A key question in assessing Social Security individual accounts is what to assume about returns from investing in stocks. One approach assumes that historical stock returns over much of the 20th century are a good indicator of potential future stock returns. Others suggest reasons why future returns might deviate from historical levels.

The higher expected returns from stocks are achieved only by accepting greater volatility, and thus greater risk of losses. One approach is to adjust expected returns to reflect that risk, so that the “risk adjusted” returns are similar to returns expected from Treasury securities, which pose almost no risk. The Office of the Chief Actuary of the Social Security Administration projects stock returns based on historical experience and on a risk-adjusted basis. The Congressional Budget Office also uses both approaches but puts more emphasis on risk-adjusted returns in its projections of Social Security account proposals. Because the Canada Pension Plan, by law, invests part of its social security pension funds in stocks, its Office of the Chief Actuary must incorporate assumptions about stock returns in long-range projections for that system.

You are invited to join the National Academy of Social Insurance for a briefing that examines these issues. Come prepared to ask questions. Ample time will be set aside for discussion.

A Primer–Projections and Assumptions Used by the Office of the Chief Actuary of Social Security
Stephen C. Goss, Chief Actuary, Social Security Administration

Projections and Assumptions Used by the Congressional Budget Office
Douglas Holtz-Eakin, Director, Congressional Budget Office

Experience Projecting Diversified Investments of the Canada Pension Plan
Jean-Claude Menard, Chief Actuary, Canada Pension Plan

Commentary
Edward Gramlich, Governor, Federal Reserve System, Chair of the 1994-1996 Advisory Council on Social Security

Moderator: Virginia P. Reno, Vice President for Income Security, National Academy of Social Insurance