BOARD OF TRUSTEES OF THE FEDERAL

OLD-AGE AND SURVIVORS INSURANCE AND

FEDERAL DISABILITY INSURANCE TRUST FUNDS

WASHINGTON, D.C., APRIL 23, 2012

The Honorable Joseph R. Biden, Jr.

President of the Senate

Washington, D.C. 20510

Dear Mr. President:

In accordance with the requirements of section 709 of the Social Security Act, we are 

writing to notify you that we project that the Federal Disability Insurance (DI) Trust Fund 

will become inadequate within the next 10 years. As shown in the 2012 OASDI Trustees 

Report, which we are issuing today and a copy of which is attached, the projected assets of 

the DI Trust Fund fall below 20 percent of annual cost during 2015 based on our 

intermediate set of economic, demographic, and programmatic assumptions. Moreover, we 

project that the assets of the DI Trust Fund will become exhausted one year later, in 2016,

and only about 79 percent of benefits scheduled in current law will be payable thereafter if 

no legislative action is taken.

Background—Section 709 of the Social Security Act requires the Board of Trustees of the 

Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (the 

Board) to submit a report to each House of the Congress when it determines that the 

balance ratio of a trust fund for any calendar year may become less than 20 percent. The 

balance ratio is the ratio of assets at the beginning of a year to the cost for that year.1

Section 709 further requires that the report include:

. . . recommendations for statutory adjustments affecting the receipts and 

disbursements of such Trust Fund necessary to maintain the balance ratio 

of such Trust Fund at not less than 20 percent, with due regard to the 

economic conditions which created such inadequacy in the balance ratio 

and the amount of time necessary to alleviate such inadequacy in a 

prudent manner. The report shall set forth specifically the extent to which 

benefits would have to be reduced, taxes . . . would have to be increased, 

or a combination thereof, in order to obtain the objectives referred to in 

the preceding sentence.

The Disability Insurance Trust Fund—Each year, the Board prepares a report, 

commonly referred to as the Trustees Report, on the financial outlook for the Social 

Security trust funds. Estimates in the 2012 Trustees Report show that although the OldAge and Survivors Insurance (OASI) Trust Fund and the theoretical combined OASI and 

 1 This ratio is also called a trust fund ratio in the 2012 OASDI Trustees Report.
2

Disability Insurance (DI) Trust Funds are adequately financed through the 10-year shortrange projection period under intermediate assumptions, the DI fund alone is not.

Under the intermediate assumptions of the 2012 Trustees Report (those representing the 

Trustees’ best estimate of future economic and demographic trends), the assets of the DI 

Trust Fund steadily decline, falling below 20 percent of annual cost during 2015 and 

becoming exhausted in 2016. The figure below shows the estimated balance ratios for the 

combined OASI and DI Trust Funds and for each fund separately up to the date of trust 

fund exhaustion.

Balance ratios for the OASI and DI Trust Funds, separately and combined, based on 

present law under the Intermediate Assumptions of the

2012 Trustees Report, 1990-2040

The Board believes that reporting the expected future decrease in the balance ratio for the 

DI Trust Fund fulfills the statutory requirement to give due regard to the amount of time 

necessary to alleviate the inadequacy in a prudent manner.

Maintaining a Balance Ratio of at Least 20 Percent—The following table shows the 

minimum annual amounts of change necessary to keep the DI balance ratio from falling 

below 20 percent over the next 10 years. For each year through 2021, the table shows the 

amounts of: (1) additional payroll tax revenue; (2) cost reductions; and (3) a combination 

of equal amounts of payroll tax revenue increases and cost reductions needed to meet this 

goal. We chose this period because it coincides with the short-range projection period in 

the 2012 Trustees Report and because nominal dollar amounts become increasingly less 

meaningful for years farther in the future. Maintaining a balance ratio of at least 20 percent 

for the DI Trust Fund would require larger changes after 2021.

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

OASI

DI

OASI and DI, 

combined
3

The additional payroll tax revenue amounts required to meet the 20-percent minimum DI 

balance ratio differ somewhat from the required reductions in cost. Payroll tax revenue 

changes affect assets (the numerator of the balance ratio) but have little immediate effect 

on cost (the denominator); benefit changes needed to reduce program cost affect both 

assets and cost simultaneously. Under the combined approach, roughly one-half of the 

amounts shown would be raised through additional payroll tax revenue and one-half would 

be implemented through cost reductions.

Amounts required to prevent DI balance ratio from declining below 20 percent under the Intermediate

Assumptions of the 2012 Trustees Report

(In billions)

Calendar 

year

Additional 

payroll tax

revenue only

Cost reductionsa

only

Total amounts of additional payroll tax

revenue and cost reductionsa under a 

combined approach

2015 $12.7 $5.7 $9.2

2016 34.1 34.9 34.5

2017 31.5 32.3 31.9

2018 29.4 29.8 29.6

2019 28.7 29.0 28.8

2020 29.1 29.0 29.0

2021 31.2 30.8 31.0

Total,

2015-2021 196.6 191.5 194.1 a

Amounts shown for cost reductions through changes in benefits are net of partially offsetting estimated 

reductions that would occur automatically due to income taxes on Social Security benefits.

A projected trust fund level of 20 percent of annual cost may be sufficient to enable the 

timely payment of benefits but does not provide an adequate reserve against adverse 

contingencies. A more stringent measure of trust fund strength is the test of short-range 

financial adequacy. As described in the 2012 Trustees Report, meeting this test requires 

that the estimated balance ratio remain at or above 100 percent if the current ratio is at least 

100 percent. If the current balance ratio is under 100 percent, then the projected ratio must

reach 100 percent by the beginning of the sixth year and remain at or over 100 percent 

throughout the remainder of the 10-year short-range period. In addition, projected assets 

must be sufficient to pay all estimated costs over the entire 10-year period. The Trustees 

apply the test based on their intermediate assumptions. Compliance with this test should be 

an important goal for any statutory adjustments designed to strengthen the financial 

condition of the DI Trust Fund.

Recommendation—Based on the intermediate estimates in the 2012 Trustees Report, the 

assets of the DI Trust Fund would fall below 20 percent of annual cost during 2015 and 

would become exhausted in 2016 in the absence of corrective legislation. Lawmakers 

should take prompt action to strengthen the short-term finances of the DI Trust Fund.

As described above, lawmakers could choose to increase revenues to the DI Trust Fund 

independent of any effect on the OASI program, to reduce cost through modification of the 

DI program, or to use a combination of methods to strengthen the financial condition of the