This is the accessible text file for CG Presentations number GAO-07- 125CG entitled 'Retirement Challenges in the 21st Century' which was released on October 11, 2006. This text file was formatted by the U.S. Government Accountability Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Retirement Challenges 21st Century: International Foundation of Employee Benefit Plans: Annual Employee Benefits Conference: Las Vegas, NV: October 10, 2006: The Honorable David M. Walker: Comptroller General of the United States: GAO-07-125CG: Composition of Federal Spending: [See PDF for image] - graphic text 3 pie charts with 5 items each. 1965: Defense: 43.0%; Social Security: 15.0%; Medicare & Medicaid: 0%; Net interest: 7.0%; All other spending: 35.0%. 1985: Defense: 27.0%; Social Security: 20.0%; Medicare & Medicaid: 9.0%; Net interest: 14.0%; All other spending: 30.0%. 2005: Defense: 20.0%; Social Security: 21.0%; Medicare & Medicaid: 19.0%; Net interest: 7.0%; All other spending: 32.0%. Source: Office of Management and Budget and Department of Treasury, Financial Management Service. Federal Spending for Mandatory and Discretionary Programs: [See PDF for image] - graphic text 3 pie charts with 3 items each. 1965: Discretionary: 66%; Mandatory: 27%; Net Interest: 7%. 1985: Discretionary: 44%; Mandatory: 42%; Net Interest: 14%. 2005: Discretionary: 39%; Mandatory: 54%; Net Interest: 7%. Source: Office of Management and Budget. [End of figure] Surplus or Deficit as a Share of GDP Fiscal Years 1962-2005: [See PDF for image] - graphic text: Line/Stacked Bar combo chart with 1 line (Unified) and 43 bars. Fiscal year: 1962; On-budget: -1%; Off-budget: -0.2%; Unified: -1.3%. Fiscal year: 1963; On-budget: -0.7%; Off-budget: -0.1%; Unified: -0.8%. Fiscal year: 1964; On-budget: -1%; Off-budget: 0.1%; Unified: -0.9%. Fiscal year: 1965; On-budget: -0.2%; Off-budget: No data; Unified: -0.2%. Fiscal year: 1966; On-budget: -0.4%; Off-budget: -0.1%; Unified: -0.5%. Fiscal year: 1967; On-budget: -1.6%; Off-budget: 0.5%; Unified: -1.1%. Fiscal year: 1968; On-budget: -3.2%; Off-budget: 0.3%; Unified: -2.9%. Fiscal year: 1969; On-budget: -0.1%; Off-budget: 0.4%; Unified: 0.3%. Fiscal year: 1970; On-budget: -0.9%; Off-budget: 0.6%; Unified: -0.3%. Fiscal year: 1971; On-budget: -2.4%; Off-budget: 0.3%; Unified: -2.1%. Fiscal year: 1972; On-budget: -2.2%; Off-budget: 0.3%; Unified: -2%. Fiscal year: 1973; On-budget: -1.2%; Off-budget: No data; Unified: -1.1%. Fiscal year: 1974; On-budget: -0.6%; Off-budget: 0.1%; Unified: -0.4%. Fiscal year: 1975; On-budget: -3.5%; Off-budget: 0.1%; Unified: -3.4%. Fiscal year: 1976; On-budget: -4.1%; Off-budget: -0.2%; Unified: -4.2%. Fiscal year: 1977; On-budget: -2.5%; Off-budget: -0.2%; Unified: -2.7%. Fiscal year: 1978; On-budget: -2.5%; Off-budget: -0.2%; Unified: -2.7%. Fiscal year: 1979; On-budget: -1.5%; Off-budget: -0.1%; Unified: -1.6%. Fiscal year: 1980; On-budget: -2.7%; Off-budget: No data; Unified: -2.7%. Fiscal year: 1981; On-budget: -2.4%; Off-budget: -0.2%; Unified: -2.6%. Fiscal year: 1982; On-budget: -3.7%; Off-budget: -0.2%; Unified: -4%. Fiscal year: 1983; On-budget: -6%; Off-budget: No data; Unified: -6%. Fiscal year: 1984; On-budget: -4.8%; Off-budget: No data; Unified: -4.8%. Fiscal year: 1985; On-budget: -5.3%; Off-budget: 0.2%; Unified: -5.1%. Fiscal year: 1986; On-budget: -5.4%; Off-budget: 0.4%; Unified: -5%. Fiscal year: 1987; On-budget: -3.6%; Off-budget: 0.4%; Unified: -3.2%. Fiscal year: 1988; On-budget: -3.9%; Off-budget: 0.8%; Unified: -3.1%. Fiscal year: 1989; On-budget: -3.8%; Off-budget: 1%; Unified: -2.8%. Fiscal year: 1990; On-budget: -4.8%; Off-budget: 1%; Unified: -3.9%. Fiscal year: 1991; On-budget: -5.4%; Off-budget: 0.9%; Unified: -4.5%. Fiscal year: 1992; On-budget: -5.5%; Off-budget: 0.8%; Unified: -4.7%. Fiscal year: 1993; On-budget: -4.6%; Off-budget: 0.7%; Unified: -3.9%. Fiscal year: 1994; On-budget: -3.7%; Off-budget: 0.8%; Unified: -2.9%. Fiscal year: 1995; On-budget: -3.1%; Off-budget: 0.9%; Unified: -2.2%. Fiscal year: 1996; On-budget: -2.3%; Off-budget: 0.9%; Unified: -1.4%. Fiscal year: 1997; On-budget: -1.3%; Off-budget: 1%; Unified: -0.3%. Fiscal year: 1998; On-budget: -0.3%; Off-budget: 1.1%; Unified: 0.8%. Fiscal year: 1999; On-budget: No data; Off-budget: 1.4%; Unified: 1.4%. Fiscal year: 2000; On-budget: 0.9%; Off-budget: 1.5%; Unified: 2.4%. Fiscal year: 2001; On-budget: -0.3%; Off-budget: 1.6%; Unified: 1.3%. Fiscal year: 2002; On-budget: -3.1%; Off-budget: 1.5%; Unified: -1.5%. Fiscal year: 2003; On-budget: -4.9%; Off-budget: 1.5%; Unified: -3.5%. Fiscal year: 2004; On-budget: -4.9%; Off-budget: 1.3%; Unified: -3.6%. Fiscal Year: 2005; On-Budget: -4.1%; Off-Budget: 1.2%; Unified: -2.8%. Source: Office of Management and Budget. [End of figure] Fiscal Year 2004 and 2005 Deficits and Net Operating Costs: Dollars in billions. On-Budget Deficit; Fiscal Year 2004: ($567); Fiscal Year 2005: ($494). Off-Budget Surplus*; Fiscal Year 2004: $155; Fiscal Year 2005: $175. Unified Deficit; Fiscal Year 2004: ($412); Fiscal Year 2005: ($319). Net Operating Cost; Fiscal Year 2004: ($616); Fiscal Year 2005: ($760). * Includes $151 billion in fiscal year 2004 and $173 billion in fiscal year 2005 in Social Security surpluses and $4 billion in fiscal year 2004 and $2 billion in fiscal year 2005 in Postal Service surpluses. Sources: The Office of Management and Budget and the Department of the Treasury. [End of table] Estimated Fiscal Exposures (s trillions): Explicit liabilities (Publicly held debt, military & civilian pensions & retiree health, other); 2000: $6.9; 2005: $9.9. Commitments & Contingencies: e.g., PBGC, undelivered orders; 2000: $0.5; 2005: $0.9. Implicit exposures; 2000: $13.0; 2005: $35.6. Implicit exposures: Future Social Security benefits; 2000: $3.8; 2005: $5.7. Implicit exposures: Future Medicare Part A benefits; 2000: $2.7; 2005: $8.8. Implicit exposures: Medicare Part B benefits; 2000: $6.5; 2005: $12.4. Implicit exposures: Medicare Part D benefits; 2005: $8.7. Total; 2000: $20.4; 2005: $46.4. Source: U.S. government's consolidated financial statements (CFS). Note: Estimates for Social Security and Medicare are at present value as of January 1 of each year as reported in the CFS and all other data are as of September 30. [End of table] How Big is Our Growing Fiscal Burden? Our total fiscal burden can be translated and compared as follows: Total Fiscal Exposures; 2005: $46.4 trillion; Total Household net worth[1]; 2005: $51.1 trillion. Total Household net worth[1]; Burden/Net worth ratio: 91 percent. Burden[2]: Per Person; 2005: $156,000. Burden[2]: Per Full-time Worker; 2005: $375,000. Burden[2]: Per Household; 2005: $411,000. Income: Median household income[3]; 2005: $44,389. Income: Disposable personal income per capita[4]; 2005: $30,431. Source: GAO analysis. Notes: (1) Federal Reserve Board, Flow of Funds Accounts, Table B.100, 2005:Q3 (Dec. 8, 2005); (2) Burdens are calculated using total U.S. population as of 9/30/05, from the U.S. Census Bureau, full-time workers for 2004, reported by the Bureau of Economic Analysis, in NIPA table 6.5D (Aug. 4, 2005); and households for 2004, reported by the U.S. Census Bureau, in Income Poverty & Health Insurance Coverage in the US: 2004 (Aug. 2005); (3) U.S. Census Bureau, Income Poverty & Health Insurance Coverage in the US: 2004 (Aug. 2005); and (4) Bureau of Economic Analysis, Personal Income and Outlays: October 2005, table 2, 2005:Q3, (Dec.1, 2005). [End of Table] Composition of Spending as a Share of GDP Under Baseline Extended: [See PDF for image] - graphic text: Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars per group. 2005; Net interest: 1.5%; Social Security: 4.2%; Medicare & Medicaid: 3.9%; All other spending: 10.5%; Revenue: 16.3% 2015; Net interest: 1.5%; Social Security: 4.5%; Medicare & Medicaid: 5.3%; All other spending: 7.9%; Revenue: 19.5% 2030; Net interest: 2.2%; Social Security: 6.4%; Medicare & Medicaid: 8.5%; All other spending: 7.8%; Revenue: 19.5% 2040; Net interest: 4.8%; Social Security: 6.9%; Medicare & Medicaid: 10.3%; All other spending: 7.8%; Revenue: 19.5% Notes: In addition to the expiration of tax cuts, revenue as a share of GDP increases through 2016 due to (1) real bracket creep, (2) more taxpayers becoming subject to the AMT, and (3) increased revenue from tax-deferred retirement accounts. After 2016, revenue as a share of GDP is held constant. Source: GAO's August 2006 analysis. [End of Figure] Composition of Spending as a Share of GDP Assuming Discretionary Spending Grows with GDP After 2006 and All Expiring Tax Provisions are Extended: [See PDF for image] - graphic text: Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars per group. 2005; Net interest: 1.5%; Social Security: 4.2%; Medicare & Medicaid: 3.9%; All other spending: 10.5%; Revenue: 17.5% 2015; Net interest: 2.5%; Social Security: 4.5%; Medicare & Medicaid: 5.3%; All other spending: 9.8%; Revenue: 17.5% 2030; Net interest: 7%; Social Security: 6.7%; Medicare & Medicaid: 8.5%; All other spending: 9.8%; Revenue: 17.6% 2040; Net interest: 14%; Social Security: 7.6%; Medicare & Medicaid: 10.3%; All other spending: 9.8%; Revenue: 17.6% Source: GAO's August 2006 analysis. Current Fiscal Policy Is Unsustainable: The "Status Quo" is Not an Option: * We face large and growing structural deficits largely due to known demographic trends and rising health care costs. * GAO's simulations show that balancing the budget in 2040 could require actions as large as: - Cutting total federal spending by 60 percent or: - Raising federal taxes to 2 times today's level: Faster Economic Growth Can Help, but It Cannot Solve the Problem: * Closing the current long-term fiscal gap based on reasonable assumptions would require real average annual economic growth in the double digit range every year for the next 75 years. * During the 1990s, the economy grew at an average 3.2 percent per year. * As a result, we cannot simply grow our way out of this problem. Tough choices will be required. The Way Forward: A Three-Pronged Approach: 1. Strengthen Budget and Legislative Processes and Controls: 2. Improve Financial Reporting and Performance Metrics: 3. Fundamental Reexamination & Transformation for the 21St Century: Solutions Require Active Involvement from both the Executive and Legislative Branches: 21st Century Challenges Report: Provides background, framework, and questions to assist in reexamining the base: Covers entitlements & other mandatory spending, discretionary spending, and tax policies and programs: Based on GAO's work for the Congress: Issued February 16, 2005: Twelve Reexamination Areas: Mission Areas: * Defense * International Affairs: * Education & Employment * Natural Resources, Energy & Environment: * Financial Regulation & Housing * Retirement & Disability: * Health Care * Science & Technology: * Homeland Security * Transportation: Crosscutting Areas: * Improving Governance * Reexamining the Tax System: Illustrative 21St Century Questions: Retirement and Disability Policy: How should Social Security be reformed to provide for long-term program solvency and sustainability while also ensuring adequate benefits (for example, increase the retirement age, restructure benefits, increase taxes, and/or create individual accounts)? What changes should be made to enhance the retirement income security of workers while protecting the fiscal integrity of the PBGC insurance program (for example, increasing transparency in connection with underfunded plans, modifying PBGC's premium structure and insurance guarantees, reforming plan funding rules, or restricting benefit increases and the distribution of lump sum benefits in connection with certain underfunded plans)? How can existing policies be reformed to encourage income preservation strategies so that retirement income lasts an individual's entire life (for example, benefit annuitization)? How can existing policies and programs be reformed to encourage older workers to work longer and to facilitate phased retirement approaches to employment (for example, more flexible work schedules or receiving partial pensions while continuing to work)? Illustrative 21St Century Questions: Health Care: How can we make our current Medicare and Medicaid programs sustainable? For example, should the eligibility requirements (e.g., age, income requirements) for these programs be modified? How can we perform a systematic reexamination of our current health care system? For example, could public and private entities work jointly to establish formal reexamination processes that would (1) define and update as needed a minimum core of essential health care services, (2) ensure that all Americans have access to the defined minimum core services, (3) allocate responsibility for financing these services among such entities as government, employers, and individuals, and (4) provide the opportunity for individuals to obtain additional services at their discretion and cost? Key Elements for Economic Security in Retirement: Adequate retirement income: * Savings: * Social Security: * Pensions: * Earnings from continued employment (e.g., part-time): Affordable health care: * Medicare: * Retiree health care: Long-term care (a hybrid): Major Players: * Employers: * Government: * Individuals: * Family: * Community: Personal Saving Rate Has Declined: Percent of disposable personal income. [See PDF for image] --graphic text: Line graph with 45 items. Percent of disposable personal income: Year: 1960; Personal saving rate: 7.3%. Year: 1961; Personal saving rate: 8.4%. Year: 1962; Personal saving rate: 8.3%. Year: 1963; Personal saving rate: 7.8%. Year: 1964; Personal saving rate: 8.8%. Year: 1965; Personal saving rate: 8.6%. Year: 1966; Personal saving rate: 8.3%. Year: 1967; Personal saving rate: 9.5%. Year: 1968; Personal saving rate: 8.4%. Year: 1969; Personal saving rate: 7.8%. Year: 1970; Personal saving rate: 9.4%. Year: 1971; Personal saving rate: 10.1%. Year: 1972; Personal saving rate: 8.9%. Year: 1973; Personal saving rate: 10.5%. Year: 1974; Personal saving rate: 10.6%. Year: 1975; Personal saving rate: 10.6%. Year: 1976; Personal saving rate: 9.4%. Year: 1977; Personal saving rate: 8.7%. Year: 1978; Personal saving rate: 8.9%. Year: 1979; Personal saving rate: 8.9%. Year: 1980; Personal saving rate: 10%. Year: 1981; Personal saving rate: 10.9%. Year: 1982; Personal saving rate: 11.2%. Year: 1983; Personal saving rate: 9%. Year: 1984; Personal saving rate: 10.8%. Year: 1985; Personal saving rate: 9%. Year: 1986; Personal saving rate: 8.2%. Year: 1987; Personal saving rate: 7%. Year: 1988; Personal saving rate: 7.3%. Year: 1989; Personal saving rate: 7.1%. Year: 1990; Personal saving rate: 7%. Year: 1991; Personal saving rate: 7.3%. Year: 1992; Personal saving rate: 7.7%. Year: 1993; Personal saving rate: 5.8%. Year: 1994; Personal saving rate: 4.8%. Year: 1995; Personal saving rate: 4.6%. Year: 1996; Personal saving rate: 4%. Year: 1997; Personal saving rate: 3.6%. Year: 1998; Personal saving rate: 4.3%. Year: 1999; Personal saving rate: 2.4%. Year: 2000; Personal saving rate: 2.3%. Year: 2001; Personal saving rate: 1.8%. Year: 2002; Personal saving rate: 2%. Year: 2003; Personal saving rate: 1.4%. Year: 2004; Personal saving rate: 1.2%. Year: 2005; Personal Saving rate: -0.5%. Source: Bureau of Economic Analysis, Department of Commerce. [End of figure] Annual Saving Required for a 35-Year Old, with Social Security: Required Contribution: Percentage of Gross Income 14%: [See PDF for image] Line graph with two lines with nine items each. Retirement Age: 62; Required Contribution: Percentage of Gross Income: Male: 11.12%; Required Contribution: Percentage of Gross Income: Female: 12.09%. Retirement Age: 63; Required Contribution: Percentage of Gross Income: Male: 10.07%; Required Contribution: Percentage of Gross Income: Female: 10.97%. Retirement Age: 64; Required Contribution: Percentage of Gross Income: Male: 9.08%; Required Contribution: Percentage of Gross Income: Female: 9.93%. Retirement Age: 65; Required Contribution: Percentage of Gross Income: Male: 8.01%; Required Contribution: Percentage of Gross Income: Female: 8.79%. Retirement Age: 66; Required Contribution: Percentage of Gross Income: Male: 7.01%; Required Contribution: Percentage of Gross Income: Female: 7.72%. Retirement Age: 67; Required Contribution: Percentage of Gross Income: Male: 6.06%; Required Contribution: Percentage of Gross Income: Female: 6.69%. Retirement Age: 68; Required Contribution: Percentage of Gross Income: Male: 5.10%; Required Contribution: Percentage of Gross Income: Female: 5.66%. Retirement Age: 69; Required Contribution: Percentage of Gross Income: Male: 4.20%; Required Contribution: Percentage of Gross Income: Female: 4.67%. Retirement Age: 70; Required Contribution: Percentage of Gross Income: Male: 3.34%; Required Contribution: Percentage of Gross Income: Female: 3.72%. Source: GAO analysis, based on Social Security Administration data. Note: The chart shows the percentage of gross salary 35-year old male and female earning an average wage in 2005 would need to withhold so that the individual would accumulate funds sufficient, along with scheduled social security benefits, to provide retirement income equal to 75% of his or her pre-retirement income. The projections are based on economic assumptions from the 2005 Social Security Trustees Report for inflation (2.8%), real wage growth (1.1%), real interest rate (3%), and nominal interest rate (5.8%). [End of figure] Aged Population as a Share of Total U.S. Population: [See PDF for image] –graphic text: Line graph with 131 items. Year: 1950; Population aged 65 and over (percentage of total population): 8.00%. Year: 1951; Population aged 65 and over (percentage of total population): 8.11%. Year: 1952; Population aged 65 and over (percentage of total population): 8.25%. Year: 1953; Population aged 65 and over (percentage of total population): 8.39%. Year: 1954; Population aged 65 and over (percentage of total population): 8.52%. Year: 1955; Population aged 65 and over (percentage of total population): 8.64%. Year: 1956; Population aged 65 and over (percentage of total population): 8.71%. Year: 1957; Population aged 65 and over (percentage of total population): 8.79%. Year: 1958; Population aged 65 and over (percentage of total population): 8.89%. Year: 1959; Population aged 65 and over (percentage of total population): 9.00%. Year: 1960; Population aged 65 and over (percentage of total population): 9.09%. Year: 1961; Population aged 65 and over (percentage of total population): 9.15%. Year: 1962; Population aged 65 and over (percentage of total population): 9.21%. Year: 1963; Population aged 65 and over (percentage of total population): 9.26%. Year: 1964; Population aged 65 and over (percentage of total population): 9.30%. Year: 1965; Population aged 65 and over (percentage of total population): 9.36%. Year: 1966; Population aged 65 and over (percentage of total population): 9.42%. Year: 1967; Population aged 65 and over (percentage of total population): 9.48%. Year: 1968; Population aged 65 and over (percentage of total population): 9.56%. Year: 1969; Population aged 65 and over (percentage of total population): 9.64%. Year: 1970; Population aged 65 and over (percentage of total population): 9.74%. Year: 1971; Population aged 65 and over (percentage of total population): 9.85%. Year: 1972; Population aged 65 and over (percentage of total population): 9.96%. Year: 1973; Population aged 65 and over (percentage of total population): 10.08%. Year: 1974; Population aged 65 and over (percentage of total population): 10.22%. Year: 1975; Population aged 65 and over (percentage of total population): 10.38%. Year: 1976; Population aged 65 and over (percentage of total population): 10.54%. Year: 1977; Population aged 65 and over (percentage of total population): 10.70%. Year: 1978; Population aged 65 and over (percentage of total population): 10.86%. Year: 1979; Population aged 65 and over (percentage of total population): 11.01%. Year: 1980; Population aged 65 and over (percentage of total population): 11.15%. Year: 1981; Population aged 65 and over (percentage of total population): 11.28%. Year: 1982; Population aged 65 and over (percentage of total population): 11.42%. Year: 1983; Population aged 65 and over (percentage of total population): 11.55%. Year: 1984; Population aged 65 and over (percentage of total population): 11.67%. Year: 1985; Population aged 65 and over (percentage of total population): 11.79%. Year: 1986; Population aged 65 and over (percentage of total population): 11.93%. Year: 1987; Population aged 65 and over (percentage of total population): 12.05%. Year: 1988; Population aged 65 and over (percentage of total population): 12.14%. Year: 1989; Population aged 65 and over (percentage of total population): 12.22%. Year: 1990; Population aged 65 and over (percentage of total population): 12.30%. Year: 1991; Population aged 65 and over (percentage of total population): 12.37%. Year: 1992; Population aged 65 and over (percentage of total population): 12.44%. Year: 1993; Population aged 65 and over (percentage of total population): 12.48%. Year: 1994; Population aged 65 and over (percentage of total population): 12.49%. Year: 1995; Population aged 65 and over (percentage of total population): 12.49%. Year: 1996; Population aged 65 and over (percentage of total population): 12.48%. Year: 1997; Population aged 65 and over (percentage of total population): 12.44%. Year: 1998; Population aged 65 and over (percentage of total population): 12.38%. Year: 1999; Population aged 65 and over (percentage of total population): 12.32%. Year: 2000; Population aged 65 and over (percentage of total population): 12.29%. Year: 2001; Population aged 65 and over (percentage of total population): 12.27%. Year: 2002; Population aged 65 and over (percentage of total population): 12.24%. Year: 2003; Population aged 65 and over (percentage of total population): 12.21%. Year: 2004; Population aged 65 and over (percentage of total population): 12.20%. Year: 2005; Population aged 65 and over (percentage of total population): 12.20%. Year: 2006; Population aged 65 and over (percentage of total population): 12.23%. Year: 2007; Population aged 65 and over (percentage of total population): 12.31%. Year: 2008; Population aged 65 and over (percentage of total population): 12.42%. Year: 2009; Population aged 65 and over (percentage of total population): 12.54%. Year: 2010; Population aged 65 and over (percentage of total population): 12.68%. Year: 2011; Population aged 65 and over (percentage of total population): 12.87%. Year: 2012; Population aged 65 and over (percentage of total population): 13.15%. Year: 2013; Population aged 65 and over (percentage of total population): 13.45%. Year: 2014; Population aged 65 and over (percentage of total population): 13.76%. Year: 2015; Population aged 65 and over (percentage of total population): 14.08%. Year: 2016; Population aged 65 and over (percentage of total population): 14.40%. Year: 2017; Population aged 65 and over (percentage of total population): 14.73%. Year: 2018; Population aged 65 and over (percentage of total population): 15.07%. Year: 2019; Population aged 65 and over (percentage of total population): 15.45%. Year: 2020; Population aged 65 and over (percentage of total population): 15.85%. Year: 2021; Population aged 65 and over (percentage of total population): 16.25%. Year: 2022; Population aged 65 and over (percentage of total population): 16.65%. Year: 2023; Population aged 65 and over (percentage of total population): 17.06%. Year: 2024; Population aged 65 and over (percentage of total population): 17.46%. Year: 2025; Population aged 65 and over (percentage of total population): 17.87%. Year: 2026; Population aged 65 and over (percentage of total population): 18.25%. Year: 2027; Population aged 65 and over (percentage of total population): 18.60%. Year: 2028; Population aged 65 and over (percentage of total population): 18.93%. Year: 2029; Population aged 65 and over (percentage of total population): 19.24%. Year: 2030; Population aged 65 and over (percentage of total population): 19.52%. Year: 2031; Population aged 65 and over (percentage of total population): 19.73%. Year: 2032; Population aged 65 and over (percentage of total population): 19.88%. Year: 2033; Population aged 65 and over (percentage of total population): 20.02%. Year: 2034; Population aged 65 and over (percentage of total population): 20.17%. Year: 2035; Population aged 65 and over (percentage of total population): 20.34%. Year: 2036; Population aged 65 and over (percentage of total population): 20.48%. Year: 2037; Population aged 65 and over (percentage of total population): 20.56%. Year: 2038; Population aged 65 and over (percentage of total population): 20.60%. Year: 2039; Population aged 65 and over (percentage of total population): 20.62%. Year: 2040; Population aged 65 and over (percentage of total population): 20.63%. Year: 2041; Population aged 65 and over (percentage of total population): 20.63%. Year: 2042; Population aged 65 and over (percentage of total population): 20.64%. Year: 2043; Population aged 65 and over (percentage of total population): 20.66%. Year: 2044; Population aged 65 and over (percentage of total population): 20.71%. Year: 2045; Population aged 65 and over (percentage of total population): 20.79%. Year: 2046; Population aged 65 and over (percentage of total population): 20.87%. Year: 2047; Population aged 65 and over (percentage of total population): 20.93%. Year: 2048; Population aged 65 and over (percentage of total population): 20.97%. Year: 2049; Population aged 65 and over (percentage of total population): 21.01%. Year: 2050; Population aged 65 and over (percentage of total population): 21.06%. Year: 2051; Population aged 65 and over (percentage of total population): 21.10%. Year: 2052; Population aged 65 and over (percentage of total population): 21.15%. Year: 2053; Population aged 65 and over (percentage of total population): 21.21%. Year: 2054; Population aged 65 and over (percentage of total population): 21.30%. Year: 2055; Population aged 65 and over (percentage of total population): 21.41%. Year: 2056; Population aged 65 and over (percentage of total population): 21.52%. Year: 2057; Population aged 65 and over (percentage of total population): 21.62%. Year: 2058; Population aged 65 and over (percentage of total population): 21.72%. Year: 2059; Population aged 65 and over (percentage of total population): 21.80%. Year: 2060; Population aged 65 and over (percentage of total population): 21.89%. Year: 2061; Population aged 65 and over (percentage of total population): 21.96%. Year: 2062; Population aged 65 and over (percentage of total population): 22.02%. Year: 2063; Population aged 65 and over (percentage of total population): 22.08%. Year: 2064; Population aged 65 and over (percentage of total population): 22.15%. Year: 2065; Population aged 65 and over (percentage of total population): 22.24%. Year: 2066; Population aged 65 and over (percentage of total population): 22.35%. Year: 2067; Population aged 65 and over (percentage of total population): 22.47%. Year: 2068; Population aged 65 and over (percentage of total population): 22.56%. Year: 2069; Population aged 65 and over (percentage of total population): 22.61%. Year: 2070; Population aged 65 and over (percentage of total population): 22.66%. Year: 2071; Population aged 65 and over (percentage of total population): 22.71%. Year: 2072; Population aged 65 and over (percentage of total population): 22.76%. Year: 2073; Population aged 65 and over (percentage of total population): 22.81%. Year: 2074; Population aged 65 and over (percentage of total population): 22.86%. Year: 2075; Population aged 65 and over (percentage of total population): 22.92%. Note: Projections based on the intermediate assumptions of the 2006 Trustees' Reports. Source: Office of the Chief Actuary, Social Security Administration. [End of figure] U.S. Elderly Dependency Ratio Expected to Continue to Increase: [See PDF for image] –graphic text: Line chart with one line and 5 items. Year: 1950; Elderly Dependency Ratio (in percent): 13%. Year: 1955; Elderly Dependency Ratio (in percent): 14%. Year: 1960; Elderly Dependency Ratio (in percent): 15%. Year: 1965; Elderly Dependency Ratio (in percent): 16%. Year: 1970; Elderly Dependency Ratio (in percent): 16%. Year: 1975; Elderly Dependency Ratio (in percent): 16%. Year: 1980; Elderly Dependency Ratio (in percent): 17%. Year: 1985; Elderly Dependency Ratio (in percent): 18%. Year: 1990; Elderly Dependency Ratio (in percent): 19%. Year: 1995; Elderly Dependency Ratio (in percent): 19%. Year: 2000; Elderly Dependency Ratio (in percent): 19%. Year: 2005; Elderly Dependency Ratio (in percent): 18%. Year: 2010; Elderly Dependency Ratio (in percent): 19%. Year: 2015; Elderly Dependency Ratio (in percent): 21%. Year: 2020; Elderly Dependency Ratio (in percent): 24%. Year: 2025; Elderly Dependency Ratio (in percent): 28%. Year: 2030; Elderly Dependency Ratio (in percent): 31%. Year: 2035; Elderly Dependency Ratio (in percent): 32%. Year: 2040; Elderly Dependency Ratio (in percent): 32%. Year: 2045; Elderly Dependency Ratio (in percent): 33%. Year: 2050; Elderly Dependency Ration (in percent): 33%. Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2004 Revision and World Urbanization Prospects: The 2003 Revision. Note: Data for 2005 through 2050 are projected. [End of Figure] U.S. Labor Force Growth Will Continue to Decline: [See PDF for image] –graphic text: Line chart with one line and 111 items. Year: 1970; Percentage change (5-year moving average): 2.38%. Year: 1971; Percentage change (5-year moving average): 2.56%. Year: 1972; Percentage change (5-year moving average): 2.64%. Year: 1973; Percentage change (5-year moving average): 2.52%. Year: 1974; Percentage change (5-year moving average): 2.64%. Year: 1975; Percentage change (5-year moving average): 2.6%. Year: 1976; Percentage change (5-year moving average): 2.72%. Year: 1977; Percentage change (5-year moving average): 2.68%. Year: 1978; Percentage change (5-year moving average): 2.66%. Year: 1979; Percentage change (5-year moving average): 2.48%. Year: 1980; Percentage change (5-year moving average): 2.18%. Year: 1981; Percentage change (5-year moving average): 1.76%. Year: 1982; Percentage change (5-year moving average): 1.58%. Year: 1983; Percentage change (5-year moving average): 1.54%. Year: 1984; Percentage change (5-year moving average): 1.64%. Year: 1985; Percentage change (5-year moving average): 1.7%. Year: 1986; Percentage change (5-year moving average): 1.76%. Year: 1987; Percentage change (5-year moving average): 1.76%. Year: 1988; Percentage change (5-year moving average): 1.74%. Year: 1989; Percentage change (5-year moving average): 1.4%. Year: 1990; Percentage change (5-year moving average): 1.34%. Year: 1991; Percentage change (5-year moving average): 1.2%. Year: 1992; Percentage change (5-year moving average): 1.12%. Year: 1993; Percentage change (5-year moving average): 1%. Year: 1994; Percentage change (5-year moving average): 1.16%. Year: 1995; Percentage change (5-year moving average): 1.24%. Year: 1996; Percentage change (5-year moving average): 1.28%. Year: 1997; Percentage change (5-year moving average): 1.24%. Year: 1998; Percentage change (5-year moving average): 1.5%. Year: 1999; Percentage change (5-year moving average): 1.42%. Year: 2000; Percentage change (5-year moving average): 1.22%. Year: 2001; Percentage change (5-year moving average): 1.26%. Year: 2002; Percentage change (5-year moving average): 1.28%. Year: 2003; Percentage change (5-year moving average): 1.14%. Year: 2004; Percentage change (5-year moving average): 1.24%. Year: 2005; Percentage change (5-year moving average): 1.3%. Year: 2006; Percentage change (5-year moving average): 1.26%. Year: 2007; Percentage change (5-year moving average): 1.18%. Year: 2008; Percentage change (5-year moving average): 1.02%. Year: 2009; Percentage change (5-year moving average): 0.92%. Year: 2010; Percentage change (5-year moving average): 0.82%. Year: 2011; Percentage change (5-year moving average): 0.74%. Year: 2012; Percentage change (5-year moving average): 0.66%. Year: 2013; Percentage change (5-year moving average): 0.6%. Year: 2014; Percentage change (5-year moving average): 0.52%. Year: 2015; Percentage change (5-year moving average): 0.48%. Year: 2016; Percentage change (5-year moving average): 0.44%. Year: 2017; Percentage change (5-year moving average): 0.42%. Year: 2018; Percentage change (5-year moving average): 0.38%. Year: 2019; Percentage change (5-year moving average): 0.36%. Year: 2020; Percentage change (5-year moving average): 0.34%. Year: 2021; Percentage change (5-year moving average): 0.3%. Year: 2022; Percentage change (5-year moving average): 0.26%. Year: 2023; Percentage change (5-year moving average): 0.24%. Year: 2024; Percentage change (5-year moving average): 0.22%. Year: 2025; Percentage change (5-year moving average): 0.2%. Year: 2026; Percentage change (5-year moving average): 0.2%. Year: 2027; Percentage change (5-year moving average): 0.2%. Year: 2028; Percentage change (5-year moving average): 0.2%. Year: 2029; Percentage change (5-year moving average): 0.22%. Year: 2030; Percentage change (5-year moving average): 0.24%. Year: 2031; Percentage change (5-year moving average): 0.26%. Year: 2032; Percentage change (5-year moving average): 0.28%. Year: 2033; Percentage change (5-year moving average): 0.3%. Year: 2034; Percentage change (5-year moving average): 0.3%. Year: 2035; Percentage change (5-year moving average): 0.3%. Year: 2036; Percentage change (5-year moving average): 0.3%. Year: 2037; Percentage change (5-year moving average): 0.3%. Year: 2038; Percentage change (5-year moving average): 0.3%. Year: 2039; Percentage change (5-year moving average): 0.3%. Year: 2040; Percentage change (5-year moving average): 0.3%. Year: 2041; Percentage change (5-year moving average): 0.3%. Year: 2042; Percentage change (5-year moving average): 0.3%. Year: 2043; Percentage change (5-year moving average): 0.3%. Year: 2044; Percentage change (5-year moving average): 0.3%. Year: 2045; Percentage change (5-year moving average): 0.3%. Year: 2046; Percentage change (5-year moving average): 0.28%. Year: 2047; Percentage change (5-year moving average): 0.26%. Year: 2048; Percentage change (5-year moving average): 0.24%. Year: 2049; Percentage change (5-year moving average): 0.22%. Year: 2050; Percentage change (5-year moving average): 0.2%. Year: 2051; Percentage change (5-year moving average): 0.2%. Year: 2052; Percentage change (5-year moving average): 0.2%. Year: 2053; Percentage change (5-year moving average): 0.2%. Year: 2054; Percentage change (5-year moving average): 0.2%. Year: 2055; Percentage change (5-year moving average): 0.2%. Year: 2056; Percentage change (5-year moving average): 0.2%. Year: 2057; Percentage change (5-year moving average): 0.2%. Year: 2058; Percentage change (5-year moving average): 0.2%. Year: 2059; Percentage change (5-year moving average): 0.2%. Year: 2060; Percentage change (5-year moving average): 0.2%. Year: 2061; Percentage change (5-year moving average): 0.2%. Year: 2062; Percentage change (5-year moving average): 0.2%. Year: 2063; Percentage change (5-year moving average): 0.2%. Year: 2064; Percentage change (5-year moving average): 0.2%. Year: 2065; Percentage change (5-year moving average): 0.2%. Year: 2066; Percentage change (5-year moving average): 0.2%. Year: 2067; Percentage change (5-year moving average): 0.2%. Year: 2068; Percentage change (5-year moving average): 0.2%. Year: 2069; Percentage change (5-year moving average): 0.2%. Year: 2070; Percentage change (5-year moving average): 0.2%. Year: 2071; Percentage change (5-year moving average): 0.2%. Year: 2072; Percentage change (5-year moving average): 0.2%. Year: 2073; Percentage change (5-year moving average): 0.2%. Year: 2074; Percentage change (5-year moving average): 0.2%. Year: 2075; Percentage change (5-year moving average): 0.2%. Year: 2076; Percentage change (5-year moving average): 0.2%. Year: 2077; Percentage change (5-year moving average): 0.2%. Year: 2078; Percentage change (5-year moving average): 0.2%. Year: 2079; Percentage change (5-year moving average): 0.2%. Year: 2080; Percentage change (5-year moving average): 0.2%. Note: Percentage change is calculated as a centered 5-yr moving average of projections based on the intermediate assumptions of the 2006 Trustees Reports. Source: GAO analysis of data from the Office of the Chief Actuary, Social Security Administration. [End of Figure] Social Security Workers per Beneficiary: [See PDF for image] –graphic text: Line graph with 25 items. Year: 1960; Covered workers per OASDI beneficiary: 5.1. Year: 1965; Covered workers per OASDI beneficiary: 4. Year: 1970; Covered workers per OASDI beneficiary: 3.7. Year: 1975; Covered workers per OASDI beneficiary: 3.2. Year: 1980; Covered workers per OASDI beneficiary: 3.2. Year: 1985; Covered workers per OASDI beneficiary: 3.3. Year: 1990; Covered workers per OASDI beneficiary: 3.4. Year: 1995; Covered workers per OASDI beneficiary: 3.3. Year: 2000; Covered workers per OASDI beneficiary: 3.4. Year: 2005; Covered workers per OASDI beneficiary: 3.3. Year: 2010; Covered workers per OASDI beneficiary: 3.2. Year: 2015; Covered workers per OASDI beneficiary: 2.9. Year: 2020; Covered workers per OASDI beneficiary: 2.6. Year: 2025; Covered workers per OASDI beneficiary: 2.3. Year: 2030; Covered workers per OASDI beneficiary: 2.2. Year: 2035; Covered workers per OASDI beneficiary: 2.1. Year: 2040; Covered workers per OASDI beneficiary: 2.1. Year: 2045; Covered workers per OASDI beneficiary: 2. Year: 2050; Covered workers per OASDI beneficiary: 2. Year: 2055; Covered workers per OASDI beneficiary: 2. Year: 2060; Covered workers per OASDI beneficiary: 2. Year: 2065; Covered workers per OASDI beneficiary: 2. Year: 2070; Covered workers per OASDI beneficiary: 1.9. Year: 2075; Covered workers per OASDI beneficiary: 1.9. Year: 2080; Covered workers per OASDI beneficiary: 1.9. Note: Projections based on the intermediate assumptions of the 2006 Trustees' Reports. Source: Office of the Chief Actuary, Social Security Administration. [End of Figure] Social Security and Medicare's Hospital Insurance Trust Funds Face Cash Deficits: [See PDF for image] –graphic text: Stacked Bar chart with 41 items. Billions of 2005 dollars. Year: 2005; Medicare HI cash flow: $0.412; Social Security cash flow: $79.82. Year: 2006(Medicare HI cash deficit); Medicare HI cash flow: -$3.00; Social Security cash flow: $76.00. Year: 2007; Medicare HI cash flow: -$6.00; Social Security cash flow: $78.00. Year: 2008; Medicare HI cash flow: -$7.00; Social Security cash flow: $89.00. Year: 2009; Medicare HI cash flow: -$11.00; Social Security cash flow: $85.00. Year: 2010; Medicare HI cash flow: -$14.00; Social Security cash flow: $82.00. Year: 2011; Medicare HI cash flow: -$17.00; Social Security cash flow: $80.00. Year: 2012; Medicare HI cash flow: -$21.00; Social Security cash flow: $70.00. Year: 2013; Medicare HI cash flow: -$27.00; Social Security cash flow: $56.00. Year: 2014; Medicare HI cash flow: -$33.00; Social Security cash flow: $41.00. Year: 2015; Medicare HI cash flow: -$40.00; Social Security cash flow: $25.00. Year: 2016; Medicare HI cash flow: -$47.00; Social Security cash flow: $9.00. Year: 2017(Social Security cash deficit); Medicare HI cash flow: -$55.00; Social Security cash flow: -$8.0. Year: 2018; Medicare HI cash flow: -$64.00; Social Security cash flow: -$27.00. Year: 2019; Medicare HI cash flow: -$74.00; Social Security cash flow: -$46.00. Year: 2020; Medicare HI cash flow: -$84.00; Social Security cash flow: -$65.00. Year: 2021; Medicare HI cash flow: -$96.00; Social Security cash flow: -$85.00. Year: 2022; Medicare HI cash flow: -$109.00; Social Security cash flow: -$106.00. Year: 2023; Medicare HI cash flow: -$123.00; Social Security cash flow: -$127.00. Year: 2024; Medicare HI cash flow: -$138.00; Social Security cash flow: -$148.00. Year: 2025; Medicare HI cash flow: -$155.00; Social Security cash flow: -$169.00. Year: 2026; Medicare HI cash flow: -$172.00; Social Security cash flow: -$191.00. Year: 2027; Medicare HI cash flow: -$191.00; Social Security cash flow: -$211.00. Year: 2028; Medicare HI cash flow: -$209.00; Social Security cash flow: -$231.00. Year: 2029; Medicare HI cash flow: -$229.00; Social Security cash flow: -$250.00. Year: 2030; Medicare HI cash flow: -$249.00; Social Security cash flow: -$267.00. Year: 2031; Medicare HI cash flow: -$271.00; Social Security cash flow: -$283.00. Year: 2032; Medicare HI cash flow: -$292.00; Social Security cash flow: -$299.00. Year: 2033; Medicare HI cash flow: -$313.00; Social Security cash flow: -$312.00. Year: 2034; Medicare HI cash flow: -$336.00; Social Security cash flow: -$324.00. Year: 2035; Medicare HI cash flow: -$358.00; Social Security cash flow: -$334.00. Year: 2036; Medicare HI cash flow: -$381.00; Social Security cash flow: -$344.00. Year: 2037; Medicare HI cash flow: -$403.00; Social Security cash flow: -$352.00. Year: 2038; Medicare HI cash flow: -$424.00; Social Security cash flow: -$359.00. Year: 2039; Medicare HI cash flow: -$446.00; Social Security cash flow: -$365.00. Year: 2040; Medicare HI cash flow: -$469.00; Social Security cash flow: -$370.00. Note: Projections based on the intermediate assumptions of the 2006 Trustees' Reports. The CPI is used to adjust from current to constant dollars. Source: GAO analysis based on data from the Office of the Chief Actuary, Social Security Administration and Office of the Actuary, Centers for Medicare and Medicaid Services. [End of Figure] GAO-07-125CG: 23: Key Dates Highlight Long Term Challenges of the Social Security System: Date: OASI: 2009; Date: DI: --; Date: OASDI: 2009; Event: Cash surplus begins to decline. Date: OASI: 2018; Date: DI: 2005; Date: OASDI: 2017; Event: Annual benefit costs exceed cash revenue from taxes. Date: OASI: 2028; Date: DI: 2013; Date: OASDI: 2027; Event: Trust fund ceases to grow because even taxes plus interest fall short of benefits. Date: OASI: 2042; Date: DI: 2025; Date: OASDI: 2045; Event: Trust fund exhausted. Sources: Social Security Administration, The 2006 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (Washington, DC: May 2006). [End of table] GAO Criteria for Evaluating Social Security Reform Proposals: Reform proposals should be evaluated as packages that strike a balance among individual reform elements and important interactive effects. Comprehensive proposals can be evaluated against three basic criteria: Financing sustainable solvency: Balancing adequacy and equity in the benefits structure: Implementing and administering reforms: Pension System Faces Variety of Challenges: Significant coverage gaps and pre-retirement leakage: Long term decline in the number of DB plans and active participants and change in the nature of DB plans: Recent DB freezes and retiree health plan limitations are likely to accelerate due to prospective changes in current accounting for pension and post-employment benefits: Recent and prospective large plan terminations by bankrupt sponsors have placed Pension Benefit Guaranty Corporation (PBGC), the federal agency insuring benefits, in financial jeopardy: * Stock market, interest rate declines this decade have worsened overall plan funding: * Demographics, global competition (steel, auto), industry deregulation restructuring (airlines) have contributed to both plan and corporate weakness: Plan funding rules have proven to be inadequate: Certain PBGC premium insurance issues need to be reviewed: Selected other issues also require attention (e.g., lump sums, bankruptcy laws): PBGC's Net Accumulated Deficit for Single-Employer Plans Was Nearly $23 Billion in 2005: [See PDF for image] –graphic text: Line graph with two lines with 26 items each. Dollars in billions: Year: 1980; Accumulated surplus/deficit: -$0.10; Annual net gain/loss: -$0.09. Year: 1981; Accumulated surplus/deficit: -$0.19; Annual net gain/loss: -$0.14. Year: 1982; Accumulated surplus/deficit: -$0.33; Annual net gain/loss: -$0.19. Year: 1983; Accumulated surplus/deficit: -$0.52; Annual net gain/loss: -$0.06. Year: 1984; Accumulated surplus/deficit: -$0.46; Annual net gain/loss: -$0.86. Year: 1985; Accumulated surplus/deficit: -$1.33; Annual net gain/loss: -$0.70. Year: 1986; Accumulated surplus/deficit: -$2.03; Annual net gain/loss: $0.48. Year: 1987; Accumulated surplus/deficit: -$1.55; Annual net gain/loss: $0.48. Year: 1988; Accumulated surplus/deficit: -$1.54; Annual net gain/loss: $0.01. Year: 1989; Accumulated surplus/deficit: -$1.12; Annual net gain/loss: $0.42. Year: 1990; Accumulated surplus/deficit: -$1.91; Annual net gain/loss: -$0.79. Year: 1991; Accumulated surplus/deficit: -$2.50; Annual net gain/loss: -$0.59. Year: 1992; Accumulated surplus/deficit: -$2.74; Annual net gain/loss: -$0.23. Year: 1993; Accumulated surplus/deficit: -$2.90; Annual net gain/loss: -$0.16. Year: 1994; Accumulated surplus/deficit: -$1.24; Annual net gain/loss: $1.66. Year: 1995; Accumulated surplus/deficit: -$0.32; Annual net gain/loss: $0.93. Year: 1996; Accumulated surplus/deficit: $0.87; Annual net gain/loss: $1.18. Year: 1997; Accumulated surplus/deficit: $3.48; Annual net gain/loss: $2.61. Year: 1998; Accumulated surplus/deficit: $5.01; Annual net gain/loss: $1.53. Year: 1999; Accumulated surplus/deficit: $7.04; Annual net gain/loss: $2.03. Year: 2000; Accumulated surplus/deficit: $9.70; Annual net gain/loss: $2.67. Year: 2001; Accumulated surplus/deficit: $7.73; Annual net gain/loss: -$1.97. Year: 2002; Accumulated surplus/deficit: -$3.64; Annual net gain/loss: -$11.37. Year: 2003; Accumulated surplus/deficit: -$11.24; Annual net gain/loss: -$7.60. Year: 2004; Accumulated surplus/deficit: -$23.30; Annual net gain/loss: -$12.06. Year: 2005; Accumulated surplus/deficit: -$22.80; Annual net gain/loss: $0.56. Source: Pension Benefit Guaranty Corporation. [End of Figure] PBGC Claims and Exposures by Principle Industry Category: [See PDF for image] –graphic text: Two pie charts with three items each. PBGC Claims by Industry, FY 1975-2005: Total = $31.7 billion. Manufacturing (e.g. steel, heavy equipment): 52%; Transportation (e.g. airlines): 40%; Other (e.g. construction, services): 8%. Reasonably Possible Exposure, FY 2005: Total = $108 billion. Manufacturing (e.g. steel, heavy equipment): 66%; Transportation (e.g. airlines): 16%; Other (e.g. construction, services): 18%. Source: Pension Benefit Guaranty Corporation. PBGC data for claims based on preliminary data. [End of Figure] Broad Goals for Reform of the DB System: Provide incentives and safeguards for plan sponsors to improve plan funding without causing terminations that would otherwise not occur: Hold plan sponsors accountable for adequately funding their plans: Improve transparency and timeliness of plan financial information: Several Reforms Might Improve Plan Funding and Reduce the Risks to PBGC's Long-term Viability: Strengthen funding rules applicable to poorly funded plans: Consider additional tax deductible funding flexibility: Limit lump sums in underfunded plans: Modify program guarantees (e.g., phase-in rules): Raise and modify pension premiums (e.g., nature of risk related premiums): Eliminate floor/offset arrangements with significant investment concentrations in employer securities: Increase transparency of current plan funding information: Modify bankruptcy laws: Address issues surrounding certain hybrid plans (e.g., cash balance plans): Consider whether to address industrial restructuring costs/losses differently than normal PBGC losses: Pension Protection Act of 2006: Measures to Improve DB Plan Funding and Design: Improved Funding - Sponsors have 7 years to reach 100 percent plan funding (previously had up to 30 years to reach 90 percent): "Smoothing" Period Reduced - for liabilities from 4 to 2 years; for assets, from 5 to 2 years: Yield Curve - Modified corporate bond yield curve replaces 30-year Treasuries as key discount rate: Credit Balances - Use of balances restricted: "At Risk" Plans - Tougher funding rules, other restrictions for weakly funded "at risk" plans: Cash balance plans - not deemed to be age discriminatory prospectively, wearaway and whipsaw prohibited shorter vesting (reduced from 5 years to 3 years): Multiemployer plans - Benefit restrictions placed on certain underfunded plans: Pension Protection Act of 2006: Measures Related to PBGC: PBGC Premiums: * Flat-rate premiums to remain at $30/participant (enacted in Deficit Reduction Act): * Loopholes in Variable-Rate Premium closed (e.g. previous exemption for plans at "full-funding" removed): * Termination premium of $1250/participant: Shutdown Benefits - Restricts shutdown benefits and their PBGC guarantee: Industry Relief - Longer funding period for airlines and select other industries: Pension Protection Act of 2006: Measures Related to Defined Contribution Plans: Automatic Enrollment - Option of automatic enrollment as default: Financial Advice - Removes restrictions on investment companies offering limited financial advice to plan participants: Employer Stock - Plans required to allow diversification of employer stock after 3 years: Pension Protection Act of 2006: An Important Reform with Unfinished Business: PPA shrinks, but does not close, many loopholes regarding DB plan funding: PBGC deficit expected to continue to grow: Ultimately does not address fundamental mismatch between DB plan assets and liabilities: Will likely not reverse long-term decline in DB system: Financing of adequate retirement for all Americans continues to pose a major national challenge: * Issues of coverage and plan design remain largely unanswered: * Appropriate balance of responsibility for retirement among employers, government and workers remains unclear: Key Dates Highlight Long Term Challenges of the Medicare Program: Date: 2006; Event: HI outlays exceed cash income. Date: 2007; Event: Estimated trigger date for "Medicare funding warning". Date: 2012; Event: Projected date that annual "general revenue funding" will exceed 45 percent of total Medicare outlays. Date: 2018; Event: HI (Part A) trust fund exhausted, annual income sufficient to pay about 80% of HI promised benefits. Source: 2006 Annual Report of The Boards of Trustees of The Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Washington, DC, May 2006). [End of Table] SMI Premium as Share of Average Social Security (OASI) Benefit: [See PDF for image] - graphic text: Line graph with 17 items. Year: 1990; Percent of average OASI benefit: 5.43%. Year: 1991; Percent of average OASI benefit: 5.34%. Year: 1992; Percent of average OASI benefit: 5.44%. Year: 1993; Percent of average OASI benefit: 6.03%. Year: 1994; Percent of average OASI benefit: 6.55%. Year: 1995; Percent of average OASI benefit: 7.09%. Year: 1996; Percent of average OASI benefit: 6.32%. Year: 1997; Percent of average OASI benefit: 6.27%. Year: 1998; Percent of average OASI benefit: 6.08%. Year: 1999; Percent of average OASI benefit: 6.19%. Year: 2000; Percent of average OASI benefit: 5.97%. Year: 2001; Percent of average OASI benefit: 6.27%. Year: 2002; Percent of average OASI benefit: 6.53%. Year: 2003; Percent of average OASI benefit: 6.93%. Year: 2004; Percent of average OASI benefit: 7.61%. Year: 2005; Percent of average OASI benefit: 8.63%. Year: 2006; Percent of average OASI benefit: 9.51%. Note: Data for 2006 are based on the announced SMI monthly premium of $88.50 and do not include the Medicare Prescription Drug premium. In August, the Centers for Medicare & Medicaid Services estimated that the national average monthly premium for prescription drug coverage equivalent to the Medicare standard coverage would be $32.20. Source: CMS, Office of the Actuary. [End of Figure] Health Care Is the Nation's Top Tax Expenditure in Fiscal Year 2005: [See PDF for image] --graphic text: Bar chart with five items: Exclusion of employer contributions for insurance premiums and medical care: $118.4*. Deductibility of mortgage interest on owner-occupied dwellings: $62.2. Exclusion of pension contributions and earnings: employer-sponsored 401(K) plans: $50.6. Exclusion of pension contributions and earnings: employer-sponsored defined benefit plans: $41.8**. Deductibility of nonbusiness state and local taxes (other than on owner- occupied dwellings): $37.4. Note: `Tax expenditures" refers to the special tax provisions that are contained in the federal income taxes on individuals and corporations. OMB does not include forgone revenue from other federal taxes such as Social Security and Medicare payroll taxes. * If the payroll tax exclusion were also counted here, the total tax expenditure for employer contributions for health insurance premiums would be about 50 percent higher or $177.6 billion. ** This is the revenue loss and does not include associated outlays of $14.6 billion. Source: Office of Management and Budget (OMB), Analytical Perspectives, Budget of the United States Government, Fiscal Year 2007. [End of Figure] Social Security, Medicare, and Medicaid Spending as a Percent of GDP: [See PDF for image] - graphic text: Area graph with 81 Groups and 3 items per Group. Percent of GDP: Year: 2000; Social Security: 4.23%; Medicaid: 1.23%; Medicare: 2.28%. Year: 2001; Social Security: 4.33%; Medicaid: 1.32%; Medicare: 2.44%. Year: 2002; Social Security: 4.4%; Medicaid: 1.44%; Medicare: 2.53%. Year: 2003; Social Security: 4.35%; Medicaid: 1.5%; Medicare: 2.57%. Year: 2004; Social Security: 4.27%; Medicaid: 1.52%; Medicare: 2.63%. Year: 2005; Social Security: 4.26%; Medicaid: 1.51%; Medicare: 2.69%. Year: 2006; Social Security: 4.21%; Medicaid: 1.5%; Medicare: 3.33%. Year: 2007; Social Security: 4.19%; Medicaid: 1.52%; Medicare: 3.36%. Year: 2008; Social Security: 4.2%; Medicaid: 1.57%; Medicare: 3.41%. Year: 2009; Social Security: 4.24%; Medicaid: 1.62%; Medicare: 3.45%. Year: 2010; Social Security: 4.28%; Medicaid: 1.68%; Medicare: 3.5%. Year: 2011; Social Security: 4.34%; Medicaid: 1.74%; Medicare: 3.56%. Year: 2012; Social Security: 4.42%; Medicaid: 1.8%; Medicare: 3.67%. Year: 2013; Social Security: 4.51%; Medicaid: 1.87%; Medicare: 3.81%. Year: 2014; Social Security: 4.61%; Medicaid: 1.93%; Medicare: 3.96%. Year: 2015; Social Security: 4.71%; Medicaid: 1.95%; Medicare: 4.12%. Year: 2016; Social Security: 4.81%; Medicaid: 1.95%; Medicare: 4.29%. Year: 2017; Social Security: 4.92%; Medicaid: 1.95%; Medicare: 4.44%. Year: 2018; Social Security: 5.02%; Medicaid: 1.95%; Medicare: 4.61%. Year: 2019; Social Security: 5.13%; Medicaid: 1.95%; Medicare: 4.78%. Year: 2020; Social Security: 5.24%; Medicaid: 1.95%; Medicare: 4.96%. Year: 2021; Social Security: 5.35%; Medicaid: 1.99%; Medicare: 5.14%. Year: 2022; Social Security: 5.45%; Medicaid: 2.02%; Medicare: 5.33%. Year: 2023; Social Security: 5.55%; Medicaid: 2.06%; Medicare: 5.51%. Year: 2024; Social Security: 5.65%; Medicaid: 2.09%; Medicare: 5.71%. Year: 2025; Social Security: 5.75%; Medicaid: 2.13%; Medicare: 5.9%. Year: 2026; Social Security: 5.85%; Medicaid: 2.17%; Medicare: 6.08%. Year: 2027; Social Security: 5.93%; Medicaid: 2.2%; Medicare: 6.26%. Year: 2028; Social Security: 6.01%; Medicaid: 2.23%; Medicare: 6.43%. Year: 2029; Social Security: 6.08%; Medicaid: 2.27%; Medicare: 6.6%. Year: 2030; Social Security: 6.14%; Medicaid: 2.31%; Medicare: 6.77%. Year: 2031; Social Security: 6.19%; Medicaid: 2.35%; Medicare: 6.93%. Year: 2032; Social Security: 6.24%; Medicaid: 2.4%; Medicare: 7.08%. Year: 2033; Social Security: 6.27%; Medicaid: 2.45%; Medicare: 7.22%. Year: 2034; Social Security: 6.29%; Medicaid: 2.5%; Medicare: 7.37%. Year: 2035; Social Security: 6.31%; Medicaid: 2.55%; Medicare: 7.52%. Year: 2036; Social Security: 6.32%; Medicaid: 2.6%; Medicare: 7.67%. Year: 2037; Social Security: 6.33%; Medicaid: 2.65%; Medicare: 7.8%. Year: 2038; Social Security: 6.32%; Medicaid: 2.7%; Medicare: 7.92%. Year: 2039; Social Security: 6.32%; Medicaid: 2.75%; Medicare: 8.03%. Year: 2040; Social Security: 6.31%; Medicaid: 2.8%; Medicare: 8.14%. Year: 2041; Social Security: 6.3%; Medicaid: 2.85%; Medicare: 8.25%. Year: 2042; Social Security: 6.29%; Medicaid: 2.9%; Medicare: 8.36%. Year: 2043; Social Security: 6.28%; Medicaid: 2.95%; Medicare: 8.46%. Year: 2044; Social Security: 6.27%; Medicaid: 3%; Medicare: 8.58%. Year: 2045; Social Security: 6.26%; Medicaid: 3.05%; Medicare: 8.7%. Year: 2046; Social Security: 6.26%; Medicaid: 3.1%; Medicare: 8.82%. Year: 2047; Social Security: 6.25%; Medicaid: 3.14%; Medicare: 8.93%. Year: 2048; Social Security: 6.25%; Medicaid: 3.19%; Medicare: 9.03%. Year: 2049; Social Security: 6.24%; Medicaid: 3.23%; Medicare: 9.14%. Year: 2050; Social Security: 6.24%; Medicaid: 3.27%; Medicare: 9.25%. Year: 2051; Social Security: 6.24%; Medicaid: 3.31%; Medicare: 9.36%. Year: 2052; Social Security: 6.24%; Medicaid: 3.35%; Medicare: 9.47%. Year: 2053; Social Security: 6.24%; Medicaid: 3.39%; Medicare: 9.59%. Year: 2054; Social Security: 6.25%; Medicaid: 3.44%; Medicare: 9.71%. Year: 2055; Social Security: 6.25%; Medicaid: 3.48%; Medicare: 9.84%. Year: 2056; Social Security: 6.26%; Medicaid: 3.52%; Medicare: 9.98%. Year: 2057; Social Security: 6.27%; Medicaid: 3.57%; Medicare: 10.12%. Year: 2058; Social Security: 6.27%; Medicaid: 3.61%; Medicare: 10.26%. Year: 2059; Social Security: 6.28%; Medicaid: 3.66%; Medicare: 10.4%. Year: 2060; Social Security: 6.29%; Medicaid: 3.7%; Medicare: 10.55%. Year: 2061; Social Security: 6.29%; Medicaid: 3.75%; Medicare: 10.7%. Year: 2062; Social Security: 6.3%; Medicaid: 3.8%; Medicare: 10.84%. Year: 2063; Social Security: 6.31%; Medicaid: 3.84%; Medicare: 10.99%. Year: 2064; Social Security: 6.32%; Medicaid: 3.89%; Medicare: 11.14%. Year: 2065; Social Security: 6.33%; Medicaid: 3.94%; Medicare: 11.3%. Year: 2066; Social Security: 6.34%; Medicaid: 3.99%; Medicare: 11.47%. Year: 2067; Social Security: 6.35%; Medicaid: 4.04%; Medicare: 11.64%. Year: 2068; Social Security: 6.35%; Medicaid: 4.09%; Medicare: 11.81%. Year: 2069; Social Security: 6.36%; Medicaid: 4.14%; Medicare: 11.96%. Year: 2070; Social Security: 6.36%; Medicaid: 4.19%; Medicare: 12.12%. Year: 2071; Social Security: 6.37%; Medicaid: 4.25%; Medicare: 12.28%. Year: 2072; Social Security: 6.37%; Medicaid: 4.3%; Medicare: 12.44%. Year: 2073; Social Security: 6.37%; Medicaid: 4.35%; Medicare: 12.6%. Year: 2074; Social Security: 6.38%; Medicaid: 4.41%; Medicare: 12.75%. Year: 2075; Social Security: 6.38%; Medicaid: 4.46%; Medicare: 12.92%. Year: 2076; Social Security: 6.38%; Medicaid: 4.52%; Medicare: 13.08%. Year: 2077; Social Security: 6.39%; Medicaid: 4.57%; Medicare: 13.25%. Year: 2078; Social Security: 6.39%; Medicaid: 4.63%; Medicare: 13.41%. Year: 2079; Social Security: 6.39%; Medicaid: 4.69%; Medicare: 13.58%. Year: 2080; Social Security: 6.39%; Medicaid: 4.75%; Medicare: 13.75%. Source: GAO analysis based on data from the Office of the Chief Actuary, Social Security Administration, Office of the Actuary, Centers for Medicare and Medicaid Services, and the Congressional Budget Office. Note: Social Security and Medicare projections based on the intermediate assumptions of the 2006 Trustees' Reports. Medicaid projections based on CBO's January 2006 short-term Medicaid estimates and CBO's December 2005 long-term Medicaid projections under mid-range assumptions. [End of Figure] Issues to Consider in Examining Cost, Access, and Quality Challenges: In reforming our health care system, the public needs to be educated about the differences between and at both the individual and aggregate level. Ideally, health care reform proposals will: * align for providers and consumers to make prudent choices about health insurance coverage and prudent decisions about the use of medical services, * foster with respect to the value and costs of care, and: * ensure from health plans and providers to meet standards for appropriate use and quality. Selected Potential Health Care Reform Approaches: Reexamine the scope, timing, and structure of Medicare Prescription Drug Benefit. Consider re-imposing some limits on direct advertising on prescription drugs: Considering some limited importation of prescription drugs from selected countries: Foster more transparency in connection with health care costs and outcomes. Encourage case management approaches for people with expensive acute and chronic conditions to improve the quality and efficiency of care delivered and avoid inappropriate care. Leverage the government's purchasing authority to foster value-based purchasing for health care products and services. Foster the use of information technology to increase consistency, transparency, and accountability in health care. Foster more preventative care and wellness services and capabilities, including fighting obesity and encouraging better nutrition: Provide additional cost sharing mechanisms for individuals. Selected Potential Health Care Reform Approaches: Develop a set of national practice standards to help avoid unnecessary care, improve outcomes, and reduce litigation. Revise certain federal tax preferences for health care to encourage the efficient use of appropriate care: The federal government should seek to lead by example in connection with reforming the health care programs for which it is responsible (e.g., VA, DOD, FEHBP). Limit spending growth for government-sponsored health care programs (e.g., percentage of the budget and/or the economy). Pursue multinational approaches to investing in health care R&D. Develop a core set of basic and essential services with supplemental coverage being available as an option but at a cost. Use the Federal Employees Health Benefits Program (FEHBP) model as a possible means to experiment and see the way forward. Create insurance pools for alternative levels of coverage, as necessary. Working Longer May Help Address the Challenges of an Aging Population: Impact on the Economy: * Larger labor force: * Additional economic growth: Impact on the Federal Budget: *Additional tax revenue: *Reduced expenditures: Social Security & Medicare: Impact on Individuals: * Enhanced retirement security and quality of life: Why Older Americans Don't Work Longer: Cultural Expectation to Retire in Mid-60s: * Social Security early retirement age is 62: * Many private pensions have similar or lower eligibility ages: Older Americans Perceive Few Opportunities: * Few older workers felt they had opportunities for partial retirement: * Most older workers and retirees saw low wage, low skilled jobs as their primary employment opportunities: Most Employers Do Not Make a Special Effort to Hire and Retain Older Workers: * Many employers say they are willing to implement policies to recruit and retain older workers, but few have actually done so: * Employers cite barriers, such as federal pension regulations, to flexible employment options for older workers: Key Leadership Attributes Needed for These Challenging and Changing Times: Courage: Integrity: Creativity: Stewardship: On the Web: Web site: [Hyperlink, http://www.gao.gov/cghome.htm]: Contact: Paul Anderson, Managing Director, Public Affairs AndersonP1@gao.gov (202) 512-4800: U.S. Government Accountability Office 441 G Street NW, Room 7149 Washington, D.C. 20548: Copyright: This is a work of the U.S. government and is not subject to copyright protection in the United States. 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