Old-Age, Survivors, and Disability Insurance: Financing Basis and Policy Under the 1958 Amendments

* Chief A c t u a r y , Socia l S e c u r i t y A d m i n i s t r a t ion . W HENEVER the congressional committees concerned with old-age, survivors, and disability insurance have considered amendments to the program, they have thoroughly studied the cost aspects of both the proposed benefit provisions and the current provisions from the point of view of maintaining its actuarial soundness. At the time the 1950 amendments were adopted, Congress expressed its belief that the program should be completely self-supporting from the contributions of covered individuals and employers, and i t repealed the provision permitting appropriations to the program from the general revenues of the Treasury. In the amendments of 1952, 1954, and 1956, Congress again indicated its conviction that the tax schedule in the law should make the program as nearly self-supporting as can be foreseen or, in other words, actuarially sound. I n the Social Security Amendments of 1958, Congress strongly reaffirmed this principle and acted to strengthen the financial basis of the program 2 by providing, in balance, for contribution income higher in the long run than the increased outgo due to the benefit changes. The concept of actuarial soundness as i t applies to old-age, survivors, and disability insurance differs considerably from its application to private insurance, although there are certain points of similarity—especially in comparison with private pension plans. The principal difference stems from the fact that a social insurance system can be assumed to be perpetual in nature, with a continuous flow of new entrants as a result of its compulsory character. I t may therefore be said that the old-age, survivors, and disability insurance program is actuarially sound if the estimates show that future income from contributions and from interest earnings on the accumulated trust funds will, in the long run, support the disbursements for benefits and administrative expenses. Future experience may be expected to vary from the actuarial cost estimates made now, but the intent that the program be self-supporting, or actuarially sound, is expressed in the law by using a contribution schedule that, according to an intermediate-cost estimate, results in the actuarial balance or approximate balance of the system. I t was estimated at the time of the 1952 amendments that the actuarial balance under that legislation would be virtually the same as in the estimates made for the 1950 amendments (table 1). The rise in earnings levels in the 3 preceding years was believed to about offset the increased cost resulting from the benefit liberalizations being made. Cost estimates prepared 2 years later—in 1954—indicated that the level-premium cost (the average long-range cost, based on discounting at interest, in relation to payroll) of the benefit disbursements and administrative expenses was somewhat more than 0.5 percent of payroll higher than the level-premium equivalent of the scheduled taxes (including allowance for interest on the existing trust fund). The 1954 amendments contained an ad-