Comparison of Actual Experience with Estimates in the Trustees' Reports

velop, the benefit estimates in future Comparison of Actual Experience With reports may reasonably be expected to be more precise. It will probably al• Estimates in the Trustees' Reports ways be desirable to have some range, however, which from a relative stand• By Robert J. Myers* point should be smaller than in ear• lier reports, but in absolute terms of EACH YEAR the Board of Trustees of siderably higher than those of the dollars may be rather large. It is im• the Federal old-age and survivors In• first report in regard to benefit dis• possible to predict with complete ac• surance trust fund is required to sub• bursements and lower in regard to curacy the level of benefit disburse• mit to Congress a report dealing with contribution collections. ments 5 years in the future, especially the past and prospective operations In the first two Trustees' reports, since the benefits actually paid de• and status of the trust fund. These only a single estimate was presented. pend on substantial retirement from reports were first required by the So• The third and fourth reports gave a covered employment, which in turn cial Security Act Amendments of 1939, single estimate for the first 2 years depends on economic conditions. and in accordance with these amend• and a range for the next 3 years, ments the first report was submitted except that the fourth gave a range Table 1 shows the actual and esti• 1 mated benefit disbursements accord• in January 1941. in estimated contributions for all 5 ing to the various reports, and table One of the most important features years. In the fifth and sixth reports 2 gives similar data on contributions.2 of these reports is the estimates of a single figure is given only for the The figures presented as contribution the expected operation and status of first year, with a range for the next income have been modified to reflect the trust fund during the ensuing 5 4 years, while the seventh and eighth the continuous freezing of the contri• fiscal years. The first estimates dealt reports followed the same procedure bution rate at 2 percent for employers with the expected experience for the for benefit disbursements but used a and employees combined, and the sub• 5 fiscal years 1941-45, and each subse• range for contributions for all years. sequent revision in the eventual rates quent report has dealt with a like This transition in method of pres• as made in the Social Security Act period, advanced by 1 year. Now that entation represents a gradual adop• actual data are available for 7 full tion of the viewpoint that a range in 2 In the eighth report the contribution fiscal years, a comparison of actual ex• future cost estimates is desirable. A estimates include appropriated reimburse• ments for the veterans' survivor benefits perience with the various estimates single figure may safely be given for for 1948-52 under section 210 of the 1946 is of interest in showing the increas• the first fiscal year shown in each re• amendments to the Social Security Act; ing effectiveness and accuracy of the port, since the estimate is not pre• no such appropriations have yet been estimates as the program has grown. pared until that year is almost half made although payments certified through the calendar year 1947 totaled $4.6 million. The comparisons made here have completed and there is a sound basis In earlier reports no account was taken been confined to benefits and contri• for the estimate. As more and more of these provisions, either in regard to butions, since these comprise the bulk experience and larger benefit rolls de• benefit disbursements or contributions. of total expenditures and income, re• spectively. Administrative costs and Table 1.—Actual benefit disbursements, fiscal years 1941-47, and estimated benefits interest earnings play a relatively according to various Trustees' reports, fiscal years 1941-52 minor part in the expected operation [In millions] and status of the trust fund and are therefore omitted from this dis• Report 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 cussion. Short-range cost estimates on a cal• Actual data endar-year basis had been developed --- --- --- --- --- at the time the 1939 amendments were Eighth $64 $110 $149 $185 $240 $321 $426 considered by Congress (S. Rept. 734, Estimates of Trustees' reports 76th Cong., 1st sess., p. 17). The first Trustees' report pointed out that First $78 $165 $274 $402 $548 Second 113 166 225 290 $360 these estimates had been stated to be Third:1 Low 155 205 260 320 $380 subject to a range of error because High 155 205 295 585 775 they had been made prior to the devel• Fourth: Low 181 214 255 307 $365 opment of any actual experience and High 181 214 268 365 455 before the economic effects of the de• Fifth: Low 238 311 386 450 $512 fense program were foreseeable. As High 238 343 479 566 627 Sixth: a result, the first report went on to Low 323 407 480 549 $618 state, the 1939 estimates were con- High 323 481 569 654 723 Seventh: Low 423 507 590 674 $761 * Actuarial Consultant, Social Security High 423 576 683 782 870 Administration. Eighth: 1 The first report was not published, but Low 509 599 681 768 $855 all subsequent reports have been released High 509 676 786 888 964 as either House or Senate documents. 1 The third report used 3 estimates, but only the low and high are shown here. Amendments of 1947, which lead to a tion in 1942 and earlier was much the actual experience. The ratio of combined rate of 3 percent in the cal• more uniform than this, being about estimates to actual figures ranged endar years 1950-51 and 4 percent 26 1/2, 25 1/2, 25, and 23 percent, re• only from 98 percent to 104 percent thereafter. spectively. If the factor of uneven for the years 1942 to 1947. The bene• The modification of the contribu• quarterly distribution of contribution fit estimates in the first report were tion figures was accomplished solely income had been taken into account, increasingly in excess of the actual from the data in the various reports. the modified contribution figures for experience, being more than double The figure shown in the report for a those years for which an increase in the benefits paid in 1944 and 1945. particular year was multiplied by the the rate was scheduled would have For one thing, in these first estimates ratio of the actual contribution rate been slightly higher than those shown, it was not anticipated that retirements (or in the case of the future years, by at most by 2 or 3 percent relatively.5 would be so materially deferred as the scheduled rate in the Social Secu• This small differential, of course, has they actually were as the result of the rity Act Amendments of 1947) to the no appreciable effect on the following favorable wartime employment con• rate used in that report. When the analysis. ditions. contribution rate increased in the par• A comparison of the actual experi• The benefit estimates in the second ticular year, the average rate in effect ence with that estimated for each of report were also somewhat in excess in the year, taking into account the the fiscal years 1941-47 is made in of actual experience, but only by about 3-month lag in collections, was used.3 table 3. Except for the first report, 10-20 percent. In the third report, This method is only approximate since the benefit estimates made for the in which a range was first introduced, it assumes an even distribution first year in each report (reading the low estimate was close to actual throughout the year in regard to both down the diagonal) were very close to experience for 1945 and 1946 but more total covered pay roll and contribu• than 10 percent below for 1947. How• tion income. Actually, even if the ever, the high estimate was consist• payroll base were level over the 5For example, applying the recent, and most uneven, quarterly distribution to the ently too high, being more than 80 course of a year, the contribution in• data from the second report for fiscal year percent above the actual experience come would vary by calendar quarters 1943 (as previously discussed in footnote for 1946 and 1947. because of the $3,000 maximum on 3), 27 1/2 percent of the pay roll from taxable wages.4 which contributions are received during In the fourth report, apparently be• the year would have the 4-percent rate cause of the considerable overesti• In recent years, when the effect of applicable, and correspondingly the 2-per• mates for 1941-44 in the preceding cent rate would pertain to the remaining the trend in total covered pay roll is 72 1/2 percent. The average rate would reports, the benefit estimates were eliminated, it is found that about 27 1/2 thus be 2.55 percent, or 2 percent greater significantly lower than the actual percent of the contribution income is relatively than the average rate of 2 1/2 per• experience for 1945-47, and generally received with respect to the first cal• cent based on equal quarterly distribution. lower for each succeeding year; in endar quarter (i. e., is received in the Table 2.—Actual contributions, fiscal years 1941-47, and estimated contributions accord• second quarter), with the correspond• ing to various Trustees' reports adjusted to correspond to actual or scheduled future ing figures for the 3 succeeding quar• contribution rates,1 fiscal years 1941-52 ters being 26 1/4, 25, and 21 percent, respectively; the quarterly distribu- [In millions] Report 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 3 For example, in the second report the contribution schedule used in the esti• Actual data mates provided for a combined employer- --- --- --- --- --- employee rate of 2 percent for calendar Eighth $688 $896 $1,130 $1,292 years 1940-42 and 4 percent for calendar $1,310 $1,238 $1,459 years 1943-45.

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