On May 6, 2024, Secretary of the Treasury Janet Yellen co-authored a letter alerting Congress that the OASI Trust Fund reserves will be depleted in 2033 and Social Security retirement benefits will be payable at 79% instead of 100%.
Unless, of course, Congress follows the letter’s recommendations and increases payroll taxes, cuts benefits, or both.
Understanding the Federal Employees’ Retirement System
Janet Yellen and her three co-trustees manage the Federal Old-Age and Survivors Insurance (OASI) Trust Fund. All are federal employees who, if they were hired in 1984, participate in the Federal Employees’ Retirement System (FERS). FERS has 3 prongs:
- Basic Benefit Plan
- Social Security
- Thrift Savings Plan
The Thrift Savings Plan is similar to the private sector’s 401(k), and Social Security is the same for federal and private employees.
The FERS Basic Pension Plan
What sets federal employment benefits apart is the FERS Basic Pension plan. It is available for all federal employees – from Cabinet Secretaries down to rank-and-file employees of the Social Security Administration. It is not available to the private sector. Keep that in mind when a federal employee defends social security. The personal impact is relative.
For example, with her retirement benefits (either FERS or its predecessor plan), private investments, speaking engagements, and book royalties, the decrease to 79% of her social security payment should not significantly hurt Janet Yellen. She may have a dog in that hunt, but if so, it is a toy poodle.
Important Information from the 2024 Annual Trustee’s Report
For the rest of Americans, including other federal employees, a cut of social security benefits to 79% could be devastating.
To understand the math and assumptions behind Yellen’s letter, take a look at the 2024 Annual Trustee’s report. Clocking in at a whopping 277 pages, you will find scintillating tidbits on actuarial estimates, assumptions, and methods underlying those actuarial estimates, and financial operations and legislative changes in 2023. It is a surefire cure for even the most die-hard of insomniacs.
Or you can cheat and skip to the end, starting at the Appendices on page 159. This is where you find the good stuff: tables, history, and estimates.
The OASI Trust and Disability Trust Funding
You will learn that the OASI Trust and the Disability Trust are funded primarily by payroll tax contributions, reimbursements from the General Fund of the Treasury, taxes on social security payments, and interest on investments of trust fund income. The annual costs from the funds include social security and benefit payments, disability payments, and administrative expenses.
What is an Administrative Expense?
Payroll, the cost of office buildings and related facilities for the Social Security Administration, and information technology systems. While only a small percentage of costs, the 2023 administrative expenses still totaled $7.2 billion for both trusts. Alarmingly, in 2023 administrative expenses increased by $500 million.
There’s the story; now let’s put it all to music.
How the Federal Old-Age and Survivors Insurance Operates
For most years, OASI operated in the black. (Table VI. A4). Things rocked along just fine until 2021 when OASI ran at a deficit. In 2023, OASI was bleeding red to the tune of $41.4 billion. Trust reserves, however, were a healthy $2,673 billion.
The Future of OASI
What about the future? For that, we turn to Table VI.C4, which estimates operations for the next 10 years using 3 different assumptions: low-cost, intermediate, and high-cost. Low-Cost, the most optimistic, shows assets reserves of $1,350 billion by 2033, Intermediate shows $88.7 billion, and High-Cost shows zero.
Ms. Yellen used the Intermediate set of assumptions in her letter.
Hammerle Finley Law Firm is Here to Answer Your Social Security Questions
Now what? Read the 2024 Annual Trustee’s Report and then contact your congressperson. It’s their job to find out which is faulty: the report or the social security system.
If you’re looking for further assistance understanding your social security options, contact the experts at Hammerle Finley Law Firm today to schedule a consultation.
Virginia Hammerle is an accredited estate planner and represents clients in estate planning, probate, guardianship, and contested litigation. She may be reached at legaltalktexas@hammerle.com. This blog contains general information only and does not constitute legal advice.
