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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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Congressional Research Service (CRS)

 

Social Security: The Trust Fund

Dawn Nuschler, Specialist in Income Security

Gary Sidor, Information Research Specialist

June 4, 2013

http://www.fas.org/sgp/crs/misc/RL33028.pdf

[full-text, 20 pages]

 

Summary

The Social Security program pays benefits to retired or disabled workers and their family

members, and to family members of deceased workers. Program income and outgo are accounted

for in two separate trust funds authorized under Title II of the Social Security Act: the Federal

Old-Age and Survivors Insurance (OASI) trust fund and the Federal Disability Insurance (DI)

trust fund. This report refers to the two trust funds as an aggregate Social Security trust fund and

discusses the operations of the OASI and DI trust funds on a combined basis.

 

Social Security is financed by payroll taxes paid by covered workers and their employers, federal

income taxes paid by some beneficiaries on a portion of their benefits, and interest income from

the Social Security trust fund investments. Social Security tax revenues are invested in federal

government securities (special issues) held by the trust fund, and these federal government

securities earn interest. The revenues exchanged for the federal government securities are

deposited into the general fund of the U.S. Treasury and are indistinguishable from revenues in

the general fund that come from other sources. Because the assets held by the trust fund are

federal government securities, the trust fund balance represents the amount of money owed to the

Social Security trust fund by the general fund of the U.S. Treasury. Funds needed to pay Social

Security benefits and administrative expenses come from the redemption or sale of federal

government securities held by the trust fund.

 

The Social Security trust fund represents funds dedicated to pay current and future Social

Security benefits. However, it is useful to view the trust fund in two ways: (1) as an internal

federal accounting concept and (2) as the accumulated holdings of the Social Security program.

 

For internal accounting purposes, certain accounts within the U.S. Treasury are designated by law

as trust funds to track revenues (and expenditures) dedicated for specific purposes. There are a

number of trust funds in the U.S. Treasury, including those for Social Security, Medicare,

unemployment compensation, and federal employee retirement.

 

By law, Social Security tax revenues must be invested in U.S. government obligations (debt

instruments of the U.S. government). The accumulated holdings of U.S. government obligations

are often viewed as being similar to assets held by any other trust on behalf of the beneficiaries.

However, the holdings of the Social Security trust fund differ from those of private trusts because

(1) the types of investments the trust fund may hold are limited and (2) the U.S. government is

both the buyer and seller of the investments.

 

This report covers the basics of how the Social Security program is financed and how the Social

Security trust fund works. It will be updated annually to reflect current projections of the financial

status of the Social Security trust fund.

 

CONTENTS

Introduction ...................................................................................................................................... 1

How the Social Security Program Is Financed ................................................................................ 1

Temporary Payroll Tax Reduction for Workers in 2011 and 2012 ............................................ 2

The Social Security Trust Fund as a Designated Account ............................................................... 3

Social Security Trust Fund Revenues ........................................................................................ 3

Social Security Trust Fund Costs............................................................................................... 3

Social Security Trust Fund Operations ...................................................................................... 4

Investment of the Social Security Trust Fund ......................................................................... 10

The Social Security Trust Fund and the Federal Budget ......................................................... 10

On-Budget Versus Off-Budget ................................................................................................ 11

The Social Security Trust Fund as Accumulated Holdings ........................................................... 11

The Social Security Trust Fund and the Level of Federal Debt............................................... 16

The Social Security Trust Fund and Benefit Payments ........................................................... 16

 

Figures

Figure 1. Ratio of Current (Annual) Revenues to Costs for the Social Security Trust Fund, 1957-2032 ....................................................... 9

 

Tables

Table 1. Annual Revenues, Costs, and Cash Flow Surpluses or Deficits for the Social Security Trust Fund, 1957-2012 ................................ 5

Table 2.Projected Annual Revenues, Costs, and Cash Flow Deficits for the Social Security Trust Fund, 2013-2032 ....................................... 7

Table 3.Accumulated Holdings of the Social Security Trust Fund, 1957-2012 ............................. 13

Table 4.Projected Accumulated Holdings of the Social Security Trust Fund, 2013-2032 ............. 15

 

Contacts

Author Contact Information........................................................................................................... 17

Acknowledgments ......................................................................................................................... 17

 

 

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