2018 OASDI Trustees Report

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VI. APPENDICES
A. HISTORY OF OASI AND DI TRUST FUND OPERATIONS
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. These funds conduct the financial operations of the OASI and DI programs. 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.A1 and VI.A2 present the historical operations of the separate trust funds since their inception, and table VI.A3 presents the operations of the hypothetical combined trust funds1 during the period when they have co-existed.
The primary receipts of these two funds are amounts appropriated under permanent authority on the basis of payroll tax contributions. Federal law requires that all employees who work in OASDI covered employment, and their employers, make payroll tax contributions on their wages. Employees and their employers must also make payroll tax contributions on monthly cash tips if such tips are at least $20. Self-employed persons must make payroll tax contributions on their covered net earnings from self-employment. The Federal Government 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. Treasury initially deposits payroll tax contributions to the trust funds each day on an estimated basis. Subsequently, Treasury makes adjustments based on the certified amount of wages and self-employment earnings in the records of the Social Security Administration.
Income also includes various reimbursements from the General Fund of the Treasury, 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 through 1982 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 through 1989 by Public Law 98-21; (5) the cost in 2009 through 2017 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 Laws 111-147, 111-312, 112-78, and 112-96.
Beginning in 1984, Federal law subjected up to 50 percent 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 from 50 percent to 85 percent. Treasury credits the proceeds from this taxation of up to 50 percent of benefits 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 Treasury makes subsequent adjustments based on the actual amounts shown on annual income tax records. Each of the OASI and DI Trust Funds receives the income taxes paid on the benefits from that trust fund.3
Another source of income to the trust funds is interest received on investments held by the trust funds. On a daily basis, Treasury invests trust fund income not required to meet current operating expenses, primarily in interest-bearing obligations of the U.S. Government. These investments include the special public-debt obligations described in the next paragraph. The Social Security Act also authorizes the trust funds to hold obligations guaranteed as to both principal and interest by the United States. The act therefore permits the trust funds to hold certain Federally sponsored agency obligations and marketable obligations.4 The trust funds may acquire any of these obligations 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 for special obligations newly issued in any month is the average market yield, as of the last business day of the prior month, on all of the outstanding marketable U.S. obligations that are due or callable more than 4 years in the future. This rate is rounded to the nearest one-eighth of one percent. 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 Social Security Act does not authorize the purchase or sale of special issue securities in the open market, Treasury redeems special issue securities prior to maturity at par value when needed to meet current operating expenses. Given this separation from market-based valuations, changes in market yield rates do not cause fluctuations in principal value. As is true for marketable Treasury securities held by the public, the full faith and credit of the U.S. Government backs all of the investments held by the trust funds.
The primary annual expenditures of the OASI and DI Trust Funds are: (1) OASDI benefit payments5, 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, among other items, expenditures for (1) payroll, (2) construction, rental, lease, or purchase of office buildings and related facilities for the Social Security Administration, and (3) information technology systems. The Social Security Act prohibits 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 from the trust funds also include: (1) the costs of vocational rehabilitation services furnished to disabled persons receiving cash benefits because of their disabilities, where such services contributed to their successful rehabilitation; and (2) net costs of the provisions of the Railroad Retirement Act that provide for a system of coordination and financial interchange between the Railroad Retirement program and the Social Security program. Under the financial interchange provisions, the Railroad Retirement program’s Social Security Equivalent Benefit Account and the trust funds interchange amounts on an annual basis so that each trust fund is in the same position it would have been had railroad employment always been covered under Social Security.
The statements of the operations of the trust funds in this report do not include the net worth of facilities and other fixed capital assets 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. As a result of this unavailability, the actuarial status of the trust funds does not take these assets into account.
Asset Reservesa
GF
reim-
burse-
mentsb
Net
interest c
Trust
fund
ratio e
1937f
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g
8 .6
i20
h 8.7
i24
h 3.2
i28
i30
i41
i59
i78
g
g
g
g
g
g
g
g
g
g
g
g
g
g
g

a
Beginning in 1979, benefit payments scheduled to be paid on January 3 of a given year were paid on December 31 of the preceding year as required by the statutory provision included in the 1977 Social Security Amendments for early delivery of benefit payments when the normal payment delivery date is a Saturday, Sunday, or legal public holiday. Such advance payments have occurred about every 7 years, first for benefits scheduled for January 3, 1982. For comparability with other historical years and the projections in this report, all trust fund operations and asset reserves reflect the 12 months of benefits scheduled for payment in each year without regard to the accelerated payments described above.

b
Includes net reimbursements from the General Fund of the Treasury to the OASI Trust Fund for: (1) the cost of noncontributory wage credits for military service before 1957; (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 Laws 111-147, 111-312, 112-78, and 112-96.

c
Net interest includes net profits or losses on marketable investments. Beginning in 1967, the trust fund pays administrative expenses on an estimated basis, with a final adjustment including interest made in the following fiscal year. Net interest includes the amounts of these interest adjustments. The 1970 report describes the accounting for administrative expenses for years prior to 1967. Beginning in October 1973, figures include relatively small amounts of gifts to the fund. Net interest for 1983-86 reflects payments for interest on amounts owed under the interfund borrowing provisions. During 1983-90, net interest reflects interest reimbursements paid from the trust fund to the General Fund on advance tax transfers.

d
Beginning in 1966, includes payments for vocational rehabilitation services furnished to disabled persons receiving benefits because of their disabilities. Beginning in 1983, net benefit amounts include reimbursements paid from the General Fund to the trust fund for unnegotiated benefit checks. Excluding the portion attributable to vocational rehabilitation services and unnegotiated benefit checks, amounts are the same as benefits scheduled under law at that time for all historical years.

e
The “Trust fund ratio” column represents asset reserves at the beginning of a year as a percentage of expenditures during the year. The table shows no ratio for 1937 because no reserves existed at the beginning of the year.

f
Operations prior to 1940 are for the Old-Age Reserve Account established by the original Social Security Act. The 1939 Amendments transferred the asset reserves of the Account to the OASI Trust Fund effective January 1, 1940.

g
Between -$50 million and $50 million.

h
Reflects interfund borrowing and subsequent repayment of loans. The OASI Trust Fund borrowed $17.5 billion from the DI and HI Trust Funds in 1982 and repaid the loans in 1985 ($4.4 billion) and 1986 ($13.2 billion).

i
Reserves used for the trust fund ratio calculation include January advance tax transfers.
Note: Totals do not necessarily equal the sums of rounded components.

Asset Reservesa
Net
interest c
Trust
fund
ratio e
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f