Wednesday, April 28, 2010

SSA actuaries release analysis of Rep. Paul Ryan’s Social Security reform plan

Yesterday, Social Security's Office of the Chief Actuary released its analysis of the social security portion of Rep Paul Ryan's (R-WI) "Roadmap" plan for entitlement, tax and health reform. From OACT's summary:

This plan would modify the basic benefit provisions of Social Security by

  1. Altering the primary insurance amount (PIA) benefit formula with progressive price indexing,
  2. Providing a low-earner benefit enhancement for workers with long careers at low earnings levels, and
  3. Indexing the normal retirement age (NRA) for increases in life expectancy.

The plan would modify the basic revenue provisions of Social Security by

  1. Applying the OASDI payroll tax to the total premium cost of employer sponsored health insurance,
  2. Providing for special General Revenue transfers as needed to assure trust fund solvency, and
  3. Providing for special transfers to the General Fund of the Treasury that would offset any prior General Revenue transfers as long as trust fund solvency is maintained.

The plan would establish voluntary, progressive individual accounts by

  1. Starting in 2012, allowing workers who are under age 55 on January 1, 2011 (those born in 1956 or later) to have a portion of their payroll taxes transferred to a personal savings account (PSA),
  2. Reducing basic Social Security retired worker benefits of individual account participants and any Social Security aged survivor or aged spouse benefits paid as auxiliary benefits of individual account participants, with the reduction reflecting the degree of participation over their entire career.
  3. Investing individual workers' PSA assets through a central administrative authority operated by the Personal Social Security Savings Board (PSSSB), with a default lifecycle fund that is expected to be about equivalent to a lifetime portfolio allocation of 65 percent in broad indexed equity funds and 35 percent in corporate bonds, and
  4. Providing that each worker participating in the PSA would be guaranteed that the account balance, as of the month prior to the month that the annuity begins, would be at least as large as the participant's total contributions accumulated with increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

OACT summarizes the financing effects of the Ryan plan in this way:

Under these plan specifications, described in further detail below, the Social Security program would be expected to be solvent and to meet its benefit obligations throughout the long-range period 2009 through 2083. The long-range OASDI actuarial deficit of 2.00 percent of payroll and the OASDI long-range unfunded obligation of $5.3 trillion in present value would be eliminated. In addition, trust fund assets expressed as a percentage of annual program cost are projected to be rising at the end of the 75-year period. Thus, as shown in figure 1, the proposal meets the long-range criteria for sustainable solvency and would be expected to remain solvent for the foreseeable future. Special General Fund transfers are expected to be needed under the plan in years 2037 through 2056. However, the total amount of these General Fund transfers in present value dollars is expected to be offset by special transfers to the General Fund during the years 2063 through 2082. All estimates are based on the intermediate assumptions of the 2009

Put in simple terms, Rep. Ryan's plan would make Social Security solvent over the next 75 years, with the expectation of remaining solvent thereafter – so-called "sustainable solvency." The plan would use general tax revenues to cover costs for a period of around 20 years, but these transfers could be repaid, plus interest in the following two decades.

Whether you like the plan's basic outlines or not, the fact remains that very few Members of Congress from either party have been willing to put pen to paper to show how they would make Social Security solvent. The fact that Congressman Ryan has been willing to do this not simply with Social Security but also with Medicare and Medicaid, as well as to propose reforms to the tax code and to private sector health care, shows a rare level of courage and policy ambition.

The whole actuarial memo is available here.

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