Table A--Estimated Long-Range OASDI Financial Effect of a Proposal Developed by Senator Lindsey Graham
(Assumes universal participation in personal accounts-Option 1 of plan)
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Provision
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Estimated Change in
Long-Range OASDI
Actuarial Balance1
(as a percent of payroll)
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Starting in 2009, successively reduce the PIA benefit formula factors by the measured real wage growth for the second prior year.
Provide a minimum PIA for retiree and survivor benefits. Set the minimum PIA at 120 percent of the Monthly Applicable Poverty Level in 2011 for a 35-year worker (140 quarters of coverage). Grade the minimum PIA as a percentage of the Monthly Applicable Poverty Level down linearly until it reaches 0 percent of the poverty level for a 10-year worker (40QCs). The variable minimum PIA is phased in during 2007 through 2010 at 1/5, 2/5, 3/5, and 4/5 the fully phased in poverty level percentage. For survivors or workers dying before age 62, prorate the work years used in determining the percentage poverty level by multiplying by elapsed years/40. At conversion to retirement for disabled workers, provide a weighted average retirement benefit, using the current-law DI benefit and the proposal retirement benefit
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2.06
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Starting in 2006, provide widow(er)s a benefit option equal to 75 percent of the combined benefit that would be payable if both members of the couple were still alive. Limit amount payable based on the average PIA for retired workers in December of the previous year
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-0.08
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Credit all revenue from taxation of OASDI benefits to the OASDI Trust Funds by 2015 (phase in revenue redirection from HI to OASDI during the period 2006-2015)
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0.43
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Starting in 2006, transfer 1.25 percent of payroll from the General Fund of the Treasury to the OASDI Trust Funds
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1.18
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Subtotal, basic provisions (including interaction)
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3.53
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Establish a Social Security program that presents three choices for workers younger than 55 at the beginning of 2004 (all are assumed to choose Option 1):
- Option 1: Invest 4 percent of redirected Social Security payroll taxes into personal accounts starting in 2006, up to $1,300 (wage-indexed for future years). In exchange for the personal account, OASI benefits would be offset by an annuity based on the worker's account contributions compounded at an interest rate of 0.3 percent below the realized or expected market yield on long-term Treasury bonds.
- Option 2: Worker chooses not to invest in personal accounts, but is subject to basic benefit changes under the proposal
- Option 3: Present-law benefit levels would remain the same, but worker pays additional payroll taxes--calculated as the 75-year actuarial deficit as calculated based on the prior year Trustees Report and assuming all remained in the old system. Initially the payroll tax rate would be set as 14.4%, 2 percentage points higher than the current law rate. An automatic provision would raise the payroll tax further (by 0.25 percentage point increments) based on the 75-year actuarial deficit. This automatic increase would apply to everyone choosing this option plus those who have already chosen this option
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-0.98
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Total for proposal
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2.55
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Note: All estimates are based on the intermediate assumptions of the 2003 OASDI Trustees Report.
1 Totals for individual provisions exclude interaction.
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Social Security Administration
Office of the Chief Actuary
November 18, 2003
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