Social Security Reform

Analysis of a Trust Fund Exhaustion Scenario Gao ID: GAO-03-907 July 29, 2003

Social Security is an important social insurance program affecting virtually every American family. It is the foundation of the nation's retirement income system and also provides millions of Americans with disability insurance and survivors' benefits. Over the long term, as the baby boom generation retires, Social Security's financing shortfall presents a major solvency and sustainability challenge. The Chairman of the Senate Special Committee on Aging and the Chairman of the Senate Committee on Finance asked GAO to use its analytic framework to evaluate an illustrative "Trust Fund Exhaustion" scenario under which benefits are reduced proportionately for all beneficiaries by the shortfall in revenues occurring upon exhaustion of the combined Old-Age and Survivors Insurance and Disability Insurance Trust Funds. The analytic framework consists of three basic criteria: (1) the extent to which the proposal achieves sustainable solvency and how it would affect the U.S. economy and the federal budget; (2) the balance struck between the twin goals of income adequacy and individual equity; and (3) how readily changes could be implemented, administered, and explained to the public. The Trust Fund Exhaustion scenario is intended as an analytic tool, not a legal determination.

The "Trust Fund Exhaustion" scenario underscores the need to take action sooner rather than later to address Social Security's financing shortfall. In so doing, the scenario illustrates trade-offs between sustainable solvency and benefit adequacy and equity. By definition this scenario would achieve sustainable solvency because after trust fund exhaustion, benefit payments would be adjusted each year to equal annual tax income. Before exhaustion, the scenario would have the same unified fiscal results as paying currently scheduled benefits with no policy changes. After exhaustion, fiscal results would be increasingly similar to funding currently scheduled benefits with a tax increase (tax increase benchmark) and a benefit reduction benchmark that incorporates gradual and progressive reductions. Benefits would differ sharply over time. Before trust fund exhaustion, currently scheduled benefits would be paid in full. After, benefits for all would be reduced across the board by 27 percent (to 73 percent of currently scheduled levels). Additional reductions would need to be taken in successive years such that at the end of the 75-year projection period, benefits would be reduced by 33 percent (to 67 percent of currently scheduled levels). The Trust Fund Exhaustion scenario raises significant intergenerational equity issues. Specifically, a much greater burden would be placed on younger generations. Those born in 1955 would see no benefit reductions until age 83, while those born in 1985 would experience reduced benefits immediately upon retirement and benefits lower than under either GAO's benefit reduction benchmark or tax increase benchmark in all years of retirement. Consequently, lifetime benefits would be reduced more for younger generations. Benefits would be adjusted proportionately for all recipients, increasing the likelihood of hardship for lower-income retirees and the disabled. Assessing the Social Security Administration's (SSA) administrative challenges under this scenario is difficult given a lack of historical precedent and legislative clarity on how SSA would proceed. A focus on cash management would be needed to calculate and implement the needed ongoing benefit adjustments.

GAO-03-907, Social Security Reform: Analysis of a Trust Fund Exhaustion Scenario This is the accessible text file for GAO report number GAO-03-907 entitled 'Social Security Reform: Analysis of a Trust Fund Exhaustion Scenario' which was released on July 29, 2003. This text file was formatted by the U.S. General Accounting Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Report to Congressional Requesters: United States General Accounting Office: GAO: July 2003: Social Security Reform: Analysis of a Trust Fund Exhaustion Scenario: GAO-03-907: GAO Highlights: Highlights of GAO-03-907, a report to congressional requesters Why GAO Did This Study: Social Security is an important social insurance program affecting virtually every American family. It is the foundation of the nation‘s retirement income system and also provides millions of Americans with disability insurance and survivors‘ benefits. Over the long term, as the baby boom generation retires, Social Security‘s financing shortfall presents a major solvency and sustainability challenge. The Chairman of the Senate Special Committee on Aging and the Chairman of the Senate Committee on Finance asked GAO to use its analytic framework to evaluate an illustrative ’Trust Fund Exhaustion“ scenario under which benefits are reduced proportionately for all beneficiaries by the shortfall in revenues occurring upon exhaustion of the combined Old-Age and Survivors Insurance and Disability Insurance Trust Funds. The analytic framework consists of three basic criteria: (1) the extent to which the proposal achieves sustainable solvency and how it would affect the U.S. economy and the federal budget; (2) the balance struck between the twin goals of income adequacy and individual equity; and (3) how readily changes could be implemented, administered, and explained to the public. The Trust Fund Exhaustion scenario is intended as an analytic tool, not a legal determination. What GAO Found: The ’Trust Fund Exhaustion“ scenario underscores the need to take action sooner rather than later to address Social Security‘s financing shortfall. In so doing, the scenario illustrates trade-offs between sustainable solvency and benefit adequacy and equity. By definition this scenario would achieve sustainable solvency because after trust fund exhaustion, benefit payments would be adjusted each year to equal annual tax income. Before exhaustion, the scenario would have the same unified fiscal results as paying currently scheduled benefits with no policy changes. After exhaustion, fiscal results would be increasingly similar to funding currently scheduled benefits with a tax increase (tax increase benchmark) and a benefit reduction benchmark that incorporates gradual and progressive reductions. Benefits would differ sharply over time. Before trust fund exhaustion, currently scheduled benefits would be paid in full. After, benefits for all would be reduced across the board by 27 percent (to 73 percent of currently scheduled levels). Additional reductions would need to be taken in successive years such that at the end of the 75-year projection period, benefits would be reduced by 33 percent (to 67 percent of currently scheduled levels). The Trust Fund Exhaustion scenario raises significant intergenerational equity issues. Specifically, a much greater burden would be placed on younger generations. Those born in 1955 would see no benefit reductions until age 83, while those born in 1985 would experience reduced benefits immediately upon retirement and benefits lower than under either GAO‘s benefit reduction benchmark or tax increase benchmark in all years of retirement. Consequently, lifetime benefits would be reduced more for younger generations. Benefits would be adjusted proportionately for all recipients, increasing the likelihood of hardship for lower-income retirees and the disabled. Assessing the Social Security Administration‘s (SSA) administrative challenges under this scenario is difficult given a lack of historical precedent and legislative clarity on how SSA would proceed. A focus on cash management would be needed to calculate and implement the needed ongoing benefit adjustments. www.gao.gov/cgi-bin/getrpt?GAO-03-907. To view the full product, including the scope and methodology, click on the link above. For more information, contact Barbara Bovbjerg at (202) 512-7215 or Susan Irving at (202) 512-9142. [End of section] Contents: Letter: Concluding Observations: Agency Comments and Our Evaluation: Appendix I: Briefing Slides: Appendix II: Methodology: Fiscal Model: Benefit Model: Table: Table 1: Fiscal Model Assumption Summary: Abbreviations: GDP: gross domestic product: GEMINI: Genuine Microsimulation of Social Security and Accounts: MINT3: Modeling Income in the Near Term: OASDI: Old-Age and Survivors Insurance and Disability Insurance: PENSIM: Pension Simulator: PSG: Policy Simulation Group: SSA: Social Security Administration: SSASIM: Social Security and Accounts Simulator: United States General Accounting Office: Washington, DC 20548: July 29, 2003: The Honorable Larry E. Craig Chairman Special Committee on Aging United States Senate: The Honorable Charles Grassley Chairman Committee on Finance United States Senate: This report responds to your request that we apply our criteria for assessing Social Security reform proposals to a "Trust Fund Exhaustion" scenario. As requested, this analysis assumes that once the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds are exhausted, monthly benefit checks will be reduced in proportion to the annual shortfall, effectively reducing everyone's benefits across-the-board.[Footnote 1] As agreed with your offices, our report is based on the analytic framework we have previously used to evaluate Social Security reform proposals.[Footnote 2] This framework consists of three basic criteria: * The extent to which the proposal achieves sustainable solvency and how it would affect the U.S. economy and the federal budget. * The balance struck between the twin goals of income adequacy (level and certainty of benefits) and individual equity (rates of return on individual contributions). * How readily changes could be implemented, administered, and explained to the public. As in our evaluations of reform proposals, our assessment of the Trust Fund Exhaustion scenario uses a set of detailed questions that help describe potential effects of reform models on important policy and operational aspects of public concern. These questions are displayed in the report. It is important to keep in mind that focusing on trust fund solvency alone is not sufficient. Solvency does not tell us whether the program is sustainable--that is, whether the government will have the capacity to pay future claims or what else will have to be squeezed to pay those claims. Although the Trustees' 2003 intermediate estimates show that the combined Social Security Trust Funds will be solvent until 2042,[Footnote 3] program spending will constitute a growing share of the budget and the economy well before that date. In 2008, the first baby boomers will become eligible for Social Security benefits, and in 2009 Social Security's cash surplus--the difference between program tax income and the costs of paying scheduled benefits--will begin a permanent decline. By 2018, Social Security's tax income is projected to be insufficient to pay currently scheduled benefits. Importantly, neither the decline in the cash surpluses nor the cash deficit will affect the payment of benefits. However, the shift from positive to negative cash flow will place increased pressure on the federal budget to raise the resources necessary to meet the program's ongoing costs. If you look ahead in the federal budget, Social Security together with the rapidly growing health programs (Medicare and Medicaid) will dominate the federal government's future fiscal outlook. Absent reform, the nation will ultimately have to choose between persistent, escalating federal deficits, significant tax increases, and/or dramatic budget cuts of unprecedented magnitude. In analyzing the Trust Fund Exhaustion scenario, we used estimates provided in a memorandum dated May 8, 2003, prepared by the Social Security Administration's (SSA) Office of the Chief Actuary. Under these estimates, the cost of OASDI benefits equals OASDI income once the combined trust funds are exhausted.[Footnote 4] The analyses presented in this report are based on the Trustees' best, or intermediate, estimates of the 2001 OASDI Trustees Report.[Footnote 5] Accordingly, our assessment uses the same framework as our January 15, 2003, report to you on the reform models put forward by the President's Commission to Strengthen Social Security.[Footnote 6] This report follows the format of and uses the same economic assumptions as that report. Although any proposal's ability to achieve and sustain solvency is sensitive to economic and budgetary assumptions, using a common framework can facilitate comparisons of alternative reform proposals. Our analysis of the Trust Fund Exhaustion scenario uses the same three benchmarks as did our January report:[Footnote 7] * The "benefit reduction benchmark" assumes a gradual reduction in the currently scheduled Social Security defined benefit beginning with those newly eligible for retirement in 2005. Current tax rates are maintained. * The "tax increase benchmark" assumes an increase in the OASDI payroll tax beginning in 2002 sufficient to achieve an actuarial balance over the 75-year period. Currently scheduled benefits are maintained. * The "baseline extended" benchmark is a fiscal policy path developed in our earlier long-term model work that assumes payment in full of currently scheduled Social Security benefits throughout the simulation period and no other changes in current spending or tax policies.[Footnote 8] As in other work assessing Social Security reform proposals, we used our long-term economic model in assessing the Trust Fund Exhaustion scenario against the first criterion, that of financing sustainable solvency.[Footnote 9] Our sustainable solvency standard encompasses several different ways of looking at the Social Security program's financing needs. While 75-year actuarial balance is generally used in evaluating the long-term financial outlook of the Social Security program and reform proposals, it is not sufficient in gauging the program's solvency after the 75th year. For example, under the Trustees' intermediate assumptions, the 75-year actuarial period changes each year, and a year with a surplus is replaced by a new 75th year that has a significant deficit. As a result, changes made to restore trust fund solvency only for the 75-year period can result in future actuarial imbalances almost immediately. Reform plans that lead to sustainable solvency would be those that consider the broader issues of fiscal sustainability and affordability over the long term.[Footnote 10] In analyzing reform plans, the key fiscal and economic point is the ability of the government and society to afford the commitments when they come due. Our analysis addresses this key point by looking at the level and trends over 75 years in deficits, cash needs, and gross domestic product (GDP) consumed by the program. To examine how the Trust Fund Exhaustion scenario balances adequacy and equity concerns, we used the Genuine Microsimulaion of Social Security and Accounts (GEMINI) model, a dynamic microsimulation model for analyzing the lifetime implications of Social Security policies for a large sample of people[Footnote 11] born in the same year. GEMINI can simulate different reform features for their effects on the level and distribution of benefits. To assess benefit adequacy over time, we display median monthly benefit levels for those born in 1955, 1970, and 1985 ("birth cohorts") at different ages as well as their median lifetime benefits. In analyzing reform proposals, we have stated that the use of our criteria to evaluate approaches to Social Security reform highlights the trade-offs that exist between efforts to achieve solvency for the combined OASDI Trust Funds and efforts to maintain adequate retirement income for current and future beneficiaries. For example, in our January report, we observed that the Commission reform models illustrate some of the options and trade-offs that will need to be considered as the nation debates how to reform Social Security. The Commission's proposals also illustrated the difficulty reform proposals face generally in balancing adequacy (level and certainty of benefits) and equity (rates of return on individual contributions) considerations. The Trust Fund Exhaustion scenario illustrates the trade-offs between sustainable solvency and benefit adequacy and equity in a different way. By definition, this scenario would achieve sustainable solvency because once the combined trust funds have run out, benefit payments would be adjusted (i.e., reduced) each year to equal annual tax income. Under this scenario, shares of the federal budget and the economy devoted to Social Security would be lower compared to currently scheduled benefits. From a fiscal perspective, before exhaustion, the scenario would have the same unified fiscal results as paying currently scheduled benefits with no policy changes. Before 2038, the Trust Fund Exhaustion scenario would reduce unified surpluses and increase unified deficits compared to the tax increase benchmark by the same amounts as the baseline extended benchmark. Subsequently, the Trust Fund Exhaustion scenario would result in unified fiscal results increasingly similar to both the tax increase benchmark and the benefit reduction scenario over the 75-year period. Before 2038, the Trust Fund Exhaustion scenario would require the same amounts of cash as the tax increase or baseline extended benchmarks; subsequently, the Trust Fund Exhaustion scenario would require less cash each year than any of the three benchmarks. Under the Trust Fund Exhaustion scenario, the effect on benefits would differ sharply before and after exhaustion took place. Before exhaustion, benefits would be the same as those currently scheduled, reflected in both the tax increase and baseline extended benchmarks. Once the combined trust funds run out, benefits for all would be reduced across the board and remain below currently scheduled levels. Accordingly, after trust fund exhaustion all those receiving benefits would experience a sharp drop in benefits compared to currently scheduled levels; under the Trustees' 2001 intermediate estimates, this drop is estimated at 27 percent (or 73 percent of currently scheduled levels) in 2039.[Footnote 12] Small further reductions would need to be taken in successive years such that by 2076 benefits would be one-third below currently scheduled benefits (i.e., to 67 percent of currently scheduled levels). The Trust Fund Exhaustion scenario raises significant intergenerational issues. Specifically, due to the timing of the reductions under the Trust Fund Exhaustion scenario, younger generations would bear much greater benefit reductions. Those born in 1955 would see no benefit reductions until they reached age 83,[Footnote 13] while those born in 1985 would receive lower benefits than under either GAO's benefit reduction or tax increase benchmarks in all years of retirement. Consequently, lifetime benefits would be reduced more for younger generations. Under the Trust Fund Exhaustion scenario that we used, benefits would be adjusted proportionately for all recipients, increasing the likelihood of hardship for lower-income retirees and the disabled, especially those who rely on Social Security as their primary or sole source of retirement income. The nature and scope of SSA's administrative challenges under the Trust Fund Exhaustion scenario are difficult to describe or assess given a lack of historical precedent and legislative clarity on how SSA would proceed. At a minimum, a focus on cash management would be needed for SSA to calculate and implement the ongoing benefit adjustments required under the scenario. Concluding Observations: The use of our criteria to evaluate approaches to Social Security reform highlights the trade-offs that exist between efforts to achieve sustainable solvency and to maintain adequate retirement income for current and future beneficiaries. These trade-offs can be described as differences in the nature and extent of the risks for individuals and the nation as a whole. At the same time, the defined benefit under the current Social Security system is also uncertain. The primary risk is that a funding gap exists between currently scheduled and funded benefits which, although it will not occur for a number of years, is significant and will grow over time. Other risks stem from uncertainty in, for example, future levels of productivity growth, real wage growth, and demographics. Congress has revised Social Security many times in the past, and future Congresses could decide to revise benefits in ways that leave those affected little time to adjust. As Congress deliberates approaches to Social Security, the national debate also needs to include discussion of the various options for reform and the timing in which it should occur. Early action to change Social Security would yield the highest fiscal dividends for the federal budget and would provide a longer period for prospective beneficiaries to make adjustments in their own planning. Waiting to build economic resources and reform future claims entails risks. First, we lose an important window where today's relatively large workforce can increase saving and enhance productivity, two elements critical to economic growth. We also lose the opportunity to reduce the burden of interest payments, thereby creating a legacy of higher debt as well as elderly entitlement spending for the relatively smaller workforce of the future. Most critically, we risk losing the opportunity to phase in changes gradually so that all can make the adjustments needed in private and public plans to accommodate this historic shift. Unfortunately, the window of opportunity to address the entitlement challenge is narrowing. As the baby boom generation retires and the numbers of those entitled to these retirement benefits grow, the difficulties of reform will be compounded. Accordingly, it remains more important than ever to deal with these issues over the next several years. Agency Comments and Our Evaluation: We provided a draft of this report to SSA. SSA provided informal technical comments, which we have incorporated where appropriate. We are sending copies of this report to Senator John Breaux, Ranking Minority Member, Senate Special Committee on Aging; Senator Max S. Baucus, Ranking Minority Member, Senate Committee on Finance; the Honorable William M. Thomas, Chairman, and the Honorable Charles B. Rangel, Ranking Minority Member, House Committee on Ways and Means; the Honorable E. Clay Shaw, Chairman, and the Honorable Bob Matsui, Ranking Minority Member, Subcommittee on Social Security, House Committee on Ways and Means; and the Honorable Jo Ann B. Barnhart, Commissioner, Social Security Administration. We will also make copies available to others on request. In addition, the report will be available at no charge on GAO's Web site at http://www.gao.gov. If you or your offices have any questions about this report, please contact Barbara D. Bovbjerg, Director, Education, Workforce, and Income Security Issues, on (202) 512-7215, or Susan Irving, Director, Strategic Issues, on (202) 512-9142. David M. Walker Comptroller General of the United States: Signed by David M. Walker: [End of section] Appendix I Briefing Slides: [See PDF for image] [End of section] Appendix II Methodology: Fiscal Model: The model simulates the interrelationships between the budget and the economy over the long term and does not reflect their interaction during short-term business cycles. Long-term simulations provide illustrations--not precise forecasts--of the relative fiscal and economic outcomes associated with alternative policy paths. They are useful for comparing the potential outcomes of alternative policies within a common economic framework over the long term. Recognizing their inherent uncertainties, we have generally chosen conservative assumptions, such as holding interest rates and total factor productivity growth constant. Variations in these assumptions generally would not affect the relative outcomes of alternative policies. Table 1: Fiscal Model Assumption Summary: Model Inputs: Social Security spending (OASDI); Assumptions: 2001 Social Security Trustees' intermediate projections. Model Inputs: Medicare spending (HI and SMI); Assumptions: 2001 Medicare Trustees' intermediate assumption that per enrollee Medicare spending grows with GDP per capita plus 1 percentage point. Model Inputs: Medicaid spending; Assumptions: CBO's July 2002 long-term assumption that per enrollee Medicaid spending grows with GDP per capita plus 1 percentage point. Model Inputs: Other mandatory spending; Assumptions: CBO's August 2002 baseline through 2012; thereafter increases at the rate of economic growth (i.e., remains constant as a share of GDP). Model Inputs: Discretionary spending; Assumptions: CBO's August 2002 baseline through 2012, adjusted for the 2001 Social Security Trustees' inflation assumptions; thereafter increases at the rate of economic growth. Model Inputs: Revenue; Assumptions: CBO's August 2002 baseline through 2012; thereafter remains constant at 20.5 percent of GDP (CBO's projection in 2012). Model Inputs: Nonfederal saving (percent of GDP): gross saving of the private sector and state and local government sector; Assumptions: Increases gradually over the first 10 years to 17.5 percent of GDP (the average nonfederal saving rate from 1992-2001). Model Inputs: Net foreign investment (percent of GDP); Assumptions: Increases (or decreases) from 2002 share of GDP by one-third of any increase (or decrease) in gross national saving through 2012; thereafter increases (or decreases) from 2012 nominal dollar level by one-third of any increase (or decrease) in gross national saving. Model Inputs: Labor: growth in hours worked; Assumptions: 2001 Social Security Trustees' intermediate projections. Model Inputs: Total factor productivity growth; Assumptions: Consistent with labor productivity growth in 2001 Social Security Trustees' intermediate projections. Model Inputs: Inflation (GDP price index and CPI); Assumptions: 2001 Social Security Trustees' intermediate projections. Model Inputs: Interest rate (average on the national debt); Assumptions: CBO's August 2002 implied real average interest rate through 2011 adjusted for the 2001 Social Security Trustees' intermediate inflation assumptions; 6.3 percent thereafter. Source: GAO. [End of table] Benefit Model: Genuine Microsimulation of Social Security and Accounts (GEMINI) is a microsimulation model developed by the Policy Simulation Group (PSG). GEMINI is linked with two other PSG models, the Social Security and Accounts Simulator (SSASIM), which has been used in numerous GAO reports, and the Pension Simulator (PENSIM), which has been developed for the Department of Labor. For our report, we used SSASIM to produce Social Security policy regimes consistent with the benefit reduction benchmark, the tax increase benchmark, and the Trust Fund Exhaustion scenario. PENSIM produced simulated samples, sometimes called synthetic samples, of lifetime histories, including earnings, educational attainment, marriage, disability, and death, for the cohorts born in 1955, 1970, and 1985. The lifetime histories were validated against data from the Survey of Income and Program Participation, the Current Population Survey, Modeling Income in the Near Term (MINT3),[Footnote 14] and the Panel Study of Income Dynamics. Additionally, any projected statistics (such as life expectancy, educational attainment, employment patterns, and marital status at age 60) are, where possible, consistent with intermediate-cost projections from SSA's Office of the Chief Actuary. Because PENSIM cannot yet stochastically determine the age at which a member of the sample applies for benefits, we assumed that all retired worker beneficiaries claim benefits at age 65. GEMINI used the lifetime histories produced by PENSIM and the policy regimes produced by SSASIM to simulate Social Security benefits for retired and disabled workers and auxiliary benefits paid to spouses, widows, and children. Additional information about GEMINI may be found in three previous GAO reports that used the model: Retirement Income: Intergenerational Comparisons of Wealth and Future Income, GAO-03-429 (Washington, D.C.: Apr. 25, 2003); Social Security Reform: Analysis of Reform Models Developed by the President's Commission to Strengthen Social Security, GAO-03-310 (Washington, D.C.: Jan. 15, 2003); and Social Security: Program's Role in Helping Ensure Income Adequacy, GAO-02- 62 (Washington, D.C.: Nov. 30, 2001). The GEMINI, PENSIM, and SSASIM models are updated to reflect changes in information sources. Notable changes from recent reports include updated mortality and disability patterns to reflect new information from SSA's Office of the Chief Actuary. For more information on the models, see the PSG Web site at www.polsim.com. FOOTNOTES [1] As presented in this report, the Trust Fund Exhaustion scenario illustrates potential outcomes, assuming that (a) the exhaustion of the combined OASDI Trust Funds in 2038 under the intermediate assumptions of the 2001 OASDI Trustees Report, (b) future program income and costs follow projections made by the Office of Chief Actuary at the Social Security Administration, and (c) only payroll taxes and taxes on benefits flow into the trust fund. The scenario is intended as an analytic tool, not a legal determination. [2] See U.S. General Accounting Office, Social Security: Evaluating Reform Proposals, GAO/AIMD/HEHS-00-29 (Washington, D.C.: Nov. 4, 1999) and Social Security Reform: Information on the Archer-Shaw Proposal, GAO/AIMD/HEHS-00-56 (Washington, D.C.: Jan. 18, 2000). [3] Separately, the Disability Insurance (DI) Trust Fund is projected to be exhausted in 2028 and the Old-Age and Survivors Insurance (OASI) Trust Fund in 2044. [4] Income is defined as income from scheduled payroll-tax contributions and a portion of the income from taxation of scheduled benefits. The latter was adjusted to reflect the lower expected revenues from benefit taxation. [5] Under the 2001 Trustees' intermediate estimates, the combined OASDI Trust Funds are projected to reach exhaustion in 2038. Under the 2003 Trustees' intermediate estimates, the projected exhaustion date is 2042. [6] See U.S. General Accounting Office, Social Security Reform: Analysis of Reform Models Developed by the President's Commission to Strengthen Social Security, GAO-03-310 (Washington, D.C.: Jan. 15, 2003). [7] From the perspective of analyzing benefit adequacy, the tax increase and baseline extended benchmarks are identical because both assume payment in full of scheduled Social Security benefits over the 75-year simulation period. Our benchmarks are solvent for the 75-year projection period commonly used by SSA's Office of the Chief Actuary, but they do not achieve sustainable solvency. Both the benefit reduction and tax increase benchmarks are explicitly fully funded, and we worked closely with SSA's Office of the Chief Actuary in its design. [8] Implicitly, therefore, after exhaustion benefits are paid in part by increased borrowing from the public. [9] For this analysis, consistent with SSA's scoring of the Commission reform models, our long-term economic model incorporates the 2001 Trustees' best, or intermediate, assumptions. [10] The Trustees have used the term "sustainable solvency" to mean maintaining a trust fund balance that is positive and either level or increasing as a percent of the annual cost of the program at the end of the 75-year period. GAO's definition of sustainable solvency seeks to gain a more complete perspective of a proposal's likely effects on the program, the federal budget, and the economy. [11] The GEMINI cohorts consist of simulated samples of 100,000 individuals, sometimes called synthetic samples. These samples were validated against data from the Social Security Administration's Annual Statistical Supplement, the Survey of Income and Program Participation, the Current Population Survey, Modeling Income in the Near Term, and the Panel Survey of Income Dynamics. [12] In 2038, the year the trust fund is exhausted, the benefit reduction would be about 7 percent because trust fund assets would be available for part of the year to pay benefits. In 2039, the first full year after the trust fund is exhausted, benefits would fall sharply, to about 27 percent below currently scheduled levels. Under the Trustees 2003 intermediate estimates, the overall drop is approximately the same. [13] Assuming individuals are born on January 1st. [14] MINT3 is a detailed microsimulation model developed jointly by the Social Security Administration, the Brookings Institution, RAND, and the Urban Institute to project the distribution of income in retirement for the 1931 to 1960 birth cohorts. GAO's Mission: The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. 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