So theres a gallup poll that came out i think a year or two ago that asked all working age americans that question. And 51 of them said they didnt think they would see a penny from Social Security. You get a trooper that several ways but i think its pretty shocking to see how little faith people have when theyre planning for their own retirement of how much they will get. Whether they actually believe that order was more symbolizing their lack of faith or mr. Ross in the political system is up for question. It was pretty shocking to me it was that high a figure. That really brings to the discussion we will have here today in looking at social securities longterm sustainability and the financing structure and how we do make it sustainable for the long run so it will be there in some shape or form probably with modifications for when you all need and ready to claim benefits. So i just want to start very briefly by letting everyone know about a commission with at the Bipartisan Policy Center was called the commission of Retirement Security and personal savings. It was cochaired by former senator kent conrad and jim lockhart who is the senior official both bush administration, the number two at the Social Security administration and that a group of 19 who worked for two years took was a labor of love. They met about a dozen times fullday meetings. They dealt with not only Social Security but also the private sector and now that contributes personal savings contributes to peoples Retirement Security. But they ultimately on a spectrum purdy wideeyed spectrum came to agreement on a package of policies that would make Social Security sustainable. I didnt think they would get there in the beginning. Several of the member said i think we should put Social Security aside because will not Reach Agreement but audibly with modeling some of the reform proposals, they did Reach Agreement. That just shows how difficult this is. It took them two years and theyre not even elected officials of the deputy one to go back to district and respond to and actually vote on this back home, but they were able to reach that agreement and i think it shows a model, of groups have done this, but it shows what our policy makers will need to do sometime in the near future in order to get the system by contractor i encourage you to check it out. A digital an overview of the system and what the options are to fix it. You can find it on bipartisanpolicy. Org. Today we are here with steve and curate and im so lucky to be joined by them because both people who i have long admired in the so Security Policy space. There are very few people who know more about the program then the two of them. They been working on for a number of years. What i love about both of them is that they are actuaries of the mind and so you can estimate question of what percent toy need to increase the payroll tax line ordered to solve half of the social scale problem and they would give the answer like that. If they try really, really hard they condemn it down enough for the rest of us we could understand whats going on in this policy issue. You can find their full bios in the packets that you have but steve is the chief actuary, has been for many years at the Social Security administration. Hes responsible for scoring all the proposals that members of those outside groups like this commission, submit and request assistance with seeing what the impact would be on the program as well as for contributing to the annual Trustees Reports and many other responsibilities that i wont detail here. And karen is the deputy chief actuary of the solstice could he administration. So without im going to turn over to them for a brief presentation on the financing and some of the policy options that are on the table for fixing Social Security. If you have a question at the end please resent it will do some q a. When it is returned as question please make sure you speak loudly for everyone in the room can hear you. So with that i think terrible start off. Qatar one comment on your initial question to the group, shai, just cant resist. Something like 20 years ago or so something about which a lot of people in the room would not have familiarity, there was a survey done the some of us older folks were fully with that was asked a bunch of young people if youre more likely to see Social Security benefits or space aliens in their lifetime. The answer was almost unanimously space aliens. I was at a point short after the talked a bunch of people a little bit older than you all as interns that were payroll administered for various corporations all over the place. They were all people very much in the 20s. I raised that question to them and all the hands went up for space aliens of course. How cool is that . And i said so yo you are makinga pretty good income here now and since you know you will not get anything from Social Security you are probably saving a huge portion of your salary. You are probably saving like crazy, right . There was molding around and one guy stood up and said we didnt really mean nothing. So i think really its kind of a cool thing to say to be cynical, not expect stuff but when it came right down to it they were not walking, they were not voting with their feet. More psychology than the actual exactly, yeah. With that, sorry, karen will tell you the real story. All right, thank yo thank yo, shai, and welcome everyone. We are just going to give you a little bit of background on Social Security financing and some options to change it for the future. So to begin, Social Security is to legally distinct trust funds. Theres the oas i find which is survivors insurance. Thats really the retirement and survivors fund. And then theres the Disability Insurance fund which is for disability benefits. Really those two are separate legally. Oftentimes will talk about them on a combined basis but really they are separate and cant borrow from each other. The Financial Operations are overseen by the board of trustees. There are six trustees typically. There is the secretary of the treasury who is the managing trustee. The secretary of health and human services, secretary of labor, commissioner of Social Security and then there are two Public Trustees dominated by either party. Right now those positions are vacant and they have been for a couple of years but were hopeful we will get some on board soon. As i mention the two funds are often looked at on a combined basis, at the end of last year and were about 2. 85 trillion in those trust funds. Those combined funds have run on surpluses since the early 80s and their expected to do so through about 2021. Beginning in 2022, those reserves will start to go down until we expect him to be depleted in 2034. Thats what, about 17 years from now. When they are depleted we still expect that about 77 of benefits will be able to be paid, and thats if nothing else is done, if the legislative changes are made, still 77 benefits will be paid. Looking separately, the di fund is in a little bit worse shape. Its expected to be depleted in 2028. So attention needs to be paid o that evelyn that sooner. And little bit sooner. This graph just shows you as a percent of gdp how much the trust funds hold in reserve. So you can see that back in the 1980s, the fund was getting very low. At that Time Congress got together, made a compromise and passed the 1983 and then mens which are brought more revenues into the funds and cut benefits a little bit. At that point as i started as it started the way up until about, this is all as a percent of gdp but until very recently as these were going up, now theyre expected to decline until 2034. So how did Social Security get its income . I think most of you have seen in your own paychecks employees and employers each pay 6. 2 of the earnings into the trust funds. Selfemployed pay both of those pieces so the employer and the employee peace to make it 12. 4. That is on earnings up to 127, 2000 or at the taxable maximum, the taxable cat. But basically earnings above that level are not taxed for Social Security purposes. Another piece of the income is taxes on Social Security benefits. Retirees and disabled folks in the fisheries with high incomes pay some taxes on the benefits, and that goes into the trust funds as well. And finally there is interest on those trust Fund Reserves. The trust funds are invested in interestbearing securities, and we get interest from treasury on a regular basis. So now where does the money go . Mainly benefit payments. The vast majority is benefit payments. About 61 Million People were getting benefits as of the end of last year. 44 million of those were retired workers and their dependents. 6 million were survivors of deceased workers, and about 11 million disabled workers and their dependents. Administrative expenses are another piece of very low,. 7 of the expenditures. This is just a little graphical way to see what i just told you. This stuff on the top is the income. You see that payroll taxes are the vast majority of the income. Taxed on benefits are pretty small, interest is a little bit bigger, and on the bottom of the graph you see the benefits going out, the vast majority. Theres a little bit of, this little technical think that we have an exchange with the Railroad Retirement board. Then there is the administrative expenses, 6 billion sounds like a lot of dollars but in comparison with the benefits it is really pretty small. Okay, so why do we have trust funds at all . The trust funds really provide reserves so benefits can be paid even when there isnt enough income coming in. A lot of people think of it as you need at least one years reserve in a trust fund to make it reasonable. Right now weve got about three years of reserve the we do expect those to go down, and as i said before we expect them to become depleted in about 2034. One important thing to note. The funds cant borrow. They can only spin what is being collected. So when there is not enough money coming into the fund, they wont be able to pay full benefits. One thing you will often hear is other are the trust funds real . Other just and i are you sitting in a file cabinet somewhere . What does real mean i guess is the question. It reserves the plates full benefits cant be paid. These funds are real in the sense that they are consequence. The trust fund really do force congress to act in order to keep benefits going. As happened in 1983. Trust funds were about to deplete. They didnt just let them deeply. They are real in the sense that congress had to change things in order to keep the program going. Okay. Quickly, we want to get to questions eventually, how do we express the future shortfall . To look at things on a comparable basis, we usually look at things a as a percent of the taxable payroll of the program. This is a good way you can look at something in 1940. You can look at something now and put it on a comparable basis. So for example, in 2045 we expect taxable payroll to be about 24. 1 trillion. This is all the earnings that will be taxed by the program. Incomes to the program is expected to be about 3. 2 3. 2 trillion. So if you divide those two, income is 13. 24 of payroll. Similarly, we look at the cost of the program which is expected to be about 4 trillion, and thats 16. 72 of payroll. So to get the shortfall in that year you just take the difference between the cost and income and thats really the gap that needs to be filled. They shows the exact same thing graphically. If you focus on the 2045 line that we just talked about, you will see that the cost of the program, the dotted blue line at the top, is a good bit above the income we expect to become into the program. So there is a gap. There is a shortfall at that point, and its the job of congress and all of you to pick up the way to fill that gap. And now steve is going to go over a few slides and then i will come back and talk about some of the options that weve got for fixing the program. [applause] thanksthanks, karen. Thank you all for being here. Remember an eclipse is not the same as space aliens, so it will just be the moon sort of going to be moving over. I want to add luggage what karen had already put forth about the basic nature of Social Security program and how it is financed, talk about the size of the shortfalls which will be addressing later, and beyond that the reason why we are looking at having a shortfall coming. As karen indicated were looking at this notion of when the reserves deplete. As karen mentioned reserve depletion is what forces congress into action because who if you are a member of congress, 77 have a, once took 23 reduction in monthly benefits from one month to the next for your constituents who will not be happy, your chance of getting reelected will probably be affected by that. Congress has overstepped up on a timely fashion. You can see a picture of where we are here karen showed the same graph. This expresses level of the reserves we have been building up and are now bringing down as a percent of the annual cost of program. Historically, we have maintained a contingency reserve about one years worth of outgo. Why . Because recessions have a we discover that recently at the end of 2007 and they can take away some of your reserves and having a reserve cushion allows Congress Time to Pay Attention to realize whats going on with help of our Trustees Report and take timely action. You can see the interesting one is the light blue line, Disability Insurance program. Back in 1994 the reserve ratio was dropping down precariously low and we projecting in 1995 it would hit depletion. So congress of course realizing that we told them, they acted and in 1994 the enacted a little reallocation of putting oasi tax rate over to the di fund. That cause moving up the di fund. In 1995 we projected that would carry the di fund to reserve to depletion not in 1995 but we are estimating about 201616. Lo and behold fastforward to 2015 we were still estimating the reserve depletion would be in 2016. Pretty lucky guess back in 1995. We were projecting 2016, and congress acted again with another tax allocation, putting some of the revenues that are directed only to oasi over to di and thus give it a further bump. Well get to this in a slight in a moment you can see the dashed line, the dashed line is where we are projecting reserve depletion to be going out in 2023 just a year ago in the last Trustees Report. That was without obviously having this tax reallocation. Now as can indicate when apartment 2023, talking 2028 for disability. Why do we have an extra five years . Why the set line look so better . Even might as karen indicated we are a much better financial shape in terms of reserve depletion than the oasi, the pinkish line that are for di and combined is dominated by oasi of course. So why have things gotten better on disability . We have this thing called disability incidence rate. For those who do not familiar, incident rate is just the number of people newly become disabled fighting for starting to get Disability Insurance benefits. As a percentage of all the people who are insured not receiving a benefit. Its called the expos population to the number of people to potentially could come in to offer benefits us are getting a historically it is averaged a little over 5 , or that is a little bit what, five per, 5. 4 per thousand. Well, whatever. I. 4 per thousand which is about half a percent feature of the exposed population becomes disabled, files for and start getting benefits. You can see it goes up and that there not surprise me if this up in a recession. Back around 2010, 2009, ten, ten, 11 we had a peak level in our disability incidence rate. A big recession comes, a lot of people does work. People under normal circumstances in a Strong Economy who could qualify for our benefits and have significant impairments will nonetheless be able to hold down a job. They will retain the job, still productive but then when a recession comes along and dilutes the work like everybody else they will try to find a way to feed themselves and her family. If people can possibly file for benefit whether retirement benefit our disability, people will file for it. Our actual allow a trade goes down a lot in a recession because a lot of people file for benefits that are not sufficiently qualified but a number are. We have a boost in the incident rate will look at whats happened to the solid line going on after the peak in 2010. Disability incidence rate. You can see the 2012, 13, 14, 15 and not even the 2016 Trustees Report we had been projecting this drop in incidence rate after the peak from the recession would be coming back up to our longterm expected average. It just has not been. The incidence rates have been dropping, dropping, dropping two levels weve not been expecting and that a quite frankly surprising. We are doing a lot of work trying to understand why this is happening. Aas a result of that big drop that weve had this extension you saw in the prior slide going from the dashed line to the solid blueline for disabilities. For the broader oasi program as a whole, we tend to look at not only combined basis most of the time in part because even though we give two separate funds, when one of them is in trouble and the other is that, congress will step in as it did in 1994 and did it again in 2015 and do some reallocation of tax rates to true up the funds and make them operate a little bit more on the same path. We look at them on a combined basis, in 2034 were projecting for the combined Social Security trust fund to deplete our reserves which means