rate a
Cost
rateb

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

b
Benefit payments scheduled to be paid on January 3 are actually paid on December 31 as required by the statutory provision for early delivery of benefit payments when the normal payment delivery date is a Saturday, Sunday, or legal public holiday. For comparability with the values for historical years and the projections in this report, all trust fund operations and asset reserves reflect the 12 months of benefits scheduled for payment each year.

c
Between -0.005 and 0 percent of taxable payroll.

d
The annual balance is projected 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.
Under the intermediate assumptions, the projected DI cost rate declines from 1.93 percent for 2019 to 1.72 percent for 2031. After 2031, the DI cost rate increases gradually to 2.00 percent for 2055. Thereafter, the cost rate remains relatively stable, decreasing slowly to 1.95 percent for 2080, then increasing to 2.04 percent for 2094. The projected DI income rate is relatively stable throughout the projection period, reaching 1.84 percent for 2094. The annual balance is negative through 2021 before becoming positive in 2022, reaching a peak of 0.11 percent of payroll for 2031. The annual balance then declines and becomes negative in 2041. After 2041, the DI annual deficit increases to 0.16 percent in 2055, generally decreases to 0.11 percent in 2080, and then increases to 0.20 percent of payroll for 2094.
Under the low-cost assumptions, the projected DI cost rate declines from 1.82 percent of payroll for 2020 to 1.29 percent for 2035, and generally increases to 1.37 percent for 2052. The cost rate remains relatively stable thereafter, reaching 1.40 percent for 2094. The annual balance is negative for 2020 and positive throughout the remainder of the long-range period. Under the high-cost assumptions, the DI cost rate rises from 1.93 percent of payroll in 2020 to 2.81 percent in 2056 and remains relatively stable thereafter, reaching 2.85 percent for 2094. The annual deficit is negative throughout the projection period, reaching 0.23 percent for 2025, 0.88 percent for 2050, and 1.00 percent for 2094.
Figure IV.B1 shows the patterns of the historical and projected 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. As of 2010, these three factors have largely stabilized. Other factors that are not yet fully understood have caused age-sex-adjusted incidence rates and cost rates to decline after 2010. The patterns in projected OASI and DI cost rates are described earlier in this chapter. 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.
Table IV.B1 shows the annual balances for OASI, DI, and OASDI. The pattern of the annual balances is important to the analysis of the financial condition of the Social Security program as a whole. As seen in figure  IV.B1, the magnitude of each of the positive balances 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 except for changes due to the 1994 and the 2016 through 2018 payroll tax rate reallocations.
In the future, the costs of OASI, DI, and the 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 OASDI cost to increase from about 5.0 percent of GDP for 2020 to about 5.9 percent for 2038. After 2038, OASDI cost as a percentage of GDP declines to a low of about 5.8 percent for 2053, increases to a peak of 6.0 percent for 2077, and thereafter generally decreases slowly, reaching about 5.9 percent by 2094. 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 scheduled benefits, and the rates of income from General Fund reimbursements. Projected income from taxation of benefits increases over time for reasons discussed on page 150.
Tax-ation
of
bene-
fitsa
General Fund Reim-burse-mentsb
Totalc

a
Revenue from taxation of benefits is the amount that would be assessed on benefit amounts scheduled in the law.

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

c
Values exclude interest income.

d
Between 0 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 that the OASDI cost rate will rise rapidly between 2020 and 2038, 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 relatively 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 all of the baby-boom generation has retired. 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 a
(in thousands)
Beneficiaries b (in thousands)
OASDIc

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

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

c
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 received benefits under section 228 of the Social Security Act. The General Fund of the Treasury reimbursed 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 2019 level of 36 beneficiaries per 100 covered workers, the Trustees project that this ratio rises to 45 by 2038 under the intermediate assumptions because the growth in beneficiaries greatly exceeds the growth in workers. By 2095, this projected ratio rises further under the intermediate and high-cost assumptions, reaching 48 under the intermediate assumptions and 61 under the high-cost assumptions. Under the low-cost assumptions, this ratio rises to 42 by 2038 and then generally declines, reaching 39 by 2095. 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 2019. Under the intermediate assumptions, this ratio declines generally throughout the long-range period, reaching 2.2 for 2038 and 2.1 by 2095. Under the low-cost assumptions, this ratio declines to 2.4 for 2038, then generally rises to 2.6 by 2095. Under the high-cost assumptions, this ratio decreases steadily to 1.6 by 2095.
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 revenue falls 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 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.
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 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 is projected to decline from 291 percent at the beginning of 2020 until the trust fund reserves become depleted in 2034 (the same year as in last year’s report), at which time 76 percent of scheduled benefits would be payable. The DI trust fund ratio decreases from 62 percent at the beginning of 2020 to 61 percent in 2021. After 2021, the DI trust fund ratio increases for a time, reflecting the period of recent and near-term expected low incidence rates, reaching a peak of 143 percent by 2041. The ratio then declines until the trust fund reserves become depleted in 2065 (13 years later than projected in last year’s report). At that time, 92 percent of scheduled benefits would be payable. The difference in depletion year from last year’s report is largely due to a lower assumed ultimate disability incidence rate. See page 39 for additional details.
Under the intermediate assumptions, the trust fund ratio for the combined OASI and DI Trust Funds declines from 261 percent at the beginning of 2020 until the combined fund reserves become depleted early in 2035 (the same year as 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 increases throughout the projection period, from 63 percent at the beginning of 2020 to the extremely high level of 2,846 percent for 2095. For the OASI program, the trust fund ratio declines steadily, from 291 percent for 2020 until the reserves become depleted in 2043, at which time 90 percent of scheduled benefits would be payable. For the combined OASDI program, the trust fund ratio declines from 261 percent for 2020 until the combined fund reserves become depleted in 2079. However, the trust funds would have sufficient income by the end of 2088 to permit full payment of scheduled benefits thereafter and also to pay in arrears the temporary shortfalls between 2079 and 2088. By 2089, trust fund reserves become positive and the trust fund ratio increases thereafter, to a ratio of 13 percent in 2095. Because the DI trust fund ratio is positive throughout the projection period and increasing at the end of the period, under the low-cost assumptions, only the DI program achieves sustainable solvency.
Under the high-cost assumptions, the OASI trust fund ratio declines from 291 percent for 2020 until reserves become depleted in 2031, at which time 69 percent of scheduled benefits would still be payable. The DI trust fund ratio declines from 62 percent for 2020 until the reserves become depleted in 2026. At that time, 88 percent of scheduled benefits would still be payable. The combined OASI and DI trust fund ratio declines from 260 percent for 2020 until reserves become depleted in 2031, at which time 71 percent of scheduled benefits would still be payable.
The Trustees project trust fund reserve depletion within the 75-year projection period with the exception of the DI Trust Fund 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 before mid-century.
Even under the high-cost assumptions, however, the combined OASI and DI Trust Fund reserves on hand plus their estimated future income are sufficient to fully cover their combined cost until 2031. Under the intermediate assumptions, the combined starting fund reserves plus estimated future income are sufficient to fully cover cost until 2035. In the 2019 report, the Trustees projected that the combined trust fund reserves would become depleted in 2030 and 2035 under the high-cost and intermediate assumptions, respectively, and would achieve sustainable solvency under the low-cost assumptions.
Table IV.B4.—Trust Fund Ratios, Calendar Years 2020-2095a

a
Benefit payments scheduled to be paid on January 3 are actually paid on December 31 as required by the statutory provision for early delivery of benefit payments when the normal payment delivery date is a Saturday, Sunday, or legal public holiday. For comparability with the values for historical years and the projections in this report, all trust fund ratios reflect the 12 months of benefits scheduled for payment each year.

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

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

d
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 hypothetical.
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 test of short-range 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. Both the long-range test and the short-range test are applied based on the intermediate set of assumptions. As discussed in section IV.A, the DI Trust Fund fails the test of short-range financial adequacy because the trust fund ratio does not reach 100 percent during the 10-year period. The OASI and combined OASI and DI Trust Funds fail the test of short-range financial adequacy because the trust fund ratios drop below 100 percent by the end of the 10‑year period. Under the intermediate assumptions, the OASI Trust Fund reserves become depleted in 2034, DI Trust Fund reserves become depleted in 2065, and the combined OASI and DI Trust Fund reserves become depleted in 2035. Therefore, the OASI, DI, and combined OASI and DI Trust Funds all fail the test of long-range 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.D6.
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 reasons discussed on page 150. 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 one 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. Note that solvency is possible with a small negative actuarial balance where reserves are still positive.3
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 -0.15 percent of taxable payroll under the low-cost assumptions, ‑2.02 percent under the intermediate assumptions, and -4.17 percent under the high-cost assumptions. These balances indicate that the program is not adequately financed for the 25‑year valuation period under any of these three sets of assumptions.
For the 50‑year valuation period, the OASDI program has actuarial balances of -0.19 percent under the low-cost assumptions, ‑2.75 percent under the intermediate assumptions, and ‑5.90 percent under the high-cost assumptions. These actuarial balances mean that the OASDI program is not adequately financed for the 50‑year valuation period under any of these three sets of assumptions.
For the entire 75-year valuation period, the combined OASDI program has actuarial balances of -0.13 percent of taxable payroll under the low-cost assumptions, ‑3.21 percent under the intermediate assumptions, and ‑7.10 percent under the high-cost assumptions. These balances indicate that the combined OASDI program is not adequately financed for the 75-year valuation period under any of these three sets of 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, revenue 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 15.54 percent (a relative increase of 25.3 percent), cost could be reduced in a manner equivalent to an immediate and permanent reduction in scheduled benefits of about 19 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 revenue in a manner equivalent to an immediate and permanent increase in the combined payroll tax from 12.40 percent to 15.73 percent (a relative increase of 26.9 percent),4 reducing cost in a manner equivalent to an immediate reduction in scheduled benefits of about 20 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 4.51 percent of payroll for 2094 (see table IV.B1). These large deficits indicate that annual cost continues to exceed non-interest income after 2094, 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 4.6 percent of payroll under the intermediate assumptions.
Beginning
asset reservesa

a
Benefit payments scheduled to be paid on January 3 are actually paid on December 31 as required by the statutory provision for early delivery of benefit payments when the normal payment delivery date is a Saturday, Sunday, or legal public holiday. For comparability with the values for historical years and the projections in this report, all trust fund operations and asset reserves reflect the 12 months of benefits scheduled for payment each year.

Note: Totals do not necessarily equal the sums of rounded components.
5. Open-Group Unfunded Obligation
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 2094. 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 2094.
The open-group unfunded obligation increased from $13.9 trillion shown in last year's report to $16.8 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 $14.5 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, 2020, rather than to January 1, 2019, which tends to increase the unfunded obligation by the annual nominal interest rate; and (2) the unfunded obligation now includes an additional year (2094). However, changes in the law, assumptions, methods, and starting values resulted in a net $2.3 trillion increase in the unfunded obligation.
The 75-year unfunded obligation is equivalent to 3.03 percent of OASDI taxable payroll and 1.0 percent of GDP for 2020-94.5 These percentages were 2.61 and 0.9, respectively, for last year’s report. The 75-year unfunded obligation as a percentage of taxable payroll is less than the actuarial deficit, because the unfunded obligation excludes the cost of having an ending target trust fund value.
The actuarial deficit was 2.78 percent of payroll in last year’s report, and was expected to increase to a deficit of 2.84 percent of payroll solely due to the change in the valuation period. Changes in the law, assumptions, methods, and starting values combined to account for an additional 0.38 percentage point increase (worsening) in the actuarial deficit to 3.21 percent of payroll.
As mentioned above, the open-group unfunded obligation expressed in dollars, as well as the actuarial deficit, increased (worsened) more than would be expected from changing the valuation period alone. This increase occurred for a variety of reasons as explained in the next section, including a law change, a reduction in the ultimate total fertility rate, and reductions in near-term and ultimate interest rates.
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, is $16.8 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 ‑$17.8 trillion for the OASDI program.
E.

a
Less than $0.5 billion.

b
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.
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 52.)
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 4.6 percent of taxable payroll or 1.4 percent of GDP. These percentages were 4.1 and 1.4, respectively, for last year’s report. 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 under the intermediate assumptions, by category, between last year’s report and this report.
Valuation period a

a
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 2094. 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 law, data, assumptions, and methods had all remained unchanged from last year’s Trustees Report, the long-range OASDI actuarial balance would have decreased (become more negative) by 0.05 percent of taxable payroll solely due to the change in the valuation period. However, as described below, projections in this report also reflect new data and changes in law, assumptions, and methods. These changes, including the change in the valuation period, combine to decrease (worsen) the long-range OASDI actuarial balance by 0.43 percentage point, from ‑2.78 percent of taxable payroll in last year’s report to ‑3.21 percent in this report.
Legislation/Regulation
Changes in law, regulations, and policy combine to decrease the long-range OASDI actuarial balance by 0.12 percent of payroll.
Since the last report, there has been one change in law that is expected to have a significant financial effect on the long-range actuarial balance. The Affordable Care Act (ACA), which was enacted in 2010, specified an excise tax on employer-sponsored group health insurance premiums above a given level (commonly referred to as the “Cadillac” tax). On December 20, 2019, the ACA’s excise tax provision was repealed. The repeal of the excise tax is expected to result in an increase in the rate of growth in the average cost of employer-sponsored group health insurance. Faster growth in these premiums, which are not subject to the payroll tax, is assumed to reduce the share of employee compensation that is provided in the form of wages, which are subject to the payroll tax. As a result, the rate of growth in average real covered earnings will be reduced. This change in law is estimated to decrease the long-range actuarial balance by 0.13 percent of taxable payroll.
This report also incorporates the effects of one notable new regulation. On February 25, 2020, the Social Security Administration published a final rule in the Federal Register that eliminates the inability to communicate in English as an educational category in the disability determination and medical review processes. This rule is estimated to reduce the number of disabled worker beneficiaries in the long-term by 0.25 percent. This regulation has a negligible (less than 0.005 percent of taxable payroll) positive effect on the actuarial balance.
Valuation Period
As mentioned above, changing the 75-year valuation period from 2019 through 2093 for last year’s report to 2020 through 2094 for this report decreases the projected long-range OASDI actuarial balance by 0.05 percent of taxable payroll. This decrease is mainly the result of including the relatively large negative annual balance for 2094 in this year’s 75-year projection period. Note that the actuarial balance calculation includes trust fund reserves at the beginning of the projection period. These reserves reflect the program’s net financial flows for all past years, including 2019, up to the start of the valuation period.
Demographic Data and Assumptions
New demographic data and changes in demographic assumptions combine to decrease the long-range OASDI actuarial balance by 0.13 percent of taxable payroll.
One ultimate demographic assumption was changed for this year’s report. Since 2007, the total fertility rate has declined, reaching historically low levels of 1.73 for 2018 and an estimated 1.68 for 2019. It is not clear whether these recent low levels will persist, or whether they are the temporary effect of younger women delaying childbirth until they are older and then their expectation of future births will be realized. Based on consideration of these factors, the Trustees reduced the ultimate total fertility rate for this report from 2.00 to 1.95 children per woman. This change in the ultimate fertility assumption decreases the actuarial balance by 0.11 percent of taxable payroll.
Three demographic data updates also resulted in significant changes in the long-range actuarial balance. First, birth data for 2018 and the first quarter of 2019 indicate somewhat lower fertility rates than were assumed in last year’s report for 2018 and 2019. These updated data result in lower birth rates during the transition period to the ultimate level, decreasing the actuarial balance by 0.04 percent of taxable payroll, in addition to the effect due to the reduced ultimate total fertility rate that is accounted for above. Second, incorporating new mortality data (final 2017 data for ages under 65 from NCHS; final 2016, preliminary 2017, and preliminary 2018 data for ages 65 and older from Medicare experience) results in higher death rates for all future years than were projected in last year’s report. These higher death rates increase the actuarial balance by 0.04 percent of taxable payroll. Third, updates to lawful permanent resident (LPR) immigration data, other-than-LPR immigration data, and other minor data updates combine to decrease the actuarial balance by 0.02 percent of taxable payroll.
Economic Data and Assumptions
New economic data and changes in economic assumptions combine to decrease the long-range OASDI actuarial balance by 0.18 percent of payroll.
Four ultimate economic assumptions were changed for this year’s report. First, the ultimate rate of price inflation (CPI-W) was lowered by 0.2 percentage point, from 2.6 percent for last year’s report to 2.4 percent for this year’s report. Inflation has been very low in recent years, reflecting many factors that have been highly favorable for low price inflation. While inflation will likely increase from recent low levels, the Trustees believe that a return to historical long-term averages is unlikely. This change in the CPI‑W assumption decreases the long-range actuarial balance by 0.05 percent of payroll.
Second, the average real-wage differential over the last 65 years of the projection period for this year’s report is 1.14 percentage points per year, lower than the 1.21 value in last year’s report. Most of this decrease in the long-term real-wage differential is due to the repeal of the ACA excise tax, as accounted for above. However, a small portion is due to faster assumed growth in employer-sponsored group health insurance premiums apart from the effect of the repeal of the excise tax, based on updated projections by the Centers for Medicare and Medicaid Services (CMS). This additional incremental change to the real-wage differential assumption, separate from the change due to the repeal of the excise tax, decreases the long-range actuarial balance by 0.01 percent of taxable payroll.
Third, the ultimate age-sex-adjusted unemployment rate is reduced from 5.5 percent for last year’s report to 5.0 percent for this year’s report. At the same time, long-term labor force participation rates have been reduced by age and sex for this report such that projected employment rates are essentially unchanged. The Trustees believe that a structural shift has occurred in the unemployment rate, and thus future long-term unemployment rates and labor force participation rates will both remain somewhat below long-term past averages. This change to unemployment rates and labor force participation rates has a negligible effect on the actuarial balance.
Fourth, the ultimate real interest rate was lowered by 0.2 percentage point, from 2.5 percent for last year’s report to 2.3 percent for this year’s report. Real interest rates have been low since 2000, and particularly low since the start of the economic recession of 2007-09. An ongoing and much-debated question among experts is how much of this change is a temporary response to extraordinary events, versus a fundamental permanent change. The Trustees believe that lowering the long-term ultimate real interest rate somewhat is appropriate at this time. This change in the ultimate real interest rate assumption decreases the actuarial balance by 0.07 percent of payroll.
Other changes to data and near-term economic assumptions, including a 0.7 percent decrease in the estimated level of potential GDP for the fourth quarter of 2019 and thereafter, combine for a net decrease in the actuarial balance of 0.04 percent of taxable payroll.
Disability Data and Assumptions
New disability data and changes in disability assumptions combine to increase the long-range OASDI actuarial balance by 0.05 percent of payroll. Disabled-worker applications have declined substantially since 2010 and have reached levels well below expectations and far below average rates in the past. Based on this experience, the Trustees reduced the ultimate disability incidence rate for this report from 5.2 to 5.0 per thousand exposed. This change in the ultimate disability incidence rate increases the actuarial balance by 0.04 percent of payroll. In addition, recent disability data and changes in near-term assumptions increase the long-range actuarial balance by 0.01 percent of taxable payroll. These new disability data and changes in assumptions are almost entirely responsible for the change in the DI Trust Fund reserve depletion date from 2052 in last year’s report to 2065 in this year’s report. The short-range effects are noted in section IV.A.4.
Methods and Programmatic Data
The projections in this report also reflect several methodological improvements and updates based on new program-specific data. These methodological changes, programmatic data updates, and interactions combine for a net negligible effect on the long-range OASDI actuarial balance. Descriptions of eight significant methodological changes and programmatic data updates follow.
The first significant update is the use of this year’s lower disability incidence assumptions, and resulting lower disability prevalence projections, for the labor force participation model. Incorporating these lower disability prevalence projections in the labor force model increases the actuarial balance by 0.02 percent of payroll.
Second, improvements were made to the long-range model used for projecting the percentage of the population that has fully-insured status. The long-range fully insured model constructs 30,000 simulated work histories for each sex and birth cohort using past coverage rates, earnings distributions, and amounts required for crediting quarters of coverage. The model develops the work histories in a manner that replicates the kind of individual variation seen in historical experience. The changes made for this year’s report improve the alignment of simulated fully insured rates with historical fully insured rates. These improvements to the fully insured model decrease the actuarial balance by 0.03 percent of taxable payroll.
Third, the method used to project retired worker prevalence rates for ages 63 to 69 was updated to better reflect recent patterns in benefit claiming at those ages. Recent data indicate that retired workers are choosing to start their benefits at later ages on average, and this trend is expected to continue. Increases in the ages at which retirees start benefits results in higher lifetime benefits, on average. This change results in a decrease in the actuarial balance of 0.02 percent of payroll.
The fourth significant change is in the sample used for the long-range model for projecting average benefit levels of retired-worker and disabled-worker beneficiaries who are newly entitled for benefits. This model uses a large sample of 10 percent of all newly entitled retired-worker beneficiaries in a recent year. The sample used in last year’s report was for worker beneficiaries newly entitled in 2015. This year’s report uses the results from worker beneficiaries newly entitled in 2016. This update to the sample data increases the actuarial balance by 0.03 percent of payroll.
Fifth, recent data and estimates provided by the Office of Tax Analysis (OTA) at the Department of the Treasury indicate higher near-term and ultimate levels of revenue from taxation of OASDI benefits than projected in last year’s report. The increase in projected ratios of income tax on benefits to benefit amounts results in an increase in the actuarial balance of 0.02 percent of taxable payroll.
The sixth significant change improves estimates of average benefit levels for retired workers and disabled workers receiving benefits. The new method refines the adjustment factors that are applied to awarded benefit levels based on the duration from initial entitlement to the date the benefit award is made. This refinement better uses available data for several historical years. This change results in a decrease in the actuarial balance of 0.01 percent of payroll.
Seventh, this year’s report better reflects projected changes in the distribution of benefit awards by disability adjudication level. The average monthly benefit level for disability claims awarded at the initial state Disability Determination Services (DDS) level tends to be higher than for claims awarded at the Administrative Law Judge (ALJ) hearings level. Because the cases in the 2016 new entitlement sample include relatively more DDS cases and relatively fewer ALJ cases than usual, alignment to the expected average distribution of cases by adjudicative level reduced the projected future average benefit level. This change increased the actuarial balance by 0.02 percent of payroll.
The eighth significant change is updating post-entitlement adjustment factors based on new programmatic data. Post-entitlement factors are used to account for changes in benefit levels, primarily due to differential mortality by benefit level and earnings after benefit entitlement. This data update decreases the actuarial balance by 0.01 percent of payroll.
In addition to these eight significant methodological changes and programmatic data updates, changes in starting levels and projected levels of OASI and DI beneficiaries and benefit amounts over the first 10 years of the projection period, updating other programmatic data, other small methodological improvements, and interactions among the various method changes and updates to programmatic experience combine to decrease the long-range actuarial balance by 0.02 percent of taxable payroll.
Figure IV.B4 compares the annual 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.
The annual balances in this year’s report are lower (more negative) in all years beginning with 2022, principally due to the repeal of the ACA excise tax, which results in slower projected growth in average real covered earnings, and lower fertility rates. For the full 75-year projection period, the annual balances are lower, on average, by 0.37 percentage point. The differences in annual balances are small in the 2020s, generally grow until 2080, and then decline thereafter. For 2093, the projected annual deficit is 4.48 percent of taxable payroll in this report, compared to 4.11 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
A program is solvent over any period for which the trust fund maintains a positive level of asset reserves. In contrast, the actuarial balance for a period includes the cost of having a target fund equal to 100 percent of the following year’s cost at the end of the period. Therefore, if a program ends the period with reserves that are positive but not sufficient to cover the following year’s costs, it will be solvent at the end of the period and yet still have a small negative actuarial balance for that period.

4
The indicated increase in the payroll tax rate of 3.33 percent is somewhat larger than the 3.21 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
The present value of taxable payroll for 2020-94 is $554.6 trillion. The present value of GDP for 2020-94 is $1,614.2 trillion. In last year’s report, the present value of taxable payroll for 2019-93 was $531.2 trillion and the present value of GDP for 2019-93 was $1,497.0 trillion.


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