The Federal Old-Age and Survivors Insurance (OASI) Trust Fund was established on January 1, 1940 as a separate account in the United States Treasury. The Federal
Disability Insurance (DI) Trust Fund, another separate account in the United States Treasury, was established on August 1, 1956. All the financial operations of the OASI and DI programs are handled through these respective funds. The Board of Trustees is responsible for overseeing the financial operations of these funds. The following paragraphs describe the various components of trust fund income and outgo. Following this description, tables
VI.A2 and
VI.A3 present the historical operations of the separate trust funds since their inception, and table
VI.A4 presents the operations of the combined trust funds during the period when they have co-existed.
The primary receipts of these two funds are amounts appropriated to each of them under permanent authority on the basis of payroll tax
contributions payable by workers, their employers, and individuals with self-employment income, in work covered by the OASDI program. Federal law requires that all employees in
covered employment, and their employers, make payroll tax contributions with respect to their wages. Federal law also requires that employees, and their employers, make payroll tax contributions with respect to cash tips, if the employee’s monthly cash tips are at least $20. Federal law requires that all self-employed persons make payroll tax contributions with respect to their covered net
earnings from self-employment. In addition to paying the required employer contributions on the wages of covered Federal employees, the Federal Government also pays amounts equivalent to the combined employer and employee contributions that would be paid on
deemed wage credits attributable to
military service performed between 1957 and 2001, if such wage credits were covered wages.
In general, an individual’s payroll tax contributions are assessed on wages or net earnings from self-employment, or both wages and net self-employment earnings combined, up to a specified maximum annual amount. Contributions are determined first on the wages and then on any net self-employment earnings, such that the total does not exceed the annual maximum amount. An employee who pays contributions on wages in excess of the annual maximum amount (because of employment with two or more employers) is eligible for a refund of the excess employee contributions.
The monthly benefit amount to which an individual (or his or her spouse and children) may become entitled under the OASDI program is based on the individual’s
taxable earnings during his or her lifetime. For almost all persons who first become eligible to receive benefits in 1979 or later, the earnings used in the computation of benefits are indexed to reflect increases in average wage levels.
Table VI.A1 shows the payroll tax contribution rates applicable under current law in each calendar year and the allocation of these rates between the OASI and DI Trust Funds.
1 The maximum amount of earnings on which OASDI contributions are payable in a year, which is also the maximum amount of earnings creditable in that year for benefit-computation purposes, is called the
contribution and benefit base. Table
VI.A1 also shows the contribution and benefit base for each year through 2011.
The Internal Revenue Service collects all payroll tax contributions and deposits them in the
General Fund of the Treasury. The payroll tax contributions are immediately and automatically appropriated to the trust funds on an estimated basis. The exact amount of payroll tax contributions received is not known initially because the OASDI and HI payroll tax contributions and individual income taxes are not separately identified in collection reports received by the Internal Revenue Service. Subsequently, periodic adjustments are made to the extent that the estimates differ from the amounts of payroll tax contributions actually payable as determined from reported earnings. Adjustments are also made to account for any refunds to employees (with more than one employer) who paid payroll tax contributions on wages in excess of the contribution and benefit base.
Various reimbursements from the General Fund of the Treasury are also included in income, such as: (1) the cost of noncontributory wage credits for military service before 1957, and periodic adjustments to previous determinations of this cost; (2) the cost in 1971-82 of deemed wage credits for military service performed after 1956; (3) the cost of benefits to certain uninsured persons who attained age 72 before 1968; (4) the cost of payroll tax credits provided to employees in 1984 and self-employed persons in 1984-89 by Public Law 98-21; (5) the cost in 2009-17 of excluding certain self-employment earnings from SECA taxes under Public Law 110-246; and (6) payroll tax revenue forgone under the provisions of Public Law 111-147.
Beginning in 1984, Federal law subjects up to one-half of an individual’s or couple’s OASDI benefits to Federal income taxation under certain circumstances. Effective for taxable years beginning after 1993, the law increased the maximum percentage of benefits subject to taxation from 50 percent to 85 percent. The proceeds from taxation of up to 50 percent of benefits are credited to the OASI and DI Trust Funds in advance, on an estimated basis, at the beginning of each calendar quarter, with no reimbursement to the general fund for interest costs attributable to the advance transfers.
2 Subsequent adjustments are made based on the actual amounts as shown on annual income tax records. The amounts appropriated from the General Fund of the Treasury are allocated to the OASI and DI Trust Funds on the basis of the income taxes paid on the benefits from each fund.
3
Another source of income to the trust funds is interest received on investments held by the trust funds. That portion of each trust fund that is not required to meet the current cost of benefits and administration is invested, on a daily basis, primarily in interest-bearing obligations of the U.S. Government (including
special public-debt obligations described below). Investments may also be made in obligations guaranteed as to both principal and interest by the United States, including certain Federally sponsored agency obligations that are designated in the laws authorizing their issuance as lawful investments for fiduciary and trust funds under the control and authority of the United States or any officer of the United States. These obligations may be acquired on original issue at the issue price or by purchase of outstanding obligations at their market price.
The Social Security Act authorizes the issuance of special public-debt obligations for purchase exclusively by the trust funds. The Act provides that the
interest rate on new special obligations will be the average market yield, as of the last business day of a month, on all of the outstanding marketable U.S. obligations that are due or callable more than 4 years in the future. The rate so calculated is rounded to the nearest one-eighth of one percent and applies to new issues in the following month. Beginning January 1999, in calculating the average market yield rate for this purpose, the Treasury incorporates the yield to the call date when a callable bond’s market price is above par.
Although the special issues cannot be bought or sold in the open market, they are nonetheless redeemable at any time at
par value and thus bear no risk of fluctuations in principal value due to changes in market yield rates. As in the case of marketable Treasury securities held by the public, all of the investments held by the trust funds are backed by the full faith and credit of the U.S. Government.
The primary expenditures of the OASI and DI Trust Funds are for: (1) OASDI benefit payments, net of any reimbursements from the General Fund of the Treasury for unnegotiated benefit checks; and (2) expenses incurred by the Social Security Administration and the Department of the Treasury in administering the OASDI program and the provisions of the Internal Revenue Code relating to the collection of contributions. Such
administrative expenses include expenditures for construction, rental and lease, or purchase of office buildings and related facilities for the Social Security Administration. The Social Security Act does not permit expenditures from the OASI and DI Trust Funds for any purpose not related to the payment of benefits or administrative costs for the OASDI program.
The expenditures of the trust funds also include: (1) the costs of
vocational rehabilitation services furnished as an additional benefit to disabled persons receiving cash benefits because of their disabilities where such services contributed to their successful rehabilitation; and (2) net costs resulting from the provisions of the Railroad Retirement Act which provide for a system of coordination and
financial interchange between the
Railroad Retirement program and the Social Security program. Under the latter provisions, an interchange between the Railroad Retirement program’s Social Security Equivalent Benefit Account and the trust funds is made on an annual basis in order to place each trust fund in the same position in which it would have been if railroad employment had always been covered under Social Security.
The statements of the operations of the trust funds presented in this report do not carry the net worth of facilities and other fixed capital
assets. This is because the value of fixed capital assets is not available in the form of a financial asset redeemable for the payment of benefits or administrative expenditures, and therefore is not considered in assessing the actuarial status of the trust funds.
