SOCIAL SECURITY

1 SOCIAL SECURITYOld-Age, Survivors, andDisability Insurance ProgramSUMMARY OF THE1984 TRUSTEES REPORTAPRIL 5, 1984 OFFICE OF THE ACTUARYSOCIAL SECURITY ADMINISTRATIONSUMMARY OF THE1984 SOCIAL SECURITY TRUSTEES REPORT:OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE PROGRAMHIGHLIGHTSThe actuarial estimates indicate that OASDI benefits can be paid on time well into the nextcentury on the basis of all four sets of econom-icand demographic assumptions. Over thenext 75 years, the OASDI program is in closeactuarial balance, based on the intermediate-Bset of year's estimates are similar to lastyear's,which showed that the SOCIAL SecurityAmendments of 1983 had substantially improv-ed the financial condition of the stabilizer provision of the 1983 amend-ments is not expected to affect the automaticbenefit increase for December 1984, even onthebasisof very pessimistic , the 1984 cost-of-living increase inOASDI benefits will almost certainly be basedon the full increase in the Consumer PriceIndex, even if the applicable wage increase the short range, the OASDI funds areestimated to increase each year.

2 On the basis ofall but the most pessimistic of the four sets ofassumptions used. Based on the pessimistic setof assumptions, the combined assets as a per-centage of program outgo are estimated todecline somewhat, before beginning to in-crease in the long range, this year's projectionsindicate that the program has an average actu-arial deficit of percent of taxable payrollover the next 75 years, based on theintermediate-B assumptions. This represents aslightdecline from the surplusshown in 1983, due mainly to projections ofmore disability awards. The program remainsin close actuarial balance, however, based onthe intermediate-B assumptions, because theestimated average income rate over the next75 years equals percent of the estimated1average cost rate.

3 This is within the range of"close actuarial balance," which requires that,over the long-range period, the average in-come rate be between 95 and 105 percent ofthe average cost year's short-range estimates, on thebasis of all but the most pessimistic of the foursetsof assumptions used, show somewhathigher levels of combined OASI and DI assetsafter 1984 than were shown a year ago. Thisimprovement reflects the stronger economicrecovery in 1983 and early 1984 than wasexpected a year effect is partly offsetby projections of more disability benefitawards and fewer terminations than had beenprojected last year and by somewhat lowertrust fund growth in 1983 than had trust fund levels again are estimated toremain relatively low through 1987.

4 The trustfund levels based on the pessimistic assump-tions now are estimated to be lower after 1985than estimated last year. Benefits could still bepaid on time during the short-range projectionperiod, based on these assumptions, but themargins for safety would be very small. Thus,if economic conditions in 1984-87 are worse, interms of their effects on the trust funds, thanthose assumed in the pessimistic set, theOASDI program could again experience finan-cial difficulties in the near future. After 1987,the program is projected to become less vul-nerable to temporary economic estimates based on all four sets ofassumptions indicate that the OASI fund willgrow rapidly enough to repay by 1988 the$ billion owed to the HI fund and the $ owed to the DI fund.

5 These repaymentswould be made earlier on the basis of thepessimistic projections, which indicate that re-payment would make a difference in the abilityof the HI or DI fund to pay benefits on summary gives an overview of the 1984 AnnualReport of the Board of Trustees of the Old-Age andSurvivors Insurance and Disability Insurance Old-Age, Survivors, and Disability Insurance(OASDI) program, also referred to here as the SocialSecurity cash benefit program, consists of two separateparts which pay monthly benefits to workers and theirfamilies:Old-Age and Survivors Insurance(OASI) paysbenefits after a worker retires or Insurance(DI) pays benefits after aworker becomes SOCIAL SECURITY program is financed essentiallyon a pay-as-you-go basis.

6 That is, taxes paid into theprogram are used to pay benefits to current , SOCIAL SECURITY does maintain trust fundsthat hold all assets not needed currently to pay benefitsand administrative expenses. SOCIAL SECURITY funds maynot be used for any other Secretaries of the Treasury, Labor, and Healthand Human Services now serve as trustees of the SocialSecurity trust funds. They report annually to the Con-gress on the condition of each fund and on projectedfuture financial figures given in this summary, on a calendar-yearbasis,are for the OASDI program as it is copies of the complete annual report forOASDI can be obtained without charge from the SocialSecurityAdministration,Officeof Public Inquiries,Room 4100 Annex, Baltimore, Maryland Income and Trust FundsMost OASDI revenue comes from payroll taxes paidby employees, their employers, and the self-employed.

7 (Additional payroll taxes go into a separate trust fundfor the Hospital Insurance (HI) part of Medicare. Thissummary focuses on OASDI and does not discussMedicare except in the context of interfund borrowing.)Table 1 shows the OASDI payroll-tax rates foremployers and employees, as established by law. Thecombined employee-employer rates are twice the ratesshown. Taxes at these rates are paid on each worker'searnings up to the earnings base, $37,800 in 1984. Infuture years, this SOCIAL SECURITY earnings base will riseas average wages increase. For the self-employed, theOASDI tax rate now is the same as the combined(1)(2)1. INTRODUCTION2employee-employer 1984 only, employees receive an immediatecredit of percent of taxable earnings, resulting in aneffective contribution rate of percent as compared tothe employer rate of percent.

8 The trust fundsreceive income as if employees were paying the full rate. Certain tax credits are also allowed to theself-employed over the next few years to provide atransition to the new higher rates, and thereafter toprovide greater parity with employees on an Tax ScheduleContribution rates(percentoftaxableearnings) payable byemployee and em-ployer, eachThe trust funds serve as a contingency reserve toabsorb temporary fluctuations in income and income exceeds outgo, the excess builds up thetrust outgo exceeds income, the trust fundsare drawn down. The trust funds are invested in securities bearing rates of interest similar tothose for long-term securities issued to the exact timing of income and outgo can be impor-tant under pay-as-you-go financing.

9 In order to matchOASDI income with outgo more closely, in 1983 anadvance-tax-transfer provision took effect. This pro-vides that Treasury transfers each month's estimatedpayroll tax receipts to the trust funds at the beginning ofthemonth when cash benefits are paid. The SocialSecurity funds pay interest to Treasury for the extradays the funds have the in 1984, partial income-taxation of bene-fits provides another significant source of SOCIAL Securi-ty revenue. This tax is collected by Treasury through-out each year, and paid in advance from Treasury to theSocial SECURITY funds every calendar law also permits limited interfund borrowingamong the OASI, DI, and HI funds through 1987.

10 Suchloans must be repaid with interest before &later 2 presents a summary of 1983 financial resultsforOASDI, including the cash income (or revenue),outgo (or disbursements or cost), and changes in assetsduring 1983, with 1982 results shown for Results of Financial Operations During 1983[Billions]1983 OASDI ComparativeResults 1982 ResultsNote: Components may not add to totals due to income during 1983 exceeded outgo slightly,as various provisions of the SOCIAL SECURITY Amend-ments of 1983 began to take effect and strengthen thefinancing of the program. The amount paid for OASDI administrative expenses in 1983 again was percent ofbenefit A shows that 1983 was the first year since 1974that the combined OASDI funds increased withoutresorting to borrowing.