Testimony to the House Committee on Ways and Means
Stephen C. Goss,
Deputy Chief Actuary Office of the Chief Actuary
Social Security
Administration
June 10, 1999
Mr. Chairman and Members of the Committee, thank you for the
opportunity to describe the work of the Office of the Chief Actuary in
assessing the plans to reform Social Security that have been developed by
Members of Congress.
The Social Security Act requires that the Board of Trustees report
annually to the Congress providing the expected operations and status of
the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI)
Trust Funds for the next 5 fiscal years and "a statement of the actuarial
status of the Trust Funds." The Office of the Chief Actuary works with the
trustees in the development of this annual report of the financial status
of the program under present law.
In addition, the Office of the Chief Actuary provides to the
Administration and to the Congress estimates of the financial effects on
the Social Security (OASDI) program of potential or proposed legislation.
The mission of the Office of the Chief Actuary is to provide objective
analyses that will permit policymakers to make informed decisions about
the future of the Social Security program.
Current Financial Status of The Social Security Program
The Social Security program currently provides monthly benefits to more
than 44 million individuals. The primary source of financing is a payroll
tax on the nearly 150 million workers in covered employment. Tax revenue
currently exceeds the cost of the program, so the trust funds are growing.
Trust funds are currently almost twice the size of the annual cost of the
program, and growing.
Based on the intermediate assumptions of the 1999 Trustees Report, tax
income to the OASDI program is expected to exceed cost until 2014. The
combined OASI and DI trust funds are expected to continue growing until
2022. The combined trust funds are then expected to decline until they are
exhausted in 2034.
At the point of trust fund exhaustion in 2034, continuing tax income is
expected to be equal to 71 percent of the cost of the program.
Measures for Evaluating the Long-Range Actuarial Status of Social
Security
The Social Security program is a complex system developed more than 6
decades ago to provide monthly benefits that offer what has been referred
to as a "floor of protection" against loss of income due to retirement,
death, or disability. The program provides a blend between individual
equity and social adequacy that has evolved through the judgement of
several generations of policymakers.
Both Annual Trustees Reports and estimates by the Office of the Chief
Actuary for legislative proposals focus primarily on the financial status
of the OASDI program. Because current program financing is expected to be
adequate for the full payment of benefits on a timely basis for over 30
years, I will describe the criteria used for evaluating the "actuarial
status" of Social Security over the long run.
The actuarial status of the OASDI program is evaluated over a 75-year,
long-range projection period. This period provides a view of the adequacy
of financing over the entire lifetime of virtually all current
participants in the program, from the oldest beneficiaries to the youngest
workers. This period also provides the opportunity to view the full,
mature financial effects of legislative proposals that may take decades to
become fully implemented.
The most fundamental criterion for evaluating the financial status of
the OASDI program is its ability to pay full benefits in a timely manner.
The inability to do so is indicated by expected exhaustion of the trust
funds within the 75-year period.
Perhaps the most commonly used measure of long-range solvency of the
OASDI program is the actuarial balance. This measure indicates the size of
the difference between expected financing and cost for the program over
the 75-year period, on a summarized present-value basis. An actuarial
balance of zero indicates that financing over the 75-year period is equal
to the expected cost of the program, with enough left over for a trust
fund balance at the end of the period equal to the annual cost of the
program.
The actuarial balance is expressed as a percentage of taxable payroll
over the 75-year period. Under the intermediate assumptions of the 1999
Trustees report, the estimated actuarial balance is -2.07 percent of
taxable payroll. Because this balance is negative, it is referred to as an
actuarial deficit.
An additional important measure for evaluating the actuarial status of
Social Security is the stability of the financing at the end of the
75-year period. Financial stability is achieved at the end of the period
if total program income is sufficiently meets the costs of the program and
maintains stable trust fund reserves. Stability of trust fund reserves
means that the trust fund balance expressed as a percentage of the annual
cost of the program (the "trust fund ratio") is essentially constant.
At the request of the Chairman and other Members of Congress, the
Office of the Chief Actuary has assessed a number of plans to reform
Social Security. While many of the plans would bring the Social Security
program into long-range actuarial balance, the plans are all different to
some degree. The Office of the Chief Actuary will continue to work with
the Administration and the Congress as policymakers develop and consider
these, and any additional plans, for addressing the long-range financing
issues facing the Social Security program.
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