Would Enacting the Hoyer/Primus Proposal “Fix” Social Security?

In early January, Social Security’s retiring Chief Actuary, Steve Goss, released an actuarial valuation of a proposal
intended to improve the solvency of the Social Security trust funds
based on 2024 valuation results and intermediate assumptions. The
request for the proposal valuation was submitted by Rep. Steny Hoyer
(D-MD) and economist Dr. Wendell Primus, and therefore is referred to in
this post as the Hoyer/Primus proposal. The proposal includes a total
of 17 provisions that would affect the system’s finances. Some of the
more significant proposal provisions would increase system revenues
while other significant proposal provisions would generally decrease
system benefits.This post will not analyze or comment on (with
one exception) any of the specific proposed changes. Nor will we provide
our thoughts on the likelihood of this proposal passing in the near
future (unlikely). Instead, we will simply discuss whether enactment of
the Hoyer/Primus proposal would fix the system. In brief, while the
proposal would definitely improve Social Security’s solvency, it should
not be considered as a “fix” for 75 years or any specific period.In his analysis of the Hoyer/Primus proposal, Mr. Goss said,“Assuming
enactment of the proposal, we estimate that the combined Social
Security Trust Fund would be fully solvent (able to pay all scheduled
benefits in full on a timely basis) throughout the 75-year projection
period, under the baseline intermediate assumptions of the 2024 Trustees
Report plus effects of the proposal. In addition, under this proposal
the OASDI program wouldmeet the further conditions for sustainable
solvency, because projected combined trust fund reserves would be
growing as a percentage of the annual cost of the program at the end of
the long-range period.”The 2024 long-range actuarial balance
based on system provisions as of January 1, 2024 and the intermediate
assumptions was -3.5% of taxable payroll. As indicated in our post of November 17, 2024,
this long-range actuarial deficit is equivalent to a Funded Status
(Assets/Liabilities) of 77.4%. The annual balance projected for the 75th year of the valuation period was -4.64% of taxable payroll projected for that year. Mr.
Goss and his actuarial staff determined that the changes in the
Hoyer/Primus proposal would increase the 2024 long-range actuarial
balance by 3.63% of taxable payroll and would also increase the annual
balance projected for the 75th year of the valuation period
by 4.66% of taxable payroll for that year. Therefore, as noted by Mr.
Goss above, if the changes were adopted, the system would be considered
to be “sustainably solvent” as of January 1, 2024 based on the Trustee’s
intermediate assumptions. There is no guarantee, however, that the
system would remain sustainably solvent in subsequent years. Expressed
in terms of the funded status measurement we advocate for households,
the changes would increase the system’s Funded Status from 77.4% to
something close to 100%.The determination of sustainably solvency
is a snapshot determination based on a comparison of system assets and
liabilities as of January 1, 2024. It is not a long-term fix any more
than it would be for a household that took steps to increase its funded
status from 77.4% to 100%. Future years can involve experience less
favorable than assumed, changes in assumptions or changes in benefit
provisions (like current proposals to eliminate taxation of Social
Security benefits as a source of system income). Therefore, it is simply
inappropriate to indicate that the Hoyer/Primus proposal, “restores
Social Security’s finances not only for the next 75 year but for decades
thereafter” as indicated in this Market Watch article.Kudos
to Rep. Hoyer and Dr. Primus for designing system changes that achieve
not just long-range actuarial balance but also sustainable solvency. It
is too bad that the 1983 Amendments to the system only restored the
long-range actuarial balance at that time but ignored the concept of
sustainable solvency and the large annual deficits projected for years
after the 75-year projection period. This was a mistake that the
Hoyer/Primus proposal attempts to correct. However, to be truly
successful, the next round of reform also needs to incorporate some type
of adjustment process (guardrails) to automatically keep the system in
(or close to) long-range actuarial balance each year in the future.While
promising to avoid commenting on specific provisions in the
Hoyer/Primus proposal, I do note that a significant source of additional
OASDI revenue is assumed to come from transfer of taxation of benefits
income currently allocated to the HI Trust Fund. In my opinion, this is
analogous to robbing Peter to pay Paul and will only worsen the funding
problem for the HI system. SummaryAs we
all know, the future is unlikely to be as assumed. Therefore, it is
totally unrealistic to proclaim that a package of system changes enacted
in the near future will guarantee system solvency over a period of 75
years or more. We only need to look at the experience of the system over
the past 41 years, since enactment of the 1983 Amendments that were
supposed to “fix” the system for 75 years at the time. It only took
about 7 years for the long-range actuarial balance achieved in the 1983
Amendments to disappear.