Improving the Social Security Trustees Report
About This Event

Every four years, the congressionally-appointed Social Security Advisory Board assembles an expert panel to evaluate how Social Security’s trustees and actuaries analyze and project the program’s long-term finances. The 2007 Technical Panel on Assumptions and Methods, chaired by former Congressional Budget Office (CBO) director Dan L. Crippen, will soon deliver its final report, which could alter views regarding the future Social Security financing shortfall and how it might be addressed.

At this AEI forum, Crippen and three other members of the Technical Panel--Steven Lieberman of the Moran Company, Jeffrey Passel of the Pew Hispanic Center, and Shripad Tuljapurkar of Stanford University--will discuss their findings and recommendations. AEI resident scholar Andrew G. Biggs and former CBO unit chief John Sabelhaus will comment. AEI visiting scholar Kent Smetters will moderate.

Agenda
11:45 a.m.
Registration
12:00 p.m.
Presenters:
Dan L. Crippen, 2007 Technical Panel on Assumptions and Methods
Steven Lieberman, The Moran Company
Jeffrey Passel, Pew Hispanic Center
Shripad Tuljapurkar, Stanford University
Discussants:
John Sabelhaus, Investment Company Institute
Andrew G. Biggs, AEI
Moderator:
Kent Smetters, AEI and University of Pennsylvania
2:00
Adjournment
Event Summary

 

"Assuming" a Better Future for Social Security?

 


WASHINGTON, JUNE 17, 2008--Every four years, the congressionally appointed Social Security Advisory Board assembles an expert Technical Panel on Assumptions and Methods to analyze and recommend improvements for the approaches that the Social Security actuaries and trustees use to project the program's future finances. Chairman Dan L. Crippen and three other panel members presented the 2007 Technical Panel's recommendations at AEI on June 13, calling for changes in both the underlying modeling and presentation of the annual Social Security Trustees Report. The proposed changes in assumptions would have only a small net effect, moving the date of trust fund exhaustion from 2041 (as projected in the 2007 Social Security Trustees Report) to 2043, but proposed methodological changes would be more far-reaching. Panel members stressed, however, that their recommendations do not alter the qualitative assessment of the size of the Social Security shortfall. "You cannot 'assume' your way out of this problem," Crippen said.

The panel recommends that the trustees' reports supplement the current semi-aggregated actuarial models with increased use of stochastic modeling, which assigns probabilities to a range of outcomes, and microsimulation, which provides a detailed view of the underlying population of workers and retirees. While the 1999 and 2003 Technical Panels called for more focus on long-term projections, the 2007 panel calls on the trustees to acknowledge the uncertainty in long-term projections and stress the more reliable short-term predictions. The panel also called on Social Security to release reviews of the accuracy of the previous year's forecasts each year.

The panel recognized that many factors produce uncertainty, and its members called for shifting to risk-adjusted calculations and seeking to ensure that projected scenarios are internally consistent. Panel member Shripad Tuljapurkar of Stanford University stressed that the drivers of uncertainty change the farther into the future forecasts go. In the short term, economic uncertainty dominates demographic uncertainty because changes in fertility take so long to filter into the working age population. But "three generations [the time frame of the current seventy-five-year projections] out, the economic uncertainty is dwarfed by demographic uncertainty," Tuljapurkar said.

The speakers also discussed the panel's recommendations that uncertainty regarding several important variables be treated as asymmetric. In particular, the Panel argued that the downside risks in terms of system financing--lower fertility, lower mortality, or lower productivity--are larger than the potential for more optimistic outcomes. For instance, the 2007 Trustees Report's High Cost Scenario projected a deficit in 2085 of around 13 percent of payroll, while the Technical Panel's High Cost Scenario would have increased that deficit to around 17.5 percent of payroll.

Tuljapurkar noted that while U.S. fertility rates remain high compared to European countries, there are significant differences in fertility patterns between foreign and native-born individuals and that for forward-looking predictions, there is a "distinct risk of a downside trend" in fertility.
Many of the panel's current proposals have been suggested before. "The two most striking things were the consistency across panels and the fact that we have not made nearly as much progress as we need to," panel member Steven Lieberman said. Lieberman, who first began working on Social Security issues during the reforms of the 1970s, noted the rise in public interest in Social Security policy: "The OCACT [Social Security's Office of the Chief Actuary] should remain the key voice, but they are no longer the only voice. There is a real appetite for having outside experts help improve our understanding and recommendations."

John Sabelhaus, a senior economist at the Investment Company Institute and former unit chief for long term Social Security modeling at the Congressional Budget Office, looked forward to more easily available data. "I think that the next panel should ask for a web-based system that would allow anyone to play around with this data," he said--a change that might increase public interest in Social Security policy.

AEI resident scholar Andrew G. Biggs, who until earlier this year was the principal deputy commissioner of the Social Security Administration, agreed that more transparency with models and data would improve estimates, but he added that there are institutional roadblocks to achieving it. "Transparency comes from a corporate culture," he said. "As someone who came from the Social Security Administration, I have to acknowledge there has not been an enthusiastic push in that direction."

--ADAM PAUL

For video, audio, the presentations from, and more information about this event, visit www.aei.org/event1743/.

AEI's Andrew G. Biggs draws on micro- and macroeconomic analysis, financial and behavioral economics, and research into public opinion and political institutions to analyze reforms to improve the effectiveness and long-range solvency of the Social Security program.

For media inquiries, contact Véronique Rodman at 202.862.4870 or [email protected].

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