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FASAB Federal Accounting Standards Advisory Board

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Accounting for

Social Insurance

Statement of Recommended Accounting Standards

Number 17

August 1999

_______________________________________________________
THE FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD

 The Federal Accounting Standards Advisory Board (FASAB or "the Board") was 

established in October 1990 by the Secretary of the Treasury, the Director of the Office 

of Management and Budget (OMB), and the Comptroller General. The nine-member 

Board was created to consider and recommend accounting principles for the Federal 

Government.

 The Board communicates its recommendations by publishing recommended accounting 

standards after considering the financial and budgetary information needs of 

congressional oversight groups, executive agencies, and other users of federal financial 

information. The Board also considers comments from the public on its proposed 

recommendations, which are published for comment as "exposure drafts." After 

considering oral and written comments, the standards may be recommended by the Board. 

 The Board's sponsors then decide whether to adopt the recommendations. If adopted, the 

standards are published by OMB and the General Accounting Office (GAO), and become 

authoritative.

 The following documents related to the establishment and mission of the Board are 

available from the FASAB:

• "Memorandum of Understanding among the General Accounting Office, 

the Department of the Treasury, and the Office of Management and Budget, on Federal 

Government Accounting Standards and a Federal Accounting Standards Advisory Board"

• "Mission Statement: Federal Accounting Standards Advisory Board"
Executive Summary 1

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

EXECUTIVE SUMMARY

 I. This statement presents accounting standards for federal social insurance programs. The 

standards cover the following programs: Social Security (Old-Age, Survivors, and Disability 

Insurance), Medicare (Hospital Insurance [Part A] and Supplementary Medical Insurance [Part 

B]), Railroad Retirement benefits, Black Lung benefits, and Unemployment Insurance. The 

standards do not cover any other programs at this time. 

 II. Social insurance programs have complex characteristics and thus require specialized accounting 

standards. These programs blend elements of exchange and nonexchange transactions and 

therefore do not completely fit traditional accounting notions of either annual governmental 

assistance programs (nonexchange transactions) or long-term pension programs (exchange 

transactions).

 III. Because taxpayers rely on social insurance programs in their long-term planning, fundamental 

questions about social insurance programs include (1) whether they are sustainable as currently 

constructed and (2) what their effect on the government's financial condition will be. The 

requirements of this standard reflect the complexity of these programs. In its entirety, the 

information required will help users assess the government's financial condition and the sufficiency 

of future budgetary resources for these programs. No single element of the information required 

is sufficient to meet all the users' needs.

 IV. The standards require that a liability be recognized when payments are due and payable to 

beneficiaries or service providers. Supplementary stewardship information is to be reported to 

facilitate assessing the program's long-term sustainability and the ability of the program and the 

nation to raise resources from future program participants to pay for benefits proposed to present 

participants. 

 V. The supplementary stewardship information is required in the financial reports of both the 

individual agency and the governmentwide entity. The information is tailored for specific 

programs but generally includes narrative and/or graphic presentation of the following:

(1) long-range cashflow projections in nominal dollars and as a percentage of (a) the 

payroll that is subject to the tax earmarked for the program and (b) the Gross Domestic 

Product; 
Executive Summary 2

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

(2) long-range projection of the ratio of contributors to beneficiaries (commonly called the 

“dependency ratio”); and 

(3) a statement presenting the actuarial present values of (i) future benefits and (ii) 

contributions and tax income for social insurance programs.

 VI. Although some RSSI is required for all programs, the differences in financing and benefits among 

programs require some tailoring of the RSSI. The standards also address the governmentwide 

entity where the RSSI necessarily must be presented at a more summarized level than at the 

agency level.

 VII. The Board is issuing this statement after years of debate. Taken as a whole, the package of 

disclosures is a major step forward in meeting the objectives of federal financial reporting. 

Nonetheless, federal financial reporting is in a period of great change and the Board expects that 

further research regarding presentation of a federal balance sheet is needed. In Statement of 

Federal Financial Accounting Concepts No. 1, Objectives of Federal Financial Reporting, the 

Board acknowledged that an evolutionary approach would be taken:

The FASAB recognizes that developing and implementing standards that will contribute to 

achieving certain objectives may take considerable time. Time will be needed to establish 

information-gathering systems and to gain experience by experimenting with alternative 

approaches. [par. 35]

The FASAB expects that some of these objectives may best be accomplished through 

means of reporting outside general purpose financial reports. Indeed, the FASAB 

recognizes that information sources other than financial reporting, sources over which the 

FASAB may have little of no influence, also are important to achieving the goals implied 

by these objectives. [par. 36]
Table of Contents 1

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 ̄ ̄ ̄ ̄

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

PURPOSE...................................................................................................................................... 1

SCOPE........................................................................................................................................... 1

MATERIALITY.............................................................................................................................. 4

EFFECTIVE DATE ........................................................................................................................ 5

ACCOUNTING STANDARDS FOR SOCIAL INSURANCE...................................................... 6

COMPONENT ENTITY ACCOUNTING & REPORTING STANDARD........................ 9

Expense & Liability Recognition............................................................................... 9

Required Supplementary Stewardship Information.................................................... 9

CONSOLIDATED GOVERNMENTWIDE ENTITY

 ACCOUNTING & REPORTING STANDARD................................... 15

Expense & Liability Recognition.............................................................................. 15

Required Supplementary Stewardship Information................................................... 15

APPENDICES............................................................................................................................... 18

APPENDIX A -- BASIS FOR CONCLUSIONS.............................................................. 18

SECTION 1 -- RESPONSE TO COMMENTS RECEIVED................................. 18

SECTION 2 -- BASIS FOR CONCLUSIONS FROM THE EXPOSURE 

DRAFT...................................................................................................... 23

APPENDIX B - SAMPLE REPORTING FOR ILLUSTRATION ONLY......................... 43

Social Security........................................................................................................ 44

Unemployment Insurance Programs......................................................................... 60

Governmentwide Entity Perspective......................................................................... 76

APPENDIX C - HISTORICAL BACKGROUND............................................................ 88

APPENDIX D - GLOSSARY............................................................................................ 92
Abbreviations

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 ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

ANPV actuarial net present value

APB Accounting Principles Board

CFS consolidated financial statements 

COLA cost of living adjustment

CPI Consumer Price Index

DI Disability Insurance

DOL U.S. Department of Labor

ED exposure draft

ESAA Employment Security Administration Account

EUCA Extended Unemployment Compensation 

Account

FASAB Federal Accounting Standards Advisory Board

FASB Financial Accounting Standards Board

FECA Federal Employees Compensation Account

FUA Federal Unemployment Account

FUTA Federal Unemployment Tax Act

GAO General Accounting Office

GDP Gross Domestic Product

HI Hospital Insurance (Medicare)

IBNR incurred but not reported

OASDIOld-Age, Survivors, and Disability Insurance

OASI Old-Age and Survivors Insurance

OMB Office of Management and Budget

RSSI required supplementary stewardship information

SFAS Statements of Financial Accounting Standards

SFFAC Statements of Federal Financial Accounting Concepts

SFFAS Statements of Federal Financial Accounting Standards

SMI Supplementary Medical Insurance (Medicare)

SSA Social Security Administration

UI Unemployment Insurance

UTF Unemployment Trust Fund
Introduction

1

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

PURPOSE 1. The purpose of this statement is to establish standards for reporting information on 

social insurance programs that will assist users in evaluating operations and aid in 

assessing the government's financial condition and the sufficiency of future budgetary 

resources to sustain program services and meet program obligations as they come 

due. Social insurance programs were studied and analyzed during the Board's work 

on Statements of Federal Financial Accounting Standards (SFFAS) No. 5, 

Accounting for Liabilities of the Federal Government, and No. 8, Supplementary 

Stewardship Reporting. However, the Board decided to address the subject in a 

separate project. 

SCOPE 2. This statement establishes accounting standards to be used by component 

entities and by the governmentwide entity for the following federal programs: OldAge, Survivors, and Disability Insurance (OASDI or "Social Security"), Medicare 1

Hospital Insurance (HI), Medicare Supplementary Medical Insurance (SMI), 

Railroad Retirement benefits, Black Lung benefits, and Unemployment 

Insurance (UI) for the general public. Accounting standards for UI for federal 

employees are provided in Statement of Federal Financial Accounting Standards No. 

5 and are not within the scope of this statement. This statement should be applied 

only to programs listed in paragraph 14.

BACKGROUND

3. As noted in FASAB's Statement of Federal Financial Accounting Concepts (SFFAC) 

No. 1, Objectives of Federal Financial Reporting (Objectives), the Federal 

Government is unique when compared with any other entity in the country. It is the 

vehicle that citizens of the United States use to exercise their sovereign power. It has 

continuing responsibility for the general welfare. It also has unique access to financial 

resources in that it has the power to tax, to borrow, and to create money. 

4. As a result of these responsibilities, the Federal Government engages in many 

activities that have no counterpart or that are a relatively small part of the activities in 

the private sector. The government is concerned, for example, with macroeconomic 

policies to maintain incomes during recessions and therefore provides unemployment 

compensation and other benefits. It is concerned with the distribution of income and 

therefore (1) provides a wide variety of welfare payments in cash and in kind to lowincome households and (2) makes taxes and many kinds of benefits "progressive." It 
Introduction

2

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

is concerned about conditions and services in certain regions and communities, urban 

and rural, and therefore provides grants to state and local governments for various 

purposes. The fiscal year 2000 Budget of the United States reports that Social 

Security, Medicare, and other health and income security payments for individuals 

constituted more than 50 percent of the federal budget; grants to state and local 

governments comprised 15 percent.

5. In Objectives, the Board established four major reporting objectives around which 

accounting standards should be organized. Taken together, they provide a framework 

for assessing the existing accountability and financial reporting systems of the Federal 

Government and for considering how new accounting standards might enhance those 

systems.1 The four objectives are

1. Budgetary Integrity,

2. Operating Performance,

3. Stewardship, and

4. Systems and Controls.

6. Although all the objectives are important, Nos. 2 and 3 directly impact the social 

insurance standards. Objective No. 2 provides,

Federal financial reporting should assist report users in evaluating the service efforts, 

costs, and accomplishments of the reporting entity; the manner in which these efforts and 

accomplishments have been financed; and the management of the entity's assets and 

liabilities.2

As noted in Objectives, because government services are not usually provided in 

exchange for voluntary payments or fees, expenses cannot be matched against 

revenue to measure "net income." Moreover, directly measuring the value added to 

society's welfare by government actions is difficult. Nonetheless, expenses can be 

matched against the provision of services year by year. The resulting cost can then 

be analyzed in relation to a variety of measures of the achievement of results. 

Information about social insurance that is relevant to this objective includes the cost of 

the program as well as long-range estimates (and ranges of estimates) of future costs 

 

1

SFFAC No. 1, par. 109.

2

SFFAC No. 1, par. 122.
Introduction

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

and other obligations. Estimates of future costs highlight the cost impact of changes 

in benefit levels as well as economic and demographic changes (e.g., in the cost of 

health care and in life expectancies).

7. Meeting Objective No. 3 is the other focus for this statement. It says,

Federal financial reporting should assist report users in assessing the impact on the 

country of the government's operations and investments for the period and how, as a 

result, the government's and the nation's financial condition has changed and may change 

in the future.

3

This objective is based on the government's responsibility for the general welfare of 

he nation in perpetuity. It focuses not on the provision of specific services but on the 

requirement that the government report the broad outcomes of its actions. Thus, 

federal financial reporting should provide information that helps the reader to 

determine

• whether the government's financial position improved or deteriorated over 

the period,

• whether future budgetary resources will likely be sufficient to sustain public 

services and to meet obligations as they come due, and

• whether government operations have contributed to the nation's current and 

future well-being.

8. In light of Objective Nos. 2 and 3, fundamental questions about social insurance 

programs that can be addressed by accounting standards include whether the 

programs are sustainable as currently constructed, whether the government's financial 

condition improved or deteriorated as a result of its efforts to provide these and other 

programs, and the likelihood that these programs will be able to provide benefits at 

current levels to those who are planning on receiving them. The information required 

by this standard, taken as a whole, will help users make this assessment while 

acknowledging the complexity of the programs and the uncertainty of long-term 

projections.

 

3

SFFAC No. 1, par. 134.
Introduction

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

9. To meet the objectives of federal financial reporting, the standards require that:

(1) a liability be recognized4 when payments are due and payable to 

beneficiaries or service providers and 

(2) supplementary stewardship information be reported to facilitate the 

assessment of:

(i) the long-term sustainability of the program from both an entity and 

a governmentwide perspective and

(ii) the ability of the program and the nation to raise resources from 

future program participants to pay for benefits proposed to 

present participants. 

10. The RSSI includes:

 • long-range cashflow projections,

 • long-range projections of the ratio between the number of those paying taxes 

earmarked for the program and the number of program beneficiaries, and

 • actuarial present values of (i) future benefits for and (ii) contributions and tax 

income from or on behalf of current and future program participants.

11. The specification of RSSI by the Board should not be construed as precluding 

management from voluntarily providing any additional information pertaining to the 

financial condition of its program that it believes useful and appropriate. 

MATERIALITY

 

4

The terms "recognition," "disclosure," and "required supplementary stewardship information" (RSSI) have specific, technical 

application in accounting. As explained further in the glossary to this statement, "recognition" (or "recognize") means formally 

recording or incorporating an item into the financial statements of an entity as an asset, liability, revenue, expense, etc. "Disclosure" 

(or "disclose") means reporting information in notes or narrative regarded as an integral part of the basic financial statements. RSSI is 

information reported outside the principal financial statements that the Board considers essential to an entity's financial reporting and 

therefore recommends authoritative guidelines for its measurement and presentation.
Introduction

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

12. The provisions of the accounting standards in this statement need not be applied to 

mmaterial items. 

EFFECTIVE DATE

13. The provisions of this statement would be effective for reporting periods that begin 

after September 30, 1999.
Accounting for Social Insurance

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

ACCOUNTING STANDARDS FOR SOCIAL INSURANCE

14. The following programs are designated as social insurance and subject to these 

standards:

 • Old-Age, Survivors, and Disability Insurance (OASDI or "Social Security");

 • Hospital Insurance (HI) and Supplementary Medical Insurance (SMI), known 

collectively as "Medicare";

 • Railroad Retirement benefits;

 • Black Lung benefits; and

 • Unemployment Insurance (UI).

No other programs are subject to these standards, and the characteristics presented 

below should not be used to include other programs.

Characteristics of Social Insurance Programs

15. These programs were developed to carry out the responsibilities of the government 

and generally have characteristics that make them unique. Although they generally 

share certain characteristics, "social insurance" programs are too diverse to allow 

definitive criteria to be applied to include some and exclude others from the category. 

 This statement identifies the following five characteristics common among social 

insurance programs:

(1) Financing from participants or their employers,

(2) Eligibility from taxes/fees paid and time worked in covered 

employment,

(3) Benefits not directly related to taxes/fees paid,

(4) Benefits prescribed in law, and

(5) Programs intended for the general public.
Accounting for Social Insurance

7

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 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

These characteristics are briefly described below. 

Financing From Participants

16. Some of the resources needed to run these programs are raised through explicit taxes 

and fees collected from the program participant or from the participant's employer. 

Taxes paid are usually a fixed percentage of the participant's wage income.

17. Federal social insurance programs utilize "trust funds" to account for dedicated 

collections held for later use to accomplish the program's purpose. Federal trust 

funds are accounts designated by law as such for receipts earmarked for specific 

purposes and the associated expenditure of those receipts. Trust funds serve useful 

purposes in allocating federal spending authority and accounting for earmarked taxes.

Eligibility from Taxes/Fees Paid and Time Worked in Covered Employment

18. Eligibility for benefits under social insurance programs usually rests, in part, on current 

or previous taxes and/or fees paid by the individual, the individual's employer, or both, 

and the time worked in covered employment. Frequently an individual's taxes and/or 

fees paid and time worked in covered employment also make family members eligible.

Benefits Not Directly Related to Taxes/Fees Paid

19. Social insurance programs sometimes intentionally redistribute toward lower-wage 

workers. Lower-wage workers tend to receive proportionately more in benefits 

relative to taxes paid than the higher-wage workers, sometimes much more. Many 

social insurance plans also subsidize benefits for nonworking members of workers' 

families and others.

Benefits Prescribed in Law

20. Social insurance programs normally have uniform sets of entitling events; and 
Accounting for Social Insurance

8

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 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

schedules of benefits are developed, announced, and applied to all participants. 

Administrators of such programs have little discretion in determining who should get 

benefits or how much they should get. 

Intended for the General Public

21. These programs are intended for the general public and not solely for present or 

former federal employees.
Accounting for Social Insurance

9

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

COMPONENT ENTITY ACCOUNTING & REPORTING STANDARD

 

Expense & Liability Recognition

22. The expense recognized for the reporting period should be the benefits paid during the 

reporting period plus any increase (or less any decrease) in the liability from the end 

of the prior period to the end of the current period. The liability should be social 

insurance benefits due and payable to or on behalf of beneficiaries at the end of the 

reporting period, including claims incurred but not reported (IBNR).

23. For Unemployment Insurance (UI), the liability to be recognized includes (1) amounts 

due to states and territories for benefits they have paid to beneficiaries but for which

they have not withdrawn funds from the federal unemployment trust fund (UTF) as of 

fiscal year end, and (2) estimated amounts to be withdrawn from UTF and benefits 

paid by states and territories after fiscal year end for compensable days occurring 

prior to fiscal year end. 

Required Supplementary Stewardship Information

24. The entity responsible for the social insurance program should include in its financial 

report, as required supplementary stewardship information (RSSI), a clear and 

concise description of the program, how it is financed, how benefits are calculated, 

and its financial and actuarial status. The description should include a discussion of 

the long-term sustainability and financial condition of the program. A display should 

illustrate and the discussion should explain the trends revealed in the data. The entity 

should consider both narrative and graphic presentations. Statutory or other material 

changes affecting the program after the current fiscal year, including those enacted 

between the fiscal year end and the date of the report, should be described, along with 

the implications thereof.

25. The projections and estimates used should be based on the entity's best estimates of 

demographic and economic assumptions, taking each factor individually and 

incorporating future changes mandated by current law. Significant assumptions 

should be disclosed.
Accounting for Social Insurance

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 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

26. All projections and estimates required in these standards should be made as of a date 

(the valuation date) as close to the end of the fiscal year being reported upon 

("current year") as possible and no more than one year prior to the end of the current 

year. This valuation date should be consistently followed from year to year. 

27. The information on financial and actuarial status should include the following 

measures and data: 

(1) Cashflow Projections - Projections of cashflow for those persons who are 

participating or eventually will participate in the program as contributors or 

beneficiaries during a projection period sufficient to illustrate long-term 

sustainability (e.g., traditionally the "Social Security," or OASDI, program has 

used a projection period of 10 years for relatively short-term and 75 years for 

long-term projections, and the UI program has used a projection period of 10 

years for its projections). The projection should include current workers, retirees, 

survivors, disabled persons, and new participants entering the workforce or 

becoming beneficiaries, including those who will be born or immigrate to the 

United States during the projection period. The information should include the 

following:

(a) Actuarial projections of the annual cashflow, in nominal dollars, with 

amounts reported for at least every fifth year in the projection period. 

The cashflow information should show

(i) total cash inflow from:

1) all sources and

2) excluding net interest on intragovernmental 

borrowing/lending,2 and

(ii) total cash outflow.

The narrative accompanying the cashflow data should include identification of 

any year or years during the projection period when cash outflow exceeds 

inflow, both in total and excluding interest on intragovernmental 
Accounting for Social Insurance

11

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 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

borrowing/lending (the "cross-over points"), and an explanation of the 

significance of the "cross-over points.

(b) The actuarial estimate provided in 27(1)(a)(i)2) and 27(1)(a)(ii) 

immediately above as a percentage of

(i) taxable payroll5 and

(ii) Gross Domestic Product (GDP).6

(2) Ratio of Contributors to Beneficiaries - With respect to the OASDI and HI 

programs, the ratio of the number of contributors to the number of beneficiaries 

(commonly called the "dependency ratio") during the same projection period as for 

cashflow projections (e.g., 75 years), using the program managers' best estimate.7

 At a minimum, the ratio should be reported for the beginning and end of the 

projection period.

(3) Actuarial Present Values - For all programs except UI, a statement presenting 

the actuarial present value of each of the following:

All future expenditures during the projection period related to benefit 

payments:

(a) to or on behalf of current participants who have not yet attained 

retirement age (e.g., the Social Security Administration has assumed an 

age of 15 years for new participants and an age of 62 years for 

retirement),

(b) to or on behalf of current participants who have attained retirement age, 

 

5

Certain social insurance programs (i. e., SMI , Black Lung benefits, and UI) are either not financed by earmarked payroll taxes or are 

financed by state-determined payroll taxes on employers that can vary by state and by employer; therefore these programs are not 

required to provide this estimate.

6

 This requirement does not apply to the RRB, Black Lung, and UI programs.

7

SMI, Black Lung benefits, and UI programs are financed by, respectively, premiums paid by covered participants and general fund 

contributions (SMI); direct payments from employers, excise taxes per ton of coal, and general fund contributions (Black Lung); and

state/employer-specific payroll taxes (UI). Therefore, these programs are not required to provide the ratio of contributors to 

beneficiaries. The OASDI trustees refer to the ratio of beneficiaries to contributors as the "dependency ratio."
Accounting for Social Insurance

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 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

(c) to or on behalf of those who are expected to become plan participants 

(i.e., new entrants) during a projection period encompassing substantially 

all the present value attributed to (a) and (b) immediately above;8

All future contributions and tax income (from taxation of benefits) during the 

projection period:

(d) from or on behalf of current participants who have not yet attained 

retirement age (same group as in (a) above),

(e) from or on behalf of current participants who have attained retirement age 

(same group as in (b) above),

(f) from or on behalf of those who are expected to become plan participants 

(same group as in (c) above) during a projection period encompassing 

substantially all the present value attributed to (d) and (e) immediately 

above.

Net present value of cashflow during the projection period:

(g) the actuarial present value of future contributions and tax income during 

the projection period [(d)+(e)+(f)] should be subtracted from the actuarial 

present value of future expenditures for the projection period related to 

benefit payments [(a)+(b)+(c)] to derive a total excess of future benefit 

payments over future contributions and tax income (or contributions and 

tax income over benefits).

Notes to the statement should present:

 

8

A projection period for future participants would cover their working and retirement years. The entity would make an assumption 

about the length of this period. For example, the OASDI program uses a projection period of 75 years. A projection period for 

current participants (that is, for the people actually participating in the program) would theoretically cover all of their working and 

retirement years, a projection period that could be greater than 75 years a in few instances. As a practical matter the present values 

of future payments and contributions for/from current participants beyond 75 years usually would not be material, and a 75 year 

projection period would include virtually all the future contributions, tax income, and benefit payments for current as well as future 

participants.
Accounting for Social Insurance

13

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 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

(h) the accumula ted excess of all past cash receipts, including interest on 

investments, over all past cash disbursements within the social insurance 

program represented by the fund balance at the valuation date, and 

(i) a statement that the actuarial net present value of the excess of future 

expenditures related to benefit payments to or on behalf of current 

participants, that is, of the "closed group" of participants (see (a) and (b) 

above), over future contributions and tax income from them or paid on 

their behalf (see (d) and (e) above) is calculated by subtracting the 

actuarial present value of future contributions and tax income paid by and 

for current participants [(d)+(e)] from the actuarial present value of the 

future benefit payments to them or on their behalf [(a)+(b)].

(j) information required in subparagraphs 27(3)(a)-(h) for the current year and 

separate estimates for each of the four preceding years.

(4) Sensitivity Analysis -

(a) For all programs except UI illustrate the sensitivity of the projections and 

present values required by paragraphs 27 (1) and 27(3) to changes in the 

most significant individual assumptions. For example, using the entity's 

"best estimate" cost assumptions as a baseline, show the effect of varying 

several significant assumptions one at a time to show the effect on the 

projection. At a minimum the OASDI and Medicare programs should 

analyze assumptions regarding the birth and death rates, net immigration, 

the real wage differential, and the real interest rate. The real-wage 

differential is the difference between the annual percentage increase in 

wages in covered employment and the inflation rate, as measured by the 

CPI. The Medicare program should also analyze the health care cost 

factors and their trend.

(b) For UI illustrate the sensitivity of the projections required by paragraph 

27(1) to changes in the unemployment rate assumption. The illustrations 

should reflect the effect of increasing the unemployment rate (1) by 
Accounting for Social Insurance

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Accounting for Social Insurance

August 1999

approximately one percentage point and (2) to a level sufficient to put 

stress on the system (e.g., to simulate the largest recession occurring 

within the last 25 years).

(5) State-by-State Analysis - For the UI program provide a state-by-state analysis 

illustrating the relative solvency of individual state programs. The analysis should 

provide the ratio of each state's current accumulated fund balance to a year's 

projected benefit payments based on the highest level of annual benefit payments 

experienced by that state over the last 20 years.

Transition

28. In instances where data are not available to calculate the actuarial estimates for one 

or more prior years, as required in paragraph 27(3)(j) the entity may apply the 

standard prospectively.
Accounting for Social Insurance

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

CONSOLIDATED GOVERNMENTWIDE ENTITY

 ACCOUNTING & REPORTING STANDARD

29. The standard for consolidated governmentwide accounting and reporting for social 

insurance programs is the same as that for component entities except as provided 

below. Thus, except for the specific modifications listed below, the governmentwide 

entity should refer to the relevant paragraphs of the standard for component entities in 

the preceding section for a description of the information to be provided.

Expense & Liability Recognition

30. Expense and liability recognition for the consolidated governmentwide entity are the 

same as for the component entities (see pars. 22-23). 

Required Supplementary Stewardship Information

31. The consolidated governmentwide financial report should include, as required 

supplementary stewardship information (RSSI), a summary of the entities' 

descriptions of their social insurance programs (see paragraph 24). The description 

should include a discussion of the long-term sustainability and financial conditions of 

the programs, illustrate and explain the trends revealed in the data, and explain the

relationship of the social insurance program(s) to governmentwide financing, 

especially regarding the intra-governmental nature of trust fund assets and 

government debt.

32. The information on financial and actuarial status should include the following

measures and data:

(1) Cashflow Projections -

(a) Cashflow projections should be made for all social insurance programs as 

described under the component entity standard (see par. 27), except that 

only cash inflow from the public (that is, excluding interest on 

intragovernmental borrowing/lending) and total cash outflow are required. 

 At a minimum the OASDI, HI, and SMI programs should be separately 
Accounting for Social Insurance

16

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 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

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Accounting for Social Insurance

August 1999

identified. The projection period of the display should be based on those 

used by the component entities, which may require summarization or 

presentation techniques such as using more than one graph (e.g., a 10-

year graph and a 30-year graph). The presentation should include an 

explanation of material crossover points, if any, where cash outflow 

exceeds cash inflow and the possible reasons therefore. 

(b) For the programs indicated immediately below, estimated future cash 

inflow (excluding net interest on intergovernmental borrowing/lending) 

and outflow for the projection period described in paragraph 27 as a 

percent of

(i) taxable payroll for OASDI and HI, presenting each program 

separately, and

(ii) GDP for OASDI, HI, and SMI, presenting each program 

separately.

(2) Ratio of Contributors to Beneficiaries - For OASDI and HI, the ratio of the 

number of contributors to the number of beneficiaries (commonly called the 

"dependency ratio") during the projection period as described under the standard 

for component entities (see par. 27(2)).

(3) Actuarial Present Values - For all programs except UI provide a statement 

combining the entity statements required in paragraph 27(3)(a)-(i). The 

presentation should include data for the current year and separate estimates for 

each of the four preceding years. At a minimum OASDI, HI, and SMI should be 

separately identified.

(4) Sensitivity Analysis - For all social insurance programs provide a summary of the 

sensitivity analyses required under the standard for component entities (see 

par. 27(4)). At a minimum the summary should present the OASDI, HI, SMI, 

and UI separately.

(5) State-by-State Analysis - Provide a summary of the state-by-state analysis 
Accounting for Social Insurance

17

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 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

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August 1999

required for the UI program (see par. 27(5)).

Transition

33. In instances where data are not available to calculate the actuarial estimates for one 

or more prior years, as required in paragraph 27(3)(j) the entity may apply the 

standard prospectively.
Appendix A - Basis for Conclusions - Section 1 

18

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

APPENDICES

APPENDIX A -- BASIS FOR CONCLUSIONS

SECTION 1 -- RESPONSE TO COMMENTS RECEIVED

34. This appendix does not constitute authoritative guidance for those who prepare and 

audit general purpose federal financial reports. It summarizes important matters that 

the FASAB members considered as they deliberated on this Statement. It includes 

reasons for accepting certain approaches and rejecting others. Individual Board 

members gave greater weight to some factors than to others.

35. FASAB published the exposure draft Accounting for Social Insurance in February 

1998. The exposure draft included five questions and invited comments on the 

usefulness of the proposal for accounting and reporting for social insurance. Twentynine letters were received from the following sources:

Federal

(internal)

Nonfederal

(external)

Total

General Public 2

[retired

employees]

8 10

Auditors 3 4 7

Preparers and Financial 

Managers 12 0 12

Total 17 12 29

36. FASAB also held a public hearing on the exposure draft on October 5-6, 1998. 

Testimony was received from representatives of accounting, auditing, and actuarial 

organizations; from a public service organization; and from the Social Security and 

Medicare programs. Appendix C, Historical Background, provides a history of past 
Appendix A - Basis for Conclusions - Section 1 

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Accounting for Social Insurance

August 1999

accounting for these programs.

37. Section 1 of this basis for conclusions addresses certain responses to the exposure 

draft and the comments received at the public hearing. 

38. The responses to the exposure draft illustrate what was described in the basis for 

conclusions for the exposure draft as two polarized views regarding recognizing or 

even disclosing a liability measure beyond the due and payable amount called for in 

this standard. Some respondents restated their views on the propriety of the 

accounting proposed in the ED, and/or they said they favored one or the other of the 

two opposing views described in the basis for conclusions. Some respondents argued 

once again that social insurance programs are pay-as-you-go, income transfer 

programs for which an estimate of accrued and future benefits and contributions and 

tax income is inappropriate. Other respondents reiterated the contrary argument. 

They said that such programs are commitments for which a long-range accrual is not 

only appropriate but also essential for the balance sheet, if the information presented 

therein is not to be misleading.

39. The Board continues to believe that the original basis for conclusions in the exposure 

draft describes and explains the Board's conclusions adequately. Therefore, except 

for those issues specifically discussed immediately below, the Board is presenting the 

original basis for conclusions from the exposure draft in Section 2. Changes were 

made where necessary to reflect the requirement for a statement of social insurance 

in the final standard.

Expanded Presentation and Visibility of Actuarial Present Values 

40. In response to comments received on the exposure draft and subsequent public 

hearing, the Board is adding a requirement for a statement presenting the actuarial 

present values (APV) of future benefits for and future contributions and tax income 

from or on behalf of all current and future participants during the projection period 

normally used by the programs. For example, the OASDI program uses a 75-year 

projection period. The net total of the statement will present the total excess of 

benefits over contributions and tax income.

41. The Board believes that this information will be useful in analyzing the 

sustainability and financial position of SI programs. The added detail on individual 
Appendix A - Basis for Conclusions - Section 1 

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Federal Accounting Standards Advisory Board

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August 1999

components of the actuarial net present value will provide analysts interested in 

different facts with useful detail. In addition, the statement presentation will 

increase the prominence of important data otherwise obscured in a long narrative.

42. The Board has considered whether the changes made regarding the presentation of 

actuarial present values requires re-exposure. The original exposure draft focused on 

one net actuarial present value, for the "closed group," while the final standard 

presents the components of that value as well as data on future participants. Also, 

the exposure draft proposed subtracting the fund balance at the valuation date from 

the actuarial present value of the net cash outflow over the projection period, while 

the standard now calls for fund balance information to be presented in a note to the 

statement.

43. The Board decided that the new presentation and data did not require re-exposure. 

The information added to the standard results from adding more detail and modifying 

the display to increase visibility. These modifications are responsive to the views 

expressed by many during the comment period. The Board believes that the 

difference in the presentation does not warrant delaying the issuance of the standard.

Specific Identification of Social Insurance Programs

44. A few of the respondents disagreed with the approach in the exposure draft whereby 

programs are specifically identified. One respondent reasoned that an accounting 

standard would be more useful if it established definitive criteria for current and future 

programs to meet rather than designating only specific programs. Conversely, 

another respondent said the standard should be even more specific and deal with the 

individual programs separately because some have characteristics of defined benefit 

plans while others are similar to welfare programs. 

45. After weighing these arguments carefully, the Board continues to believe that 

definitive criteria would be unworkable. Although these programs do generally share 

certain characteristics, they are complex. Each program has unique benefits, 

different eligibility requirements, and different financing arrangements. Because 

definitive criteria would be subject to interpretation, questions would arise about 

individuals programs that would require a response from the Board. The Board has 

decided to identify social insurance programs that now exist and consider the 

classification of other programs as they may arise in the future.
Appendix A - Basis for Conclusions - Section 1 

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Consistency of Assumptions

46. Several respondents to the exposure draft expressed concern that projections of 

cashflow and GDP would not be consistent between entities and within an entity due 

to the use of different assumptions by separate programs. One respondent believed 

that cashflow estimates as a percentage of GDP would not be meaningful without a 

tremendous amount of effort and cost expended in coordinating assumptions and 

methodologies to achieve consistency.

47. The Board considered these arguments and decided not to require uniform 

assumptions. The assumptions used by Social Security and Medicare, the two 

predominant programs, will be consistent. These programs use the same principal 

assumptions and have the same trustees. On the other hand, the Board concluded 

that the GDP projection should not be required of smaller programs and therefore 

explicitly exempts them from that requirement.

Sensitivity Analysis

48. Some respondents disagreed with the approach in the exposure draft regarding 

sensitivity analysis, which calls for showing the effect of changing one major 

assumption at a time. One respondent favored a general requirement that entities 

provide sensitivity analysis rather than telling them how to do it. This respondent 

favored the high-, low-, and intermediate sets of cost assumptions that are featured in 

the trustees' annual reports for Social Security and Medicare. Another respondent 

suggested that the standard not require sensitivity analysis because most users would 

not understand it and the potential for misuse would be great. Another respondent 

said that the requirement in the standard was useful because it gives an idea about the 

uncertainty associated with the estimate. However, this respondent said sensitivity 

analysis was inadequate without a further discussion of the nature of uncertainty itself 

and recommended mandating such a discussion.

49. The Board continues to believe that the analysis required by the standard is a clear, 

easily understood illustration of the sensitivity of projections to changes in 

assumptions. The Board recognizes the difficulty in illustrating the uncertainty 

inherent in all projections, especially very long-range projections. However, the 
Appendix A - Basis for Conclusions - Section 1 

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August 1999

requirement in the standard would not preclude the entity from presenting 

additional discussions of uncertainty and the Board expects that agencies would 

do so voluntarily. 

State and Local Government Pension Accounting

50. Some respondents urged the Board to consider whether the approach used by state 

and local governments to account for employee pensions would be suitable, at least 

for some social insurance programs that are most analogous to pensions, such as the 

retirement benefit portion of Social Security. Those respondents focus on similarities, 

such as defined benefit formulas tied to earnings. 

51. The Board concluded that there are important differences in the programs and 

environments involved. For example, state and local pension plans typically do not 

have extensive income transfer features. They are much like federal employee 

pension programs, which are not considered to be social insurance. On balance the 

Board concluded that such an approach would be inappropriate.

Vote of Approval

52. This recommended statement was approved by the Board with a vote of 6 members 

in favor of its issuance and 3 member(s) opposing its issuance. Two members 

submitted written dissents, which are available for public inspection at the FASAB's 

offices.
Appendix A - Basis for Conclusions - Section 2

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

SECTION 2 -- BASIS FOR CONCLUSIONS FROM THE EXPOSURE DRAFT

[Note: The Board's recommendation differs from the proposal made in the exposure draft. Certain 

sections from the basis for conclusion in the exposure draft were deleted since they are no longer 

relevant to the final recommendation. Paragraphs 40-51 explain the differences and reasons 

therefore.]

53. The following paragraphs address the basis for the Board's proposals on

 • defining social insurance,

 • recognition of liabilities and expense for social insurance, and

 • required supplementary stewardship information (RSSI).

Characteristics of Social Insurance Programs

54. As stated in the introductory sections, the Board has analyzed certain programs that 

are generally considered social insurance. These programs have certain 

characteristics that set them apart from general assistance programs on the one hand 

and insurance programs on the other hand. Accounting standards for liabilities 

associated with general assistance and insurance programs are provided in SFFAS 

No. 5, Accounting for Liabilities of the Federal Government.

55. After analyzing specific programs, the Board determined that, although these 

programs generally shared certain characteristics, their operational features were too 

diverse for establishing definitive criteria that would include all the subject programs 

and exclude all other federal programs for which accounting standards have already 

been provided. Thus, the Board has outlined the general characteristics that social 

insurance programs usually -- but not always -- possess and has listed the specific 

programs to which the standards apply. This does not preclude the Board from 

considering an additional program(s) in the future and, given the individual 

circumstances pertaining to that program, including it within this statement. However, 

no entity on its own volition should apply this statement to any program not listed in 

this statement.

56. Accounting for UI for federal employees is provided in SFFAS No. 5 and is not within 

the scope of this standard. SFFAS No. 5 provides that the unemployment program 

for federal employees should be accounted for like other postemployment benefits 
Appendix A - Basis for Conclusions - Section 2

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August 1999

(e.g., severance benefits and workers' compensation) because the nature of the 

liability is similar. Federal employer entities must reimburse the Labor Department for 

the full cost of unemployment benefits received by former federal employees rather 

than paying a payroll tax each period.

Nature of Social Insurance

57. In determining how social insurance program transactions should be recognized in the 

financial statements and the supplementary information that should be provided about 

them, the Board considered the nature of the Federal Government, the nature of those 

programs, and the needs of users of federal financial reports. Statement of Federal 

Financial Accounting Concepts (SFFAC) No. 1, Objectives of Federal Financial 

Reporting, notes the Federal Government's unique responsibilities for the common 

defense and general welfare and its unique access to financial resources and 

financing, including the power to tax and create money. The government undertakes 

many programs despite potentially unfavorable effects on its financial condition, and 

transactions between citizens and the government generally are not individual 

exchanges between willing buyers and sellers.3

58. Consideration of guidance for the recognition, measurement, and display of obligations 

for social insurance programs has continued to present the Board with significant, 

vexing theoretical and practical problems. The programs are complex, reach a unique 

order of magnitude, and involve projections that are extremely sensitive to 

assumptions whose range of possibilities is large. 

Expense & Liability Recognition

59. The Board believes that the annual expenses of such programs should be the benefits 

paid during the accounting period plus any increase (or less any decrease) in the 

liability from the end of the prior period to the end of the current period, including 

claims incurred but not reported. The liability should be social insurance benefits due 

and payable to or on behalf of beneficiaries at the end of the reporting period, and 

supplementary stewardship information should be provided as described in the 

standards.

Exchange and Nonexchange Transactions
Appendix A - Basis for Conclusions - Section 2

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August 1999

60. During its consideration of social insurance and, before that, of liability accounting, the 

Board considered whether social insurance programs result in exchange or 

non-exchange transactions or whether they contained features of both. As 

described in Statement of Federal Financial Accounting Standards (SFFAS) No. 5, 

Accounting for Liabilities of the Federal Government, nonexchange transactions 

give rise to a different kind of obligation than exchange transactions under federal 

accounting principles. 

61. The distinction between exchange and nonexchange transactions is important in 

determining the point of liability recognition in federal accounting. In an exchange 

transaction, a liability is recognized when one party receives goods or services in 

return for a promise to provide money or other resources in the future. However, for 

a nonexchange transaction, a liability is recognized for any unpaid amounts due and 

payable as of the reporting date, including estimates of claims incurred but not yet 

reported.

62. As defined in SFFAS No. 5, obligations become liabilities against the Federal 

Government in different ways and at different points within transaction cycles that 

relate to various programs. An important factor in distinguishing the liability 

recognition point among various federal programs is whether a nonexchange 

transaction is involved. Although a high probability may exist that a grant, a subsidy, 

or an income transfer will be made or will continue to be made in future years, the 

recipients do not have as high an equitable claim to receive grants, subsidies, or 

transfers in the future as do those who exchange service for promises of future 

payments. The latter have a greater probability of being paid than the former. At the 

same time, many people feel that some social insurance benefits, Social Security in 

particular, also have similar "exchange" or "equitable" claims. They also believe that 

social insurance benefits have as great a probability of being paid as any other 

payments.

63. Whether on the balance sheet or elsewhere in the financial report, estimates of the 

future amounts required to continue present policies regarding such programs are 

relevant to certain decisions and should be disclosed or otherwise reported. In the 

context of the Board's definition, however, estimates of future nonexchange payments 

should not be recognized as a current period liability. On the other hand, any 

payments due as a result of past events but unpaid at the end of the period constitute 
Appendix A - Basis for Conclusions - Section 2

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August 1999

a liability.9

Polarization

64. With regard to social insurance, the Board notes the strength of feelings on this issue. 

 The Board has been faced with two polarized views. On the one hand there are 

those who believe a liability should be recognized for the net benefits expected to be 

paid in future periods to current participants. On the other hand, there are those who 

believe that the long-term obligation (i.e., beyond amounts due and payable at the end 

of an accounting period) associated with these programs is not a liability and should 

not be recognized as such. Some people also believe such amounts should not be 

reported as RSSI.

Arguments against Recognition, Disclosure, or Supplementary Reporting

65. The latter group would argue that social insurance programs do not result in exchange 

transactions, that social insurance programs are income transfers financed primarily 

by compulsory earmarked taxes and also, in certain cases, general revenues of the 

government. For them, the political nature of the commitment is critical, for its terms 

can be and are changed by the Congress to maintain actuarial balance. In this 

regard, they point to Flemming, Secretary of HEW v. Nestor, Part I (363 U.S. 608-

611) wherein Mr. Justice Harlan, delivering the opinion of the Court, said, 

[T]he entire [Social Security System] rests on the legislative judgment that those who in 

their productive years were functioning members of the economy may justly call upon that 

economy, in their later years, for protection from the 'rigors of the poor house'...

He continued, 

It is apparent that the noncontractual interest of an employee covered by the Act cannot 

be soundly analogized to that of the holder of an annuity, whose right to benefits are 

bottomed on his contractual premium payments.... To engraft upon the Social Security 

System a concept of 'accrued property rights' would deprive it of the flexibility and 

boldness in adjustment to ever-changing conditions which it demands. (Emphasis 

added.)

 

9

SFFAS No. 5, pars. 129-131.
Appendix A - Basis for Conclusions - Section 2

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66. Those who believe that only the due and payable amount should be recognized as the 

liability would argue that, under social insurance, the government uses its sovereign 

power to require payment of taxes that it dedicates to finance benefits. The individual 

beneficiaries of these programs are receiving payments that may be indirect and 

disproportionate to the taxes paid by them or on their behalf. In the case of Social 

Security, the oldest social insurance program, those who retired in the first years after 

enactment in 1935 received benefits that were many times their taxes. This was 

possible because the system transfers resources across generations. The system 

transfers resources within a generation as well, from those working and paying taxes 

to the disabled, the surviving spouse, and dependent children.

67. They would argue that benefits have also been very different by family type, wage 

level, and sex. One-earner couples receive benefits that are far larger than taxes 

paid, followed by two-earner couples. Single females have still lower benefit/tax 

ratios, followed by single males. Low-wage earners have a higher benefit ratio than 

those with average or high wages. For each type of recipient, benefit/tax ratios have 

been trending down. High- and average-earning single males retiring now cannot 

expect to get their money back, with interest; and this will soon also be true for highearning single females.10

Uncertainty

68. Some of those who do not believe that social insurance obligations constitute a liability 

argue that the level of future benefit payments is too uncertain for accrual as a 

liability. They point out that not only did Congress expressly include (and retain) the 

right to alter, amend, or repeal any provision in the Social Security Act itself, it has 

made such changes frequently. In the early years, the changes generally expanded 

benefits -- for example, to dependents, the disabled, and early retirees; to a broader 

coverage of workers; to protect retirees against inflation -- and increased tax rates. 

But as the system has matured, the changes have increased the tax rate further, taxed 

an increasing proportion of benefits, reduced cost of living adjustments and various 

benefit provisions, and prospectively raised the retirement age. 

69. They argue further that the benefit payments that might be made in the

 

10

See Steuele, C. Eugene, and Jon M. Bakija, Retooling Social Security for the 21st Century: Right and Wrong Approaches to Reform, 

(The Urban Institute Press, Washington, DC).
Appendix A - Basis for Conclusions - Section 2

28

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

future are ependent on economic and demographic variables including the growth of 

real wages, interest rates, births, immigration, and labor force participation. The 

aggregate benefits under the high cost Social Security assumptions in 2070 are 

estimated by the Social Security Trustees to be 2.5 times those under the low cost 

assumptions. And the estimates change over time. The legislative changes in 1983 

were expected to maintain a positive fund balance until 2063; however, by current 

intermediate cost assumptions the fund will run out three decades sooner.

Period Costs

70. Some argue that the critical issue is the period to which a particular cost or expense 

relates. They emphasize that a significant determination in accounting is to decide in 

which period a transaction should be recognized as an expense. They believe that 

social insurance benefits, like other non-exchange transactions, should be recognized 

as expenses in the time period when they are paid or are due and payable and not 

earlier when a participant has covered wages. Future social insurance benefits 

constitute program costs of future periods, notwithstanding that they may be for the 

purpose of carrying out responsibilities that the government has already assumed. 

71. They would argue further that, given the nature of the Federal Government and of 

social insurance, liability-type measures of the social insurance obligation (e.g., the 

closed group measure ...) are meaningless or even potentially misleading. In 

particular, they argue that this information would not be useful to assess sustainability. 

 It ignores the pay-as-you-go financing, excludes future earmarked taxes from future 

participants, and results in such an enormous actuarial present value that it may 

needlessly scare those unfamiliar with the debate. Such measures do not reflect the 

way the program is financed under current law and could, if taken out of context, 

imply that the current participants have a right to benefits superior to future

participants. 

72. They argue that other supplementary information would provide useful sustainability 

information. For example, the Social Security Trustees' annual report provides "open 

group" projections of cashflow -- in dollars, as a percentage of the tax base 

earmarked for the program, of the GDP, etc. -- and the "dependency ratio." The 

open group measure reflects the way the program is financed; and the dependency 

ratio -- the ratio of contributors to beneficiaries -- indicates whether the program 
Appendix A - Basis for Conclusions - Section 2

29

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

could potentially encounter stress in the future. Both of these were proposed in the 

exposure draft on social insurance as part of the supplementary information. They 

argue that these and other measures provide meaningful sustainability information.

Arguments for Recognition, Disclosure, or Supplementary Reporting

73. Those who hold a contrary view believe either that the distinction between exchange 

and non-exchange transactions is not relevant to the liability recognition or 

supplementary reporting issue or that the programs possess characteristics that make 

the transactions predominantly exchanges. They argue that social insurance 

programs possess certain characteristics that, taken together, cause the criteria for 

recognizing a liability to be met long before payments are due and payable. Those 

characteristics are

 1. the contributory nature of the program (i.e., benefits are predicated to some 

extent on prior payments),

 2. time in covered employment,

 3. government sponsorship,

 4. benefits prescribed in law, and

 5. specific accounting entity (e.g., the trust fund) and long-range financing.

74. These characteristics, in conjunction with the historical experience and political 

climate affecting the programs, create obligations and societal expectations that make 

the outflow of resources highly probable -- far more than 50 percent. Therefore, an 

accounting liability should be recognized at an earlier point than when payments are 

due and payable; and the liability should be based on long-term or actuarial estimates 

of future payments.

75. Supporters of this view note that social insurance programs, as distinguished from 

general assistance programs, require the payment of taxes in order to establish an 

"insured status" before an individual is eligible for benefits. This is often referred to as 

an "earned right to benefits." In addition, most such programs have an element of 

individual equity in their benefit formulas whereby greater levels of taxes result in 

greater levels of benefits -- although Medicare HI is a notable exception. Moreover, 

both the participant and the employer sacrifice value in anticipation of future benefit. 

Not only do the participants anticipate retirement benefits as a result of these 

sacrifices, many employers, including the Federal Government, build in the value of 
Appendix A - Basis for Conclusions - Section 2

30

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Social Security benefits when designing retirement plans. Those holding this view 

would argue that these factors make social insurance programs predominantly 

exchanges.

76. Some of those arguing for recognition or disclosure believe that social insurance 

programs are constructive liabilities and that users of financial statements are 

accustomed to seeing commitments as firm as these quantified in financial statements 

or in notes to the statements. Some say that there is little conceptual difference 

between the liability that is recognized for federal pensions and the closed group 

obligation for social insurance. They would say that the failure at least to disclose a 

liability-type measure of the obligation therefore would potentially be misleading to 

those who relied on the financial statements and would raise questions about the 

credibility of the statements. 

77. In addition, they believe that the closed group number is a measure of the 

intergenerational transfer implicit in the program under its current terms and that this 

number should be reported. They would argue that the failure to disclose this number 

makes these programs look healthier than they are and thus may lead to poor 

decisions about consumption and saving by Congress and by citizens. Those who hold 

this view would argue that a closed group measure that treats social insurance 

benefits as earned annually would help users to understand the extent to which social 

insurance programs have committed future-year taxpayers to finance amounts earned 

by participants as of a given point in time. 

78. Some of those who argue that a liability should be recognized on the balance sheet 

maintain that most of the financial reporting community in the United States have 

adopted a different standard than exchange or nonexchange. The Financial 

Accounting Standards Board (FASB) concept statements adopt an "asset/liability" 

perspective in which what matters is whether a promise has been made, not whether 

something has been received for it or how it will be funded -- in other words, what 

matters is whether a future sacrifice of resources is probable, regardless of whether it 

arises from an exchange of consideration. From this perspective, the only reason for 

not recognizing a liability for the amount promised by the social insurance program 

would be the assumption that it may not be paid. 

79. Because most users are familiar with FASB's definition, or at least are accustomed to 

seeing financial reports based on it, those who favor recognition or disclosure of a 
Appendix A - Basis for Conclusions - Section 2

31

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

liability-type measure argue it is inherently misleading to fail to quantify the size of the 

promise that is continually being made and on which people are told they can rely. 

While many who support liability-type disclosure agree the open group data are 

desirable to aid in assessing the sustainability of social insurance programs, they also 

believe that an assessment of the financial condition of the program -- and more 

importantly, of the Federal Government -- is not possible absent liability or closed 

group data. If a reader seeks to answer the question -- Have we burdened future 

generations of citizens with the cost of the current and past years? and, if so, to what 

extent? -- the very large obligations for social insurance must be considered. 

The Board's Conclusion Regarding Recognition, Disclosure, or Supplementary Reporting

80. The Board acknowledges that it is faced with two polarized views without much hope 

of one side convincing the other side of the correctness of its position. On the one 

side are those who believe that social insurance programs -- especially Social Security 

and Medicare -- constitute a liability of the Federal Government that should be 

recognized on the consolidated balance sheet and that the closed group is the best 

measure of it. They agree that other measures such as a long-range projection of a 

program's cash inflow from all sources and outflow for all purposes are also useful, 

and note that all measures of sustainability and financial condition must be taken in 

context to be meaningful. At the opposite pole are those who firmly believe that the 

closed group measure is meaningless or even potentially misleading and should not be 

disclosed at all in the financial report.

81. The Board recognizes that both approaches have limitations and that the data are best 

understood when used together. An "earned right" measure, for example, produces a 

relatively large dollar amount that could confuse the reader who is unaware of the 

way in which the program was intended to be funded. Although both sides make 

strong arguments, no empirical evidence has been offered that would prove one side 

right and the other wrong. The Board believes the best approach to resolve this issue 

is for the closed group data to be reported off the balance sheet as part of a balanced 

RSSI package of disclosures about the Social Security and other social insurance 

programs. [The Board subsequently affirmed that the data necessary to 

calculate the closed group measure should be reported. See paragraphs 40-43 

for a discussion of the Board's final recommendation.]

82. The Board believes such disclosure will provide useful information and also serve the 
Appendix A - Basis for Conclusions - Section 2

32

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Accounting for Social Insurance

August 1999

interests of users who are concerned primarily with federal accounting in its entirety. 

The Board has heard much from the two opposing sides, within the Federal 

Government, with the keenest interest in this issue. It does not forget, however, a 

larger third group of constituents, both within and outside the Federal Government, 

who are concerned with federal accounting in its entirety.

83. The Board believes that these users would consider social insurance accounting in 

general and Social Security accounting in particular to be important but only as one 

element of the complex of problems in federal accounting that led to the establishment 

of the FASAB. A closed group measure of some type undoubtedly will be provided 

to this group of users from some source if it is not provided based on government 

standards. These users will be better served if the Federal Government defines a 

credible measure, calculating it by using assumptions consistent with other Social 

Security and other social insurance program estimates, and disclosing it with 

explanatory materials and in a governmentwide and national context.

Measurement of Social Insurance Obligations

84. Considering the polarity of these positions, the Board is persuaded that the 

requirements incorporated in this statement best serve the users of federal financial 

information. The Board continues to believe that, given the strength of these differing 

views concerning the nature of social insurance transactions, an overriding concern 

exists that no single measurement on the balance sheet or elsewhere could adequately 

convey the financial sustainability of social insurance programs or the impact on the 

financial condition of the administrative entities or the government as a whole. Using 

Social Security as an example, one could approach measurement from the perspective 

of an obligation to participants based on earned rights to future benefits; or one could 

approach measurement from a pay-as-you-go funding perspective, giving 

consideration to both future inflows and outflows. Projections based on a pay-as-yougo approach would acknowledge the way in which Social Security is funded and 

provide data on long-range sustainability based on the current benefit structure. An 

"earned rights" approach would acknowledge that, at any given point in time, Social 

Security has $X of accumulated obligation to current participants that would need to 

be provided by future generations under current law. 

85. The Board believes that a more complete picture of the financial condition of the 

government can be provided by a forward-looking assessment of whether it can 
Appendix A - Basis for Conclusions - Section 2

33

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

"sustain public services and meet obligations as they come due." The users of federal 

financial information need to know a great deal about the future of social insurance 

programs, a large and growing proportion of federal spending with financing that is 

under demographic and other strains. Understanding the financial condition of these 

programs is important to understanding the condition of the Federal Government as a 

whole. In addition, many citizens depend on these programs for their own financial 

security. The Board therefore believes that useful information about the future 

prospects of these programs should be fully and impartially presented in the financial 

reports of entities operating these programs and in the consolidated financial report of 

the United States government. The social insurance standards set forth the minimum 

information that the Board believes necessary for that purpose.

Required Supplementary Stewardship Information

86. The Board believes that the required information is relevant for assessing the 

sustainability of social insurance programs and also bears on the government's 

financial condition. The following paragraphs discuss each of the RSSI elements.

Cashflow

87. An estimate based on the amount and timing of future cash inflows and outflows will 

help users understand the long-range sustainability of the social insurance programs 

based on current revenue and benefit structure. The Board believes that the yearly 

inflows and outflows under the open group method should be disclosed over a 

sufficient number of years (e.g., 10 years, 75 years) to display "crossover" points 

where outflows begin exceeding inflows. Crossover points provide an early warning 

as to the need to adjust either the revenue stream or the expenditure stream to ensure 

that the program is sustainable under current law. 

88. The Board considered specifying the length of the projection (e.g., 10-20 years). 

However, it decided that allowing the entity to use its traditional timeframe was 

preferable, if the period presented is long enough to reveal anticipated critical points 

as mentioned in the preceding paragraph.

Percentage of Taxable Payroll & GDP

89. Cashflow should also be put in relation to the taxable payroll or other tax base 
Appendix A - Basis for Conclusions - Section 2

34

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August 1999

earmarked for the program, the GDP, or other benchmark that would be meaningful 

to users. The sustainability of a social insurance program cannot be determined solely 

on the basis of the financial position of the Federal Government. Rather, the size of 

the total fiscal burden shifted by government to future taxpayers -- in relation to their 

ability to bear it -- is critical to that determination. Thus, sustainability from the 

governmentwide perspective is better measured in terms of a healthy relationship 

between social insurance programs -- and, indeed, the entire budget -- and the 

national economy, as measured by the GDP or taxable wages. 

Dependency Ratio

90. The ratio of contributors to beneficiaries, also commonly called the "dependency ratio" 

shows the estimated number of contributors (e.g., covered workers) per program 

beneficiary. The Board believes that a projection of the trend in the relationship 

between contributors and beneficiaries should be displayed. This ratio helps readers 

assess whether the program is under potential stress and whether it is sustainable as 

currently constructed. A deteriorating dependency ratio would illustrate the effect of 

demographic trends on relationships between contributors and beneficiaries that may 

affect the sustainability of the program as currently constructed.

The "Closed Group" Measure

[The social insurance exposure draft proposed that the net APV for the closed group of 

participants be reported as RSSI. As explained in paragraphs 40-43, the final standard 

requires information about the closed group APV, within the structure of the new 

statement of actuarial values, and an explanation of how to calculate it. See note No. 3 

of the illustrated statement of social insurance, page 46. The closed group measure 

proposed in the exposure draft represented the actuarial net present value of (a) the 

future benefit payments to currrent participants, (b) future contributions to be made be 

them and their employers, and (c) the accumulated excess of cash receipts over cash 

disbursements within the social insurance program represented by fund balance at the 

valuation date. The Board continues to believe that the closed group measure is useful, 

and that the following paragraphs from the exposure draft retain their cogency. ]

91. The closed group measure is sometimes referred to as an actuarial liability11 for 

 

11

 [A variety of actuarial methods exist which can be used to calculate an actuarial liability. The "closed group" measure is not identical 
Appendix A - Basis for Conclusions - Section 2

35

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August 1999

certain social insurance programs relating to the closed group of current participants. 

Some believe it is analogous to the liability that would be recognized on the face of the 

balance sheet if social insurance programs were accounted for like federal pension 

and retiree health care benefits. Others dispute this, pointing to different financing 

arrangements, legal status, and the nature of social insurance and pensions. 

92. Until 1985, the "prototype" Consolidated Financial Statements of the United States 

recognized a liability for Social Security, using a calculation similar to that called for by 

Opinion No. 8 of the Accounting Principles Board, Accounting for the Cost of 

Pension Plans, (APB 8). This liability was calculated by amortizing the "closed 

group" obligation and recognizing as a liability the unfunded portion that was amortized 

each year. APB 8 defined a variety of acceptable methods for measuring pension 

expense and required that any unfunded pension expense be recognized as a liability. 

APB 8 was superseded by Statement 87 of the Financial Accounting Standards 

Board (FASB), published in December 1985. FASB published Statement 87 to make 

accounting for pensions more independent of the financing arrangements, to provide 

more standardization in measurement of the pension expense and liability, and to 

require that at least a "minimum liability" be recognized in employers' Statements of 

Financial Position (balance sheets). From 1985 through 1994, the closed group 

amount was disclosed in a footnote in the CFS.

93. Some people believe that the closed group measure is analogous to the measure of 

"risk assumed" that would be reported as supplementary stewardship information if 

social insurance programs were accounted for like other federal insurance programs. 

 SFFAS No. 5, Accounting for Liabilities of the Federal Government, defines "risk 

assumed" as the present value of unpaid expected losses net of associated premiums, 

based on the risk inherent in the insurance or guarantee coverage in force (i.e., the 

expected loss on the "current book of business"). In the context of social insurance, 

one would use the term "closed group" instead of "current book of business." 

94. SFFAS No. 5 requires insurance programs, other than social insurance programs, to 

report the risk assumed amount if it differs from the amount recognized as a liability. 

(SFFAS No. 5 exempts federal life insurance and loan guarantee programs from this 

disclosure requirement because the relevant accounting standards already incorporate 

a similar concept in determining the amount to be recognized in the financial 

 

to the methods that would be used in pension accounting. See paragraph 97 ]
Appendix A - Basis for Conclusions - Section 2

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August 1999

statements.) Some people believe that it is useful to report this information, for the 

same reason that it is useful to report it for other kinds of government programs. This 

reason was summarized in a report on budgeting for federal insurance programs other 

than social insurance. Although FASAB is concerned with financial reporting, not 

budgeting, the underlying rationale is similar:

As a general principle, decision-making is best informed if the government recognizes the 

costs of its commitments at the time it makes them. For most programs, cash-based 

budgeting accomplishes this. However, for insurance programs, accrual-based budgeting, 

which would recognize the expected long-term cost of the insurance commitment at the 

time the insurance is extended, offers the potential to overcome a number of the 

deficiencies of cash-based budgeting by improving cost recognition. In concept, 

recognition in the budget of the risk assumed by the government would permit 

policymakers to consider these costs in relation to other funding demands and would 

improve the measurement of a program's impact on private economic behavior. In most 

cases, the risk-assumed approach to accrual would be analogous to a premium rate-setting 

process in that it looks at the long-term expected cost of an insurance commitment at the 

time the insurance commitment is extended. The risk assumed by the government is 

essentially that portion of a full risk-based premium not charged to the insured.12

95. Other people believe that, because there has been no intent for individuals or cohorts 

of individuals (generations) to make contributions commensurate with the benefits 

they receive (as would be the case in other kinds of insurance programs), it would be 

misleading to report the amount of this intergenerational transfer implicit in social 

insurance.

96. The Board believes that ... the closed group measure represents a reasonably good 

estimate of the net responsibility of future participants, under current laws, to pay 

benefits to current participants. Although this amount is subject to change due to 

changing long-range demographics, it is not as volatile as the computation under the 

"open group" method that includes all current and future participants over the next 75 

years since it relates only to individuals who already are participating in the program.

Transition Costs

97. Some people note that the closed group measure, in addition to being an important 

 

12

Budget issues: Budgeting for Federal Insurance Programs, General Accounting Office, GAO/AIMD-97-16, Sept. 30, 1997, p. 5.
Appendix A - Basis for Conclusions - Section 2

37

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

factor in assessing the financial position and condition of the program and of the 

government, also represents a rough estimate of the maximum "transition cost" of the 

program if it were to move from the present pay-as-you-go system to one that, like 

most pension plans, sets aside resources during workers' careers to finance the 

benefits they will receive after they retire.13 The primary reason for reporting the size 

of this implicit liability in general purpose federal financial reports is to ensure that the 

financial report fairly presents the financial position, condition, and results of 

operations of the reporting entities involved. It is also true, however, that this number 

is one way of quantifying the financing challenges relating to changing social 

insurance programs and is relevant to the concerns of users who are assessing 

options for dealing with those challenges. The number not only draws attention to the 

challenge but also quantifies it in a way that can support further analysis and decisionmaking. Federal accounting and financial reporting attempt to address the needs of 

users and to inform them for their decisions, including decisions on these highly 

important and topical issues.

98. For example, the 1994-96 Advisory Council on Social Security expressed interest in 

three different approaches to restoring financial solvency and improving the rate of 

return on individual's contributions to the Social Security System. The three plans 

were entitled "Maintenance of Benefits," "Individual Accounts," and "Personal 

Security Accounts (PSA)." The PSA plan involved transition costs that the plan's 

advocates explained as follows:

Transition costs arise because, under the present system, there are large unfunded 

accrued obligations -- that is, benefits scheduled to be paid to current retirees and to 

workers who have already paid taxes in excess of assets on hand. Under the plan, 

these obligations would be met as they mature. At the same time, the new fullyfunded component of the system would be implemented. During the phase-in of the 

new system, the cost of meeting obligations under the existing system is sometimes 

referred to as the "transition cost."

 

13

Several ways exist for measuring transition costs depending on, among other things, whether one assumes the current program will 

continue for current participants alongside a new program for new participants (similar to federal employees continuing with the Civil 

Service Retirement System after the creation of the Federal Employee Retirement System in 1983). In such a transition, the older 

program would be closed to new entrants. Another type of transition would be where the current participants will move on to the new 

system, with the transition cost being the amount owed them under the former program. The discussion of different methodologies for 

calculating transition cost is beyond the scope of this accounting standard; but see the Stephen Goss, "Measuring Solvency in the Social 

Security System," Prospects for Social Security Reform, ed. Olivia S. Mitchell, Robert J. Myers, and Howard Young (Philadelphia: 

University of Pennsylvania Press, 1999), 16-36.
Appendix A - Basis for Conclusions - Section 2

38

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Transition costs would be met with a combination of added taxes and added Federal 

borrowing. The SSA [Social Security Administration] actuaries project that a 1.52 

percent supplement to the payroll tax would cover average long-range transition 

costs over the next 72 years.14 However, because the unfunded accrued obligations 

under the existing system are highest in the next couple of decades and taper off in 

later decades, there is a shortfall of revenues between about 2000 and 2034 and an 

excess of revenues thereafter. It is assumed that the shortfall would be met by 

issuing bonds to the public for the next 40 years (totaling an estimated $1.9 trillion in 

2034, in 1995 dollars), and that these bonds would be fully repaid by the excess of tax 

revenues in the later period. [vol. 1, p. 32] 

99. Similarly, Alan Greenspan, Chairman of the Board of Governors of the Federal 

Reserve System, has discussed the challenge confronting the Social Security system 

and the relevance of the transition amount:

... It has become conventional wisdom that the social security system, as currently 

constructed, will not be fully viable after the baby boom generation starts to retire.... 

This imbalance in social security stems primarily from the fact that, until very recently, 

payments into the social security trust accounts by the average employee, plus 

employer contributions and interest earned, were inadequate to fund the total of 

retirement benefits. This has started to change. Under the most recent revisions to 

the law and presumably conservative economic and demographic assumptions, 

today's younger workers will pay social security taxes over their working years that 

appear sufficient, on average, to fund their benefits during retirement. However, the 

huge liability for current retirees, as well as for much of the work force closer to 

retirement, leaves the system as a whole badly underfunded.15

100. In the course of discussing a variety of economic issues and policy options (including 

"privatization") that transcend accounting, Mr. Greenspan continues:

Any move toward privatization will confront the problem of how to finance 

previously promised benefits. That would presumably involve making the implicit 

accrued unfunded liability of the current social security system to beneficiaries 

explicit.... If markets perceive that this liability has the same status as explicit federal 

debt, then one must presume that interest rates have already fully adjusted to the 

 

14

Note that this rate differs from the 2.17 percent increase in the payroll tax that has been estimated to be necessary to maintain 

benefits under current law; see p. 25 of the 1994-96 Advisory Council report, vol. 1.

15

Statement by Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System, before the Task Force on Social 

Security, Committee on the Budget, United States Senate, Nov. 20, 1997, p. 1.
Appendix A - Basis for Conclusions - Section 2

39

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

implicit contingent liability. However, if markets have not fully accounted for this 

implicit liability, then making it explicit could lead to higher interest rates for U.S. 

government debt.... There is reason to suspect, however, that if such a liability is 

made explicit in a manner similar to the transition procedure in Chile, each dollar of 

new liability will weigh far less on financial markets than a dollar of current public 

debt.

16

101. Mr. Greenspan mentioned some reasons why the capital market's reaction -- though 

possibly substantial -- might be muted if the government made this implicit liability 

more explicit. The Federal Reserve has estimated that, using a 2 percent real rate of 

discount and other assumptions, the value of all currently accrued legislated future 

Social Security retirement benefits would be roughly $9.5 trillion.

102. The assumptions, benefits, population, and actuarial approach covered by this estimate 

differ somewhat from those used by the Social Security Trustees in the past to 

produce the closed group estimate comparable to the one called for by this statement. 

 The calculation used for Mr. Greenspan's testimony is an estimate of the actuarial 

present value of future benefits arising from individuals' covered employment to the 

date of calculation, without considering their expected future employment until they 

retire. The estimate for the closed group in this standard considers both benefits to be 

earned and contributions to be made for current participants, in addition to benefits 

already earned or credited. Also, Mr. Greenspan's estimate is for Old-Age and 

Survivors Insurance only while this standard proposes that the closed group estimate 

for Social Security also include Disability Insurance. However, the numbers are 

roughly comparable. 

103. The Chairman concluded by saying

We owe it to those who will retire after the turn of the century to be given sufficient 

advance notice to make what alterations in retirement planning may be required. If we 

procrastinate too long, the adjustments could be truly wrenching. Our senior citizens, 

both current and future, deserve better.17

. . .

 

16

Greenspan, p. 4-5.

17

Greenspan, p. 9.
Appendix A - Basis for Conclusions - Section 2

40

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Money's Worth

104. The Board considered requiring a "money's worth" measure. Such a measure would 

show all contributions paid and benefits received by different age groups (e.g., those 

born in 1920 compared with 1940). The 1994-96 Advisory Council on Social Security 

recommended that Social Security meet a test of providing a reasonable money's 

worth return on the contributions of younger workers and future generations, while 

taking into account the redistributive nature of the system. The Council said that, 

although money's worth return was only one measure among many, it was important 

to the long-range sustainability of the program for younger generations to believe that 

they were getting a reasonable return on their taxes. The Council said,

Social Security should provide benefits to each generation of workers that bear a 

reasonable relationship to total taxes paid, plus interest.

Many important values served by a Social Security system are not fully captured by 

looking solely at money's worth or rates of return. Nevertheless, the Council believes 

that it is important that young workers perceive that the system is fair. This 

perception suggests that the younger generation should be well treated in terms of 

the issue of money's worth, taking into account the fact that within each generation 

there will be a redistribution toward the lower paid. [vol. 1, p. 17]

105. Some argue that the money's worth measure may be viewed as a good measure of 

potential future stress caused by the disparity between taxes and anticipated benefits. 

However, others argue that this measure is of questionable relevance given the basic 

design and breadth of the benefits available under some social insurance programs. 

For example, the Social Security benefit formula is designed to provide relatively 

higher benefits for workers with lower earnings. This feature of the program is 

inconsistent with a pure focus on money's worth. Finally, as commonly reported, this 

measure does not reflect some social insurance programs and program features such 

as benefits to the disabled or dependents in the event of the participant's death.

106. The Board considered the money's worth measure and believes that it presents a 

useful perspective. However, the Board decided not to require it because it fails to 

capture the complexity of social insurance programs and could be calculated from too 

many perspectives. The Board recognizes the usefulness of the measure for policy 

analysis (and management may wish to report it voluntarily) but it goes beyond what 

the Board regards as essential to present fairly the financial position, condition, and 
Appendix A - Basis for Conclusions - Section 2

41

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

results of operations of the reporting entities involved (including the governmentwide 

entity). Accordingly, the Board decided not to require RSSI about money's worth.

Trust Fund Ratio

107. The Board also considered the "trust fund ratio" which is defined as the fund balance 

at the beginning of the year expressed as a percentage of the outgo during the year; 

or, in other words, the proportion of a year's outgo that could be paid with the funds 

available at the beginning of the year.18 The trust fund ratio is one of several 

measures the Social Security trustees use to evaluate the short-term financial status 

of the trust funds. Also, the 1994-96 Social Security Advisory Council advocated 

using the trust fund ratio as a gauge of long-term sustainability. The Council 

recommended that, in addition to the actuarial balance over 75 years, the program 

should have a stable trust fund ratio over the final years of the 75-year forecast 

horizon.19 The Council believed that the trend of trust fund ratio would indicate 

whether there would be cause for concern about the years beyond the 75-year 

horizon. The Council was concerned that all factors known at the time of the 75-year 

projection be considered and reported, including whether there were problems beyond 

the 75-year projection period. For example, even as the trustees are reporting that the 

system is in actuarial balance over 75 years, demographic trends could make the next 

10 years beyond the 75-year horizon more expensive. 

108. The Board decided not to recommend the trust fund ratio as RSSI for a number of 

reasons. In particular, to be useful, the ratio would have to be used in conjunction 

with a projection that was in actuarial balance or nearly so. Under the current "best 

estimate" projection, where fund balance is expected to be exhausted well before 75 

years, the trust fund ratio would not be useable. Although the Board acknowledges 

that the ratio may be useful as an indicator of short-term financial condition, it believes 

the projections and estimates in this standard will be more informative for accounting 

purposes. 

. . .

 

18

The 1997 Annual Report of The Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, 

p. 221.

19

See Findings and Recommendations, vol. 1, p. 17 (Jan. 1997).
Appendix A - Basis for Conclusions - Section 2

42

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Component & Governmentwide Perspectives

109. In developing these standards, the Board attempted to address the component entity 

as well as governmentwide reporting. From the perspective of the component federal 

entity, the accounting and reporting includes assets in the form of Treasury securities 

as well as interest thereon. These are not claims on third parties. The assets of the 

funds are offset by an identical liability of the U.S. Treasury. Like other 

intragovernmental assets and liabilities, they do not represent assets (or liabilities) of 

the Federal Government as a whole and are eliminated for governmentwide reporting. 

 The nonmarketable Treasury debt securities are evidence of the accumulation of 

excess cash receipts over cash disbursements within the social insurance program.
Appendix B - Hypothetical Illustrations 43

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

APPENDIX B - SAMPLE REPORTING FOR ILLUSTRATION ONLY

NOTE

The sample report sections in Appendix B provide nonauthoritative illustrations of possible RSSI that 

would comply with this standard. The narrative, charts, tables, and other information shown there are 

intended to be one approach among others to provide a full description of the programs and to supply 

the required information. The standard does not require any particular format or graph. Most, but 

not all, of the data presented in Appendix B would be required by pars. 27 and 32 of the standard 

(e.g., the year the fund balance is exhausted [see par. 117] and the open group actuarial deficit as a 

percentage of taxable payroll [see par. 120] would not be required). This is done to illustrate that 

management may provide more supplementary information than is required by the standard. 

Most data are taken from various reports for FY 1996 and are "actual data." Certain data are 

hypothetical. Although the data are realistic, readers should not rely on the validity of the data in the 

sample reports.

OMB provides specific form and content guidance on financial reports. 
Appendix B - Hypothetical Illustrations 44

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Social Security - Required Supplementary Stewardship 

Information

Statement of Social Insurance

Old-Age, Survivors and Disability Insurance

75-Year Projection1 as of September 30, 1996

(trillions of dollars)

[HYPOTHETICAL DATA]

| -------- Prior Years ----------|

1996 1995 1994 1993 1992

Actuarial present value of future benefit payments 2during 

 the 75-year period to or on behalf of:

 Current participants not yet having attained retirement age3$ X $ X $ X $ X $ X

 Current participants who have attained retirement age3 X X X X X

 Those expected to become participants (i.e., new entrants) X X X X X

-------- -------- -------- --------- --------

Subtotal - benefit payments for the 75-year period 19 X X X X

-------- -------- --------- --------- ---------

Less the actuarial present value of future contributions and

 tax income during the 75-year period from and on behalf of:

 Current participants not yet having attained retirement age3 Y Y Y Y Y

 Current participants who have attained retirement age3 Y Y Y Y Y

 Those expected to become participants (i.e., new entrants) Y Y Y Y Y

-------- -------- -------- -------- --------

Subtotal - contributions and tax income for the

 75-year period 16 Y Y Y Y 

-------- -------- -------- -------- ---------

Excess of actuarial present values of future benefit payments over 

 future contributions and tax income for the 75-year period 4$ 3 $ X $ X $ X $ Y

==== ==== ==== ==== ====
Appendix B - Hypothetical Illustrations 45

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Notes to the Statement:

1

 The projection period for new entrants covers the next 75 years. The projection period for current participants (or 

"closed group") would theoretically cover all of their working and retirement years, a period that could be greater than 75 

years a in few instances. As a practical matter the present values of future payments and contributions for/from current 

participants beyond 75 years are not material.

2

 "Benefit payments" include administrative expenses. 

3

 To calculate the actuarial net present value of the excess of future benefit payments to current participants (that is, to 

the "closed group" of participants) over future contributions and tax income from them or on their behalf, subtract the 

actuarial present value of future contributions and tax income by and on behalf of current participants from the actuarial 

present value of the future benefit payments to them or on their behalf.

4

 The calculation of the "close actuarial balance" used for analysis by the Social Security trustees differs from the 

calculation of the amount presented on this line. The trustees' close actuarial balance calculation includes the fund 

balance at the beginning of the period as an item of cash inflow and the cost of about one year's expenditure, as a target 

fund balance at the end of the period, as a cash outflow. The fund balance--which represents the accumulated excess of 

all past cash inflow, including interest on intragovernmental securities, over cash outflow within the social insurance 

program--for 1996 for the OASDI program is $ .6 trillion (OASI, $ .5 trillion, and DI $ .1 trillion). The fund balances for 

1995-2, in trillions, were $.6, .5, .5, .4, respectively. The fund balance consists of a small amount of cash for current 

operations with the balance invested in Treasury securities. When presented for redemption, these securities will 

represent a first claim on the resources of the government.
Appendix B - Hypothetical Illustrations 46

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Program Description

110. The Old-Age, Survivors, and Disability Insurance (OASDI) program, collectively referred to as 

"Social Security" or OASDI, provides cash benefits for eligible U.S. citizens and residents. During 

calendar year 1996, OASDI provided benefits to approximately 44 million beneficiaries. Eligibility and 

benefit amounts are determined under the laws applicable for the period. Current law provides that 

the amount of the monthly benefit payments for individuals, or dependent spouses and children, is 

based on the individuals' taxable earnings up to the date when payments commence. 

111. The amount of the effective monthly OASDI benefits may be altered by changes in laws governing 

the program. In 1983 for example, up to one-half of OASDI benefits became taxable; cost-of-livingadjustments (COLAs) were permanently delayed six months; and the age for full retirement benefits 

was gradually increased from 65 to 67 over a 24-year period.

112. OASDI has been described as an income transfer program -- that is, a program designed to reduce 

economic disparity by redistributing income between households. OASDI transfers income in at least 

two ways. First, its benefit structure is progressive in the sense that benefits during retirement for 

lower-income workers replace a larger proportion of income earned during their working years than is 

the case for higher-income workers. This results in an income transfer among workers of the same 

age group but in different income groups. Second, OASDI is financed largely on a pay-as-you-go 

basis. The payroll taxes paid to OASDI each year by current workers are primarily used to pay the 

benefits provided during that year to current beneficiaries. This results in income transfers between 

current workers and current beneficiaries and therefore between younger workers and older retirees, 

the disabled, and surviving family members.

Program Finances and Sustainability

113. As discussed in Note X to the consolidated financial statements, a liability of $34 billion is included in 

"Other Liabilities" on the balance sheet for unpaid amounts of OASDI benefits due to recipients for 

periods ended on or before September 30, 1996 ($33 billion in FY 1995). Virtually all of this amount 

was paid in October 1996. Also, an asset is recognized for the "investments in Treasury securities" as 

of September 30, 1996, of $550 billion ($483 billion in FY 1995). This investment represents trust fund 

assets accumulated from the excess of payroll taxes over benefits in prior periods. This fund balance 

is available for OASDI's use in future periods when a deficit occurs in the program. These 

investments are referred to as "trust fund assets" throughout the remainder of this disclosure.

114. No liability has been recognized on the balance sheet for future payments to be made to present and 
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 47

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

future program participants, beyond the unpaid amounts as of September 30, 1996. This is because 

the OASDI is accounted for as a social insurance program rather than a pension program. 

Accounting for a social insurance program recognizes the expense of benefits when they are actually 

paid or are due to be paid because benefit payments are primarily nonexchange transactions and are 

not considered deferred compensation as would employer-sponsored, employee's pension benefits. 

Accrual accounting for a pension program, by contrast, would recognize the retirement benefit 

expenses as they are earned during a worker's career so that the full actuarial present value of the 

expected retirement benefits has been recognized by the time the worker retires. 

115. Supplementary Stewardship Information - While no liability has been recognized on the balance 

sheet for future payments beyond those due at period end, actuarial estimates of future program 

activities are made annually to assess the financial condition and prospects for OASDI and are 

presented here as supplementary stewardship information. The statement presented above and the 

displays below represent the best estimate of future cash inflow and outflow based on the assumptions 

shown at the end of this section and considering future changes previously mandated by law. 

However, estimates extending so far into the future are inherently uncertain, and the uncertainty is 

greater for the later years in the period. This stewardship information includes: 

(1) actuarial present values of future benefits for and contributions and tax income from or on 

behalf of current and future program participants;

(2) cashflow in nominal dollars and as percentages of taxable payroll and the GDP;

(3) the ratio of contributors to beneficiaries or "dependency ratio" showing the long-range 

relationship between the program's beneficiaries and contributors; and

(4) an analysis of the sensitivity of the projections to changes in assumptions. 

116. Cashflow Projections - Chart 1 below shows the actuarial estimate of OASDI cash inflow and 

outflow for each of the next 35 years, in nominal dollars, using data from the OASDI Trustees' annual 

report. The estimate is based on what the Trustees refer to as the open group population (i.e., all 

persons who will participate in the program as contributors or beneficiaries or both over the next 35 

years). Thus, it includes payments from, and on behalf of, employees who will enter the workforce 

during the next 35 years as well as those now in the workforce.
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 48

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

117. As chart 1 shows, present estimates indicate that, in 

nominal dollars, cash outflow would start to exceed 

total inflow (including interest on intragovernmental 

borrowing/lending) in about 2019. This deficiency 

would continue at an increasing rate thereafter, 

require the redemption of investments in Treasury 

securities held as assets by the trust fund, and result 

in the exhaustion of accumulated asset balances in 

2029.4 Even before 2019, outflow would exceed 

cash inflow from the public (i.e., excluding interest 

paid by Treasury). Estimates indicate this will 

happen in about 2012, as shown in chart 1. From 

about 2012 forward, OASDI would pay more to the 

public than it would receive in taxes. This would 

increase the government's financing needs. 

Compared to a situation in which OASDI taxes 

equaled outgo, the government would have to 

finance this difference by increased borrowing from 

the public, spending cuts, tax increases, or some 

combination of these measures. 

Terms Used In Chart 1

The following terms are used in 

chart 1:

 • total inflow includes payroll 

taxes, income tax on certain 

OASDI benefits, interest income, 

and miscellaneous reimbursement 

from the general fund;

 • cash inflow excluding interest

is income exclusive of interest on 

trust fund assets;

 • total outflow includes benefit 

payments, administrative expenses, 

net transfers to the Railroad 

Retirement program, and 

vocational rehabilitation expenses 

for disabled beneficiaries.
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 49

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Data from Tables III B1, B3, & C1, 1996 OASDI Trustees’ Report

118. Percentage of Taxable Payroll - The excess of cash outflow over inflow is due to a variety of 

factors including the retirement of the "baby boom" generation and the relatively small number of 

people born during the subsequent period of low birth rate. As presently constructed, the program 

receives most of its cash inflow from the 6.2 percent payroll tax that employees and employers each 

pay, for a total of 12.4 percent of taxable payroll. Chart 2 below illustrates the rising annual cost of 

the program relative to its annual income as a percentage of taxable payroll.

Chart 1 - OASDI Cash Inflow & Outflow,

 1996-2030

0

500

1000

1500

2000

2500

3000

1996 2000 2005 2010 2015 2020 2025 2030

Years

Billions of nominal dollars

Cash

Inflow

Ex. Int.

Total

Inflow

Total

Outflow
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 50

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Data from Tables III A2, 1996 OASDI Trustees’ Report

119. The total excess of cash outflow over inflow for OASDI over the next 75 years is estimated to be 

2.17 percent of taxable payroll; in other words, a tax increase today of about 1.09 percent of taxable 

payroll each on employees and employers, over the 6.2 percent they each now pay, would produce 

enough inflow over 75 years to pay all benefits due under current law.20 There would be trust fund 

surpluses in the early years of the projection from which the Trustees would acquire Treasury 

securities to be used to pay benefits later.

120. Stated in terms of actuarial present value, the 2.17 percent deficit equates to an excess of 

expenditures over contributions of about $3 trillion over the next 75 years from September 30, 1996. 

The accumulation and subsequent redemption of substantial trust fund assets have economic and 

public policy implications that go beyond the operation of the OASDI program itself. Discussion of 

these broader issues is not within the scope of this report.

121. Percentage of GDP - In addition to analyzing OASDI operations as a percentage of taxable payroll, 

viewing them as a percentage of the Gross Domestic Product (GDP) provides an additional 

 

20

[Please note: the standard does not require information on the total excess of cash outflow over inflow as a percentage of taxable 

payroll. It requires a cashflow projection as a percentage of taxable payroll as in Chart 2.]

Chart 2 - OASDI Cash Inflow/Outflow as a Percent of 

Taxable Payroll 1996-2030

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

1996 2000 2005 2010 2015 2020 2025 2030

Years

Percent

Inflow

Excl. Int.

Outflow
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 51

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

perspective on these funds in relation to the capacity of the national economy to sustain them. The 

GDP represents the total value of goods and services produced in the United States. Chart 3 below 

shows OASDI's cost as a percentage of GDP.

Data from Table III C1, 1996 OASDI Trustees’ Report

122. In 1996, federal spending for OASDI exceeded $350 billion, which was about 4.7 percent of GDP. 

By 2030, when most baby boomers will have retired, the program (based on current law) will consume 

nearly 50 percent more of GDP than it does today -- 6.4 percent. Nearly all of the increase between 

now and 2030 will occur between 2010 and 2030, as retired baby boomers become eligible for those 

programs.

123. Sensitivity Analysis - As indicated by the assumptions shown at the end of this section, the future 

cashflow of the OASDI program depends on many economic and demographic assumptions, including 

GDP, labor factors, unemployment, average wages and self-employment earnings, interest rates on 

Treasury securities, productivity, inflation, fertility, mortality, net immigration, marriage, divorce, 

retirement patterns, and disability incidence and termination. The cash inflow will depend on how 

these factors affect the size and composition of the working population and the level and distribution of 

wages and earnings. Similarly, the outgo will depend on how these factors affect the size and 

Chart 3 - OASDI Cash Inflow/Outflow as a Percent of 

GDP 1996-2030

4.5%

5.0%

5.5%

6.0%

1996 2000 2005 2010 2015 2020 2025 2030

Years

Percent

Inflow

Excl. Int.

Outflow
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 52

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

composition of the beneficiary population and the general level of benefits. Precise long-range 

projections of these factors is impossible. 

124. This section illustrates the sensitivity of the long-range projections to changes in assumptions by 

analyzing five key individual assumptions: the real interest rate, the death and birth rates, net 

immigration, and the real wage differential. For this analysis the "best estimate" cost assumptions are 

used as the reference point, and each assumption is varied within it individually.

125. Real Interest Rate - The "best estimate" long-range cashflow projections presented in Chart 1 above 

assume a 4 percent increase in Consumer Price Index (CPI) per year after the year 2000 as the 

inflation rate and a 2.3 percent real interest rate. The "real interest rate" is the difference between the 

interest on the Treasury securities held by the trust fund and the inflation rate, as measured by the 

CPI. Chart 4 below compares the estimated OASDI net cash outflow using the best estimate cost 

assumptions, including the 2.3 percent real interest rate, with the net cashflow that would result from 

decreasing the real interest rate to 1.5 percent and increasing it to 3 percent.

Data regarding “best estimate” is from Tables III B1, B3, C1, 1996 OASDI Trustees’ Report

As stated above, the estimated total excess of OASDI cash outflow over cash inflow over the next 75 

Chart 4 - OASDI Net Cashflow with Alternative 

Assumptions about the Real Interest Rate

1996-2030

-$1,600

-$1,400

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

1996 2000 2005 2010 2015 2020 2025 2030

Years

Billions of nominal dollars

1.50%

2.3%

(best

est.)

3.%
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 53

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

years is $3 trillion. If the annual real interest rate--that is, the difference between the interest on the 

Treasury securities held by the trust fund and the inflation rate, as measured by the Consumer Price 

Index (CPI)--is changed from the 2.3 percent used for the best estimate projection to 1.5 percent, the 

total excess of cash outflow would increase to $3.8 trillion; if the rate were changed to 3 percent, the 

total excess would decrease to $2.5 trillion. 

126. Death Rate - Chart 5 below shows the estimated OASDI cash inflow and outflow using a death rate 

above and below the rate used for the projection in Chart 1 above. This analysis was developed by 

varying the percentage decrease in the death rate assumed to occur during 1996-2030. The rate used 

for Chart 1 above assumes a 35 percent decrease. Chart 5 assumes 25 percent and 45 percent 

decreases. 

Data regarding “best estimate” is from Tables III B1, B3, C1, 1996 OASDI Trustees’ Report

Regarding actuarial present values for a 75-year projection period, if the decrease in the death rate is 

changed from the 35 percent used for the best estimate projection to 15 percent, meaning that more 

people are dying, the total excess of cash outflow for the period would decrease to $2.1 trillion, from 

$3.0 trillion; if the rate were changed to 55 percent, the total excess cash outflow would increase to 

Chart 5 - OASDI Net Cashflow with Alternative 

Assumptions about the Death Rate

1996-2030

Hypothetical Data

-$800

-$600

-$400

-$200

$0

1996 2000 2005 2010 2015 2020 2025 2030

Years

Billions of nominal dollars

25%

35%

(best

est.)

45%
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 54

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

$4.2 trillion. 

127. Birth Rate - Table 1 below shows the estimated total excess OASDI cash outflow over inflow over a 

75 year projection period using a birth rate above and below the rate used for the best estimate 

projection. This analysis was developed by varying the percentage increase in the birth rate assumed 

to occur during 1996-2070. The rate used for the best estimate projection assumes a ultimate birth 

rate in 2070 of 1.9 children per woman. Chart 6 below shows the estimated OASDI cash inflow and 

outflow using a birth rate above and below the rate used for the projection in Chart 1 above. Chart 6 

below compares the estimated OASDI net cash outflow using the best estimate cost assumptions, 

including the 1.9 birth rate, with the net cash outflow that would result from decreasing the rate to 1.6 

percent and increasing it to 2.2 percent.

Data regarding “best estimate” is from Tables III B1, B3, C1, 1996 OASDI Trustees’ Report.

Chart 6 - OASDI Net Cashflow with Alternative 

Assumptions about the Birth Rate

1996-2030

Hypothetical Data

-$1,420

-$1,220

-$1,020

-$820

-$620

-$420

-$220

-$20

$180

1996 2000 2005 2010 2015 2020 2025 2030

Years

Billions of nominal dollars

25%

35%

(best

est.)

45%
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 55

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Table 1 presents the affect of using rates of 1.6 and 2.2 on the excess of cash outflow over inflow 

during the projection period. The rate is assumed to increase gradually from its current level to reach 

the ultimate values in 2070.

Table 1- Estimated Total Excess OASDI Cash Outflow over Inflow

with Various Birth Rate Assumptions

Valuation Period: 1996-2070

Valuation Period: 1996-2070

Ultimate Birth Rate Per Woman

(trillions of dollars)

1.6 births 1.9 births

(from best estimate 

cost assumptions)

2.2 births

Excess of cash outflow over 

cash inflow

$3.7 $3.0 $2.5

128. Net Immigration -- Chart 7 below compares the estimated OASDI net cash outflow using the best 

estimate cost assumptions, including the 900,000 per year net immigration rate, with the net 1cashflow 

that would result from decreasing the rate to 750,000 and increasing it to 1,150,000.
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 56

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Data regarding “best estimate” is from Tables III B1, B3, C1, 1996 OASDI Trustees’ Report

Regarding actuarial present values over 75 years, table 2 below shows the estimated total excess of 

OASDI cash outflow over inflow with assumptions that differ from those used for the "best estimate" 

projection.

Table 2 - Estimated Total Excess OASDI Cash Outflow over Inflow

with Various Net Immigration Assumptions

Valuation Period: 1996-2070

Valuation Period: 1996-2070

Net immigration per year

(trillions of dollars)

750,000 900,000

(from best estimate 

cost assumptions)

1,150,000

Excess of cash outflow over 

cash inflow

$3.2 $3.0 $2.9

Chart 7 - OASDI Net Cashflow with Alternative 

Assumptions about Net Immigration

1996-2030

Hypothetical Data

-$1,500

-$1,300

-$1,100

-$900

-$700

-$500

-$300

-$100

$100

1996 2000 2005 2010 2015 2020 2025 2030

Years

Billions of nominal dollars

750,000

900,000 

(best est.)

1,150,000
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 57

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

129. Real-Wage Differential - Chart 8 below compares the estimated OASDI net cash outflow using the 

best estimate cost assumptions, including the 1 percent real wage differential, with the net cashflow 

that would result from decreasing the rate to .5 percent and increasing it to 1.5 percent. The realwage differential is the difference between the annual percentage increase in wages in covered 

employment and the inflation rate, as measured by the CPI.

Data regarding “best estimate” is from Tables B1, B3, C1, 1996 OASDI Trustees’ Report.

Regarding actuarial present values over 75 years, table 3 below shows the estimated total excess of 

OASDI cash outflow over inflow with various assumptions about the real-wage differential. 

Chart 8 - OASDI Net Cashflow with Alternative 

Assumptions about Real Wage Differential

1996-2030

Hypothetical Data

-$1,600

-$1,400

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0

$200

1996 2000 2005 2010 2015 2020 2025 2030

Years

Billions of nominal dollars

4.5-4%

5-4% (best

est.)"

5.5-4%
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 58

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Table 3- Estimated Total Excess OASDI Cash Outflow over Inflow

with Various Real-Wage AssumptionsValuation Period: 1996-2070

Ultimate percentage in wages-CPI

(trillions of dollars)

[The first value in each of the pairs below is the assumed ultimate annual 

percentage increase in average wages in covered employment. The 

second value is the assumed ultimate annual percentage increase in the 

CPI. the difference between the two values is the real-wage differential.]

Wages-CPI 4.5-4.0 5.0-4.0

(from best estimate cost 

assumptions)

5.5-4.0

Excess cash outflow 

over inflow

$3.9 $3.0 $2.3

130. Dependency Ratio - Chart 9 below shows the estimated number of covered workers per OASDI 

beneficiary using the Trustees' best estimate. As defined by the Trustees, covered workers are 

persons having earnings creditable for OASDI purposes on the basis of services for wages in covered 

employment and/or on the basis of receipts from covered self-employment. As Chart 6 shows, the 

number of workers to beneficiaries will decline from 3.3 per beneficiary in 1995 to 2 per beneficiary in 

2030 and 1.8 in 2075.

Chart 9 - OASDI Contributors per Beneficiary

1970-2075

Hypothetical Data

0

1

2

3

4

5

1970 1985 2000 2015 2030 2045 2060 2075

Years

Contributors per beneficiary
Hypothetical Illustrations for the Social Security Administration Financial Report 

Appendix B - Hypothetical Illustrations 59

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Social Security Assumptions -

Assumptions Used

The estimates used in this presentation are based on the assumption that the programs will continue as 

presently constructed. They give effect to certain additional economic and demographic assumptions, 

including those in the following table:

Average Annual

Percent Change

Average 

Annual

Interest 

Rate

on 

Treasury 

Securities 

 (%)

Average 

Annual 

Unempl.. 

Rate

Average 

no. of 

children 

per 

woman

Death 

rate per 

100,000

Life 

expectancy

GDP Wages CPI Men Wom

en

1996 2.0 4.0 2.0 6.0 5.0 2.0 757 72 79

2000 2.0 4.3 3.5 6.5 6.0 2.0 731 73 79

2005 2.0 5.1 4.0 6.4 6.0 2.0 700 73 80

2010 1.8 5.0 4.0 6.3 6.0 2.0 677 74 80

2020 1.3 5.1 4.0 6.3 6.0 1.9 638 75 81

2030 1.4 5.0 4.0 6.3 6.0 1.9 603 76 81

These assumptions and the other values on which these displays are based represent the latest and 

most likely -- or "best" -- estimates of these values by the Trustees. Estimates made in certain prior 

years have changed substantially because of revisions to the assumptions due to changed conditions or 

experience, and to changes in actuarial methodology. It is reasonable to expect more changes for 

similar reasons in the future.
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 60

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Unemployment Insurance Programs

131. The U. S. Department of Labor operates two programs classified under federal accounting standards as social 

insurance, the Unemployment Insurance Program and the Black Lung Disability Benefits Program. Presented 

below is the required supplementary stewardship information for the Unemployment Insurance Program.

Program Description

132. The Unemployment Insurance (UI) program was created in 1935 to provide income assistance to unemployed 

workers who have lost their jobs through no fault of their own. The program protects workers during 

temporary periods of unemployment, through the provision of unemployment compensation benefits. These 

benefits replace part of the unemployed worker's lost wages and, in so doing, stabilize the economy during 

recessionary periods by increasing the unemployed worker's lost wages and purchasing power. The UI 

program operates counter cyclically, paying benefits during recessionary periods and collecting UI tax revenue 

during periods of recovery.

133. Program Administration and Funding - The UI program is administered through a unique system of 

federal-state partnerships, established in federal law but executed through conforming state laws by state 

officials. The Federal Government provides broad policy guidance and program direction through the oversight 

of the U.S. Department of Labor, while program details are established through individual state UI statutes, 

administered through state UI agencies.

134. Federal and State Unemployment Taxes - The UI program is financed through the collection of federal and 

state unemployment taxes levied on subject employers and deposited in the unemployment trust fund (UTF). 

Federal unemployment taxes are used to pay for the administrative costs of the UI program, including grants to 

each state to cover the costs of state UI operations, as well as the federal share of extended UI benefits. 

Federal unemployment taxes are also used to maintain a loan account within the UTF, from which insolvent 

state accounts may borrow funds to pay UI benefits. State UI taxes are used exclusively for the payment of 

regular UI benefits, and the state's share of extended benefits. These taxes and the UTF established to 

account for their receipt, investment, and disbursement are discussed below.

135. Federal Unemployment Taxes - Under the provisions of the Federal Unemployment Tax Act (FUTA), a 

federal tax is levied on covered employers, at a current rate of 6.2 percent of the first $7,000 in annual wages 

paid to each employee. This federal tax is reduced by a credit of up to 5.4 percent granted to employers 

paying state UI taxes under conforming state UI statutes. Accordingly, in conforming states, employers pay 

an effective federal tax of .8 percent. Federal unemployment taxes are collected by the Internal Revenue 

Service.
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 61

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

136. State Unemployment Taxes - In addition to the federal tax, individual states finance their UI programs through 

state tax contributions from subject employers on the wages of covered employees. (Three states also collect 

contributions from employees.) Within Federal confines, state tax rates are assigned in accordance with an 

employer's experience with unemployment. Actual tax rates vary greatly among the states and among 

individual employers within the state. At a minimum, these rates must be applied to the federal tax base of 

$7,000; however, states may adopt a higher wage base than the minimum established by FUTA. State UI 

agencies are responsible for the collection of state unemployment taxes.

137. Unemployment Trust Fund - Federal and state UI taxes are deposited into designated accounts within the 

UTF. The UTF was established under the authority of Title IX, section 904 of the Social Security Act of 

1935, as amended, to receive, hold, invest, loan, and disburse federal and state UI taxes. The U.S. 

Department of the Treasury invests amounts in excess of disbursing requirements in Treasury securities. The 

UTF is comprised of the following accounts:

138. Federal Accounts - The Employment Security Administration Account (ESAA) was established pursuant to 

section 901 of the Social Security Act. All tax receipts collected under the FUTA are appropriated to the 

ESAA and used to pay the costs of federal and state administration of the UI program and veterans 

employment services, as well as 97 percent of the costs of the state employment services. Excess balances in 

ESAA, as defined under the act, are transferred to other federal accounts within the fund, as described below.

139. The Federal Unemployment Account (FUA) was established pursuant to section 904 of the Social Security 

Act. FUA is funded by any excesses from the ESAA as determined in accordance with section 902 of the 

act. Title XII, section 1201 of the act authorizes the FUA to loan federal monies to state accounts that are 

unable to make benefit payments because the state UI account balance has been exhausted. Title XII loans 

must be paid with interest. The FUA may borrow from the ESAA or the Extended Unemployment 

Compensation Account (EUCA), without interest, or may also receive repayable advances, with interest, from 

the general fund of the U.S. Treasury when the FUA has a balance insufficient to make advances to the 

states.

140. The Extended Unemployment Compensation Account (EUCA) was established pursuant to section 905 of the 

Social Security Act. EUCA provides for the payment of extended unemployment benefits authorized under 

the federal/state Extended Unemployment Compensation Act of 1970, as amended. Under the extended 

benefits program, extended unemployment benefits are paid to individuals who have exhausted their regular 

unemployment benefits. These extended benefits are financed one-half by state unemployment taxes and onehalf by FUTA taxes obtained from the EUCA. The EUCA is funded by a percentage of the FUTA tax 

transferred from the ESAA in accordance with section 905(b)(1) and (2) of the Social Security Act. The 
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 62

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

EUCA may borrow from the ESAA or the FUA, without interest, or may also receive repayable advances 

from the general fund of the Treasury when the EUCA has a balance insufficient to pay the federal share of 

extended benefits. During periods of sustained high unemployment, the EUCA may also receive payments 

and non repayable advances from the general fund of the Treasury to finance emergency unemployment 

compensation benefits. Emergency unemployment benefits require congressional authorization.

141. The Federal Employees Compensation Account (FECA) was established pursuant to section 909 of the Social 

Security Act. FECA provides funds to states for unemployment compensation benefits paid to eligible former 

federal civilian personnel and ex-service members. Generally, benefits paid are reimbursed to the FECA by 

the various federal agencies. Any additional resources necessary to ensure that the account can make the 

required payments to states, due to the timing of the benefit payments and subsequent reimbursements, will be 

provided by non repayable advances from the general fund of the Treasury.

142. State Accounts - Separate state accounts were established for each state and territory depositing monies into 

the UTF, in accordance with section 904 of the Social Security Act. State unemployment taxes are deposited 

into these individual accounts and may be used only to pay state unemployment benefits. States may receive 

repayable advances from the FUA when their balances in the UTF are insufficient to pay benefits.

143. Railroad Retirement Accounts - The Railroad UI Account and Railroad UI Administrative Account were 

established under section 904 of the Social Security Act to provide for a separate unemployment insurance 

program for railroad employees. This separate unemployment insurance program is administered by the 

Railroad Retirement Board, an agency independent of the Department of Labor (DOL). DOL is not 

responsible for the administrative oversight or solvency of the railroad unemployment insurance system. 

Receipts from taxes on railroad payrolls are deposited in the Railroad UI Account and the Railroad UI 

Administrative Account to meet benefit payment and related administrative expenses.

144. UI Program Benefits - The UI program provides regular and extended benefit payments to eligible 

unemployed workers. Regular UI program benefits are established under state law, payable for a period not 

to exceed a maximum duration. In 1970, federal law began to require states to extend this maximum period of 

benefit duration by 50 percent, during periods of high unemployment. These extended benefit payments are 

paid equally from federal and state accounts.

145. Regular UI Benefits - There are no federal standards regarding eligibility, amount, or duration of regular UI 

benefits. Eligibility requirements, benefit amounts, and benefit duration are determined under state law. Under 

state laws, worker eligibility for benefits depends on experience in covered employment during a past base 

period, which attempts to measure the workers’ recent attachment to the labor force. Three factors are 

common to state eligibility requirements: (1) a minimum duration of recent employment and earnings during a 
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 63

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

base period to unemployment, (2) unemployment not the fault of the unemployed, and (3) availability of the 

unemployed for work.

146. Benefit payment amounts under all state laws vary with the worker’s base period wage history. Generally, 

states compute the amount of weekly UI benefits as a percent of an individual’s average weekly base period 

earnings, within certain minimum and maximum limits. Most states set the duration of UI benefits by the 

amount of earnings an individual has received during the base period. Currently, all but two states have 

established the maximum duration for regular UI benefits at 26 weeks (Massachusetts and Washington state 

provide 30 weeks). Regular UI benefits are paid by the state UI agencies from monies drawn down from the 

state’s account within the UTF.

147. Extended UI Benefits - The Federal/State Extended Unemployment Compensation Act of 1970 provides for 

the extension of the duration of UI benefits during periods of high unemployment. When the insured 

unemployment level within a state, or in some cases total unemployment, reaches certain specified levels, the 

state must extend benefit duration by 50 percent, up to a combined maximum of 39 weeks. Fifty percent of 

the cost of extended unemployment benefits is paid from the EUCA within the UTF, and 50 percent by the 

state, from the State’s UTF account.

148. Emergency UI Benefits - During prolonged periods of high unemployment, Congress may authorize the 

payment of emergency unemployment benefits to supplement extended UI benefit payments. Emergency 

benefits were last authorized in 1991 under the EUCA. Emergency benefit payments in excess of $28 billion 

were paid over the three year period ending in 1994. Emergency benefits were paid from the surplus of 

federal unemployment taxes in EUCA and, once EUCA balances were exhausted, from general revenues of 

the U.S. Treasury.

149. Federal UI Benefits - Unemployment benefits to unemployed federal workers are paid from the FECA within 

UTF and then reimbursed by the responsible federal agency. They are not considered to be social insurance 

benefits. Federal unemployment compensation benefits are not included in this discussion of social insurance 

programs.

Program Finances and Sustainability

150. At September 30, 1996, total assets within the UTF exceeded liabilities by $54.0 billion.5 This fund balance 

approximates the accumulated surplus of tax revenues and earnings on these revenues over benefit payment 

expenses and is available to finance benefit payments in future periods when tax revenues may be insufficient. 

 Treasury invests this accumulated surplus in federal securities. The net value of these securities at 

September 30, 1996, was $53.9 billion. These investments accrue interest, which is distributed to eligible state 
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 64

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

and federal accounts within the UTF. Interest income from these investments during FY 1996 was $3.4 

billion. As discussed in Note 1.B.3 to the consolidated financial statements, DOL recognized a liability for 

regular and extended unemployment benefits to the extent of unpaid benefits applicable to the current period. 

Accrued unemployment benefits payable at September 30, 1996, were $506.4 million.

151. Effect of Projected Cash Inflows and Outflows on the Accumulated Net Assets of the UTF - The ability 

of the UI programs to meet a participant’s future benefit payment needs depends on the availability of 

accumulated taxes and earnings within the UTF. The DOL measures the effect of projected benefit 

payments on the accumulated net assets of the UTF, under an open group scenario, which includes current 

and future participants in the UI program. Future estimated cash inflows and outflows of the UTF are tracked 

by DOL for budgetary purposes. These projections allow the DOL to monitor the sensitivity of the UI 

program to differing economic conditions, and to predict the program’s sustainability under varying economic 

assumptions. Charts I through IV graphically depict the effect of varying economic conditions on the UTF 

over the next 10 years.

152. Projected Cash Inflows and Outflows Under Expected Economic Conditions - Chart I depicts projected 

cash inflow and outflow of the UTF over the next 10 years, under expected economic conditions. Total cash 

inflow as well as cash inflow excluding interest earnings is displayed. DOL's current estimates were based on 

an expected unemployment rate of 5.1 percent during FY 1997, increasing to 5.5 percent in FY 2001 and 

thereafter. These projections indicate net cash inflow through FY 2004, with a crossover to net outflow in FY 

2005. Cash inflows combined with interest earnings exceed cash outflows for each of the 10 years presented, 

although this net excess decreases from $8.7 billion at the end of FY 1997 to $3.9 billion at the end of FY 

2006.
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 65

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

153. Effect of Expected Cashflows on UTF Assets - Chart II demonstrates the effect of the expected 

cash inflow and outflow on the net assets of the UTF over the 10-year period ending September 30, 

2006. Yearly projected total cash inflows, including interest earnings, and cash outflows are 

depicted, as well as the net effect of this cashflow on UTF assets.

Under this scenario, total cash inflow exceeds cash outflow in each of the 10 years projected, 

although the margin of excess decreases by 55 percent from FY 1997 to FY 2006. Net UTF assets 

increase by 87 percent over the 10-year period, from $62.5 billion in FY 1997 to $117.0 billion in FY 

2006.

Chart I

Unemployment Trust Fund

Cash Inflow and Outflow

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

$45,000,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Years

Total Cash

Inflow

Total Cash

Inflow Ex.

Interest

Total Cash

Outflow
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 66

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

154. Recession Scenarios -- Charts III and IV demonstrate the effect on accumulated UTF assets of 

projected total cash inflow and cash outflow of the UTF over the 10-year period ending September 

30, 2006, under moderate and severe recession scenarios. Each scenario uses an open group, which 

includes current and future participants in the UI program. Charts III and IV assume increased 

rates of unemployment during mild and deep periods of recession.

Chart II

Unemployment Trust Fund

Effect of Net Cash Flow on Net Assets

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

$100,000,000

$110,000,000

$120,000,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Years

Total Cash

Inflow

Total Cash

Outflow

Net Assets
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 67

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

155. Effect on UTF Assets of Mild Recession - Chart III shows the projected effects of moderate 

recession on the cash inflow and outflow of the UTF. Under this scenario, which utilizes a rising 

unemployment rate peaking at 7.4 percent in FY 2002, net cash outflows are projected to begin in 

FY 2001, increasing to a maximum of $7.0 billion in FY 2002. Net cash inflow is reestablished in 

FY 2004 with a drop in the unemployment rate to 6.4 percent.

156. Effect on UTF Assets of Deep Recession - Chart IV shows the effect of severe recession on the 

cash inflow and outflow of the UTF. This scenario assumes a rising unemployment rate peaking at 

10.2 percent in FY 2002. Under this scenario, net cash outflows are projected to begin early in FY 

2000, increasing to $22.5 billion in FY 2002. During this two-year period, the net assets of the UTF 

decrease from $76.7 billion to $35.0 billion, a decline of $41.7 billion (54 percent). While aggregate 

UTF balances remain positive, state accounts without sufficient reserve balances to absorb negative 

cashflows would be forced to borrows funds from the FUA to meet benefit payment requirements. 

State borrowing demands could also deplete the FUA, which borrows from the ESAA and the 

Chart III

Unemployment Trust Fund

Effect of Net Cash Flow on Net Assets

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

$100,000,000

$110,000,000

$120,000,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Years

Total

Cash

Inflow

Total

Cash

Outflow

Net

Assets
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 68

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

EUCA until they were depleted. The FUA would then require advances from the general fund of 

the U.S. Treasury to provide for state borrowing. (See discussion of state solvency measures 

infra.)

157. Net cash inflows are reestablished early in FY 2003, with a drop in the unemployment rate to 7.82 

percent. By the end of FY 2006, this positive cashflow has replenished UTF account balances to 

$73.6 billion, or to within $3.0 billion of their FY 2000 peak. This example demonstrates the countercyclical nature of the UI program, which experiences net cash outflows during periods of recession, 

to be replenished through net cash inflows during periods of recovery.

Chart IV

Unemployment Trust Fund

Effect of Net Cash Flow on Net Assets

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

$100,000,000

$110,000,000

$120,000,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Years

Total Cash

Inflow

Total Cash

Outflow

Net Assets

Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 70

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

158. Tables containing the yearly cash inflow, interest earnings, and cash outflow for each scenario are presented in the following pages.

U. S. DEPARTMENT OF LABOR

REQUIRED SUPPLEMENTAL STEWARDSHIP INFORMATION

CASH INFLOW AND OUTFLOW OF THE

UNEMPLOYMENT TRUST FUND EXCLUDING THE FEDERAL EMPLOYEES COMPENSATION ACCOUNT

FOR THE TEN YEAR PERIOD ENDED SEPTEMBER 30, 1996

(1) EXPECTED UNEMPLOYMENT RATE

`(Dollars in thousands) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

 Balance, start of year $ 53,800,832 $ 62,495,644 $ 69,134,779 $ 75,410,218 $ 82,183,369 $ 89,188,172 $ 96,242,575 $ 102,591,615 $ 108,232,958 $ 113,075,913 

Cash inflow

 State unemployment taxes 22,681,000 22,442,000 24,195,000 25,837,000 27,011,000 27,927,000 28,666,000 29,217,000 29,792,000 30,439,000 

 Federal unemployment taxes 6,046,000 6,141,000 6,201,000 6,300,000 6,332,000 6,428,000 6,474,000 6,545,000 6,616,000 6,690,000 

 Deposits by the RRB 27,600 67,800 127,600 136,600 101,000 70,000 75,100 102,400 109,800 91,400 

 Total cash inflow ex. interest 28,754,600 28,650,800 30,523,600 32,273,600 33,444,000 34,425,000 35,215,100 35,864,400 36,517,800 37,220,400 

 Interest on Federal securities 3,744,328 4,179,810 4,413,592 4,670,414 4,924,397 5,227,889 5,326,384 5,503,356 5,656,406 5,711,029 

 Total cash inflow 32,498,928 32,830,610 34,937,192 36,944,014 38,368,397 39,652,889 40,541,484 41,367,756 42,174,206 42,931,429 

Cash outflow

 State unemployment benefits 20,179,000 22,357,000 24,875,000 26,443,000 27,619,400 28,831,233 30,329,870 31,765,260 33,267,761 34,821,713 

 State administrative costs 3,357,406 3,561,582 3,513,672 3,456,087 3,474,974 3,498,455 3,591,026 3,687,876 3,787,445 3,889,713 

 Federal administrative costs 165,641 169,182 170,441 171,565 172,610 172,612 174,589 176,885 179,237 181,644 

 Interest on tax refunds 3,248 3,299 3,165 3,136 3,035 3,011 2,984 3,017 3,033 3,016 

 RRB withdrawals 98,821 100,412 99,475 97,075 93,575 93,175 93,975 93,375 93,775 93,575 
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 71

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

 Total cash outflow 23,804,116 26,191,475 28,661,753 30,170,863 31,363,594 32,598,486 34,192,444 35,726,413 37,331,251 38,989,661 

 Excess of total cash inflow

 ex. int. over total cash outflow 4,950,484 2,459,325 1,861,847 2,102,737 2,080,406 1,826,514 1,022,656 137,987 (813,451) (1,769,261)

 Excess of total cash nflow 

 over total cash outflow 8,694,812 6,639,135 6,275,439 6,773,151 7,004,803 7,054,403 6,349,040 5,641,343 4,842,955 3,941,768 

Balance, end of the year $ 62,495,644 $ 69,134,779 $ 75,410,218 $ 82,183,369 $ 89,188,172 $ 96,242,575 ######### $ 108,232,958 $ 113,075,913 $ 117,017,681 

Total unemployment rate 5.09% 5.12% 5.38% 5.47% 5.50% 5.50% 5.50% 5.50% 5.50% 5.50%

U. S. DEPARTMENT OF LABOR

REQUIRED SUPPLEMENTAL STEWARDSHIP INFORMATION

CASH INFLOW AND OUTFLOW OF THE

UNEMPLOYMENT TRUST FUND EXCLUDING THE FEDERAL EMPLOYEES COMPENSATION ACCOUNT

FOR THE TEN YEAR PERIOD ENDED SEPTEMBER 30, 1996

(2) MILD RECES SIONARY UNEMPLOYMENT RATE

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

 Balance, start of year $ 53,800,832 $ 62,495,644 $ 69,134,779 $ 75,427,203 $ 78,997,497 $ 72,977,460 $ 65,947,568 $ 65,595,389 $ 74,470,094 $ 87,923,108 

Cash inflow

 State unemployment taxes 22,681,000 22,442,000 24,195,000 25,837,000 27,889,000 31,018,000 35,304,000 39,150,000 41,096,000 40,839,000 

 Federal unemployment taxes 6,046,000 6,141,000 6,201,000 6,169,000 6,139,000 6,177,000 6,224,000 6,335,000 6,462,000 6,549,000 

 Deposits by the RRB 27,600 67,800 127,600 136,600 101,000 70,000 75,100 102,400 109,800 91,400 

 Total cash inflow ex. interest 28,754,600 28,650,800 30,523,600 32,142,600 34,129,000 37,265,000 41,603,100 45,587,400 47,667,800 47,479,400 

 Interest on Federal securities 3,744,328 4,179,810 4,485,592 4,324,625 4,389,403 3,957,469 3,737,486 3,670,448 4,053,078 4,639,297 
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 72

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

 Total cash inflow 32,498,928 32,830,610 35,009,192 36,467,225 38,518,403 41,222,469 45,340,586 49,257,848 51,720,878 52,118,697 

Cash outflow

 State unemployment benefits 20,179,000 22,357,000 24,930,015 29,083,333 40,393,938 44,027,625 41,544,306 36,305,687 34,175,845 34,832,298 

 State administrative costs 3,357,406 3,561,582 3,513,672 3,541,887 3,875,374 3,956,055 3,877,026 3,804,276 3,816,045 3,861,112 

 Federal administrative costs 165,641 169,182 170,441 171,565 172,610 172,612 174,589 176,885 179,237 181,644 

 Interest on tax refunds 3,248 3,299 3,165 3,071 2,943 2,894 2,869 2,920 2,962 2,953 

 RRB withdrawals 98,821 100,412 99,475 97,075 93,575 93,175 93,975 93,375 93,775 93,575 

 Total cash outflow 23,804,116 26,191,475 28,716,768 32,896,931 44,538,440 48,252,361 45,692,765 40,383,143 38,267,864 38,971,582 

 Excess of total cash inflow

 ex. interest over total cash 

outflow

 4,950,484 2,459,325 1,806,832 (754,331) (10,409,440) (10,987,361) (4,089,665) 5,204,257 9,399,936 8,507,818 

 Excess of total cash nflow 

 over total cash outflow 8,694,812 6,639,135 6,292,424 3,570,294 (6,020,037) (7,029,892) (352,179) 8,874,705 13,453,014 13,147,115 

Balance, end of the year $ 62,495,644 $ 69,134,779 $ 75,427,203 $ 78,997,497 $ 72,977,460 $ 65,947,568 $ 65,595,389 $ 74,470,094 $ 87,923,108 #########

Total unemployment rate 5.09% 5.12% 5.38% 5.60% 6.57% 7.43% 7.07% 6.42% 5.62% 5.50%
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 73

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

U. S. DEPARTMENT OF LABOR

REQUIRED SUPPLEMENTAL STEWARDSHIP INFORMATION

CASH INFLOW AND OUTFLOW OF THE

UNEMPLOYMENT TRUST FUND EXCLUDING THE FEDERAL EMPLOYEES COMPENSATION ACCOUNT

FOR THE TEN YEAR PERIOD ENDED SEPTEMBER 30, 1996

(3) DEEP RECESSIONARY UNEMPLOYMENT RATE

(Dollars in thousands) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

 Balance, start of year $ 53,800,832 $ 62,495,644 $ 69,134,779 $ 75,247,218 $ 76,661,227 $ 57,496,183 $ 34,990,203 $ 40,790,676 $ 51,029,964 $ 61,156,933 

Cash inflow

 State unemployment taxes 22,681,000 22,442,000 24,195,000 25,837,000 27,001,000 33,246,000 40,275,000 44,151,000 46,310,000 45,904,000 

 Federal unemployment taxes 6,046,000 6,141,000 6,201,000 6,169,000 6,139,000 6,177,000 6,224,000 6,335,000 6,462,000 6,549,000 

 Deposits by the RRB 27,600 67,800 127,600 136,600 101,000 70,000 75,100 102,400 109,800 91,400 

 Total cash inflow ex. interest 28,754,600 28,650,800 30,523,600 32,142,600 33,241,000 39,493,000 46,574,100 50,588,400 52,881,800 52,544,400 

 Interest on Federal securities 3,744,328 4,179,810 4,413,592 4,313,207 4,254,058 3,108,756 2,055,502 2,331,404 2,840,149 3,202,881 

 Total cash inflow 32,498,928 32,830,610 34,937,192 36,455,807 37,495,058 42,601,756 48,629,602 52,919,804 55,721,949 55,747,281 

Cash outflow

 State unemployment benefits 20,179,000 22,357,000 25,038,000 31,171,000 52,201,000 60,454,000 38,737,870 38,517,260 41,302,761 38,980,713 

 State administrative costs 3,357,406 3,561,582 3,513,672 3,599,087 4,189,974 4,385,055 3,819,826 3,890,076 4,016,245 4,004,112 

 Federal administrative costs 165,641 169,182 170,441 171,565 172,610 172,612 174,589 176,885 179,237 181,644 

 Interest on tax refunds 3,248 3,299 3,165 3,071 2,943 2,894 2,869 2,920 2,962 2,953 

 RRB withdrawals 98,821 100,412 99,475 97,075 93,575 93,175 93,975 93,375 93,775 93,575 

 Total cash outflow 23,804,116 26,191,475 28,824,753 35,041,798 56,660,102 65,107,736 42,829,129 42,680,516 45,594,980 43,262,997 
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 74

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

 Excess of total cash inflow

 ex. interest over total cash 

outflow

 4,950,484 2,459,325 1,698,847 (2,899,198) (23,419,102) (25,614,736) 3,744,971 7,907,884 7,286,820 9,281,403 

 Excess of total cash nflow 

 over total cash outflow 8,694,812 6,639,135 6,112,439 1,414,009 (19,165,044) (22,505,980) 5,800,473 10,239,288 10,126,969 12,484,284 

Balance, end of the year $ 62,495,644 $ 69,134,779 $ 75,247,218 $ 76,661,227 $ 57,496,183 $ 34,990,203 $ 40,790,676 $ 51,029,964 $ 61,156,933 $ 73,641,217 

Total unemployment rate 5.09% 5.12% 5.38% 6.65% 9.07% 10.15% 7.82% 7.28% 7.05% 6.43%

159. States Minimally Solvent - Another measure of the sufficiency of accumulated UTF assets to meet future benefit payment requirements 

analyzes the adequacy of each state’s accumulated net assets or reserve balance to provide a defined level of benefits over a defined period 

of time. To be considered minimally solvent, a state’s reserve balance should provide for one year’s projected benefit payment needs based 

on the highest levels of benefit payments experienced by the state over the last 20 years. A ratio of 1.0 or greater indicates a state is 

minimally solvent. States below this level are the most vulnerable to exhausting their funding in a recession. States exhausting their reserve 

balance must borrow funds from the FUA to make benefit payments. During periods of high sustained unemployment, balances in the FUA 

may be depleted. In these circumstances, FUA is authorized to borrow from the Treasury general fund.

160. Chart V presents the state-by-state results of this analysis at September 30, 1996, in descending order, by ratio. As the table illustrates, 23 

states failed to meet the minimum solvency test of 1.0 at September 30, 1996.
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 75

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999
Hypothetical Illustrations for the U.S. Department of Labor Financial Report

Appendix B - Hypothetical Illustrations 76

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 ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄ ̄

Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Chart V

Minimally Solvent Not Minimally 

Solvent

State Ratio State Ratio

Virgin Islands 2.89 Maryland 0.99

New Mexico 2.43 Alaska 0.94

New Hampshire 2.18 Nevada 0.94

Vermont 2.17 Alabama 0.90

Georgia 1.96 Kentucky 0.71

Mississippi 1.93 Arkansas 0.64

Oklahoma 1.86 Ohio 0.63

Utah 1.84 Pennsylvania 0.62

Delaware 1.74 Massachusetts 0.58

Wyoming 1.65 Michigan 0.57

Kansas 1.63 Minnesota 0.56

Puerto Rico 1.6 Maine 0.54

Virginia 1.58 North Dakota 0.54

Indiana 1.57 California 0.53

Florida 1.55 Illinois 0.50

Iowa 1.39 Rhode Island 0.47

Nebraska 1.37 Missouri 0.45

North Carolina 1.32 Dist. of Col. 0.45

Arizona 1.28 West Virginia 0.42

Idaho 1.26 Texas 0.33

South Carolina 1.24 Connecticut 0.31

Louisiana 1.23 New York 0.13

Oregon 1.2

Wisconsin 1.18

Montana 1.13

Colorado 1.08

Tennessee 1.08

Washington 1.07

Hawaii 1.06

South Dakota 1.06
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 77

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Governmentwide Entity Perspective

(Note: This pro forma illustration is a partial display featuring Social Security and Medicare and is not intended to be the full 

consolidated presentation wherein all social insurance programs would be summarized and consolidated in accordance with 

par. 32.)

Stewardship Information

Consolidated Statement of Social Insurance

75-Year Projection1as of September 30, 1996

(trillions of dollars)

[HYPOTHETICAL DATA]

+------ Prior Year-----|

1996 1995 1994 1993 1992

Actuarial present value of future benefit payments2 during

 the 75-year period to or on behalf of:

 Current participants who have not yet attained 

 retirement age3

$ X $ X $ X $ X $ X

OASDI [X] [X] [X] [X] [X]

HI [X] [X] [X] [X] [X]

SMI [X] [X] [X] [X] [X]

Other [X] [X] [X] [X] [X]

 Current participants who have attained

 retirement age3

 X X X X X

OASDI [X] [X] [X] [X] [X]

HI [X] [X] [X] [X] [X]

SMI [X] [X] [X] [X] [X]

Other [X] [X] [X] [X] [X]

 Those expected to become participants

 (i.e., new entrants) X X X X X

OASDI [X] [X] [X] [X] [X]

HI [X] [X] [X] [X] [X]

SMI [X] [X] [X] [X] [X]

Other [X] [X] [X] [X] [X]

------- ------- -------- -------- --------

Subtotal - benefit payments for the 75-year period X X X X X

-------- -------- --------- --------- ---------
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 78

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

+------ Prior Years-----|

1996 1995 1994 1993 1992

Less the actuarial present value of future contributions

 and tax income during the 75-year period from and on behalf of:

 Current participants who have not yet

 attained retirement age3

 Y Y Y Y Y

OASDI [Y] [Y] [Y] [Y] [Y]

HI [Y] [Y] [Y] [Y] [Y]

SMI [Y] [Y] [Y] [Y] [Y]

Other [Y] [Y] [Y] [Y] [Y]

 Current participants who have attained

 retirement age3

 Y Y Y Y Y

OASDI [Y] [Y] [Y] [Y] [Y]

HI [Y] [Y] [Y] [Y] [Y]

SMI [Y] [Y] [Y] [Y] [Y]

Other [Y] [Y] [Y] [Y] [Y]

 Those expected to become participants

 (i.e., new entrants) Y Y Y Y Y

OASDI [Y] [Y] [Y] [Y] [Y]

HI [Y] [Y] [Y] [Y] [Y]

SMI [Y] [Y] [Y] [Y] [Y]

Other [Y] [Y] [Y] [Y] [Y]

------- ------- -------- -------- --------

Subtotal - contributions and tax income 

 for the 75-year period Y Y Y Y Y

------- ------- -------- ------ -------

Excess of actuarial present values of future benefit payments over 

future contributions and tax income for the 75-year period4

 $X $X $X $X $X

==== ==== ==== ==== ====
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 79

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Notes to the Statement:

1

 The projection period for new entrants covers the next 75 years. The projection period for current participants (or 

'closed group") would theoretically cover all of their working and retirement years, a period that could be greater than 

75 years a in few instances. As a practical matter the present values of future payments and contributions for/from 

current participants beyond 75 years are not material.

2 "Benefit payments" include administrative expenses. 

3 The actuarial net present value of the excess of future benefit payments to current partic ipants (that is, to the "closed 

group" of participants) over future contributions and tax income from them or paid on their behalf is calculated by 

subtracting the actuarial present value of future contributions and tax income by and on behalf of current participants 

from the actuarial present value of the future benefit payments to them or on their behalf.

4

The fund balance--which represents the accumulated excess of all past cash inflow, including interest on 

intragovernmental securities, over all past cash outflow within the program--for fiscal year 1996 is $ X1 trillion. The 

fund balances for 1995-2, in trillions, were $X2, X3, X4, X5, respectively. The accumulated excess of cash inflow over 

outflow at the valuation date consists of a small amount of cash for current operations with the balance invested in 

Treasury securities. When presented for redemption, these securities will represent a first claim on the resources of 

the government.
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 80

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Program Description

161. As discussed in Note X to the CFS, a liability of $75 billion is included in "Other Liabilities" on the balance 

sheet for unpaid amounts of Old-Age, Survivors, Disability Insurance (OASDI), Medicare (HI and SMI), and 

other social insurance benefits due to recipients or service providers for periods ended on or before September 

30, 1996. Most of this amount was paid in October 1996. 

162. While no liability has been recognized on the balance sheet for future payments beyond the amount due as of 

September 30, actuarial estimates of future program activities have been prepared for the social insurance 

programs. Long-term actuarial views are a critical element in assessing the financial condition of social 

insurance programs. In addition, social insurance programs must be assessed as a large and growing part of 

the governmentwide financial entity where they impact the balance between future government obligations and 

resources. 

163. By projecting receipts from all sources and outlays for all federal programs for all purposes -- as is the goal 

when analyzing trends in the federal budget, and as shown for the short-term in the Current Services Estimate, 

which shows the current and six future years (see page XX of this report) -- it is possible to examine whether 

there will be sufficient resources to support all the government's ongoing responsibilities. It is also possible to 

see the interrelationship among the various types of government receipts (e.g., income taxes, payroll taxes, 

exchange revenue) and outlays (e.g., social insurance, national defense), where increases/decreases in one 

area of the budget can be offset by decreases/increases in other areas. Another perspective for assessing the 

financial condition of the government is its relationship to the national economy as measured by the GDP. 

164. The actuarial present values and projections presented here for Social Security and Medicare, which are by 

far the largest social insurance programs, use the best estimate of the programs' actuaries of future costs over 

periods ranging up to 75 years. Estimates extending so far into the future, however, are inherently uncertain; 

and the uncertainty is greater for the later years in the period. 

165. As shown in Chart 1, under current policies Social Security cash outflow will exceed inflow from the public in 

about 2012. 
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 81

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Data from Tables B1, B3, C1, 1996 OASDI Trustees’ Report.

166. The Medicare Hospital Insurance (HI) program cash outflow exceeded annual cash inflow in FY 1996. Using 

the actuaries' best estimate, the HI program will be insolvent in 2001, as shown in Chart 2 below. Projected 

HI payroll tax will meet a declining share of cash outflow under present law. Tax receipts are expected to 

equal 84 percent of cash outflow in 1997 and 74 percent in 2001 and would cover less than one-third of costs 

75 years from now.

Chart 1 - OASDI Cash Inflow & Outflow,

 1996-2030

0

500

1000

1500

2000

2500

3000

1996 2000 2005 2010 2015 2020 2025 2030

Years

Billions of nominal dollars

Cash

Inflow

Ex. Int.

Total

Inflow

Total

Outflow
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 82

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Data from Table II D3, 1997 HI Trustees’ Report.

167. The Medicare Supplementary Medical Insurance (SMI) is funded by premiums paid by participants and annual 

general fund appropriations. Current law provides for annual calculations of expected cost. Premiums, which 

currently cover approximately 25 percent of the program's cost, are expected to pay 16 percent by 2006 and 

decline further thereafter.

168. SMI benefits have been growing rapidly. Expenditures have increased 45 percent over the past five years. 

During this period the program grew about 14 percent faster than the economy as a whole, despite efforts to 

control costs.

169. As presently constructed, the HI program receives most of its income from the 1.45 percent payroll tax that 

employees and employers each pay, for a total of 2.9 percent of taxable payroll. Chart 3 below illustrates the 

cost rate of this program relative to its income rate as a percentage of taxable payroll.

Chart 2 - HI Cash Inflow, Outflow, Asset Balances, 

1996-2006

0

50

100

150

200

250

300

19961997199819992000200120022003200420052006

Years

Billions of nominal dollars

Cash

Inflow

Cash

Outflow

Asset

Balance

s
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 83

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Data from Table III A.2, 1997 OASDI Trustees’ Report.

170. Medicare is currently paying and, from 2012 forward, OASDI would pay more to the public than they receive 

in taxes thereby increasing the government's financing needs. Compared to a situation in which taxes or other 

financing sources equalled cash outflow, the government will have to finance this difference by increased 

borrowing from the public, spending cuts, tax increases, or some combination of these measures.

 171. Growing Disparity Between Rates of Income and Outgo - The excess of OASDI and HI cash outflow 

over inflow and the decreasing percent of SMI cost covered by premiums is due to the increasing cost of 

existing medical care; the increased utilization of existing and new health care techniques; and, in later years, 

the retirement of the "baby boom" generation and the relatively small number of people born during the 

subsequent period of low birth rate. For example, the OASDI Trustees' best estimate shows a long-term 

actuarial deficit over the next 75 years of 2.17 percent of taxable payroll -- in other words, a tax increase 

today of 1.09 percent of taxable payroll each for employees and employers, over the 6.2 percent they each 

now pay would produce enough revenue to pay benefits under current law, over 75 years.6 Increasing the 

payroll tax from 12.4 to 14.6 represents a payroll tax increase of about 17 percent. The 2.17 percent deficit 

represents, in terms of present value, an excess of $3.1 trillion of expenditures over contribution.

Chart 3 - HI Cash Inflow & outflow as a Percent of 

Taxable Payroll

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1996200020052010201520202025203020352040204520502055206020652070

Years

Percent

Cash

Inflow

Cash

Outflow
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 84

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

172. Social Insurance in Relation to the National Economy - The security of benefits and the distribution of 

financing costs for social insurance programs cannot be determined solely on the basis of the financial and 

actuarial status of the programs by themselves. Sustainability from the governmentwide entity perspective is 

better measured in terms of a healthy relationship between social insurance programs -- and, indeed, the entire 

budget -- and the national economy, as measured by the GDP. Relative to the national economy, federal 

spending for OASDI, HI, and SMI was 7 percent of GDP in 1996 -- $550 billion. By 2030, when most baby 

boomers will have retired, these programs are projected to consume nearly 100 percent more of GDP than 

they do today -- 14 percent, as shown in Chart 4. 

Data from Table III C1, 1996 OASDI Trustees’ Report and Table III B1, 1997 Hi Trustees’ Report.

173. This projected increase needs to be understood in the context of other projected future claims on future 

Chart 4 - OASDI, Hi & SMI Cash Outflow as a Percent of 

GDP, 1996-2070

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

1996200020052010201520202025203020352040204520502055206020652070

Years

Percent

OASDI

HI

SMI

Total
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 85

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

resources including general assistance programs (e.g., Medicaid) and other federal programs. Nearly all of 

the increase between now and 2030 in the OASDI, HI, and SMI programs will occur between 2010 and 2030, 

as retired baby boomers become eligible for those programs. In terms of the number of workers to 

beneficiaries in the combined OASDI and HI programs, a decline will occur from about 3.5 per beneficiary in 

1995 to 2 per beneficiary in 2030.

174. Sensitivity Analysis21 - The future cashflow of the OASDI, Medicare, and other social insurance programs 

depends on many economic and demographic assumptions. Precise long-range projections of these factors is 

impossible. 

175. This section illustrates the sensitivity of the long-range projections to changes by analyzing six key individual 

assumptions. For this analysis the "best estimate" cost assumptions are used as the reference point, and each 

assumption is varied within it individually.

176. Death Rate - Chart 5 below shows the estimated OASDI cash inflow and outflow using a death rate above 

and below the rate used for the projection in Chart 1 above. This analysis was developed by varying the 

percentage decrease in the death rate assumed to occur during 1996-2030. The rate used for Chart 1 above 

assumes a 35 percent decrease. Chart 5 assumes 25 percent and 45 percent decreases. 

Data for “best estimate” is from Tables III B1, B3, C1, 1996 OASDI Trustees Report.

177. Real Interest Rate -- The total excess of OASDI cash outflow over inflow on the basis of the best estimate

cost assumptions is $3.0 trillion over the valuation period of 1996-2070. If the annual real interest rate for 

 

21

[Please note: this section provides examples of some of the sensitivity analysis that would be provided at the consolidated level. The consolidated 

entity would summarize the sensitivity analyses from the individual social insurance entities.]

Chart 5 - OASDI Net Cashflow with Alternative 

Assumptions about the Death Rate

1996-2030

Hypothetical Data

-$800

-$600

-$400

-$200

$ 0

1996 2000 2005 2010 2015 2020 2025 2030

Years

Billions of nominal dollars

25%

35%

(best

est.)

45%
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 86

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Treasury securities is changed from the 2.3 percent used for the best estimate to 1.5 percent, the excess of 

cash outflow would increase to $3.8 trillion; if the rate were changed to 3 percent, the excess of cash outflow 

would decrease to $2.5 trillion.

178. Birth Rate - Table 1 shows the effect of using birth rates of 1.6 and 2.2 children per woman, instead of the 1.9 

rate used for the best estimate projection, on the total excess OASDI cash outflow over inflow over the period 

1996-2070. The rate is assumed to increase gradually from its current level to reach the ultimate values in 

2070.

Table 1- Estimated Total Excess OASDI Cash Outflow over Inflow

with Various Birth Rate Assumptions

Valuation Period: 1996-2070

Valuation Period: 1996-2070

Ultimate Birth Rate Per Woman

(trillions of dollars)

1.6 births 1.9 births

(from best estimate 

cost assumptions)

2.2 births

Excess of cash outflow over 

cash inflow

$3.7 $3.0 $2.5

179. Net Immigration -- Table 2 below shows the total excess of OASDI cash outflow over inflow with various 

assumptions about the magnitude of net immigration. 

Table 2- Estimated OASDI Actuarial Balances

with Various Net Immigration Assumptions
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 87

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Valuation Period: 1996-

2070

Net immigration per year

(trillions of dollars)

750,000 900,000

(from best estimate 

cost assumptions)

1,150,000

Excess of cash outflow 

over inflow

$3.2 $3.0 $2.9

180. Real-Wage Differential - Table 3 below shows the total excess OASDI cash outflow over inflow with 

various assumptions about the real-wage differential. The real-wage differential is the difference between the 

annual percentage increase in wages in covered employment and the Consumer Price Index.

Table 3- Estimated OASDI Actuarial Balances

with Various Real-Wage Assumptions

Valuation Period: 1996-2070

Ultimate percentage in wages-CPI

(trillions of dollars)

[The first value in each of the pairs below is the assumed ultimate annual 

percentage increase in average wages in covered employment. The 

second value is the assumed ultimate annual percentage increase in the 

CPI. the difference between the two values is the real-wage differential.]

Wages-CPI 4.5-4.0 5.0-4.0

(from best estimate 

cost assumptions)

5.5-4.0

Excess cash outflow over 

inflow

$3.9 $3.0 $2.3

181. Health Care Cost Trend -- Chart 6 below shows the estimated HI and SMI net cash outflow using a health 

care cost factor 1 percent above and 1 percent below that used for the "best estimate" projection. Factors 

such as wage increases and price increases may simultaneously affect both HI payroll tax income and the 

costs incurred by hospitals and other providers of medical care to HI and SMI beneficiaries. Other factors, 

such as the utilization of services by beneficiaries or the relative complexity of the services provided, can 

affect provider costs without affecting HI payroll tax income. The sensitivity analysis shown in Chart 6 

illustrates the financial effect of any combination of such factors that results in aggregate provider costs 

increasing by 1 percent faster or slower than the "best estimate" assumptions. 
Hypothetical Illustrations for the Governmentwide Financial Report

Appendix B - Hypothetical Illustrations 88

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

Data for “best estimate” is from Table III B1, 1997 HI Trustees’ Report.

Chart 6 - HI & SMI Net Cash Outflow

with Alternative Health Care Cost Trend Assumptions

as a Percent of GDP, 1996-2070

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

1996200020052010201520202025203020352040204520502055206020652070

Years

Percent

Best

Estimate

Less 1%

Plus 1%
Appendix C -- Historical Background 89

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August 1999

APPENDIX C - HISTORICAL BACKGROUND

182. Practice Prior to Federal Accounting Standards Advisory Board (FASAB) - Although this statement is 

applicable to other social insurance programs, Social Security historically has been the primary focus when 

considering accounting for social insurance. Over the decades, the debates about Social Security have to 

some extent paralleled debates in the nonfederal accounting community about how to apply accrual concepts 

in accounting. During this time, a continual evolution in accounting practice has led to increased recognition on 

the face of the financial statements and disclosure in notes to financial statements of formerly unreported 

commitments such as pensions and other postretirement benefits such as health care. 

183. Since the 1950s, the Treasury Department and the Office of Management and Budget (OMB) have been 

furnishing reports on federal contingencies and commitments. From the early 1950s, the reports showed, 

among other commitments, the face value of loan guarantees and federal insurance but not the actuarial status 

of social insurance programs. 

184. In 1967, Congress began requiring a commitments and contingencies report (Liabilities and Other Financial 

Commitments of the United States Government) that was to include liabilities of federal annuity programs 

and their actuarial status. The programs in that report included most of the social insurance programs that are 

the subject of these accounting standards: Social Security, Medicare, Railroad Retirement, Black Lung, and 

Unemployment Insurance. The report was tied with the regular business-type reporting of federal agencies 

required by the Treasury Department (e.g., balance sheets, operating statement, supplemental schedules). 

185. From 1976 until 1985, the "prototype" Consolidated Financial Statements of the United States Government

(CFS) recognized a liability for Social Security using a calculation similar to that called for in APB 8 (1966), 

which defined a variety of acceptable actuarial methods for measuring pension expense and required that any 

accumulated, unfunded pension expense be recognized as a liability. However, the expense shown on the 

CFS operating statement included only cash benefit payments and not what the CFS called the "noncash 

amount" -- or the change in the unfunded liability. 

186. After 1966 the importance of information about pensions grew due to increases in the number of plans and 

amounts of pension assets and obligations. Significant changes occurred in both the legal environment (e.g., 

Employee Retirement Income Security Act) and the economic environment (e.g., higher inflation and interest 

rates). 

187. APB 8 was superseded by FASB Statement of Financial Accounting Standards (SFAS) No. 87, Employer's 

Accounting for Pensions, published in December 1985. FASB noted the years of accounting controversy 

over measuring costs and liabilities resulting from defined benefit pension plans. After considering the range 

of comments on its Preliminary Views document and on its exposure draft, FASB concluded that, although it 

did not recognize the full projected benefit obligation on the balance sheet, SFAS 87 represented a worthwhile 

improvement in financial reporting. SFAS 87 made accounting for pensions more independent of the financing 
Appendix C -- Historical Background 90

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Accounting for Social Insurance

August 1999

arrangements, provided more standardization in measurement of the pension expense and liability, and required 

at least a "minimum liability" to be recognized in employers' balance sheets.

188. The Social Security liability was de-recognized in the CFS for 1985; but a similar closed group (to new 

entrants),

7

 "liability type" number continued to be disclosed in a footnote along with the open group, "cashflow" 

or "financing type" number. The closed group population includes all current participants, that is, retirees and 

covered workers. The "open group" includes all current participants plus all future participants over the next 

75 years. Disclosure of the closed group number was discontinued in the CFS after 1994.

FASAB Exposure Drafts on Liabilities & Stewardship

189. Social insurance was addressed in the Board's exposure draft (ED) on Accounting for the Liabilities of the 

Federal Government in November 1994. The Liabilities ED proposed defining a federal liability in terms 

generally similar to the definition used by privately owned entities in the United States: a probable and 

measurable future sacrifice of resources based on a past transaction or event. However, to accommodate the 

unique circumstances of the Federal Government, both the Liabilities ED and the subsequent Statement of 

Federal Financial Accounting Standards No. 5 distinguished between exchange and nonexchange transactions

and provided distinct accounting for liabilities resulting from these two types of transactions.

190. Private sector accounting concepts and standards distinguish between reciprocal transactions (such as 

payments to an employee for services rendered) and non reciprocal transactions (such as contributions 

pledged to a not-for-profit entity). This is generally analogous to the federal distinction between exchange and 

nonexchange transactions. Private sector accounting standards, however, do not recognize liabilities 

differently based upon whether they arise from reciprocal or non reciprocal transactions.

191. For nonexchange transactions, the Liabilities ED provided that a liability would be recognized for any unpaid 

amounts due and payable as of the reporting date. This includes amounts due from the federal entity to pay 

for benefits, goods, or services provided under the terms of the program, whether or not such amounts have 

been reported to the federal entity (e.g., estimated Medicare payments due to health providers for service that 

has been rendered and that will be financed by the federal entity but that have not yet been reported to the 

federal entity).

192. After much debate, social insurance benefits were classified as nonexchange transactions. The Liabilities

ED proposed that such programs recognize the following as expense in the statement of net cost: (1) the 

benefits and expenses paid during the year (except those accrued at the end of the prior year) and (2) the 

benefits and expenses due and payable at the end of the year. The latter were to be recognized as liabilities 

on the balance sheet. The Liabilities ED noted that the FASAB contemplated a federal reporting model 

encompassing extensive disclosure and supplementary reporting and that the Board was addressing such 

reporting for social insurance in a separate project. Also, the Liabilities ED contained an alternative view 
Appendix C -- Historical Background 91

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August 1999

whereby a minimum liability -- representing the actuarial present value of total lifetime benefits due to be paid 

to people eligible to receive social insurance benefits at the balance sheet date -- would be recognized on the 

balance sheet.

193. The Board considered the responses to the Liabilities ED in conjunction with its continuing development of 

supplementary information for social insurance programs. The majority of respondents favored the alternative 

view, that is, recognition of a minimum liability. Because the Liabilities ED had focused on balance sheet 

presentation and did not contain any proposed supplementary disclosures and because the magnitude and 

complexity of the issues were so great, the Board chose to issue a standard on liabilities without any additional 

requirements for social insurance and to expose the supplementary information for comment. In August 1995, 

the Board released for comment proposed required supplementary information for social insurance programs 

in the exposure draft on Supplementary Stewardship Reporting ("Stewardship ED").

194. The Stewardship ED did not change the recognition point for expenses and liabilities published in the 

Liabilities ED. However, it proposed the following three liability-type measures to be reported as required 

supplementary information accompanying the financial statements: (1) a "minimum liability" (present value of 

benefits due to all currently eligible to receive them) and (2) the actuarial net present value of benefits and 

payments to (a) the closed group (that is, current program participants) and (b) the "open group" (current and 

future program participants) for the next 75 years. In addition, it proposed a "money's worth" measure (data 

showing the change over time in the ratio of the net present value of actual or estimated average aggregate 

lifetime benefits paid to and contribution received from and on behalf of similarly aged participants). 

195. The response to the Stewardship ED's required supplementary stewardship information package regarding 

social insurance was generally favorable. The majority of respondents said that the information was either 

very useful or useful. Others, including representatives of the administrative agencies for Social Security and 

Medicare, objected to reporting any information other than that based on the open group methods and 

assumptions. Also, opposition arose from the agency administering unemployment insurance and Black Lung 

benefits, stating that although its programs should be included as social insurance, the RSSI package designed 

for Social Security did not fit its programs because they involved short-term benefits or had other unique 

aspects.

196. After deliberating the issues, the Board concluded in May 1996 that additional investigation and further 

deliberation were required. The Board noted:

• the strength of feelings on the issues (with one side firmly believing that the closed group estimate is a 

liability that should be recognized on the consolidated balance sheet of the Federal Government and, at 

the opposite pole, others who firmly believe that the closed group estimate is meaningless, could be 

misleading, and should not be disclosed at all in federal financial reports);

• the magnitude and complexity of the issues; and
Appendix C -- Historical Background 92

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August 1999

• that changes to social insurance programs were being studied and discussed frequently and seriously 

within government and by the public. 

197. The Board directed the staff to continue researching social insurance accounting, focusing especially on 

identifying the following: 

• the characteristics of such programs, the appropriate display of information in the financial statements, 

and any additional information that should be required; 

• the means for measuring financial data in such information; and

• the desirability of other indicators (ratios of data to Gross Domestic Product (GDP) or "covered payroll") 

to describe the status of programs. 

The Board instructed the staff to be mindful of developments in the policy studies of Social Security in 

structuring its research and its recommendations.22 In early 1997, the Board began again to deliberate the 

issues. The standard is a product of this project.

 

22

SFFAS No. 8, Supplementary Stewardship Reporting, par. 117. The studies included the 1994-96 Social Security Advisory Council whose report, 

published in January 1997, reflected the lack of consensus on long-term financing for Social Security. The Council members agreed on how to define 

the size of the financing problem (by using the Social Security Administration actuaries' "best estimate" projection to derive an actuarial deficit of 2.17 

percent of payroll over the next 75 years). They also agreed that two long-range goals should be (1) to eliminate the 2.17 percent 75-year deficit and 

(2) to have the fund in stable condition at the end of the 75-year period. However, the Council offered three sharply different models for the future 

of Social Security. These models did contain some common features (e.g., all three would increase from 35 to 38 the number of years used to compute

benefits and tax Social Security benefits in the same way that contributory defined-benefit pensions are treated under the federal income tax). In 

addition to the Advisory Council, academics and scholars were studying, for example, the Chilean and United Kingdom experiments with privatization 

of public pension plans.
Appendix D - Glossary 93

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August 1999

APPENDIX D - GLOSSARY

Actuarial balance - The difference between the summarized cost rate and the summarized income rate over a given 

valuation period.

Actuarial present value - The value of an amount or series of amounts payable or receivable at various times, 

determined as of a given date by the application of a particular set of actuarial assumptions.

Actuarial status - The status of a program based on statistical calculations and actuarial assumptions about future 

economic, demographic, and other conditions and events.

Assumptions -

Actuarial: Assumptions as to the occurrence of future events affecting projected costs, such as mortality, 

withdrawal, disability, and future interest rates.

Hospital assumptions: Assumptions related to medical treatment including differentials between hospital 

labor and nonlabor indices compared to general economy labor and nonlabor indices; rates of hospital 

admission; the trend toward treating less complicated cases in outpatient settings; and continued improvement 

in the classification of patients according to type of treatment, age, diagnosis, etc.

Social Security: Values relating to future trends in certain key factors. Demographic assumptions include 

fertility, mortality, net immigration, marriage, divorce, retirement patterns, disability incidence and termination 

rates, and changes in the labor force. Economic assumptions include unemployment, average earnings, 

inflation, interest rates, and productivity. Projections are normally provided based on the following three sets 

of economic assumptions

• the "low cost" set (Alternative I) that assumes relatively rapid economic growth, low inflation, and 

demographic conditions favorable to the plan;

• the "intermediate cost" set (Alternative II) that represents the trustees' "best estimate" of future trends; 

and

• the "high cost" set (Alternative III) that assumes slow economic growth, more rapid inflation, and 

demographic conditions unfavorable to the plan.

Black Lung benefits program - The Black Lung program consists of two parts: Part B and Part C. Recipients who 

filed claims from 1970 to mid-1973 are covered by Part B; all other recipients are covered by Part C. 
Appendix D - Glossary 94

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August 1999

• Part B is currently administered by the Social Security Administration (SSA). Former coal miners and their 

dependents are eligible for monthly cash benefits if the miner is totally disabled or died due to black lung 

disease. Benefits under Part B are reduced if the beneficiary receives state workers' compensation, 

unemployment compensation, or state disability compensation. Certain pension benefits are subject to an 

excess-earnings test. The program is wholly funded by annual appropriations from the general fund.

• Part C is administered by the U.S. Labor Department, although some services are provided by SSA on a 

reimbursable basis. The program serves a declining population. Increased mechanization of coal mining 

operations and the industry's improved health and safety regulations have resulted in very few new entrants 

into the program. Most current beneficiaries entered the program in the 1970s. Former coal miners who have 

black lung disease are eligible for Part C benefits if a responsible mine owner cannot be determined. Twothirds of Part C benefits are funded by earmarked excise taxes on coal and one-third by general fund 

revenues. The latter takes the form of "repayable advances" rather than appropriations. 

Closed group - See "Closed group (to new entrants)."

Closed group (to new entrants) - Those persons who, as of a valuation date, are participants in a social insurance 

program as beneficiaries, covered workers, or payers of earmarked taxes or premiums. 

Constant dollar - A dollar value adjusted for changes in the average price level. A constant dollar is derived by 

dividing a nominal dollar amount by a price index. The resulting constant dollar value is that which would exist if prices 

had remained at the same average level as in the base period. Any changes in such constant dollar values would 

therefore reflect only changes in the real volume of goods and services, not changes in the price level. Constant dollar 

figures are commonly used to compute the real value of the Gross Domestic Product and its components and to 

estimate the real level of federal receipts and outlays.

Contributions - Also referred to as "taxes," "payroll taxes," or "premiums," these terms refer to amounts paid into 

social insurance programs. The payments can be paid by (1) employers and employees based on wages from 

employment covered under a program; (2) the self-employed based on net earnings from self-employment; (3) states 

based on wages of state and local government employees; and (4) policyholders based on coverage under certain 

programs.

Cost rate - The ratio of expenditures for the program to the taxable payroll for the year.

Covered employment - All employment and self-employment creditable for purposes of the social insurance program. 

 For Social Security, almost every kind of employment and self-employment is covered. In a few employment 

situations, coverage must be elected by the employer. Covered employment for HI includes all federal employees, 
Appendix D - Glossary 95

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whereas covered employment for OASDI includes some, but not all, federal employees.

Covered worker - A person having earnings creditable for a social insurance program. For Social Security, 

"creditable earnings" are based on earnings taxable under the program. The number of HI covered workers is slightly 

larger than the number of OASDI covered workers because of different coverage status for federal employment.

Disclosure - Reporting information in notes or narrative regarded as an integral part of the basic financial statements.

Exchange transaction - A transaction that arises when each party to the transaction sacrifices value and receives 

value in return.

Gross Domestic Product - The total dollar value of all goods and services produced by labor and property located in 

the United States, regardless of who supplies the labor or property.

Income rate - The ratio of contributions and tax income to taxable payroll for the year.

Medicare - A national, federally administered health insurance program authorized in 1965 to cover the cost of 

hospitalization, medical care, and some related services for most people over age 65, people receiving Social Security 

Disability Insurance payments for two years, and people with End-Stage Renal Disease. Medicare consists of two 

separate but coordinated programs: Part A, Hospital Insurance (HI) and Part B, Supplementary Medical Insurance 

(SMI). All persons entitled to HI are eligible to enroll in the SMI program on a voluntary basis by paying a monthly 

premium. Health insurance protection is available to Medicare beneficiaries without regard to income.

Nominal dollars - The dollar value assigned to a good or service in terms of prices current at the time the good or 

service is required. This contrasts with the value assigned to a good or service measured in constant dollars.

Nonexchange transaction - A transaction that arises when one party to a transaction receives value without giving or 

promising value in return or one party to a transaction gives or promises value without receiving value in return. 

Present value - The value of future cashflows discounted to the present at a certain interest rate (such as the 

reporting entity's cost of capital), assuming compound interest. 

Open group population - Those persons who are participating or who eventually will participate, during a specified 

period, in a social insurance program as contributors or beneficiaries. They include, for example, current workers, 

retirees, survivors, disabled persons, and new participants entering the workforce or becoming beneficiaries, including 

those who will be born or immigrate to the United States in the future. 

Railroad Retirement program - A federal program somewhat similar to Social Security, designed for workers in the 
Appendix D - Glossary 96

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railroad industry. The provisions of the Railroad Retirement Act provide for a system of coordination and financial 

interchange between the Railroad Retirement program and the Social Security program.

Recognition (or Recognize) - The process of formally recording or incorporating an item into the financial statements 

of an entity as an asset, liability, revenue, expense, or the like. "Recognition" includes both initial recognition of an item 

and recognition of subsequent changes in or removal of a previously recognized item.

Required Supplementary Stewardship Information (RSSI) - RSSI is information reported outside the principal 

financial statements that is an essential part of an entity's financial reporting; therefore the statement contains 

recommendations for its measurement and presentation.

Social Security Act - The Social Security Act governs most operations of the Social Security program. The original 

Social Security Act is Public Law 74-271, enacted August 14, 1935. With subsequent amendments, the Social Security 

Act consists of 20 titles, of which four have been repealed. The OASDI program is authorized by Title II of the Social 

Security Act.

Taxable payroll - Taxable wages and taxable self-employment income. When multiplied by the combined employeeemployer tax rate, it yields the total amount of taxes incurred by employees, employers, and the self-employed for 

work during the period.

Trust funds - Accounts that are designated by law as trust funds, for receipts earmarked for specific purposes and the 

associated expenditure of those receipts. Collections may come from the public (e.g., earmarked taxes or user 

charges) or from intra-budgetary transfers. More than 150 Federal Government trust funds exist, of which the largest 

and best known finance several major benefit programs (including Social Security and Medicare) and certain 

infrastructure spending (the Highway and the Airport and Airway trust funds).

Trustees, Boards of, OASDI and Medicare - Boards established by the Social Security Act to oversee the financial 

operations of the Old-Age, Survivors, and Disability Insurance ("Social Security" or OASDI), the Hospital Insurance 

(HI), and the Supplementary Medical Insurance (SMI) trust funds. The Boards are composed of six members, four of 

whom serve automatically by virtue of their positions in the Federal Government: the Secretaries of Treasury (the 

managing trustee), Labor, and Health and Human Services and the Commissioner of Social Security (since March 

1995). The other two members are appointed by the President and confirmed by the Senate to serve as public 

representatives to serve 4 year terms. 

Unemployment Insurance (UI) - The UI program was created in 1935 to provide income assistance to unemployed 

workers who have lost their jobs through no fault of their own. The UI program is administered through a unique 

system of federal-state partnerships, established in federal law but executed by state officials through conforming state 

laws. The Federal Government provides broad policy guidance and program direction through the oversight of the 
Appendix D - Glossary 97

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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

U.S. Department of Labor. The UI program is financed by federal and state unemployment taxes. Federal 

unemployment taxes are used to pay for the UI administrative costs, to pay the federal share of extended UI benefits, 

and to maintain a loan account from which states may borrow to pay UI benefits. State UI taxes are used exclusively 

for the payment of regular UI benefits and the state's share of extended benefits. In addition to the federal tax, 

individual states finance their UI programs through state tax contributions from subject employers on the wages of 

covered employees. (Three states also collect contributions from employees.) Within federal guidelines, state tax 

rates are assigned in accordance with an employer's experience with unemployment. Actual tax rates vary greatly 

among the states.
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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

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FASAB Board Members

David Mosso, Chairman

Barry B. Anderson (beginning 2/25/99)

Linda Blessing (ending 2/26/99)

James L Blum (ending 2/24/99)

Philip T. Calder 

Donald H. Chapin

Norwood Jackson

Donald Hammond (ending 7/1/99)

James M. Patton (beginning 7/1/99)

James E. Reid (ending 12/31/98)

Robert N. Reid (beginning (7/1/99)

Nelson Toye

Kenneth J. Winter (beginning 1/1/99)

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Wendy M. Comes, Executive Director

Project Staff:

Richard Fontenrose

Robert W. Bramlett

Federal Accounting Standards Advisory Board

441 G Street NW

Suite 3B18

Washington, DC 20548

Telephone (202) 512-7350

FAX (202) 512-7366

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1.

 See the glossary (Appendix B) for definitions of terms used in the statement. Terms defined in the glossary are in boldface the first time they 

appear in the text.

2.

 "Interest on intragovernmental borrowing" refers to interest earned by the social insurance program on obligations of the U.S. Government.

3.

SFFAC No. 1, Objectives of Federal Financial Reporting, Original Statements, Vol. 1, pp. 21-22, pars. 52, 53, 55, and 60.

4.

[Please note: the standard does not require information on the year when the assets would be exhausted as the program is currently structured 

(see par. 117). This information illustrates that management can provide data in addition to that required by the standard where it feels doing so 

would be useful to readers of the report.]
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Federal Accounting Standards Advisory Board

Accounting for Social Insurance

August 1999

5.

[Please note: the standard does not require information on the total amount of securities held at the balance sheet date. This information 

illustrates that management can provide data in addition to that required by the standard when it feels doing so would be useful to readers of the 

report.]

6.

[Please note: the st andard does not require information on the total excess of cash outflow over inflow as a percentage of taxable payroll. It requires 

a cashflow projection as a percentage of taxable payroll as in Chart 3.]

7.

"Closed group" will be used synonymously with "closed group (to new entrants)."