1994-96 Advisory Council

1994-1996 Advisory Council on Social Security
APPENDIX III: ACTUARIAL ESTIMATES FOR VARIOUS BENEFIT AND REVENUE OPTIONS  
                 
  Estimated Change in Long-Range OASDI Actuarial Balance (percent of taxable payroll)
                 
A. COVERAGE,            
A1. *Cover on a mandatory basis state and local government workers hired after December 1997. (Included in IA, MB, and PSA Plans)  

0.22

     
A2. Include employer-provided private group health and life insurance in OASDI taxable earnings, subject to the taxable maximum.   0.8
     
A3. Include employer-provided private group pension and profit-sharing contributions in OASDI taxable earnings, subject to the taxable maximum for each employee.  

0.37

     
A4. Subject all employer-sponsored private pension and profit sharing proceeds to a 3 percent FICA tax. Such proceeds would be credited as earnings for recomputation of OASDI benefits, subject to the taxable maximum.

0.15

   
B. COST-OF-LIVING ADJUSTMENTS (COLAs)        
B1. *Reduce December 1997 COLA by 0.5 percent.    

0.01

B2. Set the COLA for December 1997, 1998, and 1999 to 2.5 percent.  

0.06

B3. Set the COLA for December 1997 and later equal to the percent increase in the SSA average wage index (AWI) for the prior year, less 1 percent.   0.06
     
B4. Set the COLA for December 1997 and later equal to the lesser of    
  (a) the percentage increase in the CPI-W (as under current law),    
  or (b) the percentage increase in the AWI for the prior year.  

0.54

B5. Set the COLA for December 1997 and later equal to the lesser of (a) the percentage increase in the CPI-W (as under current law), or (b) the percent increase in the AWI for the prior year, less 1 percent.   1.25
     
B6. *Delay the COLA 6 months, beginning with the December 1999 COLA. Biennial COLAs after 2000 unless over 4 percent. No COLA in year eligible. Present-law COLA in second calendar year eligible, if lower.

0.38

   
B7. *Reduce COLA by 0.5 percent for:        
  a. 1997 & later          

0.73

  b. 1998 & later          

0.72

B8.

Set the COLA for December 1997 and later to the greater of

(a) the percent increase in the CPI-W less 2 percent, or
(b) zero percent.

 

2.1

     
     
B9. Set the COLA for December 1997 and later to 60 percent of the CPI increase.  

2.15

B10. Reduce COLA by 1.0 percent for:          
  a. 1997 & later          

1.41

  b. 1998 & later          

1.39

B11. Assume that changes in CPI by BLS will result in .21 percent lower COLAs by Dec. 1997 with no effect on the nominal level of wages or interest rates. (Included in IA, MB, and PSA Plans)  

0.31

     
C. LEVEL OF PRIMARY MONTHLY BENEFITS      
C1. Reduce the PIA formula factors (0.90, 0.32, and 0.15) gradually beginning with beneficiaries becoming eligible in 2020, reaching a 5-percent reduction (0.855, 0.304, and 0.1425) for those becoming eligible in 2029 and later.  

0.29

     
C2. *Create a third PIA-formula bend point with a factor of 0.10 for average indexed monthly earnings (AIME) in excess of this level applicable for 2002 and later. Reduce, between 2002 and 2051, the indexing of the second and third bend points by 1 percent each year.  

0.63

     
     
C3. Gradually reduce the level of the second bend point to 1/12 of the AWI in the second prior year (reducing indexing by 1 percent per year as long as needed).  

0.65

     
C4. Gradually reduce the level of the second bend point to 1/12 of the AWI in the second prior year (as in C3.) and lower the third PIA formula factor from 0.15 to zero by 0.005 per year beginning in 2000.  

1.45

     
C5. Gradually reduce the level of the second bend point to 1/12 of the AWI in the second prior year (as in C3.) and lower the third PIA formula factor from 0.15 to zero by 0.01 per year beginning in 1998.  

1.68

     
C6. Index the PIA-formula bend points by the increase in the CPI-W beginning in 1998.  

1.54

     
C7. Index the first PIA-formula bend point by the increase in the average wage, and the second bend point by the increase in the CPI, beginning in 1998.  

0.6

     
C8. Change the automatic adjustment of PIA bend-points from the increase in AWI to the increase in AWI less 0.5 percent for:    
     
  a. 1997            

0.03

  b. 1997 and later          

0.7

C9. Change the automatic adjustment of PIA bend-points from the increase in AWI to increase in AWI less 1.0 percent  

1.54

     
C10. Include all years of earnings in the numerator of the AIME calculation without increasing the denominator, beginning in 1998.  

-0.3

     
C11. Extend computation period to 36 years for those eligible in 1997, 37 years for those eligible in 1998, and 38 years for those eligible in 1999 and later. (Included in IA and MB Plans)  

0.28

     
C12. Extend computation period to 40 years; phase in beginning with those eligible in 1996 having a computation period of 36 years and increasing each succeeding year until those eligible in 2000 and later have a computation period of 40 years.

0.46

   
C12a. C12 and, in addition, provide up to 5 child-care drop-out years.  

0.25

C13. Reduce the 0.32 and 0.15 PIA formula factors by 0.5 percent (multiply by 0.995) for 1998-2011, and by 1.5 percent (multiply by 0.985) for 2012-30. Factors for 2030 and later, 0.224 and 0.105. (Included in IA Plan)  

1.32

     
C14. Gradually replace the current PIA formula with a basic flat benefit ($410 in 1996, wage indexed thereafter), for workers under 55 in 1998. Provide past service credits for workers 25-54 in 1998. Disability and young survivor beneficiaries retain current PIA formula. Aged spouses get 50% of the full flat benefit. (Included in PSA Plan)

3.82

   
   
D. RETIREMENT AGE            
D1. *Eliminate the hiatus (at age 66) in the currently scheduled increase in the normal retirement age (NRA).  

0.1

     
D1a. D1 and in addition, index NRA and disability conversion age to maintain a constant ratio of life expectancy at NRA to number of potential work years from age 20 up to NRA; i.e., by about 1 month every 2 years, thereafter. (Included in IA Plan)

0.5

   
D1b. Same as D1a. except keep the disability conversion age at 65 and reduce benefits for disabled workers by the same percent as for a retired worker newly entitled at age 65 in the year of entitlement to disability, with a maximum reduction of benefits up to 70% of PIA.

1.01

   
   
D1c. Same as D1b., except phase up the earliest eligibility ages (EEA) at the same rate as NRA until reaching 65 and 63 for retired workers and widow(er)s, respectively. (Included in PSA Plan)

1.25

   
D2. Gradually increase the NRA at 2 months per year, starting in 2000, reaching age 68 for those who attained age 62 in 2017 and later.

0.49

   
D2a. Same as D2, except phase up the EEAs for retired workers and aged surviving spouse beneficiaries at same rate as NRA.

0.71

   
D3. Beginning with persons attaining age 62 in 2000, phase up NRA from 65 to 69 at the rate of 3 months per year until year 2015. Phase up EEAs, currently age 62 for retired workers and 60 for widow(er)s, at the same rate as NRA.

1.15

   
D3a. D3 and in addition, index NRA and EEAs at the rate of 1 month every 2 years starting in 2016.

1.56

   
D4. Gradually increase the NRA at 2 months per year, starting in 2000, reaching age 70 for those who attain age 62 in 2029 and later.  

0.97

     
D4a. D4 and in addition, index NRA thereafter; phase up the EEAs and NRA at the same rate but limit EEAs to 65 and 63 for retired workers and widower(er)s, respectively, until NRA reaches 70. Thereafter, raise EEAs so as to keep 5 years (retired workers) and 7 years widow(er)s) less than NRA.  

1.29

     
     
E. DISABILITY BENEFITS          
E1. Retain age 65 for conversion of DI benefits; the percentage of PIA payable to newly entitled DI beneficiaries after 1999 would be equal to the percentage of PIA payable to retired-worker beneficiaries newly entitled at age 65 in the same year (using present law retirement ages and adjustment factors). (Included in PSA Plan.)  

0.4

     
     
E2. *Repeal the limitation on drop out years for disabled workers.  

-0.05

E3. Eliminate the recency-of-work requirement for disability insured status (i.e., "the 20/40 requirement") so that only fully insured status is required.  

-0.5

     
E4. Exclude from the calculation of the 20/40 requirement for disability insured status any years in which the worker lived with a child under 6 with no earnings.

  

-0.08

     
F. OTHER OPTIONS FOR BENEFIT CHANGES      
F1. *Eliminate increase in delayed retirement credit (DRC) above 4.5 percent.  

0.06

F2. *Phase in increase in benefits at 85 by 5 percent beginning in 2020.

-0.07

F3. *Phase in increase in surviving child's benefit to 90 percent of PIA beginning in 2000.  

-0.03

     
F4. Apply the same Maximum Family Benefit (MFB) for OASI cases as currently used for DI cases.

0.04

   
F5. Apply the same MFB for DI cases as currently used for OASI cases.

-0.05

F6. Eliminate the retirement earnings test:        
  a. at age 62    

-0.12

  b. at age 65    

-0.04

  c. at the NRA (Included in PSA Plan)       (1/)
F7. *Lower spouse benefits from 50 to 33 percent of PIA between 2000 and 2016. (Included in IA Plan)  

0.17

     
F8. Cap spouse benefit at an amount equal to the spouse benefit of a worker with earnings each year at the level of the AWI.  

0.2

     
F9. Cap widow(er) benefit at an amount equal to the widow(er) benefit of a deceased worker who had earnings each year at the level of the AWI.  

0.5

     
F10. Gradually replace the current surviving spouse benefit with the highest of own PIA, spouse's PIA, or 75 percent of combined benefits if both were still alive, phased in over 1998 to 2037. (Included in PSA Plan )  

-0.39

     
F11. Same as F10, given F7; i.e., spouse's benefits lowered from 50 percent to 33 percent of PIA between 2000 and 2016. (Included in IA Plan)

-0.32

   
F12. Eliminate child-in care benefits when the youngest nondisabled child attains age 10.  

0.02

     
G. TAXATION OF BENEFITS          
G1. *Lower the current secondary benefit-taxation thresholds from $34,000/44,000 to $25,000/32,000 for 1997 and later.  

0.02

     
G2. Credit the OASI and DI Trust Funds with all income resulting from taxation of benefits starting in 1998. (Currently, tax revenue resulting from the increase of the maximum percentage of benefits subject to taxation from 50 percent to 85 percent, effective for taxable years beginning after 1993, are transferred to the HI Trust Fund.)  

0.36

     
     
G3. Credit the General Fund of the Treasury with the income resulting from taxation of benefits.    
   

-0.55

G4. Beginning in 1998, OASDI benefits subject to income tax are: 50% of DI and young survivor, 100% of flat benefit, 50% of past service credit, and 50% of benefits to over 54 in 1998. No revenue transfer for the HI program. Phase out $25,000/32,000 thresholds between 1998 and 2007. (Note, cost estimate is with respect to present law, and thus only the phasing out of thresholds has an effect on OASDI.) (Included in PSA Plan)

0.16

   
   
   
G5. Eliminate thresholds beginning January, 1997 and tax up to 85 percent of benefits; all additional revenue from this proposal would be credited to the OASI and DI Trust Funds.

0.21

   
G6. Redirect revenue for taxation of benefits from HI to OASDI, starting in 2010, fully 2019. (Included in MB Plan)  

0.31

     
G7. Beginning 1998, tax OASDI benefits in the same manner prescribed for private and government employee defined benefit pension plans, i.e., tax all benefits above the amount of the employee's contributions (retain $25,000/32,000 thresholds.) (Included in IA and MB Plans)

0.15

   
   
G8. Phase out $25,000/32,000 thresholds between 1998 and 2007.

(Included in IA, MB, and PSA Plans)		  

0.16

     
H. LEVEL OF OASDI AND HI CONTRIBUTION AND BENEFIT BASE    
H1. Gradually increase the OASDI contribution and benefit base beginning in 1997 so that, by the year 2000, 90 percent of covered earnings will be taxable; index as under present law thereafter.

0.5

   
   
H2. Increase the OASDI contribution and benefit base beginning in 1997 so that 90 percent of covered earnings are taxable. Index as under present law thereafter.  

0.48

     
H3. Same as H2 but index after 1997 to maintain the ratio of taxable earnings to compensation.  

1.21

     
H4. Set OASDI base as described in H1. Lower HI base in 2000 for employees and employers to OASDI base determined in H1. Reallocate from the OASDI tax rate to the HI rate to replace lost taxes for HI.  

-0.04

     
H5. Remove all of the wages of those at and above the wage base and the employees associated with those wages from the AWI calculation.

0.15

   
I. MEANS TESTING            
I1. Reduce benefits for those with over $40,000 total income (including the value of OASDI, Medicare and other entitlements) by as much as 85 percent. (Concord Coalition Plan)

1.65

   
I2. Beginning in 1995 calculate an AIME based on total earnings (including earnings above the contribution and benefit base). When the AIME is above $3,333 ($40,000 annually), add a negative bracket to the current PIA formula so that the proposed PIA equals the current law PIA minus 15 percent of the difference between the AIME and $3,333; guarantee a minimum PIA of 15 percent of the AIME. This "cap" of $3,333 would be indexed by increases in average wages.

0.25

   
   
   
J. PAYROLL TAX RATE            
J1. Increase the payroll tax by 0.76 percent for employees and employers, each, for 1998-2069 (or equivalent tax of another form). (Included in the PSA Plan )

1.42

   
J2. Redirect 5 percentage points of the OASDI employee payroll tax to Personal Security Accounts for workers under 55 in 1998. Proceeds from the accounts are not subject to Federal income tax. (Included in PSA Plan)

-4.6

   
J3. Starting 1998, require all workers to contribute 1.6 percent of their OASDI taxable earnings to an individual (retirement savings) account. This contribution is in addition to the OASDI payroll tax (6.2 percent for employees, and 12.4 percent for self-employed workers). Proceeds from the accounts would not be taxed. (Included in IA Plan) (1/)
   
   
J4. Increase the OASDI payroll tax rate in 2045 by 0.8 percentage points for employees and employers, each. (Included in MB Plan)

0.22

   
K. MISCELLANEOUS PROPOSALS        
K1. Borrow additional funds from the General Fund of the U.S. Treasury in years 2002 to about 2034, pay back with interest by 2070. (Included in PSA Plan) (1/)
   
K2. Invest a portion of the OASDI Trust Funds in stocks beginning in 2000, reaching 40 percent of assets in stocks for 2015 and thereafter. (presumes ultimate 7 percent real yield on stocks) (Included in MB Plan)

0.92

   
1/ Negligible (i.e., between 0.005 and -0.005 percent of taxable payroll).    
* This proposal was included in legislation introduced in the 103rd or 104th Congress.  
All estimates are based on the intermediate alternative II assumptions of the 1995 Annual
Trustees Report. Estimates for each proposal were produced with respect to present law
and do not reflect interaction with other proposals, unless otherwise indicated.  

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