Proposals Circulate To Sustain DI Trust Fund

A recent flurry of proposals are circulating and public seminars are taking place as public policy specialists await the Social Security Board of Trustees’ annual report on the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds.

The DI Trust Fund continues to be in the media spotlight because of the 2016 date looming for the funds’ exhaustion of its reserves. Policy options ranging from accounting and tax changes to benefit and program modifications were recently outlined by the American Action Forum.

The American Action Forum joins the Center for American Progress, the National Academy of Social Insurance (NASI) and the Penn-Wharton Public Policy Initiative who have issued a variety of information in the past couple of weeks. Many of these ideas have been raised previously in Congressional hearings held during the past year and by groups and agencies such as the Congressional Budget Office. Both the Center for American Progress and the NASI hosted Stephen Goss, chief actuary for the Social Security Administration, at public seminars this week.

About 3 million people apply for the Social Security Disability Insurance (SSDI) program each year, and more than 150 million workers are insured for SSDI benefits. So the alternatives chosen will carry far-reaching impact.

The following are several of the DI Trust Fund alternatives in consideration:

• Reallocate the current tax rate of 6.2 percent between the OASI and DI trust funds so that a greater portion goes toward the DI Trust Fund. This reallocation has been done several times in the past.
• Increase the DI tax rate from 1.8 percent, what workers and employers currently pay, to 2.0-2.2 percent.
• Raise or eliminate the cap (currently $113,400) on taxable earnings so that more earnings are taxed, increasing revenue to the trust funds.
• Raise the FICA/payroll taxes; one suggestion is from 6.2 percent to 7.3 percent.
• Reduce SSDI benefits by a certain percentage; one suggestion is 15 percent. (Note: If no action is taken, SSDI benefits would be reduced by approximately 20 percent when the DI Trust Fund reaches exhaustion.)
• Modify the work quarter requirements for SSDI recipients so that individuals must demonstrate work history with four of the past six years, which is more stringent than the current five out of the past 10 years requirement.
• Extend the five-month waiting period to receive SSDI benefits to 12 months.
• Restructure SSDI benefits so that participants between age 62 and their full retirement age (FRA) would receive the early-retirement reduced benefit amount. Currently, SSDI benefit amounts are computed based on FRA.
• Replace the current cost-of-living adjustment formula with the Chained Consumer Price Index (CPI) for All Urban Consumers, or chained CPI, generally resulting in a reduction in annual benefit increases.
• Require additional modifications to the SSDI program, such as requiring all beneficiaries to participate in mandatory return-to-work counseling, or requiring continuing disability reviews (CDRs) more frequently.

These ideas are likely to remain under discussion until Congress advances a proposal for addressing the DI Trust Fund’s pending solvency issue. Allsup will continue to follow Congressional activity on this issue.