SOCIAL SECURITY 

MEMORANDUM

Date: July 28, 2014 Refer To: TCC Refer

To: Alice Wade, Deputy Chief Actuary

From: Chris Chaplain, Supervisory Actuary

Jason Schultz, Supervisory Actuary

Daniel Nickerson, Actuary

Subject: Potential Reallocation of the Payroll Tax Rate Between the Disability Insurance (DI) Program 

and the Old-Age and Survivors Insurance (OASI) Program – INFORMATION

The Board of Trustees of the Old-Age and Survivors Insurance (OASI) and the Disability 

Insurance (DI) Trust Funds issued their 2014 report today. Under the intermediate assumptions, 

the Trustees project that the OASI Trust Fund reserves will become depleted and unable to pay 

scheduled benefits in full on a timely basis starting in 2034. However, the Trustees project that the 

DI Trust Fund reserves will become depleted much sooner, in the fourth quarter of 2016. 

Lawmakers need to take legislative action soon to ensure that the DI Trust Fund reserves do not 

deplete. One possible action is a reallocation of the OASDI payroll tax rate between the OASI and 

DI programs, as was legislated in 1994. The purpose of this memorandum is to present one 

possible temporary reallocation of the payroll tax rate, one that would equalize the projected years 

of reserve depletion for the two programs. 

We base all estimates in this memorandum on the intermediate assumptions of the 2014 Trustees 

Report. 

Background 

The Trustees project that the combined OASI and DI Trust Funds reserves, on a theoretical 

combined basis, will become depleted in 2033. However, the separate projected years of reserve 

depletion for the OASI Trust Fund and the DI Trust Fund are 2034 and 2016, respectively. By law, 

these two trust funds operate independently. Thus, in the absence of legislative action, if the DI 

Trust Fund reserves become depleted in 2016, then the trust fund cannot support full and timely 

payment of scheduled benefits to disability beneficiaries. Projected revenue from non-interest 

income specified for the DI program is sufficient to support 81 percent of program cost1

after trust

fund reserve depletion in the fourth quarter of 2016, decreasing slightly to 80 percent of program 

cost in 2088. 

The DI program faced a similar situation in the 1990s. According to the 1994 Trustees Report, the 

Trustees projected that the DI Trust Fund reserves would become depleted in 1995. In October 

1994, President Clinton signed The Social Security Domestic Employment Reform Act of 1994 into 

1

 Cost consists of scheduled benefit payments, other small payments, and administrative expenses. 
2

law. This legislation included a provision to allocate a greater portion of the OASDI payroll tax 

rate to the DI program. The reallocation was effective with respect to wages and self-employment 

income after December 31, 1993. The table below shows Social Security payroll tax rates since 

1990, illustrating the reallocation of the OASDI payroll tax rate legislated in 1994. 

Social Security Payroll Tax Rates

Calendar 

Years

Employees and employers 

each

Self-employed

OASDI OASI DI OASDI OASI DI

Rates scheduled prior to 1994 legislation

1990-99 6.2% 5.6% 0.6% 12.4% 11.2% 1.2%

2000+ 6.2% 5.49% 0.71% 12.4% 10.98% 1.42%

Rates scheduled after 1994 legislation

1990-93 6.2% 5.6% 0.6% 12.4% 11.2% 1.2%

1994-96 6.2 5.26 0.94 12.4 10.52 1.88

1997-99 6.2 5.35 0.85 12.4 10.7 1.7

2000+ 6.2 5.3 0.9 12.4 10.6 1.8

Note: Legislation reduced the payroll tax rate for 2011 and 2012 by 2 percentage points for 

employees and for self-employed workers. The laws enacted required that the General Fund of 

the Treasury reimburse the OASI and DI Trust Funds for these temporary payroll reductions.

The rates indicated for 2011 and 2012 include the General Fund reimbursements.

The trust fund ratio for a year is the ratio of asset reserves on hand at the beginning of the year to 

the cost for that year. For a given 10-year projection period, passing the short-range test of 

financial adequacy requires the following:

 If the estimated trust fund ratio is at least 100 percent at the beginning of the projection 

period, then the trust fund ratio must remain at or above 100 percent throughout the 

projection period.

 If the ratio is initially less than 100 percent, then it must reach at least 100 percent within 5 

years (without trust fund reserve depletion at any time during this period) and then remain 

at or above 100 percent throughout the remainder of the 10-year period.

One goal in reallocating payroll tax rates is for the DI Trust Fund to meet or to come close to 

meeting the short-range test for financial adequacy.

Potential Reallocation of OASDI Payroll Tax Rate between the OASI and DI Programs

The table below contains one option for a temporary reallocation of payroll tax rates for 2015 

through 2024. Under this option, the projected dates of reserve depletion of the OASI Trust Fund 

and the DI Trust Fund would occur in the same year.
3

Social Security Payroll Tax Rates

Calendar 

Years

Employees and employers 

each

Self-employed

OASDI OASI DI OASDI OASI DI

2014 6.2 5.3 0.9 12.4 10.6 1.8

2015-16 6.2 4.8 1.4 12.4 9.6 2.8

2017 6.2 4.9 1.3 12.4 9.8 2.6

2018-19 6.2 5.1 1.1 12.4 10.2 2.2

2020-23 6.2 5.2 1.0 12.4 10.4 2.0

2024 6.2 5.25 0.95 12.4 10.5 1.9

2025+ 6.2 5.3 0.9 12.4 10.6 1.8

Note: Rates for 2014 and years after 2024 are those specified in current law.

Projections under this schedule of tax rates show the following:

 The financial status of the combined OASI and DI Trust Funds is essentially the same as 

under present law. The combined asset reserves of the OASI and DI Trust Funds become 

depleted in 2033. After reserve depletion in 2033, tax income covers 77 percent of cost. 

This percent drops to 72 for 2088. 

 The asset reserves of the OASI Trust Fund become depleted in 2033. After reserve 

depletion in 2033, tax income covers 75 percent of cost. This percent drops to 70 for 2088.

 The asset reserves of the DI Trust Fund become depleted in 2033. After reserve depletion

in 2033, non-interest income covers 88 percent of cost. This percent drops to 80 in 2088.

 The asset reserves of the DI Trust Fund would be between 100 and 150 percent of the DI 

cost in the period 2018-2024. 

 For the 10-year projection period 2014-2023, the DI Trust Fund would pass the short-range 

test of financial adequacy because the projected trust fund ratio: (1) is 62 percent for 2014 

(below 100 percent at the beginning of the projection period); (2) reaches 100 percent 

within 5 years; and (3) remains above 100 percent throughout the remainder of the 10-year 

period.

 For the 10-year projection period 2014-2023, the OASI Trust Fund would pass the shortrange test of financial adequacy because the projected trust fund ratio: (1) is 373 percent for 

2014 (at least 100 percent at the beginning of the projection period); and (2) remains above 

100 percent throughout the projection period. 

 

 Chris Chaplain, Supervisory Actuary

 

 Jason Schultz, Supervisory Actuary

 

 Daniel Nickerson, Actuary