The Social Security Trustees’ Respectable Projection Record (Part 1)

For the last four years I have had the honor of serving as one of Social Security's two public trustees (along with former CBO Director Robert D. Reischauer), co-authoring the annual trustees' reports. These reports are required under the Social Security Act and serve as the primary resource on Social Security's current and projected financial condition. Long before my own service as a trustee I was an avid reader of these annual reports, coming to regard them as a vital information source that is, in the main, well serving the public.

It is inevitable and appropriate that the trustees' annual projections are publicly debated. An unusually rigorous and thoughtful critique was recently published by Konstantin Kashin, Gary King and Samir Soneji, in one form in the Journal of Economic Perspectives (JEP) and another in Political Analysis. Barron's also published a widely-circulated article on this work. These articles offer a number of criticisms of the trustees' projection record as well as the processes followed by the Social Security chief actuary's office.  

As a currently-serving trustee I have been asked for my view of the Kashin-King-Soneji work. Summarizing very roughly, their factual observations and analyses strike me as essentially correct, though I disagree with many of their interpretative conclusions (full disclosure: I was one of many sources interviewed by the authors in the course of their extensive research). In this piece I will review some of their critiques pertaining to the trustees' projection history. In a follow-up piece I will turn to their criticisms and recommendations with respect to the process by which the projections are developed.

One quick note at the outset: the articles frame criticisms primarily with reference to the methodologies of the Social Security Chief Actuary (OCACT). Formally, however, all of the assumptions and methodologies employed in the annual trustees' reports are decided upon by the trustees themselves, with the chief actuary simply signing an opinion certifying that "the techniques and methodologies used are generally accepted within the actuarial profession and that the assumptions and cost estimates used are reasonable." In practice, of course, the actuary's recommendations are highly influential upon the trustees. It is the norm for the trustees to accept most such recommendations unless there is a consensus among them to direct otherwise, which does happen on occasion. Ultimately the trustees are responsible for the assumptions made and the projections that flow from them.

The following paraphrases (in my own words) the Kashin-King-Soneji criticisms of the trustees' projection record, and offers my own perspectives on the issues raised.

Criticism: Until 2000, Social Security projections were mostly unbiased, with errors falling on both sides of the line with roughly equal frequency. Since then the projections have become increasingly inaccurate in overstating Social Security's financial health.

As a purely factual observation, this is undeniably true. The main reason is predictably simple: the Great Recession caused Social Security finances to be much worse than the trustees anticipated. 

A good quick way to see this is to examine the annual projections for the combined Social Security trust fund ratio (the ratio of trust fund assets to one year's expenditures, x 100). As the graph shows, the big divergence between projections and reality developed after 2008 (the recession hit in December 2007). Thus, any projection window including the effects of the recession will generally show much larger projection errors than periods excluding the recession. (This graph like others in this article uses fiscal years to allow for comparisons with other forecasts.) Even before the recession there was some projection inaccuracy as always, but the qualitative divergence between the projection lines and the eventual reality clearly took place in 2008.

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