Every year the Social Security Administration’s Board of Trustees and the Office of the Chief Actuary (OCACT) produce a report on the health of the Old Age and Survivors Insurance and Disability Insurance (OASDI) trust funds. OCACT’s projections rest on assumptions on how the U.S. population and its work and retirement habits will change. But are those assumptions sound? Could OCACT’s estimation methods be improved?

In 2018 experts from actuarial science, demography, and economics came together at the request of the Social Security Advisory Board to review the creation of trustees’ report. The resulting 2019 Technical Panel on Assumptions and Methods Report, released in September, highlights improvements that would accommodate the “likely increased demands on OCACT as the date of the trust fund depletion nears and potential changes to Social Security receive heightened attention.”

In addition to offering recommendations on modernizing methods, upgrading to an object-oriented programming language, and increasing transparency, the report details the uncertainty surrounding some of OCACT’s assumptions, how the office might represent that, and areas where additional analysis would be helpful.

‘Trend, aberration, or the new normal’

Uncertainties surrounding declining fertility, labor share, mortality, and disability make projecting trust fund health challenging. “We believe that the magnitude of uncertainty is larger than encompassed by the current range of ultimate values,” the panel wrote regarding the real interest rate. Some of the other incertitudes mentioned by the panel:

• whether declining fertility at younger ages is a postponement or foregoing of childbearing;
• why fertility has gone down among native and immigrant Hispanic women;
• whether economic uncertainty among the young is affecting fertility;
• how changes in worker power, technology, globalization, automation, and depreciation affect labor share;
• to what degree medical treatment advancements will affect mortality;
• whether improvements in mental health care will bring a decline in deaths of despair;
• what role untreatable pathogens might play in mortality rates.

Articulating important assumptions

The panel noted that while the trustees’ report discusses some of its assumptions, such as mortality and inflation, other unstated givens — for example, on benefit claiming behaviors and lifetime earnings inequalities — are not explained. Because some of these could have important effects on projections, the panel recommended that “OCACT publish studies on its website of the importance of these and other implicit assumptions. We further recommend that the [report] present explicit sensitivity analysis when the assumptions significantly affect the estimates of costs, income, or the trust fund reserve depletion date.”

The panel also offered suggestions for additional investigations that might improve projections, including better understanding the differences between SSA’s starting mortality rates and those of the Human Mortality Database. Other areas for further exploration:

• whether the pattern of mortality improvements warrants new age groupings by breaking down “age 85+”;
• the impact of changing the sex/age mix of the workforce on hours separate modeling of fertility rates of immigrants by home country;
• the changing characteristics of illegal immigrants versus legal permanent residents;
• how benefit claiming patterns affect the trust funds’ key financial outcomes (cost/income rates and trust fund depletion date);
• how much weight to put on recent declines in health insurance expenses versus historical trends.

Panel members were chair Robert M. Beuerlein, retired senior vice president and chief actuary of AIG Life and Retirement Companies; Penn State University actuarial science professor emeritus Ron Gebhardtsbauer; University of California-San Diego associate economics professor Alexander Gelber; University of California-Berkeley demography professor Joshua Goldstein; Patricia L. Guinn, director of the Reinsurance Group of America, Inc. and Assetmark Financial Holdings, Inc.; RAND senior economist and Center for Disability Research director Kathleen Mullen; Brookings Institution economics fellow and Hutchins Center policy director Louise Sheiner; George Mason University public policy professor Sita Nataraj Slavov; University of Pennsylvania Wharton School professor Kent Smetters; and Tom Terry, CEO of the Terry Group and Society of Actuaries fellow.

For further details, the 118-page public report is available on the Social Security Advisory Board’s website: https://www.ssab.gov/Home/TPAM-2019-Public.