The Advocator

According to a report released by the Congressional Budget Office (“CBO”) on October 2, 2012 (the report can be found here), the Social Security Disability Insurance (“SSDI”) trust fund will be exhausted in fiscal year 2016 under current law.  According to the report, if a “trust fund’s balance falls to zero and current revenues are insufficient to cover the benefits that are specified in law, the Social Security Administration does not have legal authority to pay full benefits when they are due.”  

To better understand the situation, it is helpful to have a slightly more thorough understanding of how the Social Security trust funds work:

Revenues from the taxes we pay, along with interest earned by the funds held by the government, are credited to Social Security’s two trust funds – one trust fund is for retirement benefits and the other is for disability benefits – and the benefits received by retired and disabled individuals are paid from those funds on a monthly basis.  While the two trust funds are legally separate, the funds are often described collectively as the OASDI trust funds and in practice, funds from one trust fund can be transferred to the other trust fund when necessary. 

In 2010, for the first time since 1983, annual payments made out of the trust funds exceeded the amount of taxes that were paid into the trust funds, essentially meaning that the trust funds lost money.  Then, in 2011, payments exceeded tax revenues by 4%, meaning that the trust funds lost money again.  According to last week’s CBO report, this gap will average about 10% each year over the next decade.  Why?  It is simply a matter of demographics – each time a baby-boomer reaches retirement age or is forced to rely on disability benefits due to a life changing injury or illness, the trust funds take on an additional payment and lose a tax payer.  “As a result, the gap will grow larger in the 2020s and will exceed 20 percent of revenues by 2030.”

While the idea that Social Security may eventually have to start paying reduced benefits is a critical issue and one that has received a lot of attention as of late, there is an important sentence in the report that identifies the simplest potential solution to the problem – “In 1994, legislation redirected revenues from the OASI trust fund to prevent the imminent exhaustion of the DI trust fund.”  The fact is, this has happened before and there are a number of strategies that can be employed to ensure that the disability trust fund does not become insolvent and that those who rely on Social Security benefits for monthly income do not see a reduction in benefits.  From slightly raising the retirement age, to slightly tweaking the Social Security tax rate, to the most obvious solution of shifting resources from one trust fund to the other, the majority of policy experts have recognized that the long term problem can be fixed relatively easily. 

Having helped thousands of tax paying workers forced to rely on Social Security benefits while recovering from a life changing disability, any potential reduction in these benefits is of significant interest to us.  As always, we will continue to keep an eye out for any additional information and report back as it becomes available.