Technical Panel Recommends Change in Social Security's Financial Status Estimates

November 5, 2003

The 2003 Technical Panel on Assumptions and Methods released its report on October 23 after reviewing the assumptions specified by the OASDI Trustees and the methods used by the Social Security actuaries for projecting the future financial status of the trust funds. The panel recommends changes in the intermediate assumptions of immigration, mortality, labor force, wages, and inflation resulting in the present value of 75-year unfunded liability increasing to $3.7 trillion from $3.5 trillion.

The key recommendations that would directly affect Social Security's projected financial status are:

• Increase projected rate of immigration. The panel believes that "the annual number of net immigrants should increase at half the rate of population growth, until the net immigration rate (NMR) declines to its historical average value of 3.2 per 1000; thereafter, holding the NMR constant, the net annual inflow should grow at the same rate as the total population."



• Increase projected rate of mortality decline. The panel recommends that assumed ultimate rates of mortality decline be increased so that they are broadly consistent with the rates from1950–2000. A simple projection method that "leads to a projected life expectancy at birth of 84.4 in 2070, compared to the Trustees' current value of 82.9" is also recommended.



• Eliminate the projected increase in the labor force participation rate of older persons due to the projected increase in life expectancy. The panel believes that the various factors that may result in that projection should be considered explicitly.



• Increase projected real wage growth. "The Panel recommends that the assumption on productivity growth be increased by 0.1 percentage point to 1.7 percent per year" and the change in earnings to compensation ratio to be reduced "from a decline by 0.2 percent per year to a decline of 0.1 percent per year", resulting in a real wage growth rate of "1.3 percent per year, slightly higher than the 1.1 percent assumed in the 20003 Trustees Report."



• Decrease projected level of inflation. "The Panel recommends that the assumed rate of increase in the Consumer Price Index be reduced by 0.5 percentage point in the intermediate assumption, to 2.5 percent per year."

While the panel is recommending significant changes, especially in the immigration and mortality assumptions, the net impact may not seem to be significant because these changes offset each other.

While the panel commends the trustees for including the present value of both the 75-year and infinite time period of unfunded liabilities, it recommends that they include illustrations indicating the benefit reductions needed to achieve actuarial balance and the tax increases needed to pay for future benefits.

"The Panel believes that the Trustees Report should strive to improve the presentation of risk and uncertainty so that the public will recognize the possibility of outcomes other than the intermediate projections."

"The Panel recommends that Congress enact a statutory requirement that the Social Security Commissioner publish an annual Benefit Audit that provides a comprehensive assessment of taxes paid and benefits received by different types of households and different groups of people." Such a report is expected to improve public debate on alternative reforms like personal accounts.

2005 Index | 2004 Index
2003 Index | 2002 Index | 2001 Index
2000 Index | 1999 Index | 1998 Index