Social Security: Actuarial Projections of the Trust Funds

The OCACT incorporated changes in productivity in the 2000 Trustees Report as a result of the revised BEA estimates. The OCACT continually monitors revisions in measures of economic performance by the BEA.

Beginning with the 2003 Trustees Report, SSA provides an estimate and measure of the actuarial status for both the long-range (75-year measurement period) and for the infinite future (a 100 year measurement period). Though the infinite period actuarial balance deficit is substantially greater than for the 75-year measurement period, it provides a fuller description of the long-run unfunded obligations of the OASDI programs. This presentation not only avoids the annual negative incremental change in actuarial balance from one year to the next, but extends the measurement period past the point where the annual change becomes an increase in the actuarial balance.

OCACT's FTE allocation increased gradually from 49 at the end of fiscal year 1999, to 54 scheduled for fiscal year 2005. Documentation efforts have increased with the addition of this staff. OCACT has developed several policies and procedures regarding documentation, including detailed instructions for producing the long-range Trustees Report. In addition, OCACT has established a standard "work flow process" form, which describes the work flow for each computer program and has developed written instructions for employees to use when completing work flow forms. Procedures to generate projections are documented in the work flow process instructions. Also, each change in method proposed internally by OCACT staff is written up and submitted for approval. In addition, OCACT has made improvements to enhance documentation of the projection model, including documentation of the inputs and outputs used for the economic projections.

Each year, the National Center for Health Statistics provides SSA with data for the fertility projection. At that time, racial differences and other factors such as age, education, and income are examined.

Beginning with the 2002 Trustees Report, OCACT has used seven major causes of death instead of 10. OCACT also continues to consider recent trends in the cause of death mortality rates as it develops its assumptions. OCACT has reviewed alternative projection hypotheses. For example, OCACT has projected mortality using alternative methods, such as the Potts-Schwartz method and Lee-Carter method.

OCACT has updated the baseline disability incidence and termination rates. The baseline incidence rates were updated from 1984-86 to 1994-96. The baseline termination rates (death and recovery rates) were updated from 1977-80 to 1991-95. These updates were first introduced in the 2001 Trustees' Report.

The OCACT prepares and tests the alternative approach to directly model the real wage differential and provides this information to the Trustees for their consideration.

The Trustees collectively select assumptions for total labor productivity, taking into account their understanding of the historical contribution of capital and possible trends of capital deepening in the future. After considering this recommendation, SSA decided not to explicitly factor this disaggregation into their model.

The OCACT performed an extensive analysis of historical behavior of average hours worked for the 2001 Trustees Report. In addition, the OCACT performed an extensive analysis of the historical behavior of the ratio of compensation to total GDP, a concept closely related to earning as a percentage of total compensation.

After considering this recommendation, SSA concluded that an explicit feedback loop is not necessary because they do not believe the revenue source generated to pay Social Security taxes will be significant to the final projections.

After considering this recommendation, the OCACT came to the conclusion that structural breaks must be analyzed separately for each assumption.

After considering this recommendation, OCACT came to the conclusion that the economies of underdeveloped nations will have little impact on the strong U.S. economy. The OCACT stated that the recent recessions in Europe and Asia had no impact on the U.S. economy. OCACT officials also noted that forecasting global economies would involve too much uncertainty to be of value.

OCACT has begun to develop a process to assist it in preparing this analysis (e.g., stochastic modeling). Stochastic modeling presents the range and probability of possible forecast results obtained by varying a set of interrelated assumptions for possible conditions rather than presenting a range of forecast results based on varying only one assumption at a time. Since 2003, SSA has included stochastic projections as an appendix to the Trustees Report.

The OCACT has conducted additional sensitivity tests, including an analysis of real-wage increase, reflecting greater labor productivity than assumed previously, and an analysis of marriage and divorce sensitivity.

After considering this recommendation, the OCACT did not identify any additional sensitivity tests that should be conducted.

SSA's Office of the Chief Actuary (OCACT) has developed several policies and procedures regarding documentation, including detailed instructions for producing the long-range Trustees report. In addition, OCACT has established a standard "work flow process" form, which describes the work flow for each computer program and has developed written instructions for employees to use when completing work flow forms. Procedures to generate projections are documented in the work flow process instructions. Also, each change in method proposed internally by OCACT staff is written up and submitted for approval. In addition, OCACT has made improvements to enhance documentation of the projection model, including documentation of the inputs and outputs used for the economic projections.