The 2015 Board of Trustees report for the Social Security and Medicare Trust Funds was released on July 22, 2015. The findings are only changed slightly from the 2014 report. The 2015 report finds that, if no action is taken, the combined Social Security Trust Funds will be able to pay 100% of scheduled benefits until 2034, one year later than in last year’s report. Even if no action is taken, scheduled benefits would still be paid at a reduced level of about 79% after 2034 using incoming payroll tax revenue. However, the need to shore up the Disability Insurance Trust Fund is more immediate, with depletion of the reserves projected to occur in late 2016, the same year as found in the 2014 and 2013 reports.
Background. There are two Social Security Trust Funds – the Old Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund, but they are treated as a single or combined Trust Fund for most purposes. The Social Security Act requires the Board of Trustees to issue an annual report to Congress regarding the status of the trust funds. The Board is made up of six members: the Secretaries of Labor, Treasury, and Health and Human Services; the Commissioner of Social Security; and two trustees who represent the public and are from different political parties.
What does “depletion of the trust fund reserves” mean? News reports will undoubtedly describe the Disability Insurance Trust Fund as “bankrupt” or “insolvent” in 2016. Does that mean that the Disability Insurance Trust Fund will be unable to pay any benefits in 2016? The simple answer is “no.” What “exhaustion” means for the DI and the OASI Trust Funds is that the reserves will be depleted. However, based on incoming payroll tax revenues, the DI Trust Fund would still be able to pay about 81 percent of scheduled benefits after late 2016, even if Congress does not act. The combined OASI and DI Trust Funds would still be able to pay 79 percent of scheduled benefits after the combined reserves are exhausted in 2034.
How can the Disability Insurance Trust Fund be addressed? The payroll tax (“FICA”) is 6.2 percent for employees and 6.2 percent for employers. Of the 6.2 percent, 5.3 percent is allocated to the OASI Trust Fund and 0.9 percent is allocated to the DI Trust Fund. While legally separate, the trust funds are usually considered together. This is not surprising as all programs under Title II are intertwined, e.g., they share a benefit formula, they have the same cost of living adjustment (COLA), and family members move between programs depending on their life circumstances. In the past, when there was an imbalance between the trust funds, Congress has acted to authorize inter-trust fund borrowing (in the early 1980s, OASI borrowed from DI) or to reallocate more of the payroll tax to the DI Trust Fund from the OASI Trust Fund, as occurred in 1994. Reallocation by rebalancing the percentage of the FICA tax between trust funds has occurred 11 times, about equally in both directions. It is interesting to note that when the 1994 reallocation occurred, Congress expected the DI Trust Fund would not be exhausted until 2016, the same year found in the 2013, 2014, and 2015 Trustees Reports.
President Obama proposed a temporary 5 year reallocation of payroll taxes as his preferred solution to the short-term funding challenge faced by the DI program in his budget proposal to Congress for Fiscal Year 2016 issued in February 2015. See article in February 2015 NOSSCR Social Security Forum. The President proposed to increase the percentage of the payroll taxes going into the DI Trust Fund by 0.9% by reducing the amount going into the OASI Trust Fund by that same amount from 2016 to 2020 to equalize the life of the trust funds to 2034. The Administration reiterated its support for that proposal, and highlighted the essential role SSDI plays in the lives of American workers, in a report released in mid-July, Social Security Disability Insurance: A Lifeline for Millions of American Workers and Their Families (see article on page 4), and in a blog post accompanying the release of the report.
Another approach to addressing the short-term financing shortfall of the DI Trust Fund would be to combine the two trust funds (OASI and DI) into one Social Security Trust Fund for financing purposes. Representative Xavier Becerra (D-CA) introduced the “One Social Security Act,” H.R. 3150, on July 22, 2015, which proposes to do just that. See article on page 4. This approach is consistent with the way the Trustees report on the combined reserves of the program and project the life of the trust funds together. It also reflects the connectedness of the Title II programs, Old Age, Survivors, and Disability described in the last paragraph of the bill. It ensures that all of components of the Social Security system are on equally strong financial footing and that Congress addresses the program as a whole when ensuring the long-term actuarial balance of the system.
Resources for more information on the Trustees’ 2015 report including the following:
• The SSA Office of the Chief Actuary: http://www. ssa.gov/oact/TR/2015/index.html.
• The National Academy of Social Insurance (NASI) has a Brief available on its website, http://www. nasi.org/research/2015/social-security-finances-findings-2015-trustees-report. The Brief provides a good summary of the report in understandable language, including informative tables. One section of the Brief discusses the reallocation proposal in President Obama’s Fiscal Year 2016 budget proposal, as described above. NASI also held a briefing on the report featuring the SSA Chief Actuary. Presentations from that briefing are available online at https://www.nasi.org/civicrm/ event/info?reset=1&id=197.
• President Obama’s Fiscal Year 2016 Budget proposal contains a proposal to temporarily reallocate the payroll taxes, increasing the amount going into the DI Trust Fund by 0.9% from January 1, 2016, until December 31, 2020, available at http:// ssa.gov/budget/FY16Files/2016BO.pdf. The White House report stressing the importance of SSDI and containing the reallocation proposal is available at https://www.whitehouse.gov/sites/default/files/ docs/ssdi_national_report_7-17-2015.pdf. Top Administration officials referenced the report and reallocation proposal in this recent blog, at https://www.whitehouse.gov/blog/2015/07/17/social-security-disability-insurance-lifeline-millions-american-workers-and-their-fa.
• The Center on Budget and Policy Priorities (CBPP) has issued a short paper on reallocation, “Congress Needs to Boost Disability Insurance Share of Payroll Tax by 2016.” http://www.cbpp.org/cms/index. cfm?fa=view&id=4168. The paper discusses why reallocation is important and how it has been done a number of times in the past in both directions. The paper points out that the 1983 Social Security reforms cut the DI Trust Fund’s share of the payroll tax because the OASI Trust Fund was several months away from insolvency. The reallocation in 1994 only partly reconstituted the cut in the 1983 allocation. The CBPP paper was published on July 31, 2014, but it remains valid in light of the 2015 Trustees’ report.
• Text and other information on the “One Social Security Act” is available at http://becerra.house. gov/one-social-security/ and https://www.congress. gov/.