SOCIAL SECURITY

MEMORANDUM 

Date: October 30, 2009 Refer To: TCC

To: Virginia Reno, Vice President for Income Security 

National Academy of Social Insurance 

From: Stephen Goss, Chief Actuary 

Alice Wade, Deputy Chief Actuary 

Chris Chaplain, Supervisory Actuary 

Subject: Estimated Financial Effects of Several Social Security Reform Options Requested by the 

National Academy of Social Insurance --INFORMATION 

This memorandum provides long-range estimates of the financial effects for several 

options that would change the current-law OASDI (combined Old-Age and Survivors and 

Disability Insurance) program. You requested these estimates and provided specifications 

for the options. Much of the information in this memorandum is included in your 

publication, Fixing Social Security: Adequate Benefits, Adequate Financing. 

The two tables below provide a brief description of each of the options and the associated 

estimated effect on the long-range OASDI actuarial balance and the annual balance in the 

75th year of the projection period. Table 1 provides estimates based on the intermediate 

assumptions of the 2009 Trustees Report. Under present law using these assumptions, the 

OASDI actuarial deficit is estimated at 2.00 percent of taxable payroll and the annual 

deficit (excess of program scheduled cost over scheduled tax revenue) for 2083 is 

estimated at 4.34 percent of payroll. Table 2 gives estimates for all other options, which 

are: 

• Based on the intermediate assumptions of a prior Trustees Report or 

• Preliminary, as time has not permitted full modeling of all aspects of the option. 

In addition, the options in each section of the table are grouped into the following 

categories: 

A. Reducing the cost-of-living adjustment, 

B. Provisions affecting the level of monthly benefits (PIA), 

C. Changing the retirement age, 

D. Changing benefits for family members, 

E. Increasing the payroll tax rate or revise the taxable maximum (benefit and 

contribution base), 

F. Extending OASDI program coverage, and 
2

G. Changing the investment requirements for the combined Old-Age and 

Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds. 

It is important to note that the estimates provided are for each option separately, that is, as 

if each option were enacted alone. Due to the effects of interaction among options, the 

combined effect on the long-range actuarial balance of two or more options cannot be 

determined accurately by simply adding the effect of the individual options. Thus, 

considering the effects on an additive basis should only be done with an understanding that 

the result will not be the same as the effect of the combination of options including 

interactions among the options. 

We will add the options in Table 1 indicated as New to our internet site, 

http://www.ssa.gov/OACT/solvency/provisions/index.html. This site contains about 50 

individual changes that modify the Social Security program. These changes have been 

suggested by various policymakers as options to consider when addressing long-range 

solvency. Many of these options are part of comprehensive proposals intended to restore 

Trust Fund solvency. 

 

 

 Stephen C. Goss 

 Chief Actuary 

 

 Alice H. Wade 

Deputy Chief Actuary 

 Christopher Chaplain 

Supervisory Actuary 
3

Table 1: Estimated Long-Range OASDI Financial Effects of Individual Options1

Requested by the National Academy of Social Insurance 

Based on the Intermediate Assumptions of the 2009 Trustees Report 

Office of 

the Chief 

Actuary 

Internet 

Option3

Estimated Change in Long-Range

NASI 

Option 

Number2 Provision (Option) 

Actuarial 

Balance4

 

(as a percent 

of payroll)

Annual Balance 

in 75th Year5 

(as a percent of 

payroll)

A. Reducing the Cost-of-Living Adjustment 

15a A1 Beginning December 2010, reduce the COLA for OASDI benefits 

by 1 percentage points ............................................................................ 1.55 2.19 

15b A2 Beginning December 2010, reduce the COLA for OASDI benefits 

by 0.5 percentage point ........................................................................... 0.81 1.15 

15c A3 Beginning December 2010, use the “superlative” (or “chained”) CPI 

for COLAs beginning December 2010, estimated to reduce the 

COLA by 0.3 percentage point ............................................................... 0.49 0.70 

B. Provisions Affecting Level of Monthly Benefits (PIA) 

19 B1.2 Progressive price indexing of PIA formula factors beginning with 

individuals newly eligible for OASDI benefits in 2016. Create new 

bend point at the 30th percentile of earners. Maintain current-law 

benefits for earners at the 30th percentile and below and reduce 

upper 2 formula factors (32% and 15%) such that maximum worker 

benefit grows by inflation rather than the growth in average wages. ..... 1.31 3.97 

17a B4.1 Increase the number of years used to calculate benefits for retirees 

and survivors (but not for disabled workers) from 35 to 38 (phased 

in 2010-2014); i.e., 36 for 2010-11, 37 for 2012-13, and 38 for 2014 

and later .................................................................................................. 0.29 0.43 

17b B4.2 Increase the number of years used to calculate benefits for retirees 

and survivors (but not for disabled workers) from 35 to 40 (phased 

in 2010-2018); i.e., 36 for 2010-11, 37 for 2012-13, 38 for 2014-15, 

39 for 2016-17, and 40 for 2018 and later .............................................. 0.46 0.72 

3 (NEW) Give parents earnings credits for up to five years if they have a child 

under 6. The earnings credited for a childcare year would be such 

that the resulting earnings assigned to the parents would equal onehalf of the Social Security average-wage index – about $21,021 in 

2009. The credits would be available for all past years to newly 

eligible retired-worker and disabled-worker beneficiaries in 2010 

and later. The 5 most advantageous years would be used if more 

than 5 childcare credit years are possible; that is, the 5 years that 

make the biggest difference in indexed earnings. .................................. -0.24 -0.35 
4

Table 1: Estimated Long-Range OASDI Financial Effects of Individual Options1

Requested by the National Academy of Social Insurance 

Based on the Intermediate Assumptions of the 2009 Trustees Report 

Office of 

the Chief 

Actuary 

Internet 

Option3

Estimated Change in Long-Range

NASI 

Option 

Number2 Provision (Option) 

Actuarial 

Balance4

 

(as a percent 

of payroll)

Annual Balance 

in 75th Year5 

(as a percent of 

payroll)

4a (NEW) Beginning in 2010, increase the special minimum benefit by making 

the following changes: 

 (a) A year of coverage is defined as a year in which 4 quarters of 

coverage are earned. 

 (b) At implementation, set the PIA for 30 years of coverage equal to 

125 percent of the monthly poverty level (about $1,128 in 2009). 

The PIA per year of coverage (after the first 10 years) would be 

$1,128/20 = $56.40. 

 (c) Index the initial PIA per year of coverage by wage growth for 

successive cohorts, so that the special minimum keeps up with the 

wage-indexed benefit formula. ............................................................... -0.13 -0.19 

4b (NEW) Beginning in 2010, increase the special minimum benefit by making 

the following changes: 

 (a) A year of coverage is defined to be either a childcare year or a 

year in which 4 quarters of coverage are earned. Childcare years are 

granted to parents who have a child under 5, with a limit of 8 such 

years. 

 (b) At implementation, set the PIA for 30 years of coverage equal to 

125 percent of the monthly poverty level (about $1,128 in 2009). 

The PIA per year of coverage (after the first 10 years) would be 

$1,128/20 = $56.40. 

 (c) Index the initial PIA per year of coverage by wage growth for 

successive cohorts, so that the special minimum keeps up with the 

wage-indexed benefit formula. ............................................................... -0.26 -0.36 

18a B6.1 Reduce benefits by 3 percent for those newly eligible for benefits in 

2010 and later ......................................................................................... 0.36 0.50 

18b B6.2 Reduce benefits by 5 percent for those newly eligible for benefits in 

2010 and later ......................................................................................... 0.61 0.84 

1a (NEW) Provide a 5 percent increase to the benefit level of any beneficiary 

who is 85 or older at the beginning of 2010 and who reaches their 

85th birthday after the beginning of 2010. ............................................. -0.09 -0.13 

1b (NEW) Provide the same dollar amount increase to the benefit level of any 

beneficiary who is 85 or older at the beginning of 2010 and who 

reaches their 85th birthday after the beginning of 2010. The dollar 

amount of increase equals 5 percent of the average retired worker 

benefit in the prior year .......................................................................... -0.09 -0.14 

6a (NEW) Increase benefits by 20 percent for all beneficiaries as of the 

beginning of 2010 and for those newly eligible for benefits after the 

beginning of 2010 ................................................................................... -2.98 -3.34 

6b (NEW) Increase benefits by 5 percent for all beneficiaries as of the 

beginning of 2010 and for those newly eligible for benefits after the 

beginning of 2010 ................................................................................... -0.75 -0.83 
5

Table 1: Estimated Long-Range OASDI Financial Effects of Individual Options1

Requested by the National Academy of Social Insurance 

Based on the Intermediate Assumptions of the 2009 Trustees Report 

Office of 

the Chief 

Actuary 

Internet 

Option3

Estimated Change in Long-Range

NASI 

Option 

Number2 Provision (Option) 

Actuarial 

Balance4

 

(as a percent 

of payroll)

Annual Balance 

in 75th Year5 

(as a percent of 

payroll)

6c (NEW) Increase benefits by 2 percent for all beneficiaries as of the 

beginning of 2010 and for those newly eligible for benefits after the 

beginning of 2010 ................................................................................... -0.30 -0.33 

D. Changing Benefits for Family Members 

5 (NEW) Beginning in 2010, continue benefits for children of disabled or 

deceased workers until age 22 if the child is in high school, college 

or vocational school. .............................................................................. -0.07 -0.07 

20 (NEW) The current spouse benefit is based on 50 percent of the PIA of the 

other spouse. Reduce this percent each year by 1 percentage point 

beginning with newly eligible spouses in 2010, until the percent 

reaches 33. Thus, the spouse benefit would be based on 33 percent of 

PIA for newly eligible spouses in 2026 and later. .................................. 0.12 0.17 

E. Increasing Payroll Tax Rate or Revising Taxable Maximum (Benefit and Contribution Base) 

7a E1.1 Raise payroll tax rates (for employees and employers combined) by 

2.2 percentage points in 2010 and later .................................................. 2.09 2.19 

7b E1.2 Raise payroll tax rates (for employees and employers combined) by 

2.0 percentage points in 2022 (to 14.4 percent combined) and by an 

additional 2.0 percentage points in 2052 (to 16.4 percent combined) .... 2.06 3.92 

7c (NEW) Raise the payroll tax rates gradually (for employees and employers 

combined) by 0.1 percentage points in 2015; continue this increase 

each year for 20 years. By 2034, the combined employee and 

employer payroll tax rate would be 14.4 percent .................................... 1.39 1.98 

8a E2.1 Beginning in 2010, make all earnings subject to the OASDI payroll 

tax (but retain the cap for benefit calculations) ...................................... 2.32 2.49 

8b E2.2 Beginning in 2010, make all earnings subject to the OASDI payroll 

tax and credit them for benefit purposes ................................................. 1.89 1.65 

8c (NEW) Beginning in 2010, make all earnings subject to the OASDI payroll 

tax and give benefit credit using an PIA formula that is extended to 

provide less credit for those with AIMEs higher than the current-law 

maximum AIME level. The high end of the benefit formula, applied 

to 2009, would be: 15 percent of AIME between $4,482 and $8,900 

($106,800 divided by 12), plus 3 percent of AIME over $8,900 ............ 2.17 2.19 

12 E2.6 Impose a 3 percent payroll tax on OASDI covered earnings above 

the current taxable maximum starting in 2010. Benefit computations 

would not reflect any earnings above the taxable maximum amount. .... 0.57 0.61 

8d (NEW) Beginning in 2010, raise the taxable maximum each year by an 

additional 2 percent over the current-law, wage-indexed amount 

until total earnings subject to payroll taxes equals 90 percent of all 

covered earnings. Credit the earnings for benefit purposes .................... 0.60 0.65 
6

Table 1: Estimated Long-Range OASDI Financial Effects of Individual Options1

Requested by the National Academy of Social Insurance 

Based on the Intermediate Assumptions of the 2009 Trustees Report 

Office of 

the Chief 

Actuary 

Internet 

Option3

Estimated Change in Long-Range

NASI 

Option 

Number2 Provision (Option) 

Actuarial 

Balance4

 

(as a percent 

of payroll)

Annual Balance 

in 75th Year5 

(as a percent of 

payroll)

8e (NEW) Make all earnings subject to the employer OASDI payroll tax 

beginning in 2010. For the employee OASDI payroll tax and for 

benefit calculation purposes, the taxable maximum would equal the 

present-law taxable maximum for years 2009 and earlier. Beginning 

in 2010, the taxable maximum would be raised each year by an 

additional 2 percent over the current-law, wage-indexed amount 

until earnings subject to payroll taxes equals 90 percent of all 

covered earnings. .................................................................................... 1.41 1.39 

F. Extending OASDI program coverage 

9 F1 Cover newly hired State and local government employees beginning 

in 2010 .................................................................................................... 0.17 -0.17 

G. Changing the investment requirements for the combined OASI and DI Trust Funds 

14b G1 Invest 40% of the Trust Funds in equities (phased in 2010-2024), 

assuming a 6.4-percent real rate of return on equities ............................ 0.67 0.00 

14b G2 Invest 40% of the Trust Funds in equities (phased in 2010-2024), 

assuming a 5.4-percent real rate of return on equities ............................ 0.48 0.00 

14b G3 Invest 40% of the Trust Funds in equities (phased in 2010-2024), 

assuming an ultimate 2.9 percent real rate of return on equities, the 

same as the special-issue yield on Social Security trust fund bonds....... 0.00 0.00 

14a G4 Invest 15% of the Trust Funds in equities (phased in 2010-2019), 

assuming a 6.4-percent real rate of return on equities ............................ 0.27 0.00 

1

All estimates are for individual provisions, as if each were enacted alone. The combined effect of several provisions 

together would result in quite different effects from those implied by simply adding the effect of the individual 

provisions, as complex interactions may be involved.. For an example, see the Office of the Chief Actuary’s internet 

site: http://www.ssa.gov/OACT/solvency/provisions/interaction.html. 2

Option labeling is consistent with the labeling in the NASI report: Fixing Social Security: Adequate Benefits, Adequate 

Financing. 3

Option labeling is consistent with the labeling on the Office of the Chief Actuary’s internet site: 

http://www.ssa.gov/OACT/solvency/provisions/index.html 4

Under the intermediate assumptions of the 2009 Trustees Report, the 75-year actuarial balance is -2.00 percent of 

taxable payroll. 5

Under the intermediate assumptions of the 2009 Trustees Report, the annual balance in the 75th year of the projection 

period is -4.34 percent of the taxable payroll for that year. 

 

Social Security Administration 

Office of the Chief Actuary 

October 30, 2009 
7

Table 2: Estimated Long-Range OASDI Financial Effects of Individual Options1

Requested by the National Academy of Social Insurance 

Based on the Intermediate Assumptions of the 2009 Trustees Report, Unless Otherwise Stated 

Office of 

the Chief 

Actuary 

Internet 

Option3

Estimated Change in Long-Range

NASI 

Option 

Number2 Provision (Option) 

Actuarial 

Balance4

 

(as a percent 

of payroll)

Annual Balance 

in 75th Year5 

(as a percent of 

payroll)

C. Changing the Retirement Age (based on the intermediate assumptions of the 2008 Report)

16a C1.2 Shorten the hiatus in the normal retirement age (start increasing to 

age 67 for those age 62 in 2010, rather than those age 62 in 2017) 

and then index the normal retirement age (by 1 month every 2 years) 

until the normal retirement age reaches age 68. ..................................... 0.46 0.73 

16b C1.3 Shorten the hiatus in the normal retirement age (start increasing to 

age 67 for those age 62 in 2010, rather than those age 62 in 2017) 

and then index the normal retirement age (by 1 month every 2 years) 

until the NRA reaches age 70. ................................................................ 0.62 1.43 

16c C1.7 Index benefits to longevity after the normal retirement age (NRA) 

reaches age 67 under current law. Under current law, the NRA 

reaches 67 for individuals who attain age 62 in 2022 and later. 

Under this provision, the NRA would be further increased by one 

month for those attaining age 62 in every other year after 2022. ........... 0.37 1.09 

D. Changing Benefits for Family Members (preliminary and approximate, subject to change) 

2a (NEW) Establish an alternative benefit for a surviving spouse where both 

husband and wife established insured status as retired-workers. For 

the surviving spouse, the alternative benefit would equal 75 percent 

of the sum of the survivor’s own worker benefit and the worker PIA 

(including any DRC’s) of the deceased spouse. The alternative 

benefit would not exceed the benefit of an earner who is born and 

becomes eligible for retired-worker benefits in the same years as the 

surviving spouse, and who earns the SSA average wage every year. 

The alternative benefit would be paid only if more than the currentlaw benefit. This benefit would be available to surviving spouses on 

the rolls at the beginning of 2010 and those becoming eligible after 

2010......................................................................................................... -0.06 

2b (NEW) Establish an alternative benefit for a surviving spouse where both 

husband and wife established insured status as retired-workers. For 

the surviving spouse, the alternative benefit would equal 75 percent 

of the sum of the survivor’s own worker benefit and the worker PIA 

(including any DRC’s) of the deceased spouse. The alternative 

benefit would not exceed the benefit of an earner who is born and 

becomes eligible for retired-worker benefits in the same years as the 

surviving spouse, and who earns the taxable maximum amount ever 

year. The alternative benefit would be paid only if more than the 

current-law benefit. This benefit would be available to surviving 

spouses on the rolls at the beginning of 2010 and those becoming 

eligible after 2010 ................................................................................... -0.30 
8

Table 2: Estimated Long-Range OASDI Financial Effects of Individual Options1

Requested by the National Academy of Social Insurance 

Based on the Intermediate Assumptions of the 2009 Trustees Report, Unless Otherwise Stated 

Office of 

the Chief 

Actuary 

Internet 

Option3

Estimated Change in Long-Range

NASI 

Option 

Number2 Provision (Option) 

Actuarial 

Balance4

 

(as a percent 

of payroll)

Annual Balance 

in 75th Year5 

(as a percent of 

payroll)

F. Extending OASDI program coverage (preliminary and approximate, subject to change) 

10 (New) Under current tax law, employee contributions to 401(k), 403(b) and 

related retirement plans are not subject to personal income tax, but 

are subject to OASDI payroll tax. Employee contributions to salary 

reduction plans for other, non-retirement purposes (such as health 

and dependent care flexible spending accounts) are not subject to 

FICA taxes. Beginning in 2010, provide OASDI payroll tax 

coverage of such salary reductions plans for non-retirement 

purposes .................................................................................................. 0.25 

11a (New) Beginning in 2010, dedicate the inheritance tax to the OASDI Trust 

Funds and preserve the inheritance tax in the future at 2009 levels. 

In 2009, the estate tax rate of 45 percent applies to the estate’s value 

in excess of $3.5 million for individuals ($7.0 million for couples). 

This additional income is not credited toward benefits. ......................... 0.51 

11b (New) Beginning in 2010, dedicate the inheritance tax to the OASDI Trust 

Funds. Maintain the estate tax rate at 45 percent above the estate 

thresholds, but allow the estate income tax thresholds ($3.5 million 

for individuals and $7.0 million for couples) to increase each year 

with inflation. This additional income is not credited toward benefits ... 0.40 

13a (New) For federal personal income tax, introduce an additional tax rate of 3 

percent of adjusted gross income (AGI) above $250,000 for couples 

and $125,000 for individuals and dedicate this revenue to the 

OASDI Trust Funds. This additional income is not credited toward 

benefits ................................................................................................... 0.74 

13b (New) For federal personal income tax, introduce an additional tax rate of 5 

percent of adjusted gross income (AGI) above $250,000 for couples 

and $125,000 for individuals and dedicate this revenue to the 

OASDI Trust Funds. This additional income is not credited toward 

benefits ................................................................................................... 1.23 1

All estimates are for individual provisions, as if each were enacted alone. The combined effect of several provisions 

together would result in quite different effects from those implied by simply adding the effect of the individual 

provisions, as complex interactions may be involved. For an example, see the Office of the Chief Actuary’s internet 

site: http://www.ssa.gov/OACT/solvency/provisions/interaction.html. 2

Option labeling is consistent with the labeling in the NASI report: Fixing Social Security: Adequate Benefits, Adequate 

Financing. 3

Option labeling is consistent with the labeling on the Office of the Chief Actuary’s internet site: 

http://www.ssa.gov/OACT/solvency/provisions/index.html 4

Under the intermediate assumptions of the 2009 Trustees Report, the 75-year actuarial balance is -2.00 percent of 

taxable payroll. 5

Under the intermediate assumptions of the 2009 Trustees Report, the annual balance in the 75th year of the projection 

period is -4.34 percent of the taxable payroll for that year. 

 Social Security Administration 

Office of the Chief Actuary 

October 30, 2009