Retirement Report, Summer 2023

‘Challenge’ Is Embraced by Stakeholders Seeking Social Security Solution

By Ted Gotsch

The release of the Academy’s Social Security Challenge is being praised by the public, policymakers, and in the press alike as an effective way of raising attention to the high-stakes issues facing the nation’s primary federal retirement program and how solutions can be found to address the financing challenges it faces.

An interactive web-based app, the Social Security Challenge explains the current financial state of Social Security to users and allows them to consider different scenarios that would close the financing gap so it could continue to fund the full benefits that older Americans receive under the program. Those scenarios include cuts to Social Security benefits, increases in taxes, or a combination of both. Reform options that would increase costs but would address some of the perceived shortcomings of the current structure are also included.

“The Academy is pleased at the reception the Challenge has received from a host of stakeholders around the country,” Academy Senior Pension Fellow Linda K. Stone said. “From the start, our intention was to help Americans achieve a better understanding of Social Security and what options existed to address its financing challenges.”

The app’s rollout caught the attention of Rep. John Larson of Connecticut, the ranking member of House Ways & Means Social Security Subcommittee, who contacted the Academy directly to say he was “really pleased with the stuff you’ve been doing around taking the Social Security Challenge.”

Emerson Sprick, senior economic analyst for the Bipartisan Policy Center, told The Street that he was “optimistic that The Social Security Challenge can help Americans think more clearly about the problem at hand and the compromises we must make.”

The app was developed by the Academy as a public service to objectively inform, stimulate, and advance the public dialogue on Social Security reform, drawing on the U.S. actuarial profession’s knowledge and expertise on risk and financial security issues and the Academy’s extensive body of work informing and advising policymakers on Social Security’s financial condition and reform options.

Challenge users visit “Townsville” and select specific locations—the park, the gym, a grocery store, and a coffee shop. They meet regular people going about their lives who share their stories and thoughts with one another about various Social Security reform options and their potential impact. The characters in the Challenge include people in various life stages and those in different life circumstances.

The financial effects of the reform option provisions in the Challenge come from the Office of the Chief Actuary at the Social Security Administration and are based on the most recent Summary of Provisions that Would Change the Social Security Program. An updated version of that report is expected over the next few months and the Challenge will be updated to reflect the most recent information.

Finding answers to ensure the retirement program’s solvency is a serious matter. Trust fund reserves are small compared to the value of all the benefits that Social Security will pay, and these reserves are declining.

A smaller working population relative to beneficiaries means there are fewer workers paying taxes to support each beneficiary. The retirement of the baby boom generation is increasing the number of beneficiaries faster than the increase in the number of covered workers, as lower-birth-rate generations enter the workforce.

The number of Americans 65 and older will increase from about 58 million in 2022 to about 75 million by 2035. According to the 2023 Social Security Trustees Report, Social Security’s combined trust fund reserves are projected to become depleted in 2034, potentially leading to a forced 20% cut in payable benefits unless legislative changes are adopted to prevent it.

Assuring that Social Security stays strong means that Congress may need to evaluate very different reform options with complex and wide-ranging impacts—options such as making higher levels of income subject to payroll taxation or raising Social Security’s normal retirement age—and then pass the reforms it chooses so that they can become law.

The Challenge app allows users to develop a reform approach by traveling through the virtual town and puzzling through choices. In the finale, participants select and submit an approach from a palette of possible reform options and see how well it works to address the solvency issue. Experts said the app gives users a realistic taste of the serious choices facing the nation when it comes to Social Security.

“I think it really translated it to the stakes for ordinary people,” said Kathleen Romig, director of Social Security and Disability Policy at the Center on Budget and Policy Priorities. “It didn’t feel—no offense to actuaries, but it’s not as if you were reading a dense actuarial report or something like that. You were hearing from typical people and how these issues impact them.”

Mark Hulbert, author of the Retirement Weekly column at MarketWatch, wrote, “If you had any doubt that there are numerous ways in which Social Security’s solvency can be restored, you should take the ‘Social Security Challenge.’”

Ted Gotsch is the Academy’s senior policy analyst for content and publications.

Jason Russell Nominated to Be Next Pension VP

RussellThe Nominating Committee in June reported on a slate of incoming vice presidents, to succeed those whose two-year terms will be up in November, and will join the Academy’s Board of Directors during Envision Tomorrow, the Academy’s annual meeting, Nov. 14–15.

In the pension sphere, Jason Russell was nominated as vice president, succeeding Sherry Chan. Russell has been a member-selected director since 2020 and has served on many Pension Practice Council (PPC) committees—including as chairperson of the Multiemployer Plans Committee—and has presented to Congress on behalf of the PPC.

Webinar Examines Trustees Report

The Academy hosted an April 25 webinar, “Social Security Trustees Report: A Deep-Dive Discussion With the Program’s Actuaries,” which examined the recently released report that showed Social Security’s retirement and disability programs have sufficient resources to fully cover benefits until 2034, one year earlier than projected last year.

Key highlights from the detailed recap of the webinar include:

• OASDI reserve depletion date moves up one year to 2034.
• Shift is due to net change in actuarial deficit of -0.19% of payroll.
• Top reason for increasing cost relative to payroll and GDP is the drop in birth rates.
• Benefit cuts, tax increases, or a combination of both can sustain OASDI long term.
• In order for any changes to be implemented, Congress must take action.

‘One-pager’—Ahead of its forthcoming issue brief on the status of the Trustees Report, the Social Security Committee released a one-page snapshot of the program’s financing challenges.

Committee Releases Buy-Out Group Annuity Purchase Primer Issue Brief

The Pension Committee released an issue brief, Buy-Out Group Annuity Purchase Primer—Pension Plan Sponsor’s Role and Considerations.

A traditional pension plan is designed to provide participants with a steady stream of income once the participant retires. Plan sponsors are increasingly active in transferring the responsibility for making pension payments, and the associated risks, to another party. This issue brief focuses on “buy-out” annuity contract transactions, one of the ways pension plan sponsors transfer pension payment responsibilities and associated risks to other parties. A webinar on this issue brief is slated for this fall.

Academy ERISA Advisory Council Presentation

The issue brief was also submitted to the U.S. Department of Labor’s ERISA Advisory Council for consideration in advance of the council’s July 18 public meeting on pension risk transfers. At the meeting, Academy Senior Life Fellow Nancy Bennett and Paul Navratil, chairperson of the Life Investment and Capital Adequacy Committee, gave an overview of life insurance regulations focused on the regulatory framework governing solvency requirements, including the establishment of liabilities and required capital for benefit obligations that are the result of a pension risk transfer.

Webinar Examines Fixed Rate Pension Funding

The May 18 pension webinar, “Fixed Rate Pension Funding: A Discussion of the Practice Note,” featured presenters who examined the Public Plans Committee’s February practice note, Fixed Rate Pension Funding.

While public sector pension plan contributions are often made based on the actuarial calculations, many public plans make contributions that are simply a statutory fixed contribution rate without explicit respect to the actuarially determined contribution.

During this webinar, our speakers walked through the new practice note. Attendees heard about current and emerging ideas for working with these plans.

Slides and an on-demand recording are available as a member benefit.

Public Policy Outreach

Senior Pension Fellow Linda K. Stone met with Republican and Democratic Senate Finance Committee staff members assigned to work on Social Security issues.

The Academy’s strategic outreach on public policy topics continued in June with a presentation to the Actuaries’ Club of the Southwest. Social Security Committee member Jerry Mingione delivered a virtual presentation addressing “Social Security Financial Challenges and Reform Options.” He gave an overview of Social Security’s financial condition, key drivers of the program’s financing, and reform options, with insights from Academy resources, including issue briefs and the Social Security Challenge.

Pension Public Policy News in Brief

• The Pension Committee in June released a practice note, Selecting and Documenting Pension Assumptions Other Than Discount Rate, Investment Return, and Mortality, updating a 2009 practice note. The practice note was revised to reflect updated actuarial standards of practice (ASOPs), including changes in ASOP Nos. 27 and 35, effective for actuarial reports issued on or after Aug. 1, 2021.
• Also in June, the Pension, Multiemployer Plans, and Public Plans committees submitted comments to the Actuarial Standards Board regarding proposed revision of ASOP Nos. 27 and 35.
• The Lifetime Income Joint Risk Committee released Experience-Sharing Lifetime Income (ESLI), an issue brief considering the ESLI retirement income scheme being used in many other countries, which shares features of both lifetime annuities and structured drawdowns.