The 2017 Social Security Trustees Report: Old Age and Survivors Trust Fund Holds Steady, While Disability Trust Fund Sees Significant Improvement

Posted by Rafael Gonzalez on Jul 25, 2017 8:15:00 AM

FDITF published its 2017 Annual ReportOn July 13, 2017, the Board of Trustees of the Federal Old Age, Survivors Insurance and Federal Disability Insurance Trust Funds published its 2017 Annual Report. “The Old-Age, Survivors, and Disability Insurance (OASDI) program makes monthly income available to insured workers and their families at retirement, death, or disability. The OASDI program consists of two parts. Retired workers, their families, and survivors of deceased workers receive monthly benefits under the Old-Age and Survivors Insurance (OASI) program. Disabled workers and their families receive monthly benefits under the Disability Insurance (DI) program.”

“The Social Security Act established the Board of Trustees to oversee the financial operations of the OASI and DI Trust Funds. The Board is composed of six members. Four members serve by virtue of their positions in the Federal Government: the Secretary of the Treasury; the Secretary of Labor; the Secretary of Health and Human Services; and the Commissioner of Social Security. The President appoints and the Senate confirms the other two members to serve as public representatives. The Deputy Commissioner of the Social Security Administration serves as Secretary of the Board.”

The Social Security Act requires that the Board, among other duties, “report annually to the Congress on the actuarial status and financial operations of the OASI and DI Trust Funds. The 2017 report is the 77th such report.” As I have done since 1990, what follows is a verbatim review of the of information, statistics, analysis, and predictions as published in the 2017 Social Security Trustees Report, which can be found at https://www.ssa.gov/oact/tr/2017/tr2017.pdf

In 2016

The Report indicates that “at the end of 2016, the OASDI program was providing benefit payments to about 61 million people: 44 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 11 million disabled workers and dependents of disabled workers. During the year, an estimated 171 million people had earnings covered by Social Security and paid payroll taxes on those earnings. Total income in 2016 was $957 billion, which consisted of $869 billion in non-interest income and $88 billion in interest earnings. Total expenditures in 2016 were $922 billion. Asset reserves held in special issue U.S. Treasury securities grew by $35 billion, from $2,813 billion at the beginning of the year to $2,848 billion at the end of the year.”

Short-Range Results

Under the Trustees’ intermediate assumptions, “Social Security’s total income is projected to exceed its total cost through 2021, as it has for every year since 1982. However, when interest income is excluded, Social Security’s cost is projected to exceed its non-interest income throughout the projection period, as it has since 2010. For 2017, total income for the program is projected to exceed cost for the year by $59 billion, and non-interest income is projected to be $27 billion less than program cost for the year.”

The Report indicates that “reserves of the combined OASI and DI Trust Funds along with projected program income are adequate to cover program cost over the next 10 years under the intermediate assumptions. The ratio of reserves to cost remains above 100 percent through 2026, declining from 298 percent of annual cost at the beginning of 2017 to 165 percent at the beginning of 2026. Therefore, the combined OASI and DI Trust Funds satisfy the short-range test of financial adequacy.”

The Report provides that “the combined reserves are projected to increase from $2,848 billion at the beginning of 2017 to $3,000 billion at the beginning of 2022. Reserves increase through 2021 because annual cost is less than total income for 2017 through 2021. At the same time, however, the ratio of reserves to cost declines, from 298 percent of annual cost for 2017 to 230 percent for 2022. Beginning in 2022, annual cost exceeds total income, and therefore the combined reserves begin to decline, reaching $2,607 billion at the end of 2026.”

The Report explains that “the DI Trust Fund reserves were projected to become depleted in 2023 in last year’s report. However, revisions reflecting recent experience have extended the projected DI Trust Fund reserve depletion date to 2028 due to less DI applications and benefit awards.”

Long-Range Results

Under the Trustees’ intermediate assumptions, “projected OASDI cost will exceed total income by increasing amounts starting in 2022, therefore combined trust fund reserves decline until reserves become depleted in 2034. Considered separately, the DI Trust Fund reserves become depleted in 2028 and the OASI Trust Fund reserves become depleted in 2035. In last year’s report, the projected reserve depletion years were 2034 for OASDI, 2023 for DI, and 2035 for OASI.”

The Report explains that “the change in the reserve depletion date for DI is largely due to less DI applications and benefit awards. Disability applications have been declining since 2010 and the total number of disabled worker beneficiaries in current payment status has been falling since 2014. In last year’s report, disabled worker beneficiaries were projected to rise from 8.9 million at the end of 2015 to about 9.0 million at the end of 2016. In fact, the number dropped to about 8.8 million at the end of 2016. These changes are primarily responsible for the change in the DI reserve depletion date from 2023 in last year’s report to 2028 in this year’s report.”

The Report projects “OASDI cost increases more rapidly than projected non-interest income through 2037 primarily because the retirement of the baby-boom generation will increase the number of beneficiaries much faster than the number of covered workers increases, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages. From 2038 to 2051, the cost rate (the ratio of program cost to taxable payroll) generally declines because the aging baby-boom generation is gradually replaced at retirement ages by historically low-birth-rate generations. Thereafter, increases in life expectancy cause OASDI cost to increase generally relative to non-interest income, but more slowly than between 2010 and 2037.”

The Report also projects “OASDI annual cost rate increases from 13.41% of taxable payroll for 2017 to 17.02% for 2038 and to 17.80% for 2091. Expressed in relation to the projected gross domestic product (GDP), OASDI cost generally rises from 4.9% of GDP for 2017 to about 6.1% by 2037, then declines to 5.9% by 2050, and then generally increases to 6.1% by 2091.”

The Report documents “that the unfunded obligation for OASDI over the 75-year period is $12.5 trillion in present value and is $1.2 trillion more than the measured level of $11.4 trillion a year ago. If the assumptions, methods, starting values, and the law had all remained unchanged, the actuarial deficit would have increased to 2.71% of taxable payroll, and the unfunded obligation would have risen to about 2.55% of taxable payroll and $11.9 trillion in present value due to the change in the valuation date.”

To illustrate the magnitude of the 75-year actuarial deficit, “the combined OASI and DI Trust Funds to remain fully solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.76% to 15.16%, (2) scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of about 17% applied to all current and future beneficiaries, or about 20% if the reductions were applied only to those who become initially eligible for benefits in 2017 or later; or (3) some combination of these approaches would have to be adopted.”

If substantial actions are deferred for several years, “the changes necessary to maintain Social Security solvency would be concentrated on fewer years and fewer generations. Much larger changes would be necessary if action is deferred until the combined trust fund reserves become depleted in 2034. For example, maintaining 75-year solvency with policies that begin in 2034 would require: (1) an increase in revenues by an amount equivalent to a 3.98% payroll tax rate increase starting in 2034, (2) a reduction in scheduled benefits by an amount equivalent to a 23% in all benefits starting in 2034, or (3) some combination of these approaches would have to be adopted.”

Conclusion

Under the intermediate assumptions, “DI Trust Fund asset reserves are projected to become depleted in 2028, at which time continuing income to the DI Trust Fund would be sufficient to pay 93% of DI scheduled benefits. Therefore, legislative action is needed to address the DI program’s financial imbalance. The OASI Trust Fund reserves are projected to become depleted in 2035, at which time OASI income would be sufficient to pay 75% of OASI scheduled benefits.”

The Trustees also project that “combined OASI and DI Trust Fund asset reserves increase through 2021, begin to decline in 2022, and become depleted and unable to pay scheduled benefits in full on a timely basis in 2034. At the time of depletion of these combined reserves, continuing income to the combined trust funds would be sufficient to pay 77% of scheduled benefits.”

The Trustees recommend that “lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them. Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits and could preserve more trust fund reserves to help finance future benefits. Social Security will play a critical role in the lives of 62million beneficiaries and 173 million covered workers and their families in 2017. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.”

About Rafael Gonzalez

Rafael Gonzalez, Esq. is President of Flagship Services Group, the only national Medicare Secondary Payer services provider focusing on and offering comprehensive mandatory reporting, conditional payments, and set aside allocation compliance services to the property and casualty insurance industry. He speaks and writes on the effects of Medicare and Medicaid compliance issues on the auto, liability, no-fault, and work comp insurance industry, as well as the interplay and effect of these processes and systems and the Affordable Care Act throughout the country. Rafael blogs on these topics at Medicare Compliance for P&C Insurers at www.flagshipservicesgroup.com/blog. He can be reached at rgonzalez@flagshipsgi.com or 813.967.7598.

Topics: Medicare Law