In early January, Social Security’s retiring Chief Actuary, Steve Goss, released an actuarial valuation of a proposal intended to improve the solvency of the Social Security trust funds based on 2024 valuation results and intermediate assumptions. The request for the proposal valuation was submitted by Rep. Steny Hoyer (D-MD) and economist Dr. Wendell Primus, and therefore is referred to in this post as the Hoyer/Primus proposal. The proposal includes a total of 17 provisions that would affect the system’s finances. Some of the more significant proposal provisions would increase system revenues while other significant proposal provisions would generally decrease system benefits.
This post will not analyze or comment on (with one exception) any of the specific proposed changes. Nor will we provide our thoughts on the likelihood of this proposal passing in the near future (unlikely). Instead, we will simply discuss whether enactment of the Hoyer/Primus proposal would fix the system. In brief, while the proposal would definitely improve Social Security’s solvency, it should not be considered as a “fix” for 75 years or any specific period.
In his analysis of the Hoyer/Primus proposal, Mr. Goss said,
“Assuming
enactment of the proposal, we estimate that the combined Social
Security Trust Fund would be fully solvent (able to pay all scheduled
benefits in full on a timely basis) throughout the 75-year projection
period, under the baseline intermediate assumptions of the 2024 Trustees
Report plus effects of the proposal. In addition, under this proposal
the OASDI program would
meet the further conditions for sustainable
solvency, because projected combined trust fund reserves would be
growing as a percentage of the annual cost of the program at the end of
the long-range period.”
The 2024 long-range actuarial balance based on system provisions as of January 1, 2024 and the intermediate assumptions was -3.5% of taxable payroll. As indicated in our post of November 17, 2024, this long-range actuarial deficit is equivalent to a Funded Status (Assets/Liabilities) of 77.4%. The annual balance projected for the 75th year of the valuation period was -4.64% of taxable payroll projected for that year.
Mr. Goss and his actuarial staff determined that the changes in the Hoyer/Primus proposal would increase the 2024 long-range actuarial balance by 3.63% of taxable payroll and would also increase the annual balance projected for the 75th year of the valuation period by 4.66% of taxable payroll for that year. Therefore, as noted by Mr. Goss above, if the changes were adopted, the system would be considered to be “sustainably solvent” as of January 1, 2024 based on the Trustee’s intermediate assumptions. There is no guarantee, however, that the system would remain sustainably solvent in subsequent years. Expressed in terms of the funded status measurement we advocate for households, the changes would increase the system’s Funded Status from 77.4% to something close to 100%.
The determination of sustainably solvency is a snapshot determination based on a comparison of system assets and liabilities as of January 1, 2024. It is not a long-term fix any more than it would be for a household that took steps to increase its funded status from 77.4% to 100%. Future years can involve experience less favorable than assumed, changes in assumptions or changes in benefit provisions (like current proposals to eliminate taxation of Social Security benefits as a source of system income). Therefore, it is simply inappropriate to indicate that the Hoyer/Primus proposal, “restores Social Security’s finances not only for the next 75 year but for decades thereafter” as indicated in this Market Watch article.
Kudos to Rep. Hoyer and Dr. Primus for designing system changes that achieve not just long-range actuarial balance but also sustainable solvency. It is too bad that the 1983 Amendments to the system only restored the long-range actuarial balance at that time but ignored the concept of sustainable solvency and the large annual deficits projected for years after the 75-year projection period. This was a mistake that the Hoyer/Primus proposal attempts to correct. However, to be truly successful, the next round of reform also needs to incorporate some type of adjustment process (guardrails) to automatically keep the system in (or close to) long-range actuarial balance each year in the future.
While promising to avoid commenting on specific provisions in the Hoyer/Primus proposal, I do note that a significant source of additional OASDI revenue is assumed to come from transfer of taxation of benefits income currently allocated to the HI Trust Fund. In my opinion, this is analogous to robbing Peter to pay Paul and will only worsen the funding problem for the HI system.
Summary
As we all know, the future is unlikely to be as assumed. Therefore, it is totally unrealistic to proclaim that a package of system changes enacted in the near future will guarantee system solvency over a period of 75 years or more. We only need to look at the experience of the system over the past 41 years, since enactment of the 1983 Amendments that were supposed to “fix” the system for 75 years at the time. It only took about 7 years for the long-range actuarial balance achieved in the 1983 Amendments to disappear.
