Social Security Long-Range Projections: Why 75 Years?
June 11, 2021
Social Security Long-Range Projections: Why 75 Years?
The Social Security Board of Trustees (Trustees) is required
long a period as can be expected to have a realistic basis for
by law to report annually to Congress on the financial status
estimating purposes.”
of the Social Security trust funds. Since 1965, the Trustees
have used a 75-year period for their long-range projections,
1965 Social Security Advisory Council
based on the recommendation of the 1965 Social Security
Advisory Council. This In Focus explains why the Trustees
The council’s report included the fol owing statement
use a 75-year horizon for evaluating the financial status of
on the long-range projections made by the Trustees:
the Social Security program under current law and, in turn,
for evaluating the financial impact of Social Security
The Council suggests only one significant change in the
legislative proposals. It also explains why comparing the
assumptions underlying the long-range estimates. In
valuation period used for Social Security with the valuation
the past an attempt has been made to present cost
periods used for other systems, including private-sector
estimates into perpetuity. Specifical y, it has been
defined benefit (DB) pension plans, can be misleading.
assumed for purposes of the estimates that trends for
the factors af ecting the cost of the program wil level
Statutory Mandate
of at some point in the distant future (about 85 to 90
The Social Security Act requires the Trustees to report
years) and continue at that level indefinitely. The
annually to Congress on “the operation and status of the
Council believes that it serves no useful purpose to
Trust Funds during the preceding fiscal year and on their
present estimates as if they had validity in perpetuity.
expected operation and status during the next ensuing five
A period of 75 years would span the lifetime of
fiscal years.” In practice, the Trustees report on the 10-year
virtual y al covered persons living on the valuation
(short-range) financial outlook for the trust funds. The
date and is as long a period as can be expected to
Social Security Act also requires the Trustees to provide a
have a realistic basis for estimating purposes. When
“statement of the actuarial status of the Trust Funds.” This
costs are reassessed at frequent intervals, as has
mandate is found in Title II of the Social Security Act,
always been the practice, 75-year projections al ow
Section 201(c) [42 U.S.C. §401(c)]. The term Trust Funds
suf icient time to adjust to new and changing
refers to the separate Old-Age and Survivors Insurance
experience as it emerges. The long-range cost
(OASI) trust fund and the Disability Insurance (DI) trust
estimates shown in this report, therefore, are
fund. The two separate funds are referred to collectively as
developed for a period of 75 years and it is our
the OASDI trust funds or the Social Security trust funds.
recommendation that long-range estimates in the
future also be made on this assumption (pp. 16-17).
Before 1965: Long-Range Projections
“into Perpetuity”
Regarding the change to a 75-year valuation period in the
The Social Security Act does not require the Trustees to use
1965 Trustees Report, the current chief actuary of the
a 75-year period (or any specified time period) when
Social Security Administration noted:
making long-range projections of actuarial status. Long-
range projections highlight potential financial issues outside
The 75-year period encompasses essentially the
the short-range outlook, allowing Congress more time to
entire future life span of all current workers and
implement policy changes. Over the years, the length of the
beneficiaries, even the youngest current workers, at
long-range period has changed. Before 1965, the Trustees
the beginning of the 75-year period. It also provides
made trust fund projections “into perpetuity.” Under these
a projection period long enough to illustrate the
projections, the Trustees assumed that the trends for the
complete and mature effects of past amendments
factors affecting the cost of the program would level off
and potential future changes to the Social Security
after 85 or 90 years and continue at that level indefinitely.
Act. Restricting the long-range period to 75 years
1965 and Later: Projections for 75 Years
lowered the estimated long range cost by only about
3 percent in 1965, largely because estimates were
In the 1965 Social Security Trustees Report, the length of
made on a level cost basis, discounted by the ful
the long-range period was changed to 75 years. The change
was made based on the recommendation of the 1965 Social
expected trust fund interest rate (Goss, p. 19).
Security Advisory Council, which expressed concerns over
The change from “into perpetuity” to a 75-year horizon in
attempts to provide estimates into perpetuity. The council
1965 had a relatively small effect on the long-range
recommended a 75-year projection period because it would
projections at the time because costs were projected to
generally cover the expected period of benefit receipt for
remain flat. Under the “level cost basis,” the Trustees
workers covered by the Social Security system and “is as
assumed no changes in the average wage level or the level
of prices in the future. This approach was used because, at
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Social Security Long-Range Projections: Why 75 Years?
the time, the Social Security Act did not include provisions
that takes into account factors such as the employee’s salary
for automatic increases in the maximum amount of a
and years of service.
worker’s wages subject to the Social Security payroll tax
each year (the taxable wage base) or Social Security
This type of comparison can be misleading. Social Security
benefits. In 1972, Congress passed legislation that provided
and private-sector DB plans are different by design,
for automatic annual increases in the taxable wage base and
including different financing mechanisms . Social Security
Social Security benefits (cost-of-living adjustments)
is a government-administered social insurance program
effective in 1975 as part of P.L. 92-336 (Public Debt
with nearly universal coverage. About 94% of workers (an
Limit/Disaster Losses/Social Security Act Amendments).
estimated 176 million people in 2021) work in jobs covered
Following the adoption of the automatic indexing
by the program. Participation is mandatory for those
provisions, the Trustees specified explicit increases in
workers, providing a “guaranteed” stream of new program
average wage and price levels for future projections (Goss,
participants indefinitely into the future. In addition, Social
pp. 19-20).
Security is financed primarily on a pay-as-you-go basis,
with payroll taxes paid by current workers supporting
Beyond 75 Years
payments to current beneficiaries. In contrast, private-sector
While the Trustees have used a 75-year period for their
DB plans are not guaranteed a stream of new participants
long-range projections since 1965, the concept of
and are designed to be pre-funded (i.e., plans set aside
projections indefinitely into the future was re-introduced in
funds each year for a current worker’s future benefits).
the 2003 Trustees Report. Since 2003, the Trustees have
also included “infinite horizon” projections in their annual
The finances of private-sector DB plans are generally not
reports to Congress (see Appendix F in the 2020 Trustees
evaluated using a fixed time period. To evaluate a DB
Report). The 2020 Trustees Report explains:
plan’s financial health, plan assets (the value of investments
made with contributions to the plan) are compared to
Another measure of trust fund financial status is the
liabilities (the value of benefits expected to be paid from the
infinite horizon unfunded obligation, which takes
plan to current plan participants). Projections of new
account of all past and future annual balances, even
entrants are not factored into DB pension accounting. The
those after the next 75 years. The extension of the
valuation period extends well into the future to span the
time period past 75 years assumes that the current
expected lifetimes of the youngest plan participants. For
law for the [Social Security] program and the
more information, see CRS Report R46366, Single-
demographic and economic trends used for the 75-
Employer Defined Benefit Pension Plans: Funding Relief
year projection continue indefinitely (2020 Trustees
and Modifications to Funding Rules.
Report, p. 203).
Pension Benefit Guaranty Corporation
The Trustees note that “significant uncertainty surrounds
The Pension Benefit Guaranty Corporation (PBGC) is a
the intermediate [or “best estimate”] assumptions” used for
government corporation that insures pension benefits for
the 75-year projections. They further note that the infinite
participants in private-sector DB pension plans in the case
horizon projections are subject to much greater uncertainty
of plan termination or insolvency. Similar to the Social
than the 75-year projections. Under current law, extending
Security Trustees, PBGC is required by law to report to the
the horizon beyond 75 years increases the system’s
President and Congress annually on its operations and to
measured unfunded obligation (projected financial
provide a five-year actuarial projection (29 U.S.C. §1308).
shortfall). Thus, the magnitude of changes needed to bring
In practice, PBGC provides 10-year projections of the
the system into actuarial balance is greater under the
financial status of the two insurance programs that it
infinite horizon projections than under the 75-year
operates (one for single-employer plans and one for
projections (2020 Trustees Report, pp. 17-18).
multiemployer plans ). For information on PBGC, see CRS
Report 95-118, Pension Benefit Guaranty Corporation
Over the next 75-year period, the Trustees project that
(PBGC): A Primer.
program costs will exceed income by about 23% on average
under the intermediate assumptions (2020 Trustees Report,
References
Table IV.B5, p. 72). The 2020 Trustees Report notes that
1965 Advisory Council on Social Security, The Status of
the projections in the report do not reflect the potential
the Social Security Program and Recommendations for Its
effects of the COVID-19 pandemic on the Social Security
Improvement, 1965.
program. For more information on the projected financial
outlook for the Social Security program, see CRS In Focus
Goss, Stephen C. “Measuring Solvency in the Social
IF10522, Social Security’s Funding Shortfall.
Security System,” in Prospects for Social Security Reform,
edited by Olivia S. Mitchell, Robert J. Myers, and Howard
Private-Sector DB Pension Plans
Young, pp. 16-36. Philadelphia: University of Pennsylvania
The 75-year period used to evaluate the financial status of
Press, 1999.
the Social Security program is sometimes compared to the
valuation periods used to evaluate other systems, including
Social Security Board of Trustees, The 2020 Annual Report
private-sector DB pension plans. Similar to Social Security
of the Board of Trustees of the Federal Old-Age and
retired-worker benefits, DB pension plans provide a
Survivors Insurance and Federal Disability Insurance Trust
monthly benefit at retirement generally based on a formula
Funds, Washington, DC, April 22, 2020.
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Social Security Long-Range Projections: Why 75 Years?
IF11851
Dawn Nuschler, Specialist in Income Security
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