The Federal Old-Age and Survivors Insurance Trust Fund and Federal Disability Insurance Trust Fund (collectively, the Social Security Trust Fund or Trust Funds) are trust funds that provide for payment of Social Security (Old-Age, Survivors, and Disability Insurance; OASDI) benefits administered by the United States Social Security Administration.
The Social Security Administration collects payroll taxes and uses the money collected to pay Old-Age, Survivors, and Disability Insurance benefits by way of trust funds. When the program runs a surplus, the excess funds increase the value of the Trust Fund. As of 2021, the Trust Fund contained (or alternatively, was owed) $2.908 trillion. The Trust Fund is required by law to be invested in non-marketable securities issued and guaranteed by the "full faith and credit" of the federal government. These securities earn a market rate of interest.
Excess funds are used by the government for non-Social Security purposes, creating the obligations to the Social Security Administration and thus program recipients. However, Congress could cut these obligations by altering the law. Trust Fund obligations are considered "intra-governmental" debt, a component of the "public" or "national" debt. As of December 2022 (estimated), the intragovernmental debt was $6.18 trillion of the $31.4 trillion national debt. Of this $6.18 trillion, $2.7 trillion is an obligation to the Social Security Administration.
According to the Social Security Trustees, who oversee the program and report on its financial condition, program costs are expected to exceed non-interest income from 2010 onward. However, due to interest (earned at a 3.6% rate in 2014) the program will run an overall surplus that adds to the fund through the end of 2019. Under current law, the securities in the Trust Fund represent a legal obligation the government must honor when program revenues are no longer sufficient to fully fund benefit payments. However, when the Trust Fund is used to cover program deficits in a given year, the Trust Fund balance is reduced. One projection scenario estimates that, by 2035, the Trust Fund could be exhausted. Thereafter, payroll taxes are projected to only cover approximately 83% of program obligations.
There have been various proposals to address this shortfall, including: reducing government expenditures, such as by raising the retirement age; tax increases; investment diversification and borrowing.
Structure The "Social Security Trust Fund" comprises two separate funds that hold federal government debt obligations related to what are traditionally thought of as Social Security benefits. The larger of these funds is the Old-Age and Survivors Insurance (OASI) Trust Fund, which holds in trust special interest-bearing federal government securities bought with surplus OASI payroll tax revenues. The second, smaller fund is the Disability Insurance (DI) Trust Fund, which holds in trust more of the special interest-bearing federal government securities, bought with surplus DI payroll tax revenues.
The trust funds are "off-budget" and treated separately in certain ways from other federal spending, and other trust funds of the federal government. From the U.S. Code:
EXCLUSION OF SOCIAL SECURITY FROM ALL BUDGETS , title XIII, Sec. 13301(a), Nov. 5, 1990, , provided that: Notwithstanding any other provision of law, the receipts and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund shall not be counted as new budget authority, outlays, receipts, or deficit or surplus for purposes of - (1) the budget of the United States Government as submitted by the President, (2) the congressional budget, or (3) the Balanced Budget and Emergency Deficit Control Act of 1985.
The trust funds run surpluses in that the amount paid in by current workers is more than the amount paid out to current beneficiaries. These surpluses are invested in special U.S. government securities, which are deposited into the trust funds. If the trust funds begin running deficits, meaning more in benefits are paid out than contributions paid in, the Social Security Administration is empowered to redeem the securities and use those funds to cover the deficit.
Governance The Board of Trustees of the Trust Funds is composed of six members:
Secretary of the Treasury (the Managing Trustee), Secretary of Labor, Secretary of Health and Human Services, Commissioner of Social Security, and Two members appointed by the President and confirmed by the Senate for a term of four years. These may not be members of the same political party. They may serve after the expiration their term until the next report to Congress is issued by the board, or until their successor takes office, whichever is earlier. Board members The current board members : Position Name Party Sworn in Term expires Appointed by Managing Trustee of the Trust Funds (ex officio)Secretary of the Treasury Scott Bessent Republican — Donald Trump Trustee (ex officio)Secretary of Labor Republican — Donald Trump Trustee (ex officio)Secretary of Health and Human Services Independent — Donald Trump Trustee (ex officio)Commissioner of Social Security Republican — Donald Trump Public Trustee Vacant — — — — Public Trustee Vacant — — — —
The Board of Trustees holds the trust funds.(c). "[...] there is hereby created a body to be known as the Board of Trustees of the Trust Funds (hereinafter in this subchapter called the "Board of Trustees") [...] It shall be the duty of the Board of Trustees to— (1) Hold the Trust Funds; [...] The Managing Trustee is responsible for investing the funds,(d) which has been delegated to the Bureau of the Fiscal Service.
History
The Social Security system is primarily a pay-as-you-go system, meaning that payments to current retirees come from current payments into the system. The program was initially established in 1935 in response to the Great Depression. The first to file for Social Security was Ida Mae Fuller in 1940. Fuller paid $24.75 in taxes during her three years working under the social security program, and drew an aggregate of $22,889 in benefits before passing at age 100. This represents a ratio of $925 in benefits for every dollar she paid into the program.
In 1977, President Jimmy Carter and the 95th Congress increased the FICA tax to fund Social Security, phased in gradually into the 1980s. In the early 1980s, financial projections of the Social Security Administration indicated near-term revenue from payroll taxes would not be sufficient to fully fund near-term benefits (thus raising the possibility of benefit cuts). The federal government appointed the National Commission on Social Security Reform, headed by Alan Greenspan (who had not yet been named Chairman of the Federal Reserve), to investigate what additional changes to federal law were necessary to shore up the fiscal health of the Social Security program. The Greenspan Commission projected that the system would be solvent for the entirety of its 75-year forecast period with certain recommendations. The changes to federal law enacted in 1983 and signed by President Reagan and pursuant to the recommendations of the Greenspan Commission advanced the time frame for previously scheduled payroll tax increases (though it raised slightly the payroll tax for the self-employed to equal the employer-employee rate), changed certain benefit calculations, and raised the retirement age to 67 by the year 2027.SUMMARY of P.L. 98-21, (H.R. 1900) Social Security Amendments of 1983-Signed on April 20, 1983 As of the end of calendar year 2010, the accumulated surplus in the Social Security Trust Fund stood at just over $2.6 trillion.
Social Security benefits are paid from a combination of social security payroll taxes paid by current workers and interest income earned by the Social Security Trust Fund. According to the projections of the Social Security Administration, the Trust Fund will continue to show net growth until 2022 because the interest generated by its bonds and the revenue from payroll taxes exceeds the amount needed to pay benefits. After 2022, without increases in Social Security taxes or cuts in benefits, the Fund is projected to decrease each year until being fully exhausted in 2034. At this point, if legislative action is not taken, the benefits would be reduced.Social Security Administration-Summary of the 2012 Annual Reports-Retrieved April 2012
Recent activity and financial status
The 2015 Trustees Report Press Release (which covered 2014 statistics) stated: "Income including interest to the combined OASDI Trust Funds amounted to $884 billion in 2014. ($756 billion in net contributions, $30 billion from taxation of benefits, $98 billion in interest, and less than $1 billion in reimbursements from the General Fund of the Treasury—almost exclusively resulting from the 2012 payroll tax legislation) Total expenditures from the combined OASDI Trust Funds amounted to $859 billion in 2014. Non-interest income fell below program costs in 2010 for the first time since 1983. Program costs are projected to exceed non-interest income throughout the remainder of the 75-year period. The asset reserves of the combined OASDI Trust Funds increased by $25 billion in 2014 to a total of $2.79 trillion. During 2014, an estimated 166 million people had earnings covered by Social Security and paid payroll taxes. Social Security paid benefits of $848 billion in calendar year 2014. There were about 59 million beneficiaries at the end of the calendar year. The cost of $6.1 billion to administer the program in 2014 was 0.7 percent of total expenditures. The combined Trust Fund asset reserves earned interest at an effective annual rate of 3.6 percent in 2014."Social Security Board of Trustees Annual Report-Press Release-July 27, 2015
Some basic equations for understanding the fund balance include: Fund ending balance for a given year = Fund starting balance + program revenues + interest - program payouts Program annual surplus (or deficit if negative) = program revenues + interest - program expenses Program annual cash surplus (or deficit if negative) = program revenues - program expenses
"Program revenues" has several components, including payroll tax contributions, taxation of benefits, and an accounting entry to reflect recent payroll tax cuts during 2011 and 2012, to make the fund "whole" as if these tax cuts had not occurred. These all add to the program revenues.
During 2016, the initial balance as of January 1 was $2,780 billion. An additional $710 billion in payroll tax revenue and $87 billion in interest added to the Fund during 2016, while expenses of $776 billion were removed from the Fund, for a December 31, 2016 balance of $2,801 billion (i.e., $2,780 + $710 + $87 - $776 = $2,801).The 2017 OASDI Trustees Report-Retrieved January 25, 2018
In an annually issued report released in August 2021, the U.S. Treasury Department announced that the Old-Age and Survivors Trust Fund was projected to be able to pay scheduled benefits until 2033 while the Disability Insurance Trust Fund was projected to be able to pay its benefits through 2057 (and through 2034 when the funds were hypothetically combined), 1 year and 8 years earlier respectively than the previous report found. In June 2022, the Treasury Department issued an updated report for the Old-Age and Survivors Insurance and Disability Insurance Trust Funds with revised projections for their ability to pay scheduled benefits to 2034 and 2057 respectively and by 2035 when hypothetically combined due to accelerated recovery from the COVID-19 recession. In March 2023, the Treasury Department issued the annual trustees report for the Old-Age and Survivors Insurance and Disability Insurance Trust Funds with depletion date projections for the funds estimated at 2033 and 2097 respectively and by 2034 when combined.