The American Academy of Actuaries (Academy) recently published its annual Actuarial Perspective on the annual OASDI (Social Security) Trustees Report. Usually, these briefs are published by the Academy shortly after release of the trustee’s report, but this year’s brief (covering last year’s 2023 report) was significantly delayed for some reason.
Among other things, this year’s actuarial perspective on Social Security attempts to convince us that system’s current funding shortfall “was mostly caused by economic factors that came up short of expectations, including the growth of taxable payroll, and trust fund investment returns.” This is apparently the same conclusion reached by the system’s Chief Actuary as discussed in the article entitled, “Here’s the real cause of the Social Security funding shortfall, according to the program’s chief actuary”
As discussed in several of our prior posts, there are two primary causes of the current Social Security funding shortfall (deterioration of the long-range actuarial imbalance since 1983):
- Congressional inaction to address the system’s consistently deteriorating actuarial status, and
- Actual system experience less favorable than assumed since 1983.
As discussed in our post of September 23, 2023, Table 1 of the Social Security Administration’s Actuarial Note 2023.8 serves as a very effective analysis of the difference between actual and assumed system experience by primary assumption source since 1983 (item 2 above).
The key take-aways from SSA Actuarial Note 2023.8 include:
- The system’s funded status (long-range actuarial balance) has declined fairly continuously over the past 40 years from 0.02% of taxable payroll in 1983 to -3.61% in 2023.
- Of this decline, 64% is attributable to annual changes in the valuation period (which I refer to as “the Valuation Date Creep”), 30% of the decline is attributable to economic data and assumptions and about 13% of the decline is attributable to disability data and assumptions.
- Demographic data and assumptions, which is frequently cited as a major factor in the system’s funded status decline since 1983, has actually had a small positive effect (-3%).
- Even if all assumptions are realized in the future, the system’s funded status is expected to keep deteriorating under current law because of the “Valuation Date Creep.”
Note that while Actuarial Note 2023.8 does support a conclusion that less favorable than assumed economic experience contributed to the current funding shortfall, it shows that this source is only 30% of the total shortfall and less than one-half of the size of the Valuation Date Creep source, and therefore certainly not mostly responsible for the system’s current shortfall or the “real” cause of the system’s funded status deterioration.
As discussed in our post of September 23, 2023, the Valuation Creep results from the implicit assumption adopted by the Trustees and system’s Chief Actuary that system revenue will equal system income for years after the 75-year projection period. This has been an unreasonable assumption since 1983 and, in our opinion, should be fixed and its negative effect on the system’s funding should be acknowledged by the Academy.
I do credit the Academy for raising the possibility of implementing automatic adjustments as a means of addressing the number 1 cause of Social Security’s funding deterioration noted above. We advocated such an approach in our post of September 28, 2023, Automatic Funded Status Adjustments for Social Security is a Great Idea.
