American Academy of Actuaries Doubles Down on Misleading Answer to Cause of Social Security Funding Deterioration

In my Letter to the Editor in the May/June edition of Contingencies (a publication of the American Academy of Actuaries), I took the Academy’s Senior Pension Fellow, Linda Stone, to task for claiming that Social Security’s financial challenges were primarily the result of demographics. I disagreed with Ms. Stone’ claim in my letter and noted that a breakdown of the sources of Social Security’s funding status deterioration since 1983 is shown in Table 1 of Social Security Administration Actuarial Note (Year).8. In the letter, I said,

“This table shows that out of the total 2022 long-range actuarial balance of -3.43% of taxable payroll, 0.14, or -4%, was attributable to “Demographic Data and Assumptions.” Therefore, I conclude that the demographic assumptions used in the 1983 Trustees Report were pretty darned good, and demographics doesn’t appear to be the primary source of the growth in the system’s long-range actuarial deficit since 1983.”

Let me repeat what I said in that letter borrowing language from Peyton Manning’s recent baked beans commercial with Duke, the golden retriever, in which Peyton and Duke take turns describing the sugar content of Bush’s product: 

Table 1 of Actuarial Note 2022.8 (or the more recently released 2023.8) shows that the effect of demographic data and assumptions on the system’s annually measured long-range actuarial status over the last 40 years has been essentially zero, zilch, nada, bupkis or the old goose egg.

In my letter, I also encouraged the Academy to take reasonable steps to avoid misunderstanding of the tool results (a professional standard of practice requirement). Specifically, I requested that the three significant limitations contained in the earlier version of this tool (The Social Security Game), be reinserted in the new Social Security Challenge tool.

Ms. Stone replied to my May/June letter in the recently released July/August edition of Contingencies Here is a link to her letter (it is the third one).

In her letter, she said the following,

“The app was designed with the public in mind, and so we started with the basics—and used easy-to-understand language.”

“Mr. Steiner challenged a statement I made in a Contingencies article about how Social Security finances got to this challenging state. My response focused on demographics was a broad one, written to explain the current situation to a member of the public. In a system designed so that taxes paid by current workers pay for the benefits of those who are and will be retired, the number of workers “supporting” each retiree being lower than needed and the fact that retirees are living longer is the gist of it. “

“It appears that he assumed I was referring to what has happened to the system since 1983 where the reforms enacted then were assumed to keep the system in balance during the 75-year projection period, which they clearly have not.”

“All of these comments will be considered as we continually look to update and modify the app while ensuring that the app remains accessible and engaging to the general audience it was designed to reach and has been successful in doing.“

My thoughts on Ms. Stone’s letter:

1. When considering the causes of the system’s funded status deterioration over time, there is no better resource than Table 1 of Actuarial Note 2023.8 and not some broad impression. After all, the purpose of the Social Security Challenge is to cobble together a reform package of changes that will restore the system’s funded status that has eroded over the past 40 years. Table 1 substitutes facts for appearances and demonstrations for impressions (the profession’s motto), and clearly demonstrates that demographics were not the problem. 
2. If we didn’t have the significant actuarial losses from the valuation date creep and from economic data and assumptions over the past 40 years, the system would now be in good financial shape and no one would be talking about demographics at this time.
3. If Congress had enacted earlier changes to periodically bring it back into long-range actuarial balance, the system would be in good financial shape no one would be talking about demographics at this time.
4. One need look no further than the CPP in Canada for an example of a country with similar demographics but a much healthier funded status.
5. Stone claims the purpose of the Social Security Challenge is to “inform the public.” Is discussing the real cause of the deterioration over the past 40 year or providing the three significant caveats included with the precursor tool somehow inconsistent with informing the public?
6. Stone implies that receiving favorable input on the Social Security Challenge and avoiding discussion of “dense” actuarial topics somehow absolves the Academy from taking reasonable steps to avoid potential misunderstandings of the results.

Readers who find Social Security financing interesting, would like more background on the discussion above (particularly the potential issues involved in measuring the current funded status of Social Security) or who would like to see how the same actuarial process used for Social Security can be used for personal retirement planning may want to read my latest Advisor Perspectives article, entitled Applying the Actuarial Process to Retirement Planning where I describe the general actuarial process used to maintain financial sustainability for many systems and illustrate this process using the Social Security system as an example.