CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org

Wednesday, September 9, 2020

12:30 – 1:45 pm EasternTime

Moderator: 

Presenters:

Dale H. Yamamoto – Red Quill Consulting

Stephen C. Goss – Social Security Administration

Paul I. Spitalnic– Centers for Medicare and Medicaid Services

All sessions of the Conference of Consulting Actuaries are conducted in compliance with Federal and State antitrust laws and any discussion of anticompetitive activities is strictly prohibited.

The views expressed here are those of the presenter(s), and not necessarily those of the Conference of ConsultingActuaries. Nothing in this presentation is intended to be an interpretation

of Actuarial Standards of Practice by the sponsoring organizations.

Copyright © 2020 Conference of Consulting Actuaries. CCA retains copyright of this presentation. Content remains property of contributors.

Financial Stability of U.S. Social Systems
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org

Social Security

Stephen C. Goss

5
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org 6

• Financial stability derives from flexibility and commitment

• Benefit and revenue specifications can be altered by Congress

• Congress has always been committed to maintaining benefits

• Changes, when needed, have been gradual 

• Benefit payments require Trust Fund reserves

• No borrowing authority

• So cannot accumulate debt or contribute to federal debt

• Approaching Trust Fund reserve depletion requires action

• The Congress has always made adjustments when needed

• Intent is to maintain a “contingency reserve” in the Trust Funds

• Equal to at least annual cost, to provide time to make changes

• Currently reserves are almost 3 times the annual cost

Financial Stability of U.S. Social Security Program
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org 7

• Most recent changes—1994 

and 2015 for DI

• Previously, major changes in 

1977 and 1983

• Reserve depletion has been 

projected over last 30 years 

(1991-2020) to be between 

2029 and 2042

• 2035 in 2020 TR, “pre-COVID”

• Current COVID recession will 

likely make changes necessary 

somewhat earlier 

Financial Stability: Solvency Requires Positive TF Reserves
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org 8

• Monthly benefit is indexed to 

average wage across 

generations—thus replacement 

rates are relatively stable

• Roughly stabilized by mid 1980’s, 

due to 1977 Amendments

• Decline from 2000 to 2022 from 

increase in NRA: 1983 

Amendments

• Stable thereafter by design

• But demographics matter

Financial Stability Is Inherent in Benefit Structure, But:
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org 9

• Given average monthly 

benefit rises with average 

wage, financing would be 

stable if the age distribution 

was stable

• This worked from 1983 to 

2008 

• But, drop in birth rate after 

1965 caused dramatic shift in 

65+ to 20-64 age population

• With no automatic 

adjustment, the program will 

need changes in the future

Financial Stability: The Demographic Challenge
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org 10

• Benefit cost as percent of 

taxable earnings rises per the 

changing age distribution

• After TF reserve depletion, 

revenue will cover only about 

79% of cost, 73% by 2094

• How about COVID recession? 

Estimates of earlier reserve 

depletion range from just 1 

year earlier (2034) to as many 

as 6 years earlier (2029)

• But annual shortfalls after 

depletion likely little changed

Financial Stability: The Demographic Challenge
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org 11

• For 1990 through 2008, OASDI 

cost had been about 4.5% of 

GDP, but it will rise to 6% of 

GDP due to the changing 

population age distribution

• So Congress and the American 

people will have a choice:

• Cut scheduled benefits by 1/4

• Raise scheduled revenue by 1/3

• Or some combination

• There are many options—

Congress will act, as always

Financial Sustainability: What Do We Want To Pay For?
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org 12

• The 1918 pandemic might be a 

worst case scenario—

• Will there be a fall second wave?

• Will a vaccine next year eliminate 

the virus, or limit its effects?

• Will there be significant lasting 

effects for many who survive 

infection?

• Will this effect shorten life in old 

age, and possibly increase 

disability at younger ages?

Financial Sustainability: What Will COVID-19 Do?
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org 13

Illustrative scenario:

• If earnings and tax revenue are reduced by about 10 percent from the 2020 TR 

projection for 1 or 2 years, with full recovery thereafter, then OASDI TR reserve 

depletion might be just 1 year earlier (2034)

• But if tax revenue is reduced by 10-15 percent for much longer (9-10 years), then 

reserve depletion could be as early as 2029 (Bipartisan Policy Center)

• Depends on the virus, plus personal, government, and business response

Up to this point, we are not seeing increases in benefit applications

• But this could change, with a year or two lag as in the great recession

As with most recessions, the primary effect will likely be reduced revenue

Financial Sustainability: What Will COVID-19 Do?
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org 14

Ways to Lower Cost

• Lower benefits for retirees – not for disabled?

• Increase normal retirement age (lowers OASI cost, increases DI cost)

• Can exempt long-career low earners

• Lower benefits mainly for high earners?

• Reduce PIA above some level

• Often combined with increasing PIA below some level, or minimum benefit subject 

to work year requirements

• Lower benefits mainly for the oldest old?

• Reduce the COLA using chain-weighted CPI

• But, some say increase it with the CPI-E

Financial Sustainability: What Changes Might Be Made?
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org 15

Ways to Increase Revenue:

• Raise the 12.4 percent OASDI payroll tax rate?

• Raise tax on highest earners?

• Increase taxable maximum amount

• Some tax on all earnings above the maximum

• Tax employer group health insurance premiums?

• Affects only middle class if taxable maximum remains

• Tax investment income?

• Or potentially a wealth tax

Financial Sustainability: What Changes Might Be Made?
CCA Cross Discipline Webinars • September 9, 2020 Submit your questions to: conference@ccactuaries.org 16

There you will find:

• The 2020 and all prior OASDI Trustees Reports

• Detailed single-year tables for recent reports

• Our estimates for comprehensive proposals and individual provisions

• Actuarial notes, including replacement rates

• Actuarial studies, including stochastic

• Extensive databases

• Congressional testimonies

• Presentations by OCACT employees

For More Information Go To: http://www.ssa.gov/oact/