U.S. Actuarial Profession Develops a New Story Explaining Social Security’s Financial Decline Since 1983

After
enactment of the Social Security Reform Act of 1983, Social Security
actuaries determined OASDI’s (Social Security’s or the system’s)
long-range actuarial balance (LRAB) to be .02%, meaning that the system
was considered to be in actuarial balance for the “long-range,” which
the actuaries defined as the next 75 years. Being in long-range
actuarial balance in 1983 was an important consideration for congress in
crafting the provisions of the new law, and some members of congress
were not terribly happy with the actuaries back then when, just before
passage of the new law, they increased the LRAB from -1.82% in 1982 to
-2.09% to reflect passage of the Tax Reform Act of 1982. After
passage of the 1983 law adopting, among other things, a level tax rate
after 1990, the Social Security actuaries prepared the 1983 OASDI
Trustees Report which included a projection of expected trust fund
assets over the next 75 years under best estimate assumptions. Some in
congress were surprised that the 1983 report projected accumulation of a
large trust fund during the first half of the 75-year projection period
to be followed by gradual depletion of the trust fund and eventual
exhaustion a little after the end of the 75-year projection period. The
report showed that expected system costs at the end of the projection
period significantly exceeded expected system revenues, but over the
entire 75-year projection period, the system was in actuarial balance in
1983 under the best estimate assumptions selected by the actuaries.Because
each subsequent year’s valuation of the LRAB includes a new “deficit”
year ignored in the previous year, the system soon fell out of LRAB. In
addition, actual system experience has not been quite as favorable as
assumed in 1983. The LRAB determined in the 2025 Trustees’ Report was
-3.82%. Note that the LRAB is approximately the amount that the current
tax rate of 12.4% would have to be increased to bring the system back
into long-range actuarial balance over the next 75 years. SSA Actuarial Note 2025.8
clearly summarizes the annual changes in the LRAB since 1983 and
disaggregates the total annual change in LRAB by primary assumption
type. This actuarial note is very similar conceptually to a gain and
loss analysis for a defined benefit pension plan. This year’s actuarial
note shows that almost 2/3rds of the total increase in the LRAB since
1983 (2.44%) was attributable to changes in the valuation date discussed
above (what we call Valuation Date Creep) and the
remaining 1/3 (about 1.4%) was approximately attributable to assumption
changes and experience since 1983 less favorable than assumed. Notably,
only .07% is attributable to demographic data and assumptions, often
cited as the prime reason for the system’s financial decline.As discussed in our post of August 13, 2025,
subsequent to the release of the 2025 report, the new chief actuary of
Social Security issued a letter to Senator Ron Wyden adjusting the
baseline long-range actuarial balance from -3.82% to -3.98% for passage
of OBBBA. In that post, we also indicated that we expect the 2026 and
subsequent years LRAB to be less than -4%, even if all assumptions are
realized, as a result of continued use of a 75-year projection period in
the LRAB calculation and expected continuation of the Valuation Date
Creep.The Congressional Budget Office (CBO) also performs
projections for the system using slightly different assumptions. Their
2025 LRAB was -4.9% (61492—Long-Term Social Security Projections Tab 7).
Again, this calculation ignores shortfalls after the 75-year projection
period and would be expected to deteriorate in future years due to the
Valuation Date Creep, all things being equal.Although it would be
relatively easy to do, neither the SSA (Trustees Report) nor the CBO
communications include projections of future expected LRABs. Those
unaware of the Valuation Date Creep might assume that if the assumptions
are realized in the future, the LRAB would remain unchanged from year
to year. Unfortunately, this is an incorrect assumption and somewhat of a
dirty little secret in the actuarial profession. It is also
inconsistent with generally accepted actuarial practice for most other
actuarial services.The 1994-96 Advisory Council Report cited four major concerns about Social Security. The first was that the LTAB in 1995 was -2.17%! The second was:“The
second major problem with Social Security financing is the
deterioration in the program’s long-range balance that occurs solely
because of the passage of time. Because of the aging of the U.S.
population, whenever the program is brought into 75-year balance under a
stable tax rate, it can be reasonably forecast that, without any
changes in assumptions or experience, the simple passage of time will
put the system into deficit. The reason is that expensive years
previously beyond the forecasting horizon, with more beneficiaries
getting higher real benefits, are then brought into the forecast period.
There is no simple answer to the question of how much higher the
long-term actuarial deficit is above the 2.17 percent to bring Social
Security into balance beyond the 75-year horizon, but there could be a
significant increase .
All members of the Council agree that it is an unsatisfactory situation
to have the passage of time alone put the system into long-run
actuarial deficit, though there are again differences on how the problem
should be corrected.”Historically, the Social Security Trustees,
the SSA actuaries and the actuarial profession have encouraged
congressional action when the LRAB becomes sufficiently negative. For
instance, the Trustees reports have encouraged congress to act to take
action to address the LRAB shortfall for over 30 years now. In addition,
in 2013, the Social Security Trustees and SSA actuaries with full
support from the actuarial profession adopted a new test of long-range
close actuarial balance (also referred to as the sustainable solvency
test) to address the Valuation Date Creep problem. The test is described
in the annual trustees report as follows:“If the projected trust
fund ratio is positive throughout the period and is either level or
increasing at the end of the period, the projected adequacy for the
long-range period is likely to continue for subsequent reports. Under
these conditions, the program has achieved sustainable solvency.”Sustainable
solvency is a reasonably good effort to address the Valuation Date
Creep problem, but it doesn’t get much publicity. It is also much closer
to what Canada does for the Canada Pension Plan.New Story Re: The Decline in Financial StatusRecently,
the U.S. actuarial profession has developed a new story attempting to
explain Social Security’s financial decline since 1983 and implications
for future reform. Rather than discussing the decline in the LTAB as so
clearly summarized in Actuarial Note 2025.8, proposing fixes to the
Valuation Date Creep problem and supporting sustainable solvency for the
system, actuaries at the American Academy of Actuaries and others have
fairly recently determined that the real purpose of the 1983 Amendments
was to advance fund Baby Boomer benefits with reversion of the system to
current cost funding after the projected trust fund exhaustion.
Unfortunately, the economic experience (explaining no more than
one-third of the decrease in the LRAB since 1983) was not as robust as
assumed in the 1983 valuation, and the expected trust fund exhaustion
date is now expected to be much earlier. See “Why Didn’t the 1983 Social
Security Reform Work Out as Expected” section of the recently released
Academy policy paper entitled, “An Actuarial Perspective on the 2025 Social Security Trustees Report” for more discussion of this new story. Either
way one tells the story of the decline in the system’s financial status
since 1983, we are now looking at either a 33% increase in system
revenues, a 25% cut in system benefits or some combination of revenue
increases and benefit cuts to bring the system back into LRAB. Let’s
hope that when these changes are enacted the system meets the
requirements for sustainable solvency and also adopts automatic changes
to keep the system sustainably solvent in the future.The Academy
story doesn’t add up to me (0% LRAB in 1983 plus a little more than 1%
decrease in LRAB due to poorer than expected economic assumptions does
not add up to the 4% LRAB we have today). But the actuaries at the
Academy don’t appear to be bothered by this math. The actuarial
organization whose byline is “Helping Ensure America’s Financial
Security” just shrugs its shoulders and says (in the Issue Brief Significance of the Social Security Trust Fund):“under
current projections, the trust fund provides only a temporary buffer
against future increases in the cost of Social Security—benefit cuts
and/or tax increases will become necessary if the program is to remain
solvent…. Society has to decide how to allocate its resources,
including trade-offs between workers and retirees, which affect both
tangible and intangible standards of living for both societal groups”So,
I guess after the baby boomers get the bulk of their benefits, it will
be up to “society” to determine benefits for future generations of
retirees.SummaryUsing the 75-year
projection period understates the system’s financial status if system
revenues are expected to exceed system expenditures in years after the
75-year projection period. Because this was the approach used in 1983,
the system benefits paid during last 42 years have been higher than
actuarially supportable levels, system revenues should have been
increased to support these benefits or some combination of lower
benefits and higher revenues should have been adopted. It looks like
future generations of beneficiaries and taxpayers will likely pay for
this mistake. For discussion of my reform suggestions, read my Advisor
Perspective article, Social Security’s Deterioration and Implications for Future Reform.