Social Security: Select Findings of the 2019 Annual Report

Social Security: Select Findings of the 2019 Annual Report

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July 1, 2019
Social Security: Select Findings of the 2019 Annual Report
Social Security is a self-financing program that covers
Table 1. Key Dates Projected for the Social Security
approximately 177 million workers and provides monthly
Trust Funds in the 2018 and 2019 Trustees Reports
cash benefits to 63 million beneficiaries. Social Security is
(under the intermediate assumptions)
the federal government’s single largest program, both in

2018 Report
2019 Report
terms of the number of people affected (i.e., covered

OASI DI
OASDI OASI
DI OASDI
workers and beneficiaries) and its finances. The Social
Cost exceeds
Security program is composed of Old-Age and Survivors
noninterest 2010 2019
2010
2010 2036 2010
Insurance (OASI) and Disability Insurance (DI); it is
revenues
referred to collectively as OASDI.
Cost exceeds
total
2018 2019
2018
2020 2041 2020
The OASDI program is primarily financed through a
revenues
payroll tax applied to Social Security covered earnings up
Trust fund
to an annual limit (88.2% of total revenues in 2018). In
reserves
2034 2032
2034
2034 2052 2035
addition, some beneficiaries pay income tax on a portion of
depleted
their Social Security benefits (3.5% of total revenue in
Source: CRS, based on the 2018 and 2019 OASDI Trustees Report.
2018). From 1983 to 2010, the OASDI program collected
more in tax revenues than needed to pay benefits. These
In 2018 and 2019, the projected date of OASI Trust Fund
excess revenues were held in interest-bearing U.S. Treasury
reserve depletion is unchanged. However, the trustees now
securities, providing a third source of funding for the
project the DI Trust Fund reserve depletion to occur in
program. In 2018, interest revenues accounted for 8.3% of
2052, a noticeable change from 2032 in last year’s report.
total revenues. Monthly benefits are the largest OASDI
The trustees attribute this change to lower-than-anticipated
program cost, accounting for 98.8% of total costs in 2018.
disability applications and benefit awards. As stated in the
Administrative and other costs accounted for the remainder.
2019 annual report, “Steady declines in applications since
The Trust Funds
2010, and the resulting lower levels of disability
beneficiaries, have caused the annual cost of the DI
Both the OASI and DI programs operate with a trust fund
program to become much closer to annual revenues,
financing mechanism. Monies credited to these trust funds
making the DI Trust Fund reserve depletion date very
are earmarked for paying Social Security benefits and
sensitive to small changes in income [revenue] and cost.”
certain administrative costs. Using a trust fund allows the
This development is a major reason the combined OASDI
OASI and DI to track their respective programs’ revenues
Trust Funds’ reserve depletion date changed to 2035 in this
and costs and to hold any accumulated assets from years
year’s report as opposed to 2034 in last year’s report.
when revenues exceed costs. The OASI Trust Fund and DI
Trust Fund are legally distinct entities; they are discussed
In last year’s report, the trustees projected the trust funds’
here collectively as the OASDI Trust Funds, or the trust
overall balance (i.e., the total amount of accumulated asset
funds.
reserves) would decrease. However, asset reserves held in
the trust funds increased during 2018, owing to larger-than-
The Board of Trustees manage the trust funds. The trustees
projected revenues and lower-than-projected costs. Table 2
are required to report to Congress annually on the trust
displays the projected and actual financial operations for the
funds’ status and financial operations. In general, the trust
combined OASDI Trust Funds.
funds’ status is indicated by their solvency—the ability to
pay full benefits scheduled under current law on a timely
Table 2. Financial Operations for the Social Security
basis. If assets held in the trust funds were to be depleted,
Trust Funds in the 2018 and 2019 Trustees Reports
the OASDI program could only pay out in benefits what it
(in bil ions; projections under the intermediate assumptions)
receives in revenues. Table 1 shows the trust funds’ key
dates under the trustee’s intermediate assumptions, which
2018
2018
2019

reflect their best estimate of future economic, demographic,
(projected) (actual) (projected)
and program-specific factors. As shown, some dates such as
Starting Trust Funds’
for costs exceeding noninterest revenues, have already
Reserves
$2,891.7
$2,891.7
$2,894.9
passed.
Total Revenue
1,001.1
1,003.4
1,061.0
Total Costs
1,002.8
1,000.2
1,060.0

Change in Trust Funds’
-1.7
3.1
1.0
Reserves
Ending Trust Funds’
2,890.1
2,894.9
2,895.9
Reserves
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Social Security: Select Findings of the 2019 Annual Report
Source: CRS, based on the 2018 and 2019 OASDI Trustees Report.
throughout the 75-year period to be higher—reflecting a
smaller deficit—than projected in the 2018 annual report.
Since 2010, costs (i.e., scheduled benefits) have exceeded
The trustees state the higher annual balances (i.e., the
noninterest revenue (i.e., payroll taxes and taxation of
difference between revenue and cost for a given year) are
benefits). In last year’s report, the trustees projected that
principally due to lower disability incidence rates and
costs would exceed total revenues (i.e., tax revenues and
higher mortality rates. As discussed earlier, the disability
interest revenue) in 2018. The trustees now project that
incidence rates have declined steadily since 2010. This
costs will exceed total revenues in 2020, resulting in a
prompted the trustees to lower the assumption for the long-
decline in asset reserves held in the trust funds. In 2020, the
term average incidence rates and lengthened the amount of
trust funds’ reserves are projected to begin a decline from a
time it would take for the incidence rate to return to that
peak value of $2.89 trillion in 2019 to zero in 2035. When
level. In addition, the trustees’ intermediate assumptions
the trust funds’ asset reserves are depleted, the trustees
now assume higher mortality rates. That is, the number of
project income from tax revenues would be sufficient to
deaths as a percentage of the population is expected to
pay approximately 80% of scheduled benefits.
increase. Although life expectancies, on average, are still
assumed to increase, the higher mortality assumptions
Projected Long-Range Financial Outlook
indicate the trustees expect life expectancies to increase at a
Despite short-term improvements, similar to last year’s
slower rate than under the intermediate assumptions of last
report, the 2019 annual report projects a long-range funding
year’s report.
shortfall. The funding shortfall is largely a result of rising
costs, primarily due to demographic trends. Social
What Can Be Done?
Security’s costs are projected to increase faster than
The trustees project that in less than two decades Social
revenues over the 75-year projection period. In 2018, the
Security will be unable to pay scheduled benefits in full and
trustees estimated that over the projection period costs
on time; they recommend that legislative action should be
would exceed revenues by 20.6%. In 2019, the trustees
taken sooner rather than later. To illustrate the magnitude of
estimate that over the next 75 years, costs will exceed
the changes needed to make Social Security solvent over
revenues by 20.1%. A common indicator of rising costs is
the next 75 years, the trustees estimate the hypothetical
the number of OASDI beneficiaries per 100 covered
payroll tax increase or hypothetical benefit reduction that
workers. In the 2018 annual report, the trustees projected an
would be needed to maintain solvency. These hypothetical
average of 46 beneficiaries per 100 covered workers over
changes would take immediate effect and apply to all
the 75-year projection. In the 2019 annual report, the
current and future beneficiaries. In addition, the trustees
trustees project an average of 45 beneficiaries per 100
indicate the magnitudes of changes that would be needed at
covered workers over the 75-year projection period.
the point of projected insolvency (i.e., 2034 in the 2018
annual report and 2035 in the 2019 annual report).
On an annual basis, if the total program revenues were to
exceed total costs, the program would be described as
Table 3. Hypothetical Measures to Maintain Solvency
having a surplus. However, if the total program costs were
(in percentage points [pp])
to exceed the total revenues, the program would be

2018 Report
2019 Report
described as having a deficit. The trustees project the

2018
2034
2019
2035
program to have a surplus in 2019. Thereafter, from 2020 to
Payrol Tax Increase 2.78 pp
3.87 pp 2.70 pp 3.65 pp
the end of the 75-year projection period, the trustees project
Scheduled Benefit
the program to have an annual deficit. The actuarial
17%
23%
17%
23%
Reduction
balance, a summarized measure of the annual surpluses and
Source: CRS, based on the 2018 and 2019 OASDI Trustees Report.
deficits over the projection period, is the Social Security
program’s long-range financial position. When this
summary measure results in higher costs than revenues over
The OASDI Trust Funds are in a similar position in 2019 as
the projection period, the program is described as having an
they were in 2018. Their projected depletion date is now
actuarial deficit.
2035 as opposed to 2034 in last year’s report. Further, the
size of the payroll tax increase needed to maintain solvency
In 2018, the trustees estimated the long-run actuarial deficit
is lower than estimated in 2018. A noted parallel to last
year’s report is that as time elapses, the magnitude of the
over the next 75 years to average 2.84% of taxable payroll
(total earnings subject to the OASDI payroll tax with some
changes needed to maintain Social Security solvency
adjustments). In 2019, the trustees estimated the long-run
increases. This characteristic is attributable to the program’s
actuarial deficit over the next 75 years to average 2.78% of
rising costs and suggests that the portfolio of legislative
taxable payroll. This amount, or actuarial deficit, represents
options resulting in solvency decreases as the trust funds
the average increase in the payroll tax over the 75-year
approach the projected depletion date. As in many previous
projection period that would be needed for the program to
reports, the trustees state, “Implementing changes sooner
pay full scheduled benefits on time.
rather than later would allow more generations to share in
the needed revenue increases or reductions in scheduled
benefits.”
The long-range financial position depends on many

demographic, economic, and programmatic factors as well
as changes in the valuation period. In the 2019 annual
Barry F. Huston, Analyst in Social Policy
report, the trustees project the annual balance (e.g.,
IF11261
difference between revenues and cost on an annual basis)
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Social Security: Select Findings of the 2019 Annual Report

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