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Beach Retreat: Annual Update of Essential Controller Skills

A Custom Designed BLI Public Seminar

Presented by Francis X. Ryan Business Learning Institute Provider

July 6th, 2016 – Clarion Resort Fontainebleau Hotel

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Annual Update of EssentialController Skills

Copyright 2016 Francis X. Ryan and Matthew X. Ryan

Course Perspective

With experience as CFO, COO, and board member:

Courses for “C”-Suite officers must be dealt with in more detail

Topics explored in detail to allow the financial executive to make informed decisions and to remain up to date on current hot topics

Series is designed to improve CPA Vision of “Broad Based Business Knowledge”

2Copyright 2016 Francis X. Ryan and Matthew X. Ryan

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Course Description

Economic “New Normal”Greater uncertainty/volatilityGreater oversightGreater risks

Profound challenges to financial executives. Organizations blind-sided with events outside

their control. Widely-taught business principles may not work

effectively.Macro-economic events may override all micro-

factors.3Copyright 2016 Francis X. Ryan and Matthew X. Ryan

Course Objectives Examine trends of unemployment and labor force participation Unemployment costs and rates by state Future of oil and gas prices and commodities Impact of Workers Compensation programs Future of medical care in the United States International economic issues on domestic operations Economic forecast for 2016-2017


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Course Approach

In each segment we will:Discuss background

Identify concerns

Discuss recommended solutions

Provide websites/sources for reference and assistance


1. Unemployment, labor force participation, employee engagement, worker’s

compensation


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Personnel Programs

The discussion of “Employee Engagement Trends” centered on turmoil in the employee sector with: Concerns of work-life balance Employee motivation Employee retention

In this section, the intent is to further the analysis to include areas of the effectiveness of staff personnel programs.

Employee turnover statistics are the motivation behind this aspect of the program.


Typical HR Functions

The functions of an effective human resources program include: Hiring qualified staff Retaining qualified staff Firing if necessary Pay Performance appraisals and promotions Training and Education Employee Benefits

How does your firm’s HR Program rate on the above?


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Macroeconomic TrendsSee Appendices 1 and 2

The civilian unemployment rate has dropped to 4.9% in February 2016

The labor force participation rate has begun to increase slightly to 62.9% in February 2016 but still well below averages since the mid-1970’s

Real incomes have shown sporadic increases and decreases

Birthrates have dropped considerably

Sources of information:

St. Louis Federal Reserve (FRED) system

Bureau of Labor Statistics



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U.S. Birth Rate


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Employee Turnover -Professionals Forbes study on employee engagement suggests it is

time to rethink the concept of employee engagement in its entirety.

Turnover statistics by department will shed light on problem areas to focus on for the organization.

The starting point, however, for any analysis of turnover must be on the strategic intent of the company.

The firm must determine what is the driving goal of the organization relative to nurturing or not nurturing long term employee involvement.


Personnel Program - Problems Long term programs for employee retention have been

significantly cutback during the recession.

Tendency to treat all employees as equal performers.

Stress and difficulty of balancing demanding work loads.

High student debt loads from undergraduate and graduate schools

Increased retirement ages for all younger employees compared to their older associates.

Decline of defined benefit retirement plans.

Cutbacks on 401-K match during difficult economic times.

Increased employee contributions to health plans.


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Personnel Program - Concerns

There is more than just tangential evidence to indicate that top performers feel that they must “fend” for themselves in the workforce.

During stressful economic times, staff retention of qualified staff is critical to survival.

Many firms lack sufficient succession plans to remain viable in the long run.

There is a greater degree of reluctance on the part of small to mid-size firms to pay for less competent CPA services.


Personnel Program -Recommendations Develop a close working relationship with colleges and

universities for recruiting. Improve performance appraisal systems within your

firm to make sure that performance is recognized. Ensure that finance positions are reviewed to

determine level of experience needed for a position. Many accounting positions do NOT require an accounting

degree. Monitor turnover statistics to determine if there is a

leadership problem within departments.


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Personnel Program -Recommendations Develop a mentoring program for employees – care must be

given to avoid bias in promotions. Develop an internship program if appropriate to ensure both

associate and firm know what they are getting into. Avoid ending 401-k match programs during difficult times. Avoid pay raises that are not consequential or linked to

performance. Consider assisting in retiring student loans (controversial). Acknowledge employee performance with non-monetary

rewards/awards. Hire competent legal counsel for guidance.


2. Future of Workmen’s Compensation and disability

programs


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What is disability?

A disability has various definitions depending upon the law governing the disability under question.

Each state site for Workers Compensation laws can be found at the Department of Labor.

"Disability" under Social Security is based on your inability to work. We consider you disabled under Social Security rules if:

You cannot do work that you did before;

We decide that you cannot adjust to other work because of your medical condition(s); and

Your disability has lasted or is expected to last for at least one year or to result in death.”


www.disability.gov

www.disability.gov is a federal government website which guides citizens through the myriad of programs available for those with disabilities.

“Disability.gov connects you to important information about disability benefits, health care, and housing programs, as well as tools and resources for students making the transition from high school to college or work. You'll also learn about programs in your community that can help you find a job, access transportation and get the services and supports you need to live independently. Let Disability.gov guide you to the information you're looking for”


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What is the issue?

According to the Council for Disability Awareness, disability is steadily rising in the American work force and having a significant impact on worker productivity and the lives of their families.

The “disability calculator”, Appendix 3, provides guidance that disability factors include: Age/GenderOccupation Body Mass Index Tobacco LifestyleMedical conditions


Probability of disability

There is great misunderstanding of the probability of disability in the workforce.

Encourage your management team to take the disability quiz.

The quiz is found in Appendix 4.

Workers Compensation rankings by state can be found in Appendices 5 and 6.


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Workmen’s Compensation

Workmen’s compensation is made up of federal and state laws and programs designed to provide benefits to workers who are injured on the job.

Workmen’s compensation laws vary greatly by state and change often.

Workmen’s compensation rates are impacted by the job classification of the employee and the experience modification of the employer for that category of employee


Workmen’s compensation benefits include: Medical bills

Hospital bills

Lost wages

Rehabilitation of the worker

Medications

Mileage to practitioners

Permanent or temporary nature of the injury affects the benefit

Source: Workmen’s Comp Resource Center


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Disability and workmen’s compensation concerns The costs of workmen’s compensation insurance have

been increasing rapidly for almost 10 years

The experience modification for worker’s injuries have far reaching impact on the costs to the company since exp mod’s are typically most significantly affected by the most recent three years of history

Competitiveness is affected by workmen’s compensation and disability issues.

There may be significant OSHA implications to uncontrolled workmen’s compensation issues.


Disability and workmen’s compensation recommendations Appoint the HR department to monitor all classifications

of employees for insurance cost purposes

Provide review of ALL workmen’s compensation claims to determine safety and weaknesses in your organization

Develop a “failure” analysis of why each workmen’s compensation claim occurred

Provide “light duty” work for injured workers after receiving advice of counsel

Hire expert labor counsel to guide you BEFORE acting.

Ensure HR and Finance review WC premiums, reserves, and costs of lost time, premiums, and productivity.


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3. The future of medical care, impact on your associates, and

your costs


Future of Medical Care

The ACA has had wide ranging impact in the U. S.

The impact on the cost of health care has not (as of March 2016) been as expected and costs have risen.

The health care system appears to be gearing to a two tier health care system of “government sponsored” healthcare and private health care

There has been a major increase in concierge service type health care.


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How the Health Care Law Benefits your associates When the law was passed the intent was for the

following primary benefits of the ACA

Primary benefits:

Better value by making sure 80% of premium goes to care

Transparency on health care rates

Stronger consumer protections

Free preventive services

Comprehensive coverage

Better options for access to quality, affordable coverage


Future of medical care – the impact on your associates The new inequality – higher income workers receive

better healthcare than lower income workers. Sources:CNN Money and the Commonwealth Fund

Gap in health coverage is increasing and not decreasing in areas such as: More doctors for wealthier Americans Better treatment for wealthier Americans Better health for wealthier Americans

Concierge Medicine is growing for middle income Americans and is helping to create a two-tier medical system: those with health care and those with health insurance.

Employers are sharing more of costs increases with employees


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Future of medical care – concerns The costs of employer provided healthcare are expected

to continue to increase in the range of 6.5% annually –U. S. average but some states seeing relief.

The “cost” to cover employees for health insurance may not be recoverable from customers or the market place, putting additional strains on profit margins or hiring.

Employers will be forced to rethink whether or not health insurance is an employer responsibility, meaning that more employers will consider grossing up salary and having employees pay for their own coverage.

Spousal coverage will become a major “hot” button with employees

Employers will start to consider single payor plans as a reasonable alternative – choose insurance over care


Future of medical care –recommendations Avoid eliminating types of coverage for employees or

their spouses without looking at the impact on retention of key employees.

Examine the total cost of an employee and the value of the position and look at productivity initiatives to improve cost/benefit considerations.

Develop reasonable analysis of health improvement initiatives as well as health care prevention care

Develop measures of effectiveness for health care costs Appoint ONE person responsible for developing control

programs for health care costs and programs Hire appropriate and COMPETENT legal counsel to

guide you through the maze of health care issues.


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4. The future of social security, retirement planning, and employee

retention


Why the concern about retirement? Increasing perception that social security will not be

available for younger workers.

All social security trust funds are invested in U. S. government securities

Quantitative Easing has ended after $4 Trillion in stimulus and the short term interest rate projection from the Federal Reserve is to keep interest rates low.

Further depletion of social security trust funds with retiring baby boomers is lowering “default date”

Employers have migrated away from defined benefit pension plans


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Social Security

The 2015 trust fund report, Appendix 7, shows that the expected cash flow deficit into the fund to be $76 Billion per year from 2015 to 2018 before rising steeply thereafter. (see page 4 of the report)

The disability fund is expected to be depleted in late 2016

Social Security trust funds are expected to be depleted by 2034, a year later than reported previously

Social Security Medicare trust funds are expected to be depleted by 2030, four years later than in the 2012 report and the same as in the 2014 report.


Social Security Trust Funds

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“How Has the Financial Outlook for Social Security and Medicare Changed Since Last Year?

The projected 75-year actuarial deficit for the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI)Trust Funds is 2.68 percent of taxable payroll, down from 2.88 percent projected in last year’s report. This deficit amounts to 20 percent of program non-interest income or 16 percent of program cost. A 0.06 percentage point increase in the OASDI actuarial deficit would have been expected if nothing had changed other than the one-year extension of the valuation period to 2089. The effects of recently enacted legislation, updated demographic and economic data, and improved methodologies on net improved the actuarial deficit by 0.26 percent of taxable payroll.”

Copyright 2016 Francis X. Ryan and Matthew X. Ryan

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Medicare HI Trust Fund

“The HI Trust Fund’s projected long-term actuarial imbalance is smaller than that of the combined Social Security trust funds under the intermediate assumptions employed in the 2015 Trustees Report. The estimated 75-year actuarial deficit in the HI Trust Fund is 0.68 percent of taxable payroll, which amounts to 18 percent of tax receipts or 15 percent of program cost. This estimate is down from 0.87 percent projected in last year’s report, in large part due to a change in the projection methodology that results in a lower estimate for long-range health care cost growth for HI and other parts of Medicare.”

37Copyright 2014, 2015 and 2016 Francis

X. Ryan and Matthew X. Ryan

Defined Contribution Plans

The ICI report for 2015 shows the following (see ici.org) Plan withdrawals continued to be low Contribution activity remained high with few stopping

contributions Asset allocations remained consistent despite market gains Participant loan activity remained elevated and consistent with

the last five years



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Retirement Planning Concerns

The “three-tiered” retirement plans for workers is creating a problem for employers 1st tier – old style defined benefit plans 2nd tier – defined contribution plans 3rd tier – those employers relying on social security only

Shortfalls in funding for social security suggest increases in social security contributions of as much as 4% to be shared by employers and employees is needed to fund the system.


Retirement Planning Concerns

The deficiency of assets set aside by employees is such that sufficient assets have NOT been set aside by either employees or employers in the 2nd and 3rd tier groups

Retirement options for employees may become an employer problem in the coming 10 to 15 years.

The “burden” of retirement planning may shift completely away from the employer in some industries

Most employees are not well versed in retirement planning such that problems with fund shortfalls becomes readily apparent.



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Retirement Planning Recommendations Task the HR department to track retirement plan

activities in your organization Develop a measure of effectiveness or metric to track

employee sensitivity to retirement issues Determine if retirement options are positively or

negatively affecting retention of key employees Provide training in retirement needs analysis through

plan trustees Retain appropriate legal counsel


5. International Economic Issues


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Competing Globally - China

2nd largest economy $9.2 trillion (nominal)

World’s top manufacturer

#1 Exporter

#2 Importer

Growth rates ~10% annually for 30 years 1978: China one of the poorest countries in the world

2014: 7.4% GDP growth

2015: estimated 6.8-7% growth

43 Copyright 2016 Francis X. Ryan and Matthew X. Ryan

Competing Globally - China

Things to consider: Growth fueled by infrastructure investment

Ghost cities?

Bank Assets since 2008: U.S.: +$2.1 trillion

China: +$15.4 trillion (total $23 trillion)

Credit bubble in China? Shadow banking, easy credit

Credit to GDP: 75% to 200% in <5 years


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Competing Globally - India

10th largest economy (nominal)

Inflation averaged 9.7% (2012-2014)

GDP estimated at ~5.0-6.4% into 2015

Narendra Modi, new Prime Minister Indian National Congress Party in power since 1947

Modi very pro-business: will most likely try to lure technology and healthcare workers back to India

Tightened monetary policy, narrowing fiscal imbalances, structural reforms

2005: Modi denied VISA to United States


Competing Globally - Brazil

World’s 7th largest economy

Host of 2014 World Cup, 2016 Summer Olympics

GDP growth slowed considerably in 2011-2012 7.5% to 2.7% to 0.9%

High levels of inequality (economic & geographic), but poverty has dropped considerably

High foreign reserves ($380 billion)


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Competing Globally - Brazil

Risks Protests/demonstrations in 2013 in the absence of

high unemployment (5%) and decreasing quality of life

Political corruption, income inequality, failing education and healthcare systems

Presidential election – Oct 2014 (runoff, incumbent Dilma Rousseff won 51.6% to 48.4%)

OECD gives negative economic outlook to all BRICs

Inflation increase to 6.28%

Benchmark interest rate at 11% (up 375 bps in 1 year)


Competing Globally - Argentina

World’s 22nd largest economy (PPP) 18.2% inflation

Private economists estimate 40% Official economic statistics viewed as unreliable

2007: President Kirchner fired 22 employees responsible for CPI; growing gap between official and unofficial consumer prices

Presidential election in Oct. 2015 (Cristina Fernandez de Kirchner unable to run for 3rd

consecutive term)

Sept 18: Congress approved a law allowing the government to set prices and profits (to combat inflation)


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Competing Globally - Argentina

2002: $100 billion bond default (millions pushed into poverty)

Following 2014 default, Citibank and Argentina sued to allow payments to continue Sept 19: Federal Appeals Court ruled it did not

have jurisdiction; sent case back to NY District Judge

Argentina further asked the UN to adopt a multi-lateral framework for sovereign debt restructurings

Non-binding resolution passed 124-11 (U.S. was No vote)


Competing Globally – Middle East & N.Africa

Arab Spring uprisings since 2011 has caused a “tale of two countries” Those affected by unrest have seen stagnate

growth (best case) or substantial contractions (Syria, Iran, Libya)

Those relatively unaffected have boomed as a result of stimulus spending and oil prices

BUT: recent drop in oil prices has caused more instability in the region (Iran)


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Competing Globally – Middle East & N.Africa

2015 and beyond (cont)

International reach and quick growth of Sunni insurgent group ISIS/ISIL

Estimated 4,000 insurgents in 2013

Estimated 20,000-100,000 as of late 2014

Foiled attack in Australia and other foreign countries

Several hundred Americans suspected of being part of the group (40-50 on American soil)


Competing Globally - Ukraine

Election May 25th, 2014

Petro Poroshenko declared victory (55%) Businessman, entered race March 29th, 2014

Continued unrest risks: Higher energy prices (Europe)

Slower economic growth (due to energy costs) GDP growth in Eastern Europe & Turkey cut in half

Lower yields in U.S. Treasuries & German Bunds

Continued volatility in the financial markets

Russia: 3 failed Treasury auctions in Moscow, financing difficulties for businesses dealing with Russia, growth forecast cut from 2.5% to 0%


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Competing Globally - Turkey “Gateway” between EU and the Middle East

Slowing economic growth after boom period 9.2% and 8.5% in 2010-2011

Budget deficit from 10% to 3% of GDP from 2002-2011

Political protests plaguing the nation

Effect of ISIS and Syrian refugees Initial refusal to work with U.S. effect of support for

Kurds

Kobani on the Turkish-Syrian border

Effect of Russian influence: new energy deal Russia will increase gas supplies to Turkey

Russia will decrease gas prices by 6%


Competing Globally - Europe

Continued unrest in Ukraine and sanctions against Russia has led to increased energy costs throughout Europe.

GDP growth forecasts cut substantially throughout the region.

Decline in the value of the Euro against the USD and other currencies.


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Competing Globally - Europe

Greece: 2.9% and 1.4% contractions in 2014 and 2015 (32.4% unemployment)

Spain: 0.1%, 0.5%, and 0.7% growth in 2014-2016 (27.9% unemployment)

Italy: 0.1%, 0%, 0.2% growth in 2014-2016 (debt 140% of GDP)

Portugal: 0.6%, 0%, 1.0% growth 2014-2016 (debt 149% of GDP, unemployment 18.3%)

Many economists and analysts believe Europe may be in a “lost decade” Italy & Spain are #3 & 4 largest economies using the Euro

What if Germany went back to the deutsche mark?


Competing Globally Concerns

Global competition requires a commitment to the market.

Attempting to compete globally without marketing, national presence, legal and accounting planning is a recipe for disaster.

U. S. laws do not apply internationally (in most cases).

Understanding a target nation’s culture and heritage is crucial to success in the market place.

The concept of “saving face” and relationship marketing is very prevalent internationally.


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Competing Globally -Recommendations Develop an international strategy. Hire appropriate expertise to guide your

international decision making and strategy. Establish a strategy and identify a target market. Identify a resident expert and advisor(s) in the

target market. Develop cultural awareness. Understand that our “direct” approach to business

is not well received in many parts of the world. Understand the value of “saving face.”


6. The Way Ahead considering uncertainty and risk


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Uncertainty and Risk

Where is there uncertainty and risk? Professional skepticism requires us to be skeptical but

not cynical Risk and uncertainty exists in:

- health care- social security- pension reform- workmen’s compensation and disability- currency- interest rates- “Fate of the States”- National infrastructure



Implications for Business

Volatility in financial markets expected to increase and sovereign debt issues will likely surface

Borrowing rates expected to remain “unrealistically” low due to quantitative easing. The potential exists for a “bubble” in the corporate interest rate

markets.

Pension fund shortfalls expected to increase substantially due to Operation Twist and very low long term interest rates. This predominately affects public sector pensions.

The U.S. Deficit and debt loads may not be sustainable. The tools of the last depression are being used to halt

current economic problems.



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Recommendations

Manage financial capacity or sources of funds. Seek long term sources of debt to replace

revolving debt instruments. Ensure financial viability of your financial

institution. Interview other lenders and banking

relationships to keep a pipeline open. Manage cash flow and profitability more closely. Ensure employee programs are in place to

address employee work life balance issues. Become a futurist!!!!


Introduction – Frank Ryan MBA, CPA, CGMA Crisis Manager for troubled firms Syndicated author on economic and political issues Author of “Life Lessons Learned – Amazing Stories of my Walk

Across America for Children” www.colfrankryan.com Marine Colonel (Ret) – Iraq & Afghanistan Expert on Economic Warfare Former Interim CFO of a bank Extensive board experience Adjunct Faculty – accounting and economics Contact

(717) 891-2707 (cell) [email protected] @FrankRyanCPA


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Introduction – Matt Ryan MBA, CPA, CFE Financial services industry experience

Public accounting (regional firm in Pittsburgh) Hedge Fund/Alternative Investment accounting Internal Audit

Captain, PA Army National Guard Commander of Distribution/Logistics Company Executive Officer (XO) of Medical Company in Taji, Iraq Operations/Strategic Planning for a support battalion (750+ pax)

PICPA – Education Committee Former Treasurer – State Senate Campaign Committee Contact

(412) 215-2983 (cell) [email protected]


Thank YouFrancis X. Ryan, CPA, CGMA, MBA

Semper Finance, [email protected]

(717) 891-2707 (cell)

Matthew X. Ryan, CFE, CPA, MBASemper Finance, [email protected](412) 215-2983 (cell)

website: semperfinanceinc.com


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Data extracted on: March 9, 2016 (7:52:41 PM)

L a b o r F o r c e S t a t i s t i c s from the Current Population S u r v e y

S e r i e s Id: LNS14000000 Seasonally A d j u s t e d Series t i t l e : (Seas) Unemployment Rate Labor force status: Unemployment r a t e

Percent or r a t e 16 years and over

10-

8- / B- J 4-

01/06 01/07 01/06 01/08 01/10 01/11 01/12 01/13 01/14 01/15 01/16

Month

Download: Q k I m

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 4.7 4.8 ..4.7 4.7 4.6 4.6 4.7 4.7 4.5 4-4 4.5 4.4 2007 4.6 4.5 4.4 4 6 4.7 4.6 4.7 4.7 4.7 5.0 2008 5.0 4.9 5.1 5.0 5.4 5.6 5.8 6.1 6.1 6.5 6.8 7.3 2009 7.8 8.3 8.7 9.0 9.4 9.5 9.5 9.6 9.8 10.0 9.9 9.9 2010 9.8 9.8 9.9 9.9 9.6 9.4 9.4 9.5 9.5 9.4 9.8 9.3 2011 9.1 9.0 9.0 9.1 9.0 9.1 9.0 9.0 9.0 8.8 8.6 8.5 2012 8.3 8.3 8.2 8-2 8.2 8.2 8.2 8 1 7.8 7.8 7.7

7 - 9

2013 8.0 7.7 7.5 7.6 7.5 7.5 7.3 7.3 7.3 7.2 6.9 6.7 2014 6.6 6.7 6.7 6.2 6.2 6.1 6.2 6.2 6.0 5.7 5.8 5.6 2015 2016

5.7 4.9

5.5 4.9

5.5 5.4 5.5 5.3 5.3 5.1 5.1 5.0 5.0 5.0 2015 2016

5.7 4.9

5.5 4.9

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S e r i e s I d : Seasonally A d j u s t e d Series t i t l e : Labor force status: Type of data: Age:

LNS11300000

(Seas) Labor Force P a r t i c i p a t i o n Rate C i v i l i a n l a b o r f o r c e p a r t i c i p a t i o n r a t e Percent or r a t e 16 years and over

1948 1954 1980 1988 1972 1976 1984 1990 1896 2002 2008 2014

Month

Download: Q Bfc

Year 3an Feb Mar Apr May Jun Jul Aug SeP Oct Nov Dec 1948 58.6 58.9 58.5 59.0 58.3 59.2 59.3 58.9 58.9 58.7 58.7 59.1

1949 58.7 59.0 58.9 58.8 59.0 58.6 58.9 59.2 59.1 59.6 59.4 59.2

1950 58.9 58.9 58.8 59.2 59.1 59.4 59.1 59.5 59.2 59.4 59.3 59.2

1951 59.1 59.1 59.8 59.1 59.4 59.0 59.4 59.2 59.1 59.4 59.2 59.6

1952 59.5 59.5 58.9 58.8 59.1 59.1 58.9 58.7 59.2 58.7 59.1 59.2

1953 59.5 59.5 59.6 59.1 58.6 58.9 58.9 58.6 58.5 58.5 58.6 58.3 1954 58.6 593 59.1 59.2 58.9 58.5 58.4 58.7 59.2 58.8 58.6 58.1

1955 58.6 58.4 58.5 59.0 58.8 58.8 59.3 59.7 59.7 59.8 59.9 60.2 1956 60.2 59.9 59.8 59.9 60.2 60.1 60.1 60.0 60.0 59.8 59.8 59.8

1957 59.5 59.9 59.8 59.5 59.5 59.8 60.0 59.3 59.6 59.5 59.5 59.6

1958 59.3 59.3 59.3 59.6 59.8 59.5 59.6 59.8 59.7 59.6 59.2 59.2

1959 59.3 59.0 59.3 59.4* 59.2 59.2 59.4 59.2 59.3 59.4 59.1 59.5

1960 59.1 59.1 58.5 59.5 59.5 59.7 59.5 59.5 59.7 59.4 59.8 59.7

1961 59.6 59.6 59.7 59.3 59.4 59.7 59.3 59.3 59.0 59.1 59.1 58.8

1962 58.8 59.0 58.9 58.7 58.9 58.8 58.5~ 59.0 59.0 58.7 58.5 58.4

1963 58.6 58.6 58.6 58.8 58.8 58.5 58.7 58.5 58.7 58.8 58.8 58.5 1964 58.6 58.8 58.7 59.1 59.1 58.7 58.6 58.6 58.7 58.6 58.5 58.6

1965 58.6 58.7 58.7 58.8 59.0 58.8 59. r 58.9 58.7 58.9 58.8 59.0 1966 59.0 58.8 58.8 59.0 J59j0_ 59.1 59.1 59.3 59.3 59.3 59.6 59.5

1967 59.5 59.3 59.1 59.4 59.3 59.6 59.6 59.7 59.7 59.9 59.8 59.9 1968 59.2 59.6 59.6 59.5 59.9 60.0 59.8 59.6 59.5 59.5 59.6 59.7

http://data.bls.gov/pdq/SurveyOutputServlet 3/9/2016

Bureau of Labor Statistics Data Page 2 of 3

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1969 59.6 60.0 59.9 60.0 59.8 60.1 60.1 60.3 60.3 60.4 60.2 60.2

1970 60.4 60.4 60.6 60.6 60.3 60.2 60.4 60.3 60.2 60.4 60.4 60.4

1971 60.4 60.1 60.0 60.1 60.2 59.8 60.1 60.2 60.1 60.1 60.4 60.4

1972 60.2 60.2 60.5 60.4 60.4 60.4 60.4 60.6 60.4 60.3 60.3 60.5

1973 60.0 60.5 60.8 60.8 60.6 60.9 60.9 60.7 60.8 60.9 61.2 61.2

1974 61.3 61.4 61.3 61.1 61.2 61.2 61.4 61.2 61.4 61.3 61.3 j s T J 2 ]

1975 61.4 61.0 61.2 61.3 61.5 61.2 61.3 61.3 61.2 61.2 61.1 61.1

1976 61.3 61.3 61.3 61.6 61.5 61.5 61.8 61.8 61.6 61.6 61.9 61.8

1977 61.6 61.9 62.0 62.1 62.2 62.4 6 2 1 _ 62.3 62.3 62.4 62.8 62.7

1978 62.8 62.7 62.8 63.0 63.1 63.3 63.2 63.2 63.3 63.3 63.5 63.6

1979 ja.6~ 63.8 63.8 63.5 63.3 63.5 63.6 63.6 63.8 63.7 63.7 63.9

1980 64.0 64.0 63.7 63.8 63.9 63.7 63.8 63.7 63.6 63.7 63.8 63.6

1981 63.9 63.9 64.1 64.2 64.3 63.7 63.8 63.8 63.5 63.8 63.9 63.6

1982 63.7 63.8 63.8 63.9 64.2 63.9 64.0 64.1 64.1 64.1 64.2 64.1

1983 63.9 63.8 63.7 63.8 63.7 64.3 64.3 64.3 64.0 64.1 64.1

1984 63.9 64.1 64.1 64.3 64.5 64.6 64.6^ 64.4 64.4 64.4 6475 64.6

1985 64.7 64.9 6 4 ^ W.8 64.6 64.7 64.6 64.9 65.0 64.9 65.0

1986 64.9 65.0 65.1 65.1 65.2 65.4 65.4 65.3 65.4 65.4 65.4 65.3

1987 65.4 65.5 65.5 65.4 657 65.5 65.6 65.7 65.5 65.7 65.7 65.7 1988 65.8 65.9 65.7 65.8 65.7 65.8 65.9 66.1 65.9 66.0 66.1

1989 66.5 66.3 66.3 66.4 66.3 66.5 66.5 66.5 66.4 66.5 66.6 66.5

1990 66.8 66.7 66.7 66.6 66.6 66.4 66.5 66.5 66.4 66.4 66.4 66.4

1991 66.2 66.2 66.3 66.4 66.2 66.2 66.1 66.0 66.2 66.1 66.1 66.0

1992 66.3 66.2 66.4 66.5 66.6 66.7 66.7 66.6 66.5 66.2 66.3~ 66.3

1993 66.2 66.2 66.2 66.1 66.4 66.5 66.4 66.4 66.2 66.3 66.3 66.4

1994 66.6 66.6 66.5 66.5 66.6 66.4 66.4 66.6 66.6 66.7 66.7 66.7

1995 66.8 66.8 66.7 66.9 66.5 66.5 66.6 66.6 66.6 66.6 66.5 66.4

1996 66.4 66.6 66.6 66.7 66.7 66.7 66.9 66.7 66.9 67.0 67.0 67.0

1997 67.0 66.9 67.1 67.1 67.1 67.1 67.2 67.2 67.1 67.1 67.2 67.2

1998 67.1 67.1 67.1 67.0 67.0 67.0 67.0 67.0 67.2 67.2 67.1 67.2

1999 67.2 67.2 67.0 67.1 67.1 67.1 67.1 67.0 67.0 67.0 67.1 67.1

2000 67.3 67.3 67.3 67.3 67.1 67.1 66.9 66.9 66.9 66.8 66.9 67.0

2001 67.2 j672" 66.9 66.7 66.7 66.8 66.5 66.8 66.7 66.7 66.7

2002 66.5 66.8 66.6 66.7 66.7 66.6 66.5 66.6 66.7 66.6 66.4 66.3

2003 66.4 66.4 66.3 66.4 66.4 66.5 66.2 66.1 66.1 66.1 66.1 65.9

2004 66.1 66.0 66.0 65.9 66.0 66.1 66.1 66.0 65.8 65.9 66.0 65.9

2005 65.8 65.9 65.9 66.1 66.1 66.1 66.1 66.2 66.1 66.1 66.0 66.0

2006 66.0 66.1 66.2 66.1 66.1 66.2 66.1 66.2 66.1 66.2 66.3 66.4

2007 66.4 66.3 66.2 65.9 66.0 66.0 66.0 65.8 66.0 65.8 66.0 66.0

2008 66.2 66.0 66.1 65.9 66.1 66.1 66.1 66.1 66.0 66.0 65.9 65.8

2009 65.7 65.8 65.6 65.7 65.7 65.7 65.5 65.4 65.1 65.0 65.0 64.6

2010 64.8 64.9 64.9 65.2 64.9 64.6 64.6 64.7 64.6 64.4 64.6 64.3

2011 64.2 64.1 64.2 64.2 64.1 64.0 64,0 64.1 64.2 64.1 64.1 64.0

2012 63.7 63.8 63.8 63.7 63.7 63.8 63.7 63.5 63.7 63.8 63.6 63.7

2013 63.6 63.4 63.3 63.4 63.4 63.4 63.3 63.2 63.3 62.8 63.0 62.9

2014 62.9 63.0 63.2 62.8 62.8 62.8 62.9 62.9 62.8 52.9 62.9 62.7

2015 62.9 62.8 62.7 62.7 62.8 62.6 62~6 62.6 62.4 62.5 62.5 62.6

2016 62.7 62.9 i

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of 1

https://research.stlouisfed.org/fred2/series/A229RX0

Transmission of material in this release is embargoed until USDL-16-0329 8:30 a.m. (EST), Friday, February 19, 2016 Technical Information: (202) 691-6555 • [email protected] • www.bls.gov/ces Media Contact: (202) 691-5902 • [email protected]

REAL EARNINGS – JANUARY 2016 All employees Real average hourly earnings for all employees increased 0.4 percent from December to January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from a 0.5-percent increase in average hourly earnings combined with no change in the Consumer Price Index for All Urban Consumers (CPI-U). Real average weekly earnings increased 0.7 percent over the month due to the increase in real average hourly earnings combined with a 0.3-percent increase in the average workweek. Chart 1: Over-the-month percentage change in real average hourly earnings for all employees, seasonally adjusted, January 2015 – January 2016 Percent Change

Real average hourly earnings increased 1.1 percent, seasonally adjusted, from January 2015 to January 2016. This increase in real average hourly earnings combined with no change in the average workweek resulted in a 1.2-percent increase in real average weekly earnings over this period.

1.2

-0.1

0.1 0.1

-0.1-0.3

0.20.4

0.20.0 0.1 0.2

0.4

-1.0

0.0

1.0

2.0

Jan '15 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan '16

Production and nonsupervisory employees Real average hourly earnings for production and nonsupervisory employees increased 0.3 percent from December to January, seasonally adjusted. This result stems from a 0.3-percent increase in average hourly earnings combined with no change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Real average weekly earnings increased 0.3 percent over the month due to the increase in real average hourly earnings combined with no change in average weekly hours. Chart 2: Over-the-month percentage change in real average hourly earnings for production and nonsupervisory employees, seasonally adjusted, January 2015 – January 2016 Percent Change

From January 2015 to January 2016, real average hourly earnings increased 1.3 percent, seasonally adjusted. The increase in real average hourly earnings combined with no change in the average workweek resulted in a 1.3-percent increase in real average weekly earnings over this period. ______________ Real Earnings for February 2016 is scheduled to be released on Wednesday, March 16, 2016 at 8:30 a.m. (EDT).

Revisions to Real Earnings Data

The seasonally adjusted constant dollar series presented in this release have been revised to reflect new seasonal adjustment factors calculated for the CPI-U and CPI-W. This revision affects real earnings for both all employees and production and nonsupervisory employees from January 2011 through December 2015. The estimates of average weekly hours and average hourly and weekly earnings have been revised with the release of January data to reflect new employment benchmarks, and the updating of seasonal adjustment factors. Unadjusted data have been revised from April 2014 forward. In addition, seasonally adjusted hours and earnings series have been revised from January 2011 forward in accordance with the usual practice of revising 5 years of data. Data for some series prior to 2011, both seasonally adjusted and unadjusted, incorporate other revisions.

1.3

-0.1

0.0 0.1

-0.1 -0.1

0.10.3 0.2 0.2

-0.1

0.4 0.3

-1.0

0.0

1.0

2.0

Jan '15 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan '16

Table A-1. Current and real (constant 1982-1984 dollars) earnings for all employees on private nonfarmpayrolls, seasonally adjusted

Jan.2015

Nov.2015

Dec.2015p

Jan.2016p

Real average hourly earnings1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.54 $10.60 $10.62 $10.66

Real average weekly earnings1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $364.62 $365.85 $366.25 $368.95

Consumer Price Index for All Urban Consumers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234.954 238.302 238.041 238.107

Average hourly earnings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24.76 $25.27 $25.27 $25.39

Average weekly hours. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.6 34.5 34.5 34.6

Average weekly earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $856.70 $871.82 $871.82 $878.49

OVER-THE-MONTH PERCENT CHANGE

Real average hourly earnings1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 0.1 0.2 0.4

Real average weekly earnings1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 0.1 0.1 0.7

Consumer Price Index for All Urban Consumers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0.6 0.1 -0.1 0.0

Average hourly earnings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.2 0.0 0.5


Average weekly earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.2 0.0 0.8

OVER-THE-YEAR PERCENT CHANGE



Consumer Price Index for All Urban Consumers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0.2 0.4 0.7 1.3


Average weekly hours. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 -0.3 -0.3 0.0


1 The Consumer Price Index for All Urban Consumers (CPI-U) is used to deflate the earnings series for all employees.

p Preliminary

Table A-2. Current and real (constant 1982-1984 dollars) earnings for production and nonsupervisoryemployees on private nonfarm payrolls, seasonally adjusted1

Jan.2015

Nov.2015

Dec.2015p

Jan.2016p

Real average hourly earnings2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9.06 $9.11 $9.15 $9.18

Real average weekly earnings2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $306.13 $307.16 $309.20 $310.17

Consumer Price Index for Urban Wage Earners and Clerical Workers. . . . . . . . . . . 229.768 232.922 232.513 232.435

Average hourly earnings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20.81 $21.23 $21.27 $21.33


Average weekly earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $703.38 $715.45 $718.93 $720.95

OVER-THE-MONTH PERCENT CHANGE

Real average hourly earnings2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 -0.1 0.4 0.3

Real average weekly earnings2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 -0.1 0.7 0.3

Consumer Price Index for Urban Wage Earners and Clerical Workers. . . . . . . . . . . -0.9 0.2 -0.2 0.0




OVER-THE-YEAR PERCENT CHANGE



Consumer Price Index for Urban Wage Earners and Clerical Workers. . . . . . . . . . . -0.9 0.0 0.3 1.2


Average weekly hours. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9 -0.3 0.0 0.0


1 Data relate to production employees in mining and logging and manufacturing, construction employees in construction, and nonsupervisoryemployees in the service-providing industries. These groups account for approximately four-fifths of the total employment on private nonfarmpayrolls.

2 The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to deflate the earnings series for production andnonsupervisory employees.

p Preliminary

Explanatory Note The earnings series presented in this release are derived from the Bureau of Labor Statistics’ Current Employment Statistics (CES) survey, a monthly establishment survey of employment, payroll, and hours. The deflators used for constant-dollar earnings series presented in this release come from the Consumer Price Indexes Programs. The Consumer Price Index for All Urban Consumers (CPI-U) is used to deflate the all employees series, while the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to deflate the production employees series. Seasonally adjusted data are used for estimates of percent change from the same month a year ago for current and constant average hourly and weekly earnings. Special techniques are applied to the CES hours and earnings data in the seasonal adjustment process to mitigate the effect of certain calendar-related fluctuations. Thus, over-the-year changes of these hours and earnings are best measured using seasonally adjusted series. A discussion of the calendar-related fluctuations in the hours and earnings data and the special techniques to remove them is available in the February 2004 issue of Employment and Earnings or on the Internet under ‘Technical Notes’ (http://www.bls.gov/ces/). Earnings series from the monthly establishment series are estimated arithmetic averages (means) of the hourly and weekly earnings of all jobs in the private nonfarm sector of the economy, as well as of all production and nonsupervisory jobs in the private nonfarm sector of the economy. Average hourly earnings estimates are derived by dividing the estimated industry payroll by the corresponding paid hours. Average weekly hours estimates are similarly derived by dividing estimated aggregate hours by the corresponding number of jobs. Average weekly earnings estimates are derived by multiplying the average hourly earnings and the average weekly hours estimates. This is equivalent to dividing the estimated payroll by the corresponding number of jobs The weekly and hourly earnings estimates for aggregate industries, such as the major industry sector and the total private sector averages printed in this release, are derived by summing the corresponding payroll, hours, and employment estimates of the component industries. As a result, each industry receives a "weight" in the published averages that corresponds to its current level of activity (employment or total hours). This further implies that fluctuations and varying trends in employment in high-wage versus low-wage industries as well as wage rate changes influence the earnings averages.

There are several characteristics of the series presented in this release that limit their suitability for some types of economic analyses. (1) The denominator for the all employee weekly earnings series is the number of private nonfarm jobs. Similarly, the denominator of the production employee weekly earnings series is the number of private nonfarm production and nonsupervisory employee jobs. This number includes full-time and part-time jobs as well as the jobs held by multiple jobholders in the private nonfarm sector. These factors tend to result in weekly earnings averages significantly lower than the corresponding numbers for full-time jobs. (2) Annual earnings averages can differ significantly from the result obtained by multiplying average weekly earnings times 52 weeks. The difference may be due to factors such as turnovers and layoffs. (3) The series are the average earnings of all employees or all production and nonsupervisory jobs, not the earnings average of "typical" jobs or jobs held by "typical" workers. Specifically, there are no adjustments for occupational, age, or schooling variations or for household type or location. Many studies have established the significance of these factors and that their impact varies over time. Seasonally adjusted data are preferred by some users for analyzing general earnings trends in the economy since they eliminate the effect of changes that normally occur at the same time and in about the same magnitude each year and, therefore, reveal the underlying trends and cyclical movements. Changes in average earnings may be due to seasonal changes in the proportion of workers in high-wage and low-wage industries or occupations or to seasonal changes in the amount of overtime work, and so on. For more information, see Thomas Gavett, "Measures of Change in Real Wages and Earnings," Monthly Labor Review, February 1972. Information in this release will be made available to sensory impaired individuals upon request. Voice phone: 202-691-5200; TDD Message Referral Phone Number: 1-800-877-8339.

WHAT’S YOURPERSONAL DISABILITYQUOTIENT (PDQ)?

IT’S THE NUMBERSO MUCH DEPENDS ON.

1. AGE/GENDER pointsWhat is your age? male female your points<25 18 22

25-34 13 16

35-44 9 10

45-54 1 1

55+ 0 0

2. OCCUPATIONWhat kind of work do you do? points your pointsMostly office work/indoors 0

Little office work/indoors 8

Little physical work/outdoors 18

Mostly physical work/outdoors 20

3. BODY MASS INDEXDo you consider yourself to be... points your pointsAbout the right size 0

Underweight 0

Overweight 8

Obese 21

4. TOBACCOHave you used tobacco products in the past year?

points your pointsYes 10

No 0

5. LIFESTYLEHow healthy is your lifestyle? Consider regular physicalexams, regular exercise, stress, sleep and eating habits,drug or alcohol abuse.

points your pointsVery healthy 0

About average 3

Not very healthy 7

6. MEDICAL CONDITIONSDo you have or are you undergoing treatment for: diabetes,high blood pressure, high cholesterol, heart disease, cancer,chronic back or joint pain, drug, alcohol or food addiction,anxiety or depression?

points your pointsNo 0

Yes 12

YOUR TOTAL POINTSWhat do your above numbers add up to?

See other side to finalize your PDQ...

My PDQ is:

14%My PDQ is:

29%My PDQ is:

45%

Your PDQ represents your chance of

becoming seriously ill or injured and

unable to work for an extended period

of time. And with so much riding on

your ability to earn an income, it’s

one very important number to know.

To calculate your PDQ, you’ll need

to answer six simple questions.

Minimize Your Risk

Visit www.DisabilityCanHappen.orgto learn:

Five Questions every worker

should ask.

How to prepare a Financial

Security Plan.

Wellness tips to help you embrace

a healthy lifestyle.

About the Personal Disability Quotient (PDQ). The Personal Disability Quotient and the PDQ Calculatorwere developed by the Council for Disability Awareness. The statistical basis for the PDQ Calculator isthe 1985 Commissioners’ Individual Disability Tables A and C, Society of Actuaries.

About the Council for Disability Awareness (CDA). The CDA is a non-profit group dedicated tohelping the American workforce become aware of the growing likelihood of disability and its financialconsequences. For more information, visit www.DisabilityCanHappen.org. For questions about thePDQ or CDA, please call 207.774.2634.

COPY YOUR TOTAL POINTSFROM FRONT

YOUR CHANCE OF BECOMING DISABLEDCheck the box that reflects your total points below. Read across to see your estimated chance ofbecoming disabled and unable to work for three months or longer before the age of 65.

less than 25 points 5-25% chance (below average)

25-35 points 25-35% chance (about average)

36-49 points 35-50% chance (above average)

50+ points 50% or more chance (significantly above average)

THE LENGTH OF TIME YOUR DISABILITY MAY LASTFind your age, then read across to see the estimated length of time your disability may last.

Average Your probabilitylength of of disability* lasting

Age your disability* 5 years or more

20-24 69 months 30%

25-29 74 months 32%

30-34 78 months 35%

35-39 82 months 38%

40-44 85 months 40%

45-49 86 months 43%

50-54 86 months 45%

55+ 84 months 46%

NNEEXXTT SSTTEEPPSS

1. Visit www.WhatsMyPDQ.org for an interactive version of the PDQ and to estimate the financial impact of a disability.

2. Seek planning advice from your financial adviser or your employer’s human resources professional.

*For disabilities lasting three months or longer.

About the Council for Disability Awareness About the Council

Visit the CDA website for more information: www.disabilitycanhappen.org

The Council for Disability Awareness

Disability Awareness "Quick Quiz"

Three in 10 workers entering the work force today will become

disabled before retiring.

� �

Most disabling injuries occur on the job.

� �

Working men are more likely to become disabled than working

women.

� �

Most working families in America live paycheck to paycheck.

� �

An illness or accident will keep 1 in 5 workers out of work for a

year sometime during their working career.

� �

Most Americans don’t have enough savings to meet short-term

emergencies.

� �

More mortgage foreclosures are caused by premature death than

disability.

� �

Most workers receiving Social Security disability benefits are over

55 years old.

� �

Employers may contribute to disabled employees’ 401K plans

even if they are not earning an income.

� �

Most workers today have discussed how they would financially

handle a period of disability.

� �

About the Council for Disability Awareness About the Council

Visit the CDA website for more information: www.disabilitycanhappen.org

The Council for Disability Awareness

Disability Awareness "Quick Quiz"

Answers

Three in 10 workers entering the work force today will become disabled before

retiring. TRUE - Social Security Administration, Fact Sheet, January 31, 2007

Most disabling injuries occur on the job.

FALSE - Over 90% of disabling accidents and illnesses are not work related. National Safety Council, Injury Facts 2004 ed.

Working men are more likely to become disabled than working women.

FALSE - Among workers with disabilities in the U.S., 52% are women. Cornell University 2005 Disability Status Report

Most working families in America live paycheck to paycheck. TRUE - Parade Magazine, Is the American Dream Still Possible? April 23, 2006

An illness or accident will keep 1 in 5 workers out of work for a year sometime during

their working career. TRUE - US Census Bureau, December 1997

Most Americans don’t have enough savings to meet short-term emergencies. TRUE - 2004 National Investment Watch Survey

More mortgage foreclosures are caused by premature death than disability.

FALSE - Disability causes nearly 50% of all mortgage foreclosures, premature death

causes 2%. Health Affairs, the Policy Journal of the Health Sphere, 2 February 2005

Most workers receiving Social Security disability benefits are over 55 years old.

FALSE - 56% of workers receiving Social Security disability benefits are under 55.

The average age is 52. Social Security Administration 2007 Annual Statistical Report

Employers may contribute to disabled employees’ 401K plans even if they are not

earning an income.

FALSE - 401K contributions must come from earned income. Internal Revenue Service

Most workers today have discussed how they would financially handle a period of

disability.

FALSE - Nearly 60 percent of workers have not discussed how they would handle or

manage an income-limiting disability. CDA 2007 Disability Awareness Survey

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Month

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Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 4.7 4.8 ..4.7 4.7 4.6 4.6 4.7 4.7 4.5 4-4 4.5 4.4 2007 4.6 4.5 4.4 4 6 4.7 4.6 4.7 4.7 4.7 5.0 2008 5.0 4.9 5.1 5.0 5.4 5.6 5.8 6.1 6.1 6.5 6.8 7.3 2009 7.8 8.3 8.7 9.0 9.4 9.5 9.5 9.6 9.8 10.0 9.9 9.9 2010 9.8 9.8 9.9 9.9 9.6 9.4 9.4 9.5 9.5 9.4 9.8 9.3 2011 9.1 9.0 9.0 9.1 9.0 9.1 9.0 9.0 9.0 8.8 8.6 8.5 2012 8.3 8.3 8.2 8-2 8.2 8.2 8.2 8 1 7.8 7.8 7.7

7 - 9

2013 8.0 7.7 7.5 7.6 7.5 7.5 7.3 7.3 7.3 7.2 6.9 6.7 2014 6.6 6.7 6.7 6.2 6.2 6.1 6.2 6.2 6.0 5.7 5.8 5.6 2015 2016

5.7 4.9

5.5 4.9

5.5 5.4 5.5 5.3 5.3 5.1 5.1 5.0 5.0 5.0 2015 2016

5.7 4.9

5.5 4.9

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LNS11300000

(Seas) Labor Force P a r t i c i p a t i o n Rate C i v i l i a n l a b o r f o r c e p a r t i c i p a t i o n r a t e Percent or r a t e 16 years and over

1948 1954 1980 1988 1972 1976 1984 1990 1896 2002 2008 2014

Month

Download: Q Bfc

Year 3an Feb Mar Apr May Jun Jul Aug SeP Oct Nov Dec 1948 58.6 58.9 58.5 59.0 58.3 59.2 59.3 58.9 58.9 58.7 58.7 59.1

1949 58.7 59.0 58.9 58.8 59.0 58.6 58.9 59.2 59.1 59.6 59.4 59.2

1950 58.9 58.9 58.8 59.2 59.1 59.4 59.1 59.5 59.2 59.4 59.3 59.2

1951 59.1 59.1 59.8 59.1 59.4 59.0 59.4 59.2 59.1 59.4 59.2 59.6

1952 59.5 59.5 58.9 58.8 59.1 59.1 58.9 58.7 59.2 58.7 59.1 59.2

1953 59.5 59.5 59.6 59.1 58.6 58.9 58.9 58.6 58.5 58.5 58.6 58.3 1954 58.6 593 59.1 59.2 58.9 58.5 58.4 58.7 59.2 58.8 58.6 58.1

1955 58.6 58.4 58.5 59.0 58.8 58.8 59.3 59.7 59.7 59.8 59.9 60.2 1956 60.2 59.9 59.8 59.9 60.2 60.1 60.1 60.0 60.0 59.8 59.8 59.8

1957 59.5 59.9 59.8 59.5 59.5 59.8 60.0 59.3 59.6 59.5 59.5 59.6

1958 59.3 59.3 59.3 59.6 59.8 59.5 59.6 59.8 59.7 59.6 59.2 59.2

1959 59.3 59.0 59.3 59.4* 59.2 59.2 59.4 59.2 59.3 59.4 59.1 59.5

1960 59.1 59.1 58.5 59.5 59.5 59.7 59.5 59.5 59.7 59.4 59.8 59.7

1961 59.6 59.6 59.7 59.3 59.4 59.7 59.3 59.3 59.0 59.1 59.1 58.8

1962 58.8 59.0 58.9 58.7 58.9 58.8 58.5~ 59.0 59.0 58.7 58.5 58.4

1963 58.6 58.6 58.6 58.8 58.8 58.5 58.7 58.5 58.7 58.8 58.8 58.5 1964 58.6 58.8 58.7 59.1 59.1 58.7 58.6 58.6 58.7 58.6 58.5 58.6

1965 58.6 58.7 58.7 58.8 59.0 58.8 59. r 58.9 58.7 58.9 58.8 59.0 1966 59.0 58.8 58.8 59.0 J59j0_ 59.1 59.1 59.3 59.3 59.3 59.6 59.5

1967 59.5 59.3 59.1 59.4 59.3 59.6 59.6 59.7 59.7 59.9 59.8 59.9 1968 59.2 59.6 59.6 59.5 59.9 60.0 59.8 59.6 59.5 59.5 59.6 59.7


Bureau of Labor Statistics Data Page 2 of 3

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1969 59.6 60.0 59.9 60.0 59.8 60.1 60.1 60.3 60.3 60.4 60.2 60.2

1970 60.4 60.4 60.6 60.6 60.3 60.2 60.4 60.3 60.2 60.4 60.4 60.4

1971 60.4 60.1 60.0 60.1 60.2 59.8 60.1 60.2 60.1 60.1 60.4 60.4

1972 60.2 60.2 60.5 60.4 60.4 60.4 60.4 60.6 60.4 60.3 60.3 60.5

1973 60.0 60.5 60.8 60.8 60.6 60.9 60.9 60.7 60.8 60.9 61.2 61.2

1974 61.3 61.4 61.3 61.1 61.2 61.2 61.4 61.2 61.4 61.3 61.3 j s T J 2 ]

1975 61.4 61.0 61.2 61.3 61.5 61.2 61.3 61.3 61.2 61.2 61.1 61.1

1976 61.3 61.3 61.3 61.6 61.5 61.5 61.8 61.8 61.6 61.6 61.9 61.8

1977 61.6 61.9 62.0 62.1 62.2 62.4 6 2 1 _ 62.3 62.3 62.4 62.8 62.7

1978 62.8 62.7 62.8 63.0 63.1 63.3 63.2 63.2 63.3 63.3 63.5 63.6

1979 ja.6~ 63.8 63.8 63.5 63.3 63.5 63.6 63.6 63.8 63.7 63.7 63.9

1980 64.0 64.0 63.7 63.8 63.9 63.7 63.8 63.7 63.6 63.7 63.8 63.6

1981 63.9 63.9 64.1 64.2 64.3 63.7 63.8 63.8 63.5 63.8 63.9 63.6

1982 63.7 63.8 63.8 63.9 64.2 63.9 64.0 64.1 64.1 64.1 64.2 64.1

1983 63.9 63.8 63.7 63.8 63.7 64.3 64.3 64.3 64.0 64.1 64.1

1984 63.9 64.1 64.1 64.3 64.5 64.6 64.6^ 64.4 64.4 64.4 6475 64.6

1985 64.7 64.9 6 4 ^ W.8 64.6 64.7 64.6 64.9 65.0 64.9 65.0

1986 64.9 65.0 65.1 65.1 65.2 65.4 65.4 65.3 65.4 65.4 65.4 65.3

1987 65.4 65.5 65.5 65.4 657 65.5 65.6 65.7 65.5 65.7 65.7 65.7 1988 65.8 65.9 65.7 65.8 65.7 65.8 65.9 66.1 65.9 66.0 66.1

1989 66.5 66.3 66.3 66.4 66.3 66.5 66.5 66.5 66.4 66.5 66.6 66.5

1990 66.8 66.7 66.7 66.6 66.6 66.4 66.5 66.5 66.4 66.4 66.4 66.4

1991 66.2 66.2 66.3 66.4 66.2 66.2 66.1 66.0 66.2 66.1 66.1 66.0

1992 66.3 66.2 66.4 66.5 66.6 66.7 66.7 66.6 66.5 66.2 66.3~ 66.3

1993 66.2 66.2 66.2 66.1 66.4 66.5 66.4 66.4 66.2 66.3 66.3 66.4

1994 66.6 66.6 66.5 66.5 66.6 66.4 66.4 66.6 66.6 66.7 66.7 66.7

1995 66.8 66.8 66.7 66.9 66.5 66.5 66.6 66.6 66.6 66.6 66.5 66.4

1996 66.4 66.6 66.6 66.7 66.7 66.7 66.9 66.7 66.9 67.0 67.0 67.0

1997 67.0 66.9 67.1 67.1 67.1 67.1 67.2 67.2 67.1 67.1 67.2 67.2

1998 67.1 67.1 67.1 67.0 67.0 67.0 67.0 67.0 67.2 67.2 67.1 67.2

1999 67.2 67.2 67.0 67.1 67.1 67.1 67.1 67.0 67.0 67.0 67.1 67.1

2000 67.3 67.3 67.3 67.3 67.1 67.1 66.9 66.9 66.9 66.8 66.9 67.0

2001 67.2 j672" 66.9 66.7 66.7 66.8 66.5 66.8 66.7 66.7 66.7

2002 66.5 66.8 66.6 66.7 66.7 66.6 66.5 66.6 66.7 66.6 66.4 66.3

2003 66.4 66.4 66.3 66.4 66.4 66.5 66.2 66.1 66.1 66.1 66.1 65.9

2004 66.1 66.0 66.0 65.9 66.0 66.1 66.1 66.0 65.8 65.9 66.0 65.9

2005 65.8 65.9 65.9 66.1 66.1 66.1 66.1 66.2 66.1 66.1 66.0 66.0

2006 66.0 66.1 66.2 66.1 66.1 66.2 66.1 66.2 66.1 66.2 66.3 66.4

2007 66.4 66.3 66.2 65.9 66.0 66.0 66.0 65.8 66.0 65.8 66.0 66.0

2008 66.2 66.0 66.1 65.9 66.1 66.1 66.1 66.1 66.0 66.0 65.9 65.8

2009 65.7 65.8 65.6 65.7 65.7 65.7 65.5 65.4 65.1 65.0 65.0 64.6

2010 64.8 64.9 64.9 65.2 64.9 64.6 64.6 64.7 64.6 64.4 64.6 64.3

2011 64.2 64.1 64.2 64.2 64.1 64.0 64,0 64.1 64.2 64.1 64.1 64.0

2012 63.7 63.8 63.8 63.7 63.7 63.8 63.7 63.5 63.7 63.8 63.6 63.7

2013 63.6 63.4 63.3 63.4 63.4 63.4 63.3 63.2 63.3 62.8 63.0 62.9

2014 62.9 63.0 63.2 62.8 62.8 62.8 62.9 62.9 62.8 52.9 62.9 62.7

2015 62.9 62.8 62.7 62.7 62.8 62.6 62~6 62.6 62.4 62.5 62.5 62.6

2016 62.7 62.9 i

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https://research.stlouisfed.org/fred2/series/A229RX0

How States Rank, High to Low, in Workers' Compensation Premiums Page 3 of 3

Table 2. Workers' compensation premium rate ranking

2014 2012 index Percent of Ranking Ranking State Rate study median Effective Date

1 3 California 3 48 • BB% January 1. 2014 2 2 Connecticut 2.87 155% January 1. 2014 3 •j Now Jersey 2 8 2 152% January 1. 2014 4 5 New York 2.76 148% January 1. 2014 5 1 Alaska 2 68 145% January 1. 2014 6 6 Ok lahoma 2.66 137% 1/1/13 State Fund . 1/1/14 Private 7 4 iltmois 2.36 127% January 1. 2014 a 54 Vermont 2.33 125% Apri l 1 , 2013 9 30 Delaware 2.31 125% December 1, 2013 10 15 Louisiana 2.23 120% January 1. 2014 11 e Montana 2.21 119% July 1 .2013 12 9 Now Hampshire 2.18 118% January 1 , 2014 13 10 Maine 2.15 116% Apri l 1. 2013 14 19 Ida no 2.01 109% January 1. 2014 17 13 Washington 2.00 108% January 1, 2014 17 16 South Carol ina 2.00 108% September 1. 2013 17 12 Pennsylvania 2.00 108% Apri l 1 . 2013 20 27 New Mexico 1.99 108% January 1, 2014 20 20 Rhode is land 1.99 107% July 1. 2013 20 17 Minnesota 1.99 107% January 1. 2014 21 3b Missour i 1.96 107% January 1. 2014 22 19 Tennessee 1 95 105% March 1. 2013 23 12 Wisconsin 1.92 104% October 1.2013 24 25 Iowa 1.88 1 0 1 % January 1,2014 25 23 South Dakota 1.86 100% July 1 . 2013 27 35 Hawai i 1.86 100% January 1 . 2014 27 25 North Carol ina 1 85 100% Apri l 1. 2013 28 29 Florida 1.82 9 8 % January 1. 2014 29 21 A labama 1.81 9 7 % March 1. 2013 30 33 Nebraska 1.78 9 6 % February 1. 2013 31 31 Wyoming 1.76 9 5 % January 1, 2014 32 27 Georgia 1.75 9 5 % July 1 .2013 33 28 Ohio 1.74 9 4 % July 1. 2013 34 32 Michigan 1.68 9 1 % January 1. 2013 35 34 Mary land 1 64 88% January 1, 2014 36 38 Texas 1 61 87% June 1^2013 3? 37 Ar izona 1.60 8 6 % January 1, 2014 38 42 Mississippi 1.59 8 5 % March 1 .2013 39 41 Kansas 1.55 8 3 % January 1, 2014 40 22 Kentucky 1.51 8 2 % October 1. 2013 41 43 Colorado 1.50 8 1 % January 1, 2014 43 40 West Virginia 1.3? 7 4 % November 1. 2013 43 39 OREGON 1.37 74% January 1. 2014 45 45 Utah 1 31 7 1 % December 1. 2013

45 47 District of Columbia 1.31 7 0 % November 1, 2013 46 46 Nevada 1.26 6 8 % March 1 .2013 48 44 Massachuset ts 1.17 6 3 % September 1. 2010 48 48 Virginia 1.17 6 3 % Apri l 1. 2013 49 49 Arkansas 1.08 5 8 % July 1, 2013 50 50 ir.ciana 1.06 5 7 % January 1, 2014 51 51 North Dakota 0 8 8 4 7 % July 1 2013

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IVSUUV I JOURNAL

View this article online: ht1p://www.insuranceiouiTial.eoiTv'news/national /2014/10/09/343201 .htm

How States Rank, High to Low, in Workers' Compensation Premiums A list of s t a t e r a n k i n g s f o r w o r k e r s ' c o m p e n s a t i o n p r e m i u m s shows a slight drop in premiums in the last two years, and that a number of states are close in terms of how much employers are paying.

The list put out by the Oregon Department of Consumer and Business Services once every two years shows the 2014 median value of workers' comp premiums paid was $1.85 per $100 of payroll, a drop of 2 percent from the $1.88 median in the 2012 study.

National premium rates range from a low of 88 cents in North Dakota to a hiah of $3.48 in California, the report shows.

The list also shows 21 states within 10 percent of the median and the range from highest and lowest rankings has been shrinking, according to Jay Dotter, who put the report together.

The effect is that it makes the list more "volatile," Dotter said, adding that it's important to note that volatility because some states use the list to measure the performance of their workers' comp system.

"A small change in the index rate can give you a larger change in ranking," he said.

Figure 1 2014 Worker* compensation premium mde* ratei

Dotter pointed to Hawaii's workers' comp administrators, who noted their top 15 ranking in the 2006 report and put notice of the poor performance on a state's website and publicized it to help champion reforms that were eventually passed.

http://www.insurancejournal.com/news/national/2014/10/09/343201.htm7print 3/9/2016


The state was ranked 27 on the latest report.

Oregon's workers' comp system was in sad shape when the state began to compile the list in the 1980s in order to evaluate itself and push for reforms that were eventually passed. The state went from 6 t h place on the list and was 43 r d on this year's list, its best performance to date, according to Dotter.

The study puts states' workers' comp rates on a comparable basis using a constant set of risk classifications for each state. This study used classification codes from the National Council on Compensation Insurance.

Following California's $3.48 per $100 in payroll was Connecticut ($2.87) at No. 2 on the list, coming in it at 155 percent above the national median workers' comp premium. New Jersey ($2.82), New York ($2.75), and Alaska $2.68) rounded out the top five.

North Dakota (88 cents) was at the bottom of the list, which makes is the cheapest state for employers. It has traditionally ranked lowest, and the state retained it's ranking from the 2012 list and also saw a drop in premi urns from $1.01.

Other states where workers' comp is far below the national median for workers' comp premiums are Indiana (at 50 percent of the national median), Virginia (61 percent), Arkansas (64 percent) and Massachusetts (68 percent).

http://www.insurancejournal.com/news/national/2014/10/09/343201.htm7print 3/9/2016

Status of the Social Security and Medicare Programs

A SUMMARY OF THE2015 ANNUAL REPORTS

Social Security and MedicareBoards of Trustees

2015

The Social Security and Medicare Trustees Reports, as well asthis document, are available at the following addresses:

Social Security (OASDI): www.socialsecurity.gov/oact/tr/2015/index.htmlMedicare (HI and SMI): www.cms.gov/reportstrustfunds/Summary: www.socialsecurity.gov/oact/trsum/index.html

Other information about Social Security benefits and services is available atwww.socialsecurity.gov or by calling toll-free 1-800-772-1213.

Other information about Medicare benefits and services is available atwww.cms.gov or by calling toll-free 1-800-633-4227.

A MESSAGE TO THE PUBLIC:

Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs. This message summarizes the 2015 Annual Reports.

Social Security’s Disability Insurance (DI) Trust Fund now faces an urgent threat of reserve depletion, requiring prompt corrective action by lawmakers if sudden reductions or interruptions in benefit payments are to be avoided. Beyond DI, Social Security as a whole as well as Medicare cannot sustain projected long-run program costs under currently sched-uled financing. Lawmakers should take action sooner rather than later to address these structural shortfalls, so that the uncertainty now facing dis-ability beneficiaries will not eventually be experienced by other pro-grams’ participants, and so that a broader range of solutions can be considered and more time will be available to phase in changes while giv-ing the public adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on pro-gram benefits.

Social Security and Medicare together accounted for 42 percent of Fed-eral program expenditures in fiscal year 2014. Current trust fund opera-tions including General Fund transfers into SMI, the portion of interest payments made to the trust funds that are necessary to pay benefits, and any drawdowns of a trust fund’s assets—are resulting in mounting pres-sure on the unified budget. Both Social Security and Medicare will experi-ence cost growth substantially in excess of GDP growth through the mid-2030s due to rapid population aging caused by the large baby-boom gen-eration entering retirement and lower-birth-rate generations entering employment and, in the case of Medicare, to growth in expenditures per beneficiary exceeding growth in per capita GDP. In later years, projected costs expressed as a share of GDP trend up slowly for Medicare and are relatively flat for Social Security, reflecting very gradual population aging caused by increasing longevity and slower growth in per-benefi-ciary health care costs.

Social Security

The DI program satisfies neither the Trustees’ long-range test of close actuarial balance nor our short-range test of financial adequacy and faces the most immediate financing shortfall of any of the separate trust funds. DI Trust Fund reserves expressed as a percent of annual cost (the trust fund ratio) declined to 40 percent at the beginning of 2015, and the Trustees project trust fund depletion late in 2016, the same year projected in the last Trustees Report. DI costs have exceeded non-interest income since 2005, and the trust fund ratio has declined in every year since peak-ing in 2003. While legislation is needed to address all of Social Security’s financial imbalances, the need has become urgent with respect to the pro-gram’s disability insurance component. Lawmakers need to act soon to avoid automatic reductions in payments to DI beneficiaries in late 2016.

To summarize overall Social Security finances, the Trustees have tradi-tionally emphasized the financial status of the hypothetical combined trust funds for DI and for Old Age and Survivors Insurance (OASI). The combined trust funds, and expenditures that can be financed in the context of the combined trust funds, are hypotheticals because there is no legal authority to finance one program’s expenditures with the other program’s taxes or reserves.

Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year pro-jection period. The Trustees project that this annual cash-flow deficit will average about $76 billion between 2015 and 2018 before rising steeply as income growth slows to its sustainable trend rate after the economic recovery is complete while the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.

Interest income and redemption of trust fund assets from the General Fund of the Treasury, will provide the resources needed to offset Social Security’s annual aggregate cash-flow deficits until 2034. Since the cash-flow deficit will be less than interest earnings through 2019, total income will exceed expenditures and reserves of the combined trust funds will continue to grow but not by enough to prevent the ratio of reserves to one year’s projected cost (the combined trust fund ratio) from declining. (This ratio peaked in 2008, declined through 2014, and is expected to decline

steadily in future years.) After 2019, Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of total trust fund reserves in 2034, one year later than projected in last year’s Trustees Report. Thereafter, tax income is projected to be sufficient to pay about three-quarters of scheduled bene-fits through the end of the projection period in 2089.

Under current projections, the annual cost of Social Security benefits expressed as a share of workers’ taxable earnings will grow rapidly from 11.3 percent in 2007, the last pre-recession year, to roughly 16.7 percent in 2038, and will then decline slightly before slowly increasing after 2050. Costs display a slightly different pattern when expressed as a share of GDP. Program costs equaled 4.1 percent of GDP in 2007, and the Trust-ees project these costs will increase to 6.0 percent of GDP for 2037, then stay about flat through 2060, and thereafter rise slowly reaching 6.2 percent by 2089.

The projected 75-year actuarial deficit for the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds is 2.68 percent of taxable payroll, down from 2.88 percent projected in last year’s report. This deficit amounts to 20 percent of program non-interest income or 16 percent of program cost. A 0.06 percentage point increase in the OASDI actuarial deficit would have been expected if nothing had changed other than the one-year extension of the valuation period to 2089. The effects of recently enacted legislation, updated demographic and economic data, and improved methodologies on net improved the actuarial deficit by 0.26 percent of taxable payroll.

While the hypothetical combined OASDI Trust Fund fails the long-range test of close actuarial balance, it does satisfy the test for short-range (ten-year) financial adequacy. The Trustees project that the combined trust fund asset reserves at the beginning of each year will exceed that year’s projected cost through 2028.

Medicare

The Trustees project that the Medicare Hospital Insurance (HI) Trust Fund will be depleted in 2030, the same year projected in last year’s report. At that time dedicated revenues will be sufficient to pay 86 percent of HI costs. The Trustees project that the share of HI cost that can be

financed with HI dedicated revenues will decline slowly to 80 percent in 2050, and will then rise gradually to 84 percent in 2089. HI non-interest income less HI expenditure is projected to be negative this year and next (as it has been in every year since 2008), and then turn positive for four years (2017-2020) before turning negative again in 2021. The HI fund again fails the test of short-range financial adequacy, as its trust fund ratio is already below 100 percent and is expected to decline in a near continuous fashion until reserve depletion in 2030.

The HI Trust Fund’s projected long-term actuarial imbalance is smaller than that of the combined Social Security trust funds under the intermedi-ate assumptions employed in the 2015 Trustees Report. The estimated 75-year actuarial deficit in the HI Trust Fund is 0.68 percent of taxable pay-roll, which amounts to 18 percent of tax receipts or 15 percent of program cost. This estimate is down from 0.87 percent projected in last year’s report, in large part due to a change in the projection methodology that results in a lower estimate for long-range health care cost growth for HI and other parts of Medicare.

The Trustees project that Part B of Supplementary Medical Insurance (SMI), which pays doctors’ bills and other outpatient expenses, and Part D of SMI that pays for prescription drug coverage, will remain ade-quately financed into the indefinite future because current law provides financing from general revenues and beneficiary premiums each year to meet the next year’s expected costs. However, the aging population and rising health care costs cause SMI projected costs to grow steadily from 2.0 percent of GDP in 2014 to approximately 3.4 percent of GDP in 2035, and then more slowly to 3.8 percent of GDP by 2089. General revenues will finance roughly three quarters of these costs, and premiums paid by beneficiaries almost all of the remaining quarter. SMI also receives a small amount of financing from special payments by States and from fees on manufacturers and importers of brand-name prescription drugs.

The Trustees project that total Medicare costs (including both HI and SMI expenditures) will grow from approximately 3.5 percent of GDP in 2014 to 5.4 percent of GDP by 2035 and will increase gradually thereafter to about 6.0 percent of GDP by 2089.

Relative to last year’s projections, the projections for Medicare’s total costs are little changed over the next 20 years, but are substantially lower

over the longer range. The improvement in the longer-term Medicare out-look is principally due to the methodological change mentioned above, and also to provisions of the recently enacted Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) that lowers projected long-range Medicare Part B costs. After 20 years, Medicare reimbursement rates for physicians’ services under MACRA are substantially reduced relative to last year’s featured baseline projection that assumed continued overrides of the prior-law mechanism for setting Medicare’s physician reimburse-ment rates.

In recent years U.S. national health expenditure (NHE) growth has slowed considerably. There is uncertainty regarding the degree to which this slowdown reflects the impacts of the recent economic downturn and other non-persistent factors or structural changes in the health care sec-tor that may continue to produce cost savings in the years ahead. The Trustees are hopeful that U.S. health care practices are in the process of becoming more efficient as new payment models become more prevalent and providers anticipate less rapid growth of reimbursement rates in both the public and private sectors than has occurred during the past several decades.

For a number of years the methodology the Trustees have employed for projecting Medicare finances over the long term has assumed a substan-tial reduction in per capita health expenditure growth rates relative to historical experience. In addition, the Trustees have been revising down their projections for near-term Medicare expenditure growth in light of the recent favorable experience, in part due to effects of payment changes and delivery system reform that are changing how health care is prac-ticed. However, the Trustees have not assumed additional, specific cost saving arising from structural changes in the delivery system that may result from MACRA’s new payment mechanisms and the cost-reduction incentives in the Affordable Care Act, as well as from payment reforms initiated by the private sector.

Notwithstanding the assumption of a substantial slowdown of per capita health expenditure growth, the projections indicate that Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation. Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers.

Conclusion

Lawmakers should address the financial challenges facing Social Secu-rity and Medicare as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and pro-vide more time to phase in changes so that the public has adequate time to prepare.

By the Trustees:

JACOB J. LEW,Secretary of the Treasury,and Managing Trustee of the Trust Funds.

THOMAS E. PEREZ,Secretary of Labor,and Trustee.

SYLVIA M. BURWELL,Secretary of Health and Human Services,and Trustee.

CAROLYN W. COLVIN,Acting Commissioner of Social Security,and Trustee.

CHARLES P. BLAHOUS III,Trustee.

ROBERT D. REISCHAUER,Trustee.

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A SUMMARY OF THE 2015 ANNUAL SOCIAL SECURITYAND MEDICARE TRUST FUND REPORTS

The Trustees continue to project depletion of the Social Security Disabil-ity Insurance (DI) Trust Fund in late 2016 if lawmakers take no action. This impending DI funding shortfall, which threatens beneficiaries with sudden and substantial benefit reductions, is but the first manifestation of larger financial imbalances facing Social Security as a whole as well as Medicare. The Trustees strongly urge lawmakers to enact legislation promptly to achieve sustainable financial balance which, in view of cur-rent financing needs, would almost certainly need to include at least a temporary increase in resources for the DI Trust Fund.

Social Security’s and Medicare’s projected long-range costs are not sus-tainable with currently scheduled financing and will require legislative action to avoid disruptive consequences for beneficiaries and taxpayers. The sooner that lawmakers take action, the wider will be the range of solutions to consider and the more time that will be available to phase in changes, giving the public adequate time to prepare. Timely resolution of the financial imbalances will prevent the uncertainty currently facing the disabled population from being experienced by other Social Security and Medicare participants. Earlier action would also provide more opportu-nity to ameliorate adverse impacts on vulnerable populations, including lower-income workers and people already significantly dependent on pro-gram benefits.

What Were the Trust Fund Operations in 2014? In 2014, 48.1 million people received Old-Age and Survivors Insurance (OASI) benefits, 10.9 million received DI benefits, and 53.8 million were covered under Medi-care. A summary of Social Security and Medicare trust fund operations is shown in the following table. The OASI Trust Fund increased asset reserves in 2014; reserves in the DI, Hospital Insurance (HI), and Supple-mental Medical Insurance (SMI) Trust Funds declined.

Table 1: TRUST FUND OPERATIONS[In billions]

OASI DI HI SMIReserves (end of 2013) . . . . . . . . $2,674.0 $90.4 $205.4 $75.1Income during 2014 . . . . . . . . . . 769.4 114.9 261.2 338.0Cost during 2014. . . . . . . . . . . . . 714.2 145.1 269.3 344.0

Net change in reserves . . . . . . 55.2 -30.2 -8.1 -6.0Reserves (end of 2014) . . . . . . . . 2,729.2 60.2 197.3 69.1Note: Totals do not necessarily equal the sum of rounded components.

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The following table shows payments, by category, from each trust fund in 2014.

Trust fund income, by source, in 2014 is shown below.

In 2014, Social Security’s cost continued to exceed the combined pro-gram’s tax income, a situation that the Trustees project to persist through-out the long-range period (2015-89) and beyond. The 2014 deficit of tax income (Table 3, first two lines) relative to cost was $74 billion.In 2014, the HI fund used $9 billion of interest income (Table 3) and $8 billion of asset reserves (Table 1) to finance expenditures beyond those that could have been made solely on the basis of tax and premium income. For SMI, transfers from the General Fund of the Treasury, which are set prospectively based on projected costs, represent the largest source of income. Part B spending was higher than anticipated in 2014, account-ing for half of the $6 billion decrease in account asset reserves (Table 1).What Is the Outlook for Future Social Security and Medicare Costs in Relation to GDP? One instructive way to view the projected costs of Social Security and Medicare is to compare the costs of scheduled bene-fits and administrative costs for the programs with the gross domestic product (GDP), the most frequently used measure of the total output of the U.S. economy (Chart A). Under the intermediate assumptions

Table 2: PROGRAM COST[In billions]

Category OASI DI HI SMIBenefit payments . . . . . . . . . . . . $706.8 $141.7 $264.9 $339.6Railroad Retirement financial

interchange . . . . . . . . . . . . . . . 4.3 0.4 — —Administrative expenses . . . . . . 3.1 2.9 4.5 4.4Total . . . . . . . . . . . . . . . . . . . . . . 714.2 145.1 269.3 344.0Note: Totals do not necessarily equal the sum of rounded components.

Table 3: PROGRAM INCOME[In billions]

Source OASI DI HI SMIPayroll taxes . . . . . . . . . . . . . . . $646.2 $109.7 $227.4 —Taxes on OASDIa benefits . . . . 28.0 1.7 18.1 —Beneficiary premiums . . . . . . . . — — 3.3 $77.0Transfers from States. . . . . . . . . — — — 8.7General Fund reimbursements . 0.4 0.1 2.0 3.0General revenues . . . . . . . . . . . . — — — 243.7Interest earnings . . . . . . . . . . . . 94.8 3.4 8.8 2.4Other . . . . . . . . . . . . . . . . . . . . . b — 1.6 3.3Total. . . . . . . . . . . . . . . . . . . . . . 769.4 114.9 261.2 338.0Note: Totals do not necessarily equal the sum of rounded components.aOASDI designates the combined operations of the OASI and DI programs.bLess than $50 million.

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employed in the reports and throughout this Summary, costs for the pro-grams increase substantially through 2035 when measured this way because: (1) the number of beneficiaries rises rapidly as the baby-boom generation retires; and (2) the lower birth rates that have persisted since the baby boom cause slower growth of the labor force and GDP.

Social Security’s projected annual cost increases to about 6.0 percent of GDP by 2035, declines to 5.9 percent by 2050, and rises to 6.2 percent of GDP by 2089. Under the intermediate assumptions, Medicare cost rises to 5.4 percent of GDP by 2035 due mainly to the rapid growth in the number of beneficiaries, and then to 6.0 percent by 2089. The growth in health care cost per beneficiary becomes the larger factor later in the valuation period, particularly in Part D. In 2014, the combined cost of the Social Security and Medicare programs equaled 8.5 percent of GDP. The Trustees project an increase to 11.4 per-cent of GDP by 2035 and to 12.2 percent of GDP by 2089. Medicare’s rel-ative cost (3.5 percent of GDP) is expected to rise gradually from 71 percent of the cost of Social Security (5.0 percent of GDP) in 2015 to about 97 percent by 2089. The projected costs for OASDI and HI depicted in Chart A and elsewhere in this document reflect the full cost of scheduled current-law benefits without regard to whether the trust funds will have sufficient resources to meet these obligations. Current law precludes payment of any benefits beyond the amount that can be financed by the trust funds, that is, from annual income and trust fund reserves. In years after trust fund depletion,

Chart A–Social Security and Medicare Cost as a Percentage of GDP

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the amount of benefits that would be payable is lower than shown, as described later in this summary, because benefit cost exceeds annual income. In addition, the projected costs assume realization of the full esti-mated savings of the Affordable Care Act and the physician payment rate updates specified in the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015. As described in the Medicare Trustees Report, the projections for HI and SMI Part B depend significantly on the sustained effectiveness of various current-law cost-saving measures, in particular, the lower increases in Medicare payment rates to most categories of health care providers.

What Is the Outlook for Future Social Security and Medicare HI Costs and Income in Relation to Taxable Earnings? Since the primary source of income for OASDI and HI is the payroll tax, it is informative to express the programs’ incomes and costs as percentages of taxable pay-roll—that is, of the base of worker earnings taxed to support each pro-gram (Chart B). Both the OASDI and HI annual cost rates rise over the long run from their 2014 levels (13.99 and 3.42 percent). Projected Social Security cost grows to 16.73 percent of taxable payroll by 2038, declines to 16.54 percent in 2050, and then rises gradually to 17.97 percent in 2089. The projected Medicare HI cost rate rises to 4.84 percent of tax-able payroll in 2050, and thereafter increases to 5.14 percent in 2089.

Chart B–OASDI and HI Income and Cost as a Percentage of Taxable Payroll

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HI taxable payroll is about 25 percent larger than that of OASDI because the HI payroll tax is imposed on all earnings while OASDI taxes apply only to earnings up to a maximum ($118,500 in 2015) which ordinarily is adjusted each year.

The OASDI income rate—which includes scheduled payroll taxes at the current 12.4 percent level, taxes on benefits, and any other transfers of revenues to the trust funds excepting interest payments—was 12.80 per-cent in 2014 and increases slowly over time, reaching 13.32 percent in 2089. Annual income from the taxation of OASDI benefits will increase gradually relative to taxable payroll as a greater proportion of Social Security benefits is subject to taxation in future years, but will continue to be a relatively small component of program income.

The HI income rate—which includes payroll taxes and taxes on OASDI benefits, but excludes interest payments—rises gradually from 3.26 per-cent in 2014 to 4.32 percent in 2089 due to the Affordable Care Act’s increase in payroll tax rates for high earners that began in 2013. Individ-ual tax return filers with earnings above $200,000, and joint return filers with earnings above $250,000, pay an additional 0.9 percent tax on earn-ings above these earnings thresholds. An increasing fraction of all earn-ings will be subject to the higher tax rate over time because the thresholds are not indexed. By 2089, an estimated 80 percent of workers would pay the higher rate.

How Will Cost Growth in the Different Parts of Medicare Change the Sources of Program Financing? As Medicare cost grows over time, general revenue and beneficiary premiums will play an increasing role in financing the program. Chart C shows scheduled cost and non-interest revenue sources under current law for HI and SMI combined as a percent-age of GDP. The total cost line is the same as displayed in Chart A and shows Medicare cost rising to 6.0 percent of GDP by 2089.

Projected revenue from payroll taxes and taxes on OASDI benefits cred-ited to the HI Trust Fund increases from 1.4 percent of GDP in 2015 to 1.9 percent in 2089 under current law, while projected general revenue transfers to the SMI Trust Fund increase from 1.5 percent of GDP in 2015 to 2.8 percent in 2089, and beneficiary premiums increase from 0.5 to 1.0 percent of GDP during the same period. Thus, the share of total non-interest Medicare income from taxes falls substantially (from 41 percent to 32 percent) while general revenue transfers rises (from 44 percent to 48 percent), as does the share of premiums (from 14 percent to 18 per-cent). The distribution of financing changes in large part because in Part B and especially Part D—the Medicare components that are financed largely from general revenues—costs increase at a faster rate than Part A cost under the Trustees’ projections. The projected annual HI financial deficit beyond 2035 through 2089 averages about 0.4 percent of GDP and there is no provision under current law to finance that shortfall through general revenue transfers or any other revenue source.

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The Medicare Modernization Act (2003) requires that the Board of Trust-ees determine each year whether the annual difference between program cost and dedicated revenues (the bottom four layers of Chart C) under current law exceeds 45 percent of total Medicare cost in any of the first seven fiscal years of the 75-year projection period, in which case the annual Trustees Report must include, as it did from 2006 through 2013, a determination of “excess general revenue Medicare funding.” Because the difference between program cost and dedicated revenues is not expected to exceed the 45 percent threshold during fiscal years 2015-21, there is no such determination in this year’s report.

What Are the Budgetary Implications of Rising Social Security and Medicare Costs? Concern about the long-range financial outlook for Medicare and Social Security often focuses on the depletion dates for the HI and OASDI trust funds—the times when the projected trust fund bal-ances under current law will be insufficient to pay the full amounts of scheduled benefits. A more immediate issue is the effect the programs have on the unified Federal budget prior to depletion of the trust funds.

Chart D shows the excess of scheduled costs over dedicated tax and pre-mium income for the OASDI, HI, and SMI trust funds expressed as per-centages of GDP through 2040.1 Each of these trust funds’ operations will contribute increasing amounts to Federal unified budget deficits in future

Chart C–Medicare Cost and Non-Interest Income by Sourceas a Percentage of GDP

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eTotal Cost

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years. General revenues pay for roughly 75 percent of all SMI costs. Until 2030, interest earnings and asset redemptions, financed from general rev-enues, will cover the shortfall of HI tax and premium revenues relative to expenditures. In addition, general revenues must cover similar payments as a result of growing OASDI deficits through 2034.2

In 2015, the projected difference between Social Security’s expenditures and dedicated tax income is $84 billion. For HI, the projected difference between expenditures and dedicated tax and premium income is $4 bil-lion.3 The projected general revenue demands of SMI are $276 billion. Thus, the total General Fund requirements for Social Security and Medi-care in 2015 are $364 billion, or 2.0 percent of GDP. Redemption of trust fund bonds, interest paid on those bonds, and transfers from the General 1 Note that HI contributes small surpluses to combined General Revenue needs during 2017-20. The depicted height of the combined shortfall during those years reflects these HI surpluses. 2 As noted earlier in this summary, if trust fund depletion actually occurred as projected for HI in 2030 and for theoretical combined OASDI in 2034, each program could pay benefits thereafter only up to the amount of continuing dedicated revenues. Chart D, by contrast, compares dedicated sources of tax and premium income with the full cost of paying scheduled benefits under each program. In practice, lawmakers have never allowed the asset reserves of the Social Security or Medicare HI trust funds to become depleted.

Chart D–Projected SMI General Revenue Fundingplus OASDI and HI Tax Shortfalls

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3 This difference is projected on a cash rather than the incurred expenditures basis applied elsewhere in the long-range projections, except where explicitly noted otherwise.

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Fund provide no new net income to the Treasury, which must finance these payments through some combination of increased taxation, reduc-tions in other government spending, or additional borrowing from the public.

Chart D shows that the difference between cost and revenue (expressed as a percentage of GDP) from dedicated payroll taxes, income taxation of benefits, and premiums will grow rapidly through the 2030s as the baby-boom generation reaches retirement age, under the assumption that sched-uled benefits will be paid even in the absence of an increase in dedicated tax revenues.4 This imbalance would result in vastly increasing pressure on the unified Federal budget, with such financing requirements equaling 4.2 percent of GDP by 2040.

What Is the Outlook for Short-Term Trust Fund Adequacy? The reports measure the short-range adequacy of the OASI, DI, and HI Trust Funds by comparing fund asset reserves at the start of a year to projected costs for the ensuing year (the “trust fund ratio”). A trust fund ratio of 100 percent or more—that is, asset reserves at least equal to projected cost for the year—is a good indicator of a fund’s short-range adequacy. That level of projected reserves for any year suggests that even if cost exceeds income, the trust fund reserves, combined with annual tax revenues, would be sufficient to pay full benefits for several years.

By this measure, the OASI Trust Fund is financially adequate throughout and beyond the short-range period (2015-24) period, but the DI Trust Fund fails the short-range test because its estimated trust fund ratio was 40 percent at the beginning of 2015, with projected depletion of all reserves in late 2016.

The HI Trust Fund also does not meet the short-range test of financial adequacy; its trust fund ratio was 72 percent at the beginning of 2015 based on the year’s anticipated expenditures, and the projected ratio does not rise to 100 percent within five years. Projected HI Trust Fund asset reserves become fully depleted in 2030. Chart E shows the trust fund ratios through 2040 under the intermediate assumptions.

The Trustees apply a less stringent annual “contingency reserve” test to SMI Part B asset reserves because (i) the financing for that account is set each year to meet expected costs, and (ii) the overwhelming portion of the financing for that account consists of general revenue contributions and beneficiary premiums, which were 73 percent and 25 percent of total Part B income in calendar year 2014. Part D premiums paid by enrollees and the amounts apportioned from the General Fund of the Treasury are deter-mined each year. Moreover, flexible appropriation authority established by lawmakers for Part D allows additional General Fund financing if

4 As previously noted, this scenario would require a change in law to allow for the timely payment of all scheduled benefits upon trust fund depletion.

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costs are higher than anticipated, limiting the need for a contingency reserve in that account.

What Are Key Dates in DI, OASI, and HI Financing? The 2015 reports project that the DI, OASI, and HI Trust Funds will all be depleted within the next 20 years. The following table shows key dates for the respective trust funds as well as for the theoretical combined OASDI trust funds.5

Chart E–OASI, DI, and HI Trust Fund Ratios[Asset reserves as a percentage of annual cost]

KEY DATES FOR THE TRUST FUNDS OASI DI OASDIa

a.Column entries represent key dates for the theoretical combined OASI and DI funds.

HIYear of peak trust fund ratiob . . . . . . . . . .

b.Dates pertain to the post-2000 period.

2011 2003 2008 2003First year cost exceeds income excluding interestc. . . . . . . . . . . . . . . . . . .

c.Dates indicate the first year that a condition is projected to occur and to persist annually thereafter through 2089.

2010 2005 2010 2021First year cost exceeds income including interestc . . . . . . . . . . . . . . . . . . . 2022 2009 2020 2024Year trust fund reserves are depleted . . . . 2035 2016 2034 2030

5 HI results in this section of the Summary are on a cash rather than the incurred expenditures basis.

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DI Trust Fund asset reserves, which have been declining since 2008, are projected to be fully depleted in late 2016, as reported last year. Payment of full DI benefits beyond 2016, when tax income would cover only 81 percent of scheduled benefits, will require legislation to address the finan-cial imbalance. The OASI Trust Fund, when considered separately, has a projected reserve depletion date of 2035, one year later than in last year’s report. At that time income would be sufficient to pay 77 percent of scheduled OASI benefits.

The theoretical combined OASDI trust funds have a projected depletion date of 2034, one year later than indicated in last year’s report. After the depletion of reserves, continuing tax income would be sufficient to pay 79 percent of scheduled benefits in 2034 and 73 percent in 2089.

The OASDI reserves are projected to grow in 2015 because anticipated interest earnings ($93 billion in 2015) still exceed the non-interest income deficit ($84 billion). This year’s report indicates that annual OASDI income, including payments of interest to the trust funds from the General Fund, will exceed annual cost every year until 2020, increasing the nomi-nal value of combined OASDI trust fund asset reserves. The trust fund ratio (the ratio of projected reserves to annual cost) will continue to decline gradually (Chart E), as it has since 2008, despite this nominal bal-ance increase. Beginning in 2020, net redemptions of trust fund asset reserves with General Fund payments will be required until projected depletion of these reserves in 2034.

The projected HI Trust Fund depletion date is 2030, unchanged from last year’s report. Under current law, scheduled HI tax and premium income would be sufficient to pay 86 percent of estimated HI cost after trust fund depletion in 2030, declining to 79 percent by 2039, and then gradually increasing to 84 percent by 2089.

This report anticipates that HI Trust Fund reserve assets will increase by $2.0 billion in 2015 because interest earnings ($9 billion) will exceed the non-interest income deficit ($7 billion). Annual non-interest HI income is projected to exceed expenditures from 2017 through 2020, after which annual shortfalls reappear and persist through the remainder of the long-range projection period.

What Is the Long-Range Actuarial Balance of the OASI, DI, and HI Trust Funds? Another way to view the outlook for payroll tax-financed trust funds (OASI, DI, and HI) is to consider their actuarial balances for the 75-year valuation period. The actuarial balance measure includes the trust fund asset reserves at the beginning of the period, an ending fund balance equal to the 76th year’s costs, and projected costs and income during the valuation period, all expressed as a percentage of taxable pay-roll for the 75-year projection period. Actuarial balance is not an informa-tive concept for the SMI program because Federal law sets premium

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increases and general revenue transfers at the levels necessary to bring SMI into annual balance.

The actuarial deficit represents the average amount of change in income or cost that is needed throughout the valuation period in order to achieve actuarial balance. The actuarial balance equals zero if cost for the period can be met for the period as a whole and trust fund asset reserves at the end of the period are equal to the following year’s cost. The OASI, DI, and HI Trust Funds all have long-range actuarial deficits under the inter-mediate assumptions, as shown in the following table.

The Trustees project that the annual deficits for Social Security as a whole, expressed as the difference between the cost rate and income rate for a particular year, will decline from 1.31 percent of taxable payroll in 2015 to 0.98 percent in 2017 before increasing steadily to 3.52 percent in 2038. Annual deficits then decline slightly to 3.32 percent in 2050 before resuming an upward trajectory and reaching 4.65 percent of taxable pay-roll in 2089 (Chart B). The relatively large annual variations in deficits indicate that a single tax rate increase for all years starting in 2015 suffi-cient to achieve actuarial balance would result in sizable annual surpluses early in the period followed by increasing deficits in later years. Sustained solvency would require payroll tax rate increases or benefit reductions (or a combination thereof) by the end of the period that are substantially larger than those needed on average for this report’s long-range period (2015-89).

The Trustees project that the HI cost rate will exceed the income rate in 2015 by 0.05 percent of taxable payroll, followed by a period of small tax-income surpluses in 2016 through 2021. Deficits subsequently re-emerge to grow rapidly with the aging of the baby boom population through about 2045, when the annual deficit reaches a peak of 1.03 per-cent of taxable payroll. Annual deficits then decline to 0.82 percent of payroll by 2060 and remain in the range of 0.80 to 0.90 percent of taxable payroll through 2089.

The financial outlooks for both OASDI and HI depend on a number of demographic and economic assumptions. Nevertheless, the actuarial defi-cit in each of these programs is large enough that averting trust fund depletion under current-law financing is extremely unlikely. An analysis that allows plausible random variations around the intermediate assump-

LONG-RANGE ACTUARIAL DEFICIT OF THE OASI, DI, AND HI TRUST FUNDS

[Percent of taxable payroll]

OASI DI OASDI HIActuarialDeficit . . . . . . . . . . . . . . . . . . 2.37 0.31 2.68 0.68

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tions employed in the report indicates that OASDI trust fund depletion is highly probable by mid-century.

How Has the Financial Outlook for Social Security and Medicare Changed Since Last Year? Under the intermediate assumptions, the combined OASDI trust funds have a projected 75-year actuarial deficit equal to 2.68 percent of taxable payroll, 0.20 percentage point smaller than last year’s estimate. The anticipated depletion date for the theoretical combined asset reserves is 2034. If the assumptions, methods, starting values, and the law had remained unchanged from last year, the actuarial deficit would have increased by about 0.06 percent of payroll due to advancing the valuation date by one year and including the year 2089. Changes in methods (for example, improved earnings projections for future beneficiaries), updated starting values, and revised economic assumptions (for example, an increased average real wage differential) account for most of the net decline in the actuarial deficit.

Medicare’s HI Trust Fund has a long-range actuarial deficit equal to 0.68 percent of taxable payroll under the intermediate assumptions, 0.19 percentage point smaller than reported last year. This improvement is primarily due to a reduction in projected long-range health care cost growth based on 1) changed assumptions about the effect of increases in income, technology, and health care prices on health care costs (0.23 per-cent of payroll), and 2) provider payment reductions due to legislation (0.03 percent of payroll). Partly offsetting these gains, by -0.07 percent of payroll, was an increase in the projected number of beneficiaries enrolled in Medicare Advantage plans, where benefits are more costly. The pro-jected date of depletion of the HI Trust Fund remains 2030.

What Are the Trust Funds? Congress established trust funds managed by the Secretary of the Treasury to account for Social Security and Medi-care income and disbursements. The Treasury credits Social Security and Medicare taxes, premiums, and other income to the funds. There are four separate trust funds. For Social Security, the Old-Age and Survivors Insurance (OASI) Trust Fund pays retirement and survivors benefits and the Disability Insurance (DI) Trust Fund pays disability benefits. (OASDI is the designation for the two trust funds when they are considered on a theoretical combined basis.) For Medicare, the Hospital Insurance (HI) Trust Fund pays for inpatient hospital and related care. The Supplemen-tary Medical Insurance (SMI) Trust Fund comprises two separate accounts: Part B, which pays for physician and outpatient services, and Part D, which covers the prescription drug benefit.

The only disbursements permitted from the funds are benefit payments and administrative costs. Federal law requires that all excess funds be invested in interest-bearing securities backed by the full faith and credit of the United States. The Department of the Treasury currently invests all program revenues in special non-marketable securities of the U.S. Gov-

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ernment which earn interest equal to rates on marketable securities with durations defined in law. The balances in the trust funds, which represent the accumulated value, including interest, of all prior program annual sur-pluses and deficits, provide automatic authority to pay benefits.

How Are Social Security and Medicare Financed? For OASDI and HI, the major source of financing is payroll taxes on earnings paid by employ-ees and their employers. Self-employed workers pay the equivalent of the combined employer and employee tax rates. During 2014, an estimated 166 million people had earnings covered by Social Security and paid pay-roll taxes; for Medicare the corresponding figure was 169.6 million. Cur-rent law establishes payroll tax rates for OASDI, which apply to earnings up to an annual maximum ($118,500 in 2015) that ordinarily increases with the growth in the nationwide average wage. In contrast to OASDI, covered workers pay HI taxes on total earnings. The scheduled payroll tax rates (in percent) for 2015 are:

Self-employed persons pay the combined rates. The Affordable Care Act applies an additional HI tax equal to 0.9 percent of earnings over $200,000 for individual tax return filers, and on earnings over $250,000 for joint return filers.

Taxation of Social Security benefits is another source of income for the Social Security and Medicare trust funds. Beneficiaries with incomes above $25,000 for individuals (or $32,000 for married couples filing jointly) pay income taxes on up to 50 percent of their benefits, with the revenues going to the OASDI trust funds. This income from taxation of benefits made up about 3 percent of Social Security’s income in 2014. Those with incomes above $34,000 (or $44,000 for married couples filing jointly) pay income taxes on up to 85 percent of benefits, with the additional revenues going to the Medicare trust fund. This income from taxation of benefits made up about 7 percent of HI Trust Fund income in 2014.

The trust funds also receive income from interest on their accumulated reserves, which are invested in U.S. Government securities. In 2014, interest income made up 11 percent of total income to the OASDI trust funds, 3 percent for HI, and less than 1 percent for SMI.

Payments from the General Fund currently finance about 75 percent of SMI Part B and Part D costs, with most of the remaining costs covered by monthly premiums charged to enrollees or in the case of low-income ben-eficiaries, paid on their behalf by Medicaid for Part B and Medicare for

OASI DI OASDI HI TotalEmployees . . . . . . 5.30 0.90 6.20 1.45 7.65Employers . . . . . . 5.30 0.90 6.20 1.45 7.65 Combined total . . 10.60 1.80 12.40 2.90 15.30

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Part D. Part B and Part D premium amounts are determined by methods defined in law and increase as the estimated costs of those programs rise.

In 2015, the Part B standard monthly premium is $104.90. There are also income-related premium surcharges for Part B beneficiaries whose modi-fied adjusted gross income exceeds a specified threshold. In 2015 through 2019, the threshold is $85,000 for individual tax return filers and $170,000 for joint return filers. Income-related premiums range from $146.90 to $335.70 per month in 2015.

In 2015, the Part D “base monthly premium” is $33.13. Actual premium amounts charged to Part D beneficiaries depend on the specific plan they have selected and average around $32 for standard coverage. Part D enrollees with incomes exceeding the thresholds established for Part B must pay income-related monthly adjustment amounts in addition to their normal plan premium. For 2015, the adjustments range from $12.30 to $70.80 per month. Part D also receives payments from States that par-tially compensate for the Federal assumption of Medicaid responsibilities for prescription drug costs for individuals eligible for both Medicare and Medicaid. In 2015, State payments will cover about 9 percent of Part D costs.

Who Are the Trustees? There are six Trustees, four of whom serve by virtue of their positions in the Federal Government: the Secretary of the Treasury, the Secretary of Labor, the Secretary of Health and Human Ser-vices, and the Commissioner of Social Security. The other two Trustees are public representatives appointed by the President and confirmed by the Senate: Charles P. Blahous III, Senior Research Fellow at the Merca-tus Center and Research Fellow at the Hoover Institution, and Robert D. Reischauer, President Emeritus and Distinguished Fellow of the Urban Institute.

A MESSAGE FROM THE PUBLIC TRUSTEES

Participation in our fifth annual Trustees Reports provides an opportunity to reflect on the great privilege it has been to serve as Public Trustees for the Social Security and Medicare trust funds. Not only do the Social Secu-rity and Medicare programs remain exceptional public policy achieve-ments, but also we have found that the Trustees’ process itself accords with the highest standards of public service. The ex officio Trustees and their capable staffs with whom we have worked have invariably approached their responsibilities with an attitude of respect for a process that well serves lawmakers and the public. The same can be said of the independent and tirelessly working Chief Actuaries at the Social Security Administration and Centers for Medicare & Medicaid Services and their skilled staffs.We have also benefited tremendously from the insights of the Social Security and Medicare technical panels that have reviewed the assumptions and methodologies underlying the annual reports. Although only time will allow us to judge the accuracy of the Trustees’ long-term projections, it is not too soon for us to vouch for the methodological rigor, objectivity, and integrity with which the work has been conducted.

As noted in last year’s Message, the public trustee positions were created pursuant to a recommendation of the 1983 Greenspan Commission, based on its view that “the presence of such public members would inspire more confidence in the investment procedure” for trust fund assets. This recom-mendation followed the Commission’s finding that the trust fund invest-ment procedures were “equitable to both the trust funds and the General Fund of the Treasury.” It preceded the Commission recommendation on budget procedures to “make clear the effect and presence of any pay-ments from the General Fund of the Treasury to the Social Security pro-gram.” While it emphasized the usefulness of public trustees in monitoring these interactions, the Commission also opined that establish-ing public trustees “would help to assure that the demographic and eco-nomic assumptions for the cost estimates of the future operations of the program would continue to be developed in an objective manner.”

Our positions thus require that we monitor several important aspects of Social Security and Medicare financing. The language of the Social Secu-rity Act, statements of influential legislators and commission members, and the structures of the Social Security and Medicare programs them-selves, all convey that a positive trust fund balance is a necessary but insufficient condition for financial viability. To ensure that these pro-grams function adequately, policy makers will need to consult other infor-

mation in our reports beyond the mere projected duration of trust fund adequacy. This is true for both Social Security and Medicare, though the underlying considerations are distinct in each case.

The importance of financial information beyond a trust fund’s solvency status is most readily apparent in Medicare, a significant portion of which is kept automatically solvent by statutory design. For example, lawmakers have long required that the Trustees provide an annual report on the finances of Medicare’s Supplemental Medical Insurance (SMI) Trust Fund, using statutory terminology similar to that used for the Social Security and Hospital Insurance trust funds despite the fact that, in con-trast to these other trust funds, the SMI fund can never be depleted. By this and other actions, lawmakers have conveyed to the Trustees a desire for a range of pertinent financial information. In the specific case of SMI, financing strains are manifested not in a threat of Trust Fund reserve depletion but in rising costs facing premium payers as well as the Federal Government’s General Fund. The budgetary pressures that arise from maintaining Trust Fund solvency are among the issues about which the annual Trustees Reports are intended to inform lawmakers and the public.

With Social Security, much of the need to look more critically at program finances arises from the pattern of trust fund operations that has devel-oped over time. Throughout much of Social Security’s early history annual income and outgo were kept in reasonably proximate annual bal-ance, such that when the Trust Funds faced a threat of depletion in the early 1980s it was still fully possible, though difficult to be sure, to close the financing gap. After the 1977 and 1983 program amendments, Social Security experienced substantial surpluses of tax income relative to expenditures from the late 1980s through the 2000s. Notwithstanding the fact that the aggregate program has been running annual cash deficits since 2010, these surpluses have accumulated to a substantial positive balance in the hypothetical combined trust funds, one that will peak in 2019 and then decline gradually to depletion in 2034. A critical unin-tended consequence of large trust fund balances has been that unavoid-able corrective actions have been postponed. Continued inaction going forward to the point where the combined trust funds near depletion would—unlike the situation in 1983—likely preclude any plausible oppor-tunity to maintain Social Security’s historical financing structure.

To appreciate these dangers, consider that under the Trustees’ current projections, annual Social Security costs will be more than 25 percent higher than income by 2034. There is no historical precedent for closing

annual gaps of this size within the space of just a few years. As the Trust-ees Report notes, even the total elimination of Social Security benefits for those newly eligible in 2034 would be insufficient to restore short-term financial balance. Similarly, a payroll tax increase of the magnitude needed to maintain scheduled benefits would have a profound adverse impact on the economy and employment. Thus, while legislative action is not yet necessary to prevent imminent reductions in Old-Age and Survi-vors Insurance (OASI) benefits (the immediate threat being confined to disability benefits), prompt action is needed to prevent Social Security’s aggregate financial shortfall from growing to an intractable size.

The imminent depletion of Social Security’s Disability Insurance (DI) Trust Fund reserves is but the first financing crisis arising from program cost growth trends that have been evident for the past few decades. Social Security DI faces unique policy challenges that lawmakers should address, distinct from those facing the OASI Trust Fund. At the same time, however, the projected imbalance of the OASI Trust Fund is larger in both absolute and relative terms than that facing the DI fund and arises from many of the same sources.

Conflicting considerations arise from these factors. At this late date, it is impracticable to reduce DI costs sufficiently to prevent imminent Trust Fund depletion (and thus, sudden benefit reductions for highly vulnerable individuals) without at least a temporary increase in DI Trust Fund resources, irrespective of its source or combination with other measures. But on the other hand, DI already receives a higher share of the Social Security payroll tax relative to its projected obligations, than does OASI. Moreover, past DI income increases have generally been enacted in the context of legislation affecting projected program outlays, the sole recent exception in 1994 being preceded by a Trustees’ warning that a further reallocation to DI from OASI “would ultimately raise concern about the financial viability of the retirement and survivors program.” Any neces-sary resource reallocation that does occur should not be regarded as a substitute for action to sustain the finances of DI and Social Security as a whole, nor enacted in a manner that has the effect of further postponing those required corrections.

Several years of delay in legislating financing corrections has led to the current situation in which there are few options for preventing sudden DI benefit reductions affecting many of our society’s most vulnerable mem-bers. Substantial further delay in enacting financial repairs to Social Security as a whole would compound these problems, creating uncer-tainty on an even larger scale for millions of vulnerable OASI beneficia-

ries and taxpayers, and leaving even less palatable options than now exist.

Though Medicare has long been considered the relatively more difficult financing challenge, by some measures it is in better financial shape than Social Security. Medicare’s actuarial imbalance is smaller and its Hospi-tal Insurance Trust Fund depletion date (2030) is substantially more dis-tant than that facing Social Security’s DI fund (2016). But two important factors complicate this picture. One is that, as earlier noted, Medicare SMI is constructed to remain solvent by statutory design. Thus the absence of a projected SMI Trust Fund depletion date does not by itself signify that Medicare is free from financing strains. Instead, these pres-sures are simply manifested in different ways—as projected financial bur-dens on Federal income taxpayers and Medicare premium payers.

The other important factor is that the relatively smaller size of Medicare’s financing gap depends in large part on sustaining ambitious cost-contain-ment provisions under current law whose effectiveness has yet to be fully tested over the long term. Irrespective of whether one supported or opposed the enactment of these provisions, Medicare participants and those with insurance obtained through employers, unions and exchanges share a common stake in their success. If these provisions were to be scaled back or repealed, other more aggressive savings measures would need to be enacted in their place. Because even under current projections Medicare faces a substantial financing gap, we will need all of current law’s cost containment and more to ensure that it remains on a financially secure footing.

We hope that the information contained in these reports will prove useful to policy makers as they undertake the important work of strengthening Social Security and Medicare finances.

CHARLES P. BLAHOUS III,Trustee.

ROBERT D. REISCHAUER,Trustee.

.

2015

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