2020 OASDI Trustees Report

STATEMENT OF ACTUARIAL OPINION

It is my opinion that, subject to several considerations noted below: (1) the techniques and methodology used herein to evaluate the actuarial status of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds are based upon sound principles of actuarial practice and are generally accepted within the actuarial profession; and (2) the assumptions used and the resulting actuarial estimates are, individually and in the aggregate, reasonable for the purpose of evaluating the actuarial status of the trust funds, taking into consideration the past experience and future expectations for the population, the economy, and the program. I am an Associate of the Society of Actuaries, a member of the American Academy of Actuaries, and I meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein.

COVID-19

As noted in the introduction of this report, it was too early at the time assumptions were selected to accurately assess the effects that will be seen as a result of the evolving pandemic. The magnitude of near-term and long-range effects on the population and the economy is still unclear. Therefore, the potential effects of the pandemic are not reflected in this report. Assessment of the implications will take time and will be provided by the time of the next annual report.

Other Assumptions

Several long-range ultimate assumptions were changed for this report. Based on strong evidence in recent experience, assumed ultimate disability incidence rates, price inflation rates, and real interest rates were all lowered below the levels of long-term past averages. The assumed ultimate total fertility rate was also lowered somewhat, consistent with the effect of an extended period during which women would be choosing to have their desired number of children at increasingly older ages. In addition, reflecting recent experience, measured unemployment rates are assumed to be lower in the future than they have been in the past on average, but employment rates are assumed to be unaffected, so that measured labor force participation rates are also assumed to be somewhat lower in the future. No changes were made to the ultimate mortality, immigration, or productivity assumptions. Each of these assumptions is reasonable.

Federal Budget Accounting

This report focuses on the actuarial status of the OASI and DI Trust Funds, as required by law. It includes important information on (1) the years in which trust fund reserves are projected to be depleted and (2) the degree to which benefits scheduled in the law would no longer be fully payable on a timely basis after reserve depletion. However, the footnote on page 45 of this report directs the reader to appendix F in the Medicare Trustees Report, which states, “The trust fund perspective does not encompass the interrelationship between the Medicare and Social Security trust funds and the overall Federal budget.” The reader of this report should consider this “overall” Federal unified budget perspective with care because the assumptions underlying unified budget accounting are inconsistent with the assumptions of trust fund accounting.

In particular, trust fund accounting accurately reflects the laws directly governing the operations of the trust funds, under which benefits cannot be paid in full on a timely basis after trust fund reserve depletion. In contrast, unified budget accounting assumes that full scheduled benefits will continue to be paid through transfers from the General Fund of the Treasury, thus representing “a draw on other Federal resources for which there is no earmarked source of revenue from the public.” Not only are such “draws” not permissible under current law, no precedent exists for a change in the Social Security Act to finance unfunded trust fund obligations with such draws on other Federal resources. Under this unified budget accounting assumption, $16.8 trillion of OASDI unfunded obligations, which are not payable under the law over the next 75 years, are referred to as “expenditures” requiring a “draw” from the General Fund of the Treasury.

In addition, unified budget accounting treats redemptions of trust fund reserves as an addition to annual Federal deficits, referring to these redemptions also as “a draw on other Federal resources.” In fact, redemptions of trust fund reserves represent a deferred use of revenues earmarked for the trust fund program alone, which have been collected in prior years and saved for later use. These redemptions utilize the entire $2.9 trillion accumulation of net past earmarked revenue for OASDI, but are referred to as draws on the General Fund of the Treasury under the unified budget perspective.

Therefore, the actual operations of the trust funds under current law do not draw on other Federal resources. Expenditures can only be paid from currently-invested trust fund reserves (that is, deferred earmarked resources) for the specific program. Assertions that trust fund reserve redemption and shortfalls after reserve depletion represent draws on other Federal resources are based on assumptions that are inconsistent with the law and with actual trust fund annual cash-flow operations.

In addition to Federal budget annual cash flows, the budget perspective is equally concerned with the build-up of Federal debt. The total Federal debt subject to limit includes trust fund reserves. Thus, as trust fund reserves are accumulated or redeemed, they are offset in the total Federal debt by securities issued to the public, with no net effect on the total Federal debt. Moreover, even in considering the Federal debt owed to (held by) the public, there is no net direct effect on that debt from accumulating and then redeeming trust fund reserves. However, budget analysis frequently refers to both trust fund reserve redemptions and trust fund obligations not payable under the law after reserve depletion as factors that increase the Federal debt held by the public in the future. This assertion is not consistent with a full assessment of the investment and redemption flows of the trust funds or with the limitations in the law on paying benefits after trust fund reserves are depleted.

Stephen C. Goss

Associate of the Society of Actuaries
Member of the American Academy of Actuaries
Chief Actuary, Social Security Administration