Social Security: Selected Findings of the 2020 Annual Report

Social Security: Selected Findings of the 2020 Annual Report

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April 28, 2020
Social Security: Selected Findings of the 2020 Annual Report
According to the recent report of the Board of Trustees of
dates under the trustee’s intermediate assumptions, which
the Social Security Trust Funds, the program’s finances are
reflect their best estimate of future economic, demographic,
in a similar position in 2020 as in 2019. The combined date
and program-specific factors.
of projected Trust Fund asset depletion is unchanged after
which the percentage of benefits payable is relatively the
Table 1. Key Dates Projected for the Social Security
same. The 2020 annual report reflects the Board of
Trust Funds in the 2019 and 2020 Trustees Reports
Trustees’ understanding of the OASDI program at the start
(under the trustees’ intermediate assumptions)
of 2020; thus, it does not include potential effects of the

2019 Report
2020 Report
Coronavirus Disease 2019 (COVID-19).

OASI DI
OASDI OASI
DI OASDI
Social Security Overview
Cost exceeds
noninterest 2010 2036
2010
2010 2041 2010
Social Security is a self-financing program that in 2019
revenues
covered approximately 178 million workers and provided
Cost exceeds
monthly cash benefits to over 64 million beneficiaries. It is
total
2020 2041
2020
2021 2047 2021
the federal government’s largest program, in terms of both
revenues
the number of people affected (i.e., covered workers and
Trust fund
beneficiaries) and its finances. Social Security is composed
reserves
2034 2052
2035
2034 2065 2035
of Old-Age and Survivors Insurance (OASI) and Disability
depleted
Insurance (DI), referred to collectively as OASDI.
Source: CRS, based on the 2019 and 2020 OASDI Trustees Report.
The OASDI program is primarily financed (89.0% of total
In the 2020 annual report, as compared with the 2019
revenues in 2019) through a payroll tax applied to Social
report, the trustees project an unchanged date of 2035 for
Security covered earnings up to an annual limit. In addition,
OASI Trust Fund reserve depletion and a noticeably
some beneficiaries pay income tax on a portion of their
changed date of 2052 to 2065 for DI Trust Fund reserve
Social Security benefits, accounting for 3.4% of total
depletion. The trustees attribute this change to lower-than-
revenue in 2019. From 1983 to 2009, the OASDI program
anticipated disability applications and benefit awards. As
collected more in tax revenues than needed to pay benefits.
stated in the 2020 report, “The substantial decline in
Excess revenues are held in interest-bearing U.S. Treasury
applications from 2010 to the level for 2018 and 2019, and
securities, providing a third source of funding for the
the resulting declines in the number of disabled worker
program. In 2019, interest revenues accounted for 7.6% of
beneficiaries since 2013, have caused the annual cost of the
total revenues. Monthly benefits are the largest OASDI
DI program to become much closer to annual income,
program cost, accounting for 98.9% of total costs in 2019.
making the DI Trust Fund reserve depletion date very
Administrative and other costs accounted for the remainder.
sensitive to small changes in income and cost.”
The Trust Funds
In the 2019 report, as shown in Table 2, the trustees
Both the OASI and DI programs operate with a trust fund
projected the trust funds’ overall balance (i.e., the total
financing mechanism. Monies credited to these trust funds
amount of accumulated asset reserves) would increase
are earmarked for paying Social Security benefits and
slightly. Asset reserves held in the trust funds increased
certain administrative costs. Using a trust fund allows the
more than expected during 2019, owing to larger-than-
OASI and DI programs to track their respective programs’
projected revenues and lower-than-projected costs.
revenues and costs and to hold any accumulated assets from
years when revenues exceed costs. The OASI Trust Fund
Table 2. Financial Operations for the Social Security
and DI Trust Fund are legally distinct entities; they are
Trust Funds in the 2019 and 2020 Trustees Reports
discussed here collectively as the OASDI Trust Funds, or
(in bil ions; under the trustees’ intermediate assumptions)
the trust funds.
2019
2019
2020

A Board of Trustees manages the trust funds. The trustees
(projected) (actual) (projected)
are required to report to Congress annually on the trust
Starting Trust Funds’
$2,894.9
$2,894.9
$2,897.4
funds’ status and financial operations. In general, the trust
Reserves
funds’ solvency—the ability to pay full benefits scheduled
Total Revenue
1,061.1
1,061.8
1,116.8
under current law on a timely basis—indicates their status.
Total Costs
1,060.0
1,059.3
1,112.0
If assets held in the trust funds were to be depleted, the
Change in Trust Funds’
1.0
2.5
4.4
OASDI program could pay out in benefits only what it
Reserves
receives in revenues. Table 1 shows the trust funds’ key
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Ending Trust Funds’
2,895.9
2,897.4
2,901.8
projection period that would be needed for the program to
Reserves
pay full scheduled benefits on time. The change in the
Source: CRS, based on the 2019 and 2020 OASDI Trustees Report.
estimated actuarial deficit, an increase of 0.43% of taxable
payroll, is mainly attributed to changes in legislation that
Since 2010, costs (i.e., scheduled benefits) have exceeded
required changes in economic assumptions.
noninterest revenue from payroll taxes and taxation of
benefits. In last year’s report, the trustees projected that
Annual Balances
total revenues (i.e., tax revenues and interest revenue)
In contrast to the 2019 annual report, the trustees’ 2020
would exceed costs in 2019, with costs exceeding total
report projects the annual balances (i.e., difference between
revenues in 2020 as shown in Table 1. They now project
revenues and costs on an annual basis) to reflect a larger
the same for 2020, resulting in a short-term increase in trust
deficit for most years in the projection period. Several
fund asset reserves. Asset reserves are predicted to decline
factors contributed to this change, and the three largest
from a peak value of about $2.90 trillion in 2021 to $0 in
factors are described as follows. First, the trustees state the
2035. Upon the trust funds’ asset reserves depletion, the
lower annual balances are principally due to slower
trustees project income from tax revenues would be
projected growth in real covered earnings, largely the result
sufficient to pay approximately 79% of scheduled benefits
of P.L. 116-94, which repealed the provision in the
for the remainder of the projection period (this figure was
Affordable Care Act of 2010 that specified an excise tax on
80% in last year’s report).
employer-sponsored group health insurance premiums. The
excise tax had been expected to increase the share of
Projected Long-Range Financial Outlook
employee compensation (i.e., wages) that would have been
Despite short-term improvements, the 2020 annual report,
subject to the Social Security payroll tax. Second, the
similar to last year’s report, projects a long-range funding
trustees estimated fertility in 2019 to be at historically low
shortfall. The long-range funding shortfall is largely a result
levels, prompting a decrease in assumed long-range
of rising costs over the 75-year projection period, primarily
fertility. Third, historically low interest rates also led the
due to demographic trends. The ratio of OASDI
trustees to lower their assumed long-range interest rates.
beneficiaries per 100 covered workers, a common indicator
of rising costs, is projected to remain relatively the same as
What Can Be Done?
that in the 2019 annual report. The 2019 report projected an
The trustees project that in fewer than two decades Social
average of 45.0 beneficiaries per 100 covered workers over
Security will be unable to pay scheduled benefits in full and
the 75-year projection; the 2020 annual report projects this
on time. To illustrate the magnitude of the changes needed
ratio to be 45.4 beneficiaries per 100 covered workers.
to make Social Security solvent over the next 75 years, the
Although the projected ratio of beneficiaries to workers
trustees have estimated the hypothetical payroll tax increase
remains relatively the same, program costs are projected to
or hypothetical benefit reduction that would be needed to
grow faster than program revenues. In 2019, the trustees
maintain solvency, as shown in Table 3. These hypothetical
estimated that costs would exceed revenues by 20.2% over
changes would take immediate effect and apply to all
the projection period. In 2020, the trustees estimate that
current and future beneficiaries. The table also shows the
costs will exceed revenues by 21.7% over the next 75 years.
trustees’ estimates for the changes that would be needed at
The growing divergence between revenues and costs are
the projected insolvency date (2035).
explained by a combination of changes in the valuation
period (i.e., the 75-year projection period includes an
Table 3. Hypothetical Measures to Maintain Solvency
additional year of deficit as compared to last year) and
(in percentage points (pp))
long-range assumptions (see “Annual Balances”).

2019 Report
2020 Report

2019
2035
2020
2035
If the total program revenues were to exceed total costs
Payrol Tax Increase 2.70 pp
3.65 pp 3.14 pp 4.13 pp
annually, the program would have a surplus; if the total
Scheduled Benefit
program costs were to exceed the total revenues, the
Reduction
17%
23%
19%
25%
program would have a deficit. The trustees project the
Source: CRS, based on the 2019 and 2020 OASDI Trustees Report.
program to have a surplus in 2020 and an annual deficit
from 2021 to the end of the 75-year projection period. The
In the 2020 annual report, the size of the payroll tax
actuarial balance, a summarized measure of the annual
increase and benefit reduction needed to maintain solvency
surpluses and deficits over the projection period, is the
are larger than estimated in 2019. A noted parallel to last
Social Security program’s long-range financial position.
year’s report is that as time elapses, the magnitude of the
When the actuarial balance results in higher costs than
changes needed to maintain Social Security solvency
revenues over the projection period, the program is
increases. This characteristic is attributable to the program’s
described as having an actuarial deficit.
rising costs and suggests that the portfolio of legislative
options to achieve solvency decreases as the trust funds
In 2019, the trustees estimated the long-range actuarial
approach the projected depletion date. As in many previous
deficit over the next 75 years to average 2.78% of taxable
reports, the trustees state, “Implementing changes sooner
payroll (i.e., total earnings subject to the OASDI payroll tax
rather than later would allow more generations to share in
with some adjustments). In 2020, the trustees estimated the
the needed revenue increases or reductions in scheduled
long-range actuarial deficit over the next 75 years to
benefits.”
average 3.21% of taxable payroll. This amount represents
the average increase in the payroll tax over the 75-year
Barry F. Huston, Analyst in Social Policy
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Social Security: Selected Findings of the 2020 Annual Report

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