The Current Projected Actuarial Status

of the Social Security

Disability Insurance Trust Fund

Presentation by Stephen C. Goss, Chief Actuary,

Social Security Administration

Mercatus Center and CRFB Discussion

Rayburn House Office Building B-340

May 12, 2015

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Social Security Disability Insurance

155 million workers under age 66 are insured against

becoming unable to work

9 million workers now receive DI benefits

• 2 million “dependents” - mostly children

Many more protected from loss of insured status

• And from lower retirement benefits

Benefits replace 40% to 45% of career earnings on

average

• 76% for very-low earner, 27% for steady maximum earner

3

DI cost as percent of GDP has peaked,

but scheduled income is too low DI Cost and Income as Percent of GDP 1975-2090

2013 Trustees Report Intermediate Assumptions

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

2055

2060

2065

2070

2075

2080

2085

2090

Baby Boomers

reach ages 45-64

in 2010

Baby Boomers

reach ages 25-44

in 1990

DI Cost

DI Income

Note:

Recession raised

DI Cost/GDP

by 15% for 2010

How DI Compares to other Countries—

Disabled Worker Gross Prevalence:Burkhauser/Daly 2014

Note that the US DI program costs Only 1/3 as much as Netherlands

4

55

Rising cost as percent of GDP and Payroll Aging population—increased DI cost 1990-2010,

increasing retirement cost now through 2030-35

Age Distribution of the Population Age 25+, 1940 to 2100 (2014TR)

0

10

20

30

40

50

60

70

80

90

100

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Perc

en

t o

f P

op

ula

tio

n a

t A

ges 2

5+

25-44

45-64

65-84

85+

Boomers

become

25-44

Boomers

become

45-64

Boomers

become

65-84

6

Was Rise in Cost Foreseen? Except for Recession,

Cost is lower than projected in 1995!Mature cost took time– disabled under 50 not fully reflected until after 2005

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1995 2000 2005 2010 2015 2020 2025 2030

Actual and Projected Cost of DI as Percent of GDP: 1995TR versus 2013TR

1995TRadj

2013TR

Recession

7

Economic cycles and policy changes fluctuate,

and DI incidence rates also varyApplications have been declining since 2010

0

1

2

3

4

5

6

7

8

9

10

11

12

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Un

em

plo

ymen

t ra

te a

nd

Dis

ab

led

wo

rker

incid

en

ce p

er

tho

usan

d e

xp

osed

Calendar year

Age-sex-adjusted disabled worker incidence rate

Civilian unemployment rate

Historical Estimated

Recession and SSI

1974

Recession

Recession

Recession

1980 Amendments: PER, CDRs, EPE,

Lowered Family Max

1984 Amendments: Multiple Impairments Medical Improvement

Mental Listings

1996 Amendments: Drug Addiction & Alcohol

CDR Plan 1996-2002

SSI Outreach

1970-74 Large Benefit

Increases

Recession

8

Additional disabled worker beneficiaries are a

small fraction of reduced employment

Changes in Disabled Worker Beneficiaries and in

Covered Workers from 2008 TR to 2013 TR

0

2,000

4,000

6,000

8,000

10,000

12,000

2007 2008 2009 2010 2011 2012 2013

Ch

an

ge

in

Th

ou

sa

nd

s

Increase inDisabledWorkers

Reduction inCoveredWorkers

9

Most of the recession effect is from

less GDP, not more DI cost

Change in DI Benefit Cost and in GDP

Between 2008 TR and 2013 TR

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2010 2011 2012 2013

Increase in DIBenefit Cost

Reduction in GDP

Increase in DIBenefit Cost/GDP

10

When applications go up in a recession,

allowance rates go down

0

2

4

6

8

10

12

0

10

20

30

40

50

60

70

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Une

mpl

oym

ent R

ate

Allo

wan

ce R

ate

Year of Filing Claim

Ultimate Allowance Rate for Disabled-Worker DDS Claims by Filing Date, Versus Unemployment Rate in Year-2

Total Allowance Rate

Unemp Rt in Yr Unemp Rt in Yr-2

Initial DDS Allowance Rate

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So, Adjustments are needed soon: for DI,

20% lower cost, or 25% more revenue

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Social Security Trust Fund RatiosAssets as Percent of Annual Cost

Trustees Report Intermediate Projections

OASDI 2014TROASI 2014TRDI 2014TROASDI 2013TROASI 2013TRDI 2013TR

Historical

Tax Rate Reallocation

DI

OASDI

OASI

Changes for DI alone are not likely to make

a big difference for the long run

• Time Limited benefit entitlement?– Coburn proposal would save less than 1/3 of the

projected DI long-term shortfall

• Change the vocational grid ages?– Coburn proposal would save only about 10% of the

long-term DI shortfall

• Offset DI for UI? – Saves only 3% of of LR DI shortfall

• Increase Normal Retirement age?– Increases DI long-term shortfall.

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How to Fix Social Security (OASDI)

• First: Help DI soon---reallocate tax rate?

• Second: Address the long-term solvency of the OASDI program;

–Raise scheduled revenue by about 33%: increase revenue from 4.6 to 6.0% of GDP

–Reduce scheduled benefits by about 25%: lower benefits to what 4.6% of GDP will buy

–Or some combination of the two

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Ways to Lower Cost

• Lower benefits for retirees—not disabled?– Increase normal retirement age (lowers OASDI cost, but

shifts a greater portion to DI)

–Can exempt long-career low earners

• Lower benefits mainly for high earners?–Reduce PIA above some level

–Often combined with increasing PIA below some level, subject to work year requirements

• Lower benefits mainly for the oldest old?–Reduce the COLA

– Increase in COLA also proposed

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Ways to Increase Revenue

• Raise tax on highest earners?

–Increase taxable maximum amount

–Some tax on all earnings above the maximum

• Tax employer group health insurance premiums?

–Affects only middle class if taxable maximum remains

• Maintain larger trust fund reserves?

–Added interest can lower needed taxes15

For More Information Go To----

http://www.ssa.gov/oact/pubs.html

• There you will find—

–Current and all prior OASDI Trustees Reports

–Detailed single-year tables for recent reports

–Our estimates for comprehensive proposals

–Our estimates for the individual provisions

–Actuarial notes; including replacement rates

–Actuarial Studies; including stochastic

–Extensive data bases

–Congressional testimonies

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