What is Actuarial Deficit?
Actuarial Deficit is defined as the difference between future Social Security obligations and the income rate of the Social Security Trust Fund as of current
The Social Security program would considered to be in actuarial deficit, if the summarized rate of income is lesser than the summarized cost rate of Social Security for a given valuation era. The term/situation is also referred to “insolvency of Social Security System”.
Firstly, Actuarial balance is computed for 66 different valuation periods, starting from the upcoming 10 year period and then, increasing along with each consecutive year up to the full 75 year projection. If at any point over the 75th year projection, the projected costs of Social Security go beyond the future value of the fund’s income of trust, that period would consider being in “actuarial deficit”.
Wrapping up, an actuarial deficit is based on the assumptions used with the calculation of actuarial valuation, the fund needs more than expected capital to be obtained via contributions and investment growth. The Trustees may not require the money in the short -run, but an adjustment may be required for the long- run to make the fund again on target.
Currently, pension funds are the funds that have to manage actuarial deficits.