|
MEMO
RE: SOCIAL SECURITY ACTUARIES'
CHANGES
IN METHODS AND ASSUMPTIONS, 1979-98
Cumulative impact of
20 years of changes, by David Langer, Consulting
Actuary
The Social Security
Administration's actuaries measure each year the cost impact of
their changes in actuarial assumptions and methods. The results
are reported in the OASDI Trustees' Annual Report as a percentage
change in the payroll subject to the Social Security tax ("taxable
payroll"). The enclosed graph, "OASDI'S
long range actuarial balance, 1979-1998," reveals a sharply
descending pattern of the long range actuarial balance ("LRAB")
resulting from those changes that can be considered as discretionary
(as opposed to legislative), from a negative 1.21% of taxable
payroll in 1979 down to a negative 4.50% in 1998.
In terms of dollars,
this 3.29% drop in the LRAB represents an increase in the projected
cost of the program of more than $100 billion a year and of over
ten trillion dollars over the projected 75 year period.
The enclosed table*
contains the 20 years of data underlying the graph. There were,
in total, 101 changes in assumptions and methods made over the
period. Of these, 68 were negative, raising the projected cost
of the program, while 33 were positive, serving to reduce the
cost, a two-to-one ratio. While a strict comparison obviously
cannot be made here with probabilities arising from 101 tosses
of a coin with equal likelihood of a head or tail, there is sufficient
discretion in the decision making, so that the choice of 68 negatives
out of 101 can be considered significant in the absence of adequate
justification. (Sixty-eight tails out of 101 coin tosses have
less than a 1% chance of occurrence.)
The 46% cost increase
in 1994 Of note is the increase of 0.67% of taxable payroll that
occurs in the 1994 Trustees' Annual Report, which raised the negative
actuarial balance for the 75 year projection, with the effect
of legislative changes included, from -1.46% to -2.13%. This extraordinary
46% cost increase is what the Social Security Advisory Council,
formed later in 1994, was faced with at its first meeting, and
which was the basis for seven of the thirteen members of the Council
calling for some form of privatization to "protect" Social Security.
The 1994 cost increase
of 46% resulted from the following, all of which served to raise
program costs: finding more people at high ages, lowering the
total fertility rate, lowering mortality rates, reducing legal
immigration, reducing the real wage differential, reducing the
proportion of covered taxable wages, and increasing the level
of projected benefits. No change is noted that would improve Social
Security's financial position, although a case could have been
made for doing so, or at least being less negative, in at least
some instances.
*For a copy
of the table, OASDI's Long Range Actuarial Balance (LRAB),
1979-1998, send a request with a stamped, self-addressed envelope
to the National Jobs for All Coalition, 475 Riverside Dr, Ste.
832, NY, NY 10115.
|
