This chapter presents the estimates and measures of trust fund financial adequacy for the short-range period (2017 through 2026) first, followed by estimates and measures of
actuarial status for the long-range period (2017 through 2091). Summary measures are also provided for trust fund status over the infinite horizon. As described in chapter
II 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 solvent at any point in time if the funds can pay scheduled benefits in full on a timely basis. A standard measure for assessing solvency is the “trust fund ratio,” which is the
reserves in a fund at the beginning of a year (not including advance tax transfers) expressed as a percentage of the cost during the year. A positive trust fund ratio indicates that the trust fund was solvent at the end of the prior 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, can quickly diminish 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.
The test of short-range financial adequacy applies to the OASI and DI Trust Funds individually and combined on a hypothetical basis.
1 If the estimated trust fund ratio is at least 100 percent at the beginning of the projection period, the test requires that it remain at or above 100 percent throughout the 10-year period. If the ratio is initially less than 100 percent, then it must reach at least 100 percent within 5 years (without reserve depletion at any time during this period) and then remain at or above 100 percent throughout the remainder of the 10-year period. This test is applied using the estimates based on the intermediate assumptions. If either trust fund fails this test, then program solvency in the next 10 years is in question, and lawmakers should take prompt action to improve short-range financial adequacy.
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 2017 through 2026. These estimates assume that there are no further changes in the statutory provisions and regulations under which the OASDI program currently operates beyond the changes since last year’s report indicated in section
III.B.
2
Estimates of the OASI Trust Fund operations presented in Table IV.A1 indicate that the asset reserves of the OASI Trust Fund increase through 2021 and decrease thereafter under the intermediate assumptions, increase throughout the next 10 years under the low-cost assumptions, and increase during 2017 and decrease thereafter 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 2026. Consequently, the OASI Trust Fund satisfies the test of short-range financial adequacy by a wide margin. 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, as well as a return to pre-reallocation tax rates in 2019. Employment increases in every year through 2026 for all three alternatives, with the exception of slight decreases in covered employment in 2018 and 2019 for the high-cost alternative: the number of persons with taxable earnings increases on the basis of alternatives I, II, and III from 171 million during calendar year 2016 to about 188 million, 184 million, and 180 million, respectively, in 2026. The total annual amount of taxable earnings increases in every year through 2026 for each alternative. Total earnings increase from $6,757 billion in 2016 to $12,760 billion, $10,873 billion, and $9,189 billion in 2026, 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 continues to recover from the severe economic downturn that began in late 2007.
Rising OASI cost during 2017 through 2026 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.
The Treasury invests OASI income in financial securities, generally special public-debt obligations of the U.S. Government. The revenue used to make these purchases flows to the General Fund of the Treasury. The trust fund earns interest on these securities, and the Treasury invests maturing securities in new securities if not immediately needed to pay program costs. Program expenditures require the redemption of trust fund securities, generally prior to maturity, to cover the payments made by the General Fund of the Treasury on behalf of the trust fund.
3Table IV.A2 shows the estimated operations and financial status of the DI Trust Fund during calendar years 2017 through 2026 under the three sets of assumptions, together with values for actual experience during 2012 through 2016. Non-interest income for DI is much higher in 2016 through 2018 than in 2015, due to the temporary payroll tax rate reallocation from OASI to DI. As a result, DI Trust Fund reserves increase through 2018 under each alternative. After returning to the ultimate allocation of tax rates in 2019, non-interest income is again less than DI cost except under the low-cost alternative. Non-interest income increases steadily thereafter under each alternative, due to most of the same factors described previously for the OASI Trust Fund. DI cost grows steadily throughout the period under each alternative. Under the
intermediate assumptions, reserves decline after 2018. Under the high-cost assumptions, DI reserves decline after 2018 until
depletion in the fourth quarter of 2021. Under the low-cost assumptions, reserves increase throughout the short-range period.
In the future, DI cost increases in part due to increases in average benefit levels resulting from: (1) automatic benefit increases and (2) projected increases in the amounts of average monthly earnings on which benefits are based. Future changes in DI cost also reflect changes in the number of DI beneficiaries in current-payment status. In 2016, the number of DI beneficiaries in current-payment status continued the trend of the prior two years by dropping slightly from the end of 2015 to the end of 2016. Under the intermediate assumptions, that number is estimated to drop further through the end of 2017, and increase thereafter through the remainder of the short-range projection period. The increases after 2017 are at a much slower rate than has been experienced on average over the past 20 years, due in large part to long-anticipated demographic trends and expected economic conditions, and in part to an expected continuation of recent low incidence rates through the first few years of the short-range period as discussed in section V.C.
5.
Table IV.A3 shows the estimated operations and status of the combined OASI and DI Trust Funds for calendar years 2017 through 2026 under the three alternatives, together with actual experience in 2012 through 2016. 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, although it is important to note that under current law, one trust fund cannot share financial resources with another trust fund. In addition, the combined OASI and DI Trust Funds would satisfy the test of short-range financial adequacy.
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 for the beginning of 2025 for the DI Trust Fund and the combined OASI and DI Trust Funds in last year’s report are hypothetical because the Trustees projected that the DI Trust Fund reserves would be depleted prior to the end of the short-range projection period in that report.
