The Trustees of the Social Security Trust Funds began the
practice of issuing an Annual Report in 1941. This first
Report, however, was never published. It was transmitted to
the Speaker of the House and the President of the Senate as a
letter from the Trustees, and it was never subsequently
published either by the Congress or the Social Security Board.
We are therefore publishing it here for the first
time. |
LETTER OF TRANSMITTAL
Board of Trustees of the Federal Old-Age
and Survivors Insurance Trust Fund,
Washington, D.C. January 3,
1941
Sir:
We have the honor to transmit to you the First Report of
the Board of Trustees of the Federal Old-Age and Survivors
Insurance Trust Fund, in compliance with the provisions of
section 201(b) of the Social Security Act, as amended.
Respectfully,
____________________
_________________________
_______________________
The President of the Senate, The Speaker
of the House of Representatives,
Washington, D. C. |
Introductory
Statement
The Federal old-age and survivors insurance trust fund was
created pursuant to section 201 of the Social Security Act
Amendments of 1939, approved August 10, 1939. This trust fund became
effective on January 1, 1940, and superseded the old-age reserve
account established under the Social Security Act of 1935. The trust
fund is held by a Board of Trustees composed of the Secretary of the
Treasury, the Secretary of Labor, and the Chairman of the Social
Security Board, all ex officio. The trust fund so held
is available for the payment of old-age annuities and survivors
insurance benefits and the necessary expenditures incurred by the
Social Security Board and the Treasury Department in the
administration of the program. The Secretary of the Treasury is
designated as the Managing Trustee.
Resources made available to the trust fund included the
securities held by the Secretary of the Treasury for the old-age
reserve account, accounts standing to the credit of the old-age
reserve account on the books of the Treasury as of January 1, 1940,
and interest on the investments. The appropriation to the trust fund
for the fiscal year ending June 30, 1941, and for each fiscal year
thereafter, are required by section 201 of the Social Security Act,
as amended, to be equivalent to 100 percent of the taxes (including
interest, penalties, and additions to taxes) received under the
Federal Insurance Contributions Act and covered into the Treasury.
Interest on and proceeds from the sale or redemption of any
securities held by the trust fund are required to be credited to the
fund.
The trust fund was in operation for only 6 months of the fiscal
year 1940. The transition from the old-age reserve account to the
new fund was accomplished in such a manner that the financial
operations of the program may be considered as continuous from the
active beginning of the old-age insurance program in January 1937 to
the end of the fiscal year 1940.
The Social Security Act Amendments of 1939, creating the old-age
and survivors insurance trust fund and establishing the Board of
Trustees, made other significant changes affecting the financing of
the old-age and survivors insurance program. The most important of
these changes were: advance in the date of the first payment of
monthly benefits from January 1, 1942, to January 1, 1940;
modification of coverage provisions to permit workers 65 and over to
contribute to the system and to qualify for benefits; increase in
the benefits payable in the early years of the program; extension of
protection to aged wives and dependent children of beneficiaries and
to surviving widows, orphans, or dependent parents of insured
workers; and continuance of the 1-percent rate on taxable wages and
1-percent rate on taxable pay rolls for 3 additional calendar years
(1940-42.) The expected effect of these modifications was to
increase disbursements from the trust fund in the next two or three
decades and to reduce contributions during the fiscal years 1940
through 1943.
Since contributions are based on wages and pay rolls in covered
employment, the volume of these contributions is mainly dependent
upon the level of business and industrial activity. In the first 3
years of collection experience, receipts have fluctuated appreciably
with changes in business conditions. Disbursements from the trust
fund are also affected by such changes. Experience to date is not
yet sufficient to indicate reliably the extent or the nature of the
relationships between employment conditions and the amount of
benefit disbursements. The amount and total volume of benefit
payments are dependent principally upon past and prevailing wage
levels, the continuity and volume of employment, the average age of
retirement, rates of mortality, and the family responsibilities of
the workers. Although decreased employment opportunities may be
expected to result in immediate increases in the number of
beneficiaries and in the total amount of disbursements, the number
of future beneficiaries and the amounts of benefits may decrease.
Conversely, increases in wages and employment may be expected to
reduce the number of new beneficiaries and the amounts of their
benefits immediately but should ultimately increase the number
eligible for benefits and the size of their benefits. The promptness
of retirement after attainment of age 65 markedly affects benefit
disbursements and is itself influenced by benefit amounts, wage
rates, and the opportunities for employment.
Other factors, the occurrence of which is impossible to predict,
will influence the volume of disbursements from the fund. For
example, epidemics and natural disasters will affect disbursements
on behalf of survivors of insured persons.
The old-age and survivors insurance trust fund provides a
financial margin of safety for the system against the first impacts
of unforeseen changes in the upward trend of disbursements as well
as against these short-term fluctuations and contingencies. At the
end of June 1940 approximately 50 million persons already held
social security account numbers and about 42 million workers had
made contributions toward benefits under the system. In the future,
millions of additional workers will come under the program as they
obtain jobs in covered employments. Most of the rights now being
accumulated toward benefits by these contributors and insured
workers will not mature for many years. Consequently, benefits under
the program are expected to increase markedly over a long period.
This results from the fact that larger numbers of workers will be
eligible and will qualify for benefits and from the expectation that
the proportion of the population in ages 65 and over, estimated at 7
per-cent in 1940, may eventually rise to perhaps 14 to 16 percent.
Hence the essential assurance of future financial soundness of the
system, with its rising rate of disbursement, rests on a graduated
increase in contribution rates or provision of income from other
sources, or both.
Review of
Operations of the Reserve Account, January 1,
1937, to December 31, 1939
The operations and status of the old-age reserve account from
January 1, 1937, to June 30, 1939, have been previously reported to
Congress by the Secretary of Treasury in accordance with the
provisions of the Social Security Act of 1935. Certain of the
statements incorporated in these reports may be summarized here as a
background for the report of operations during the fiscal year
1940.
In compliance with the 1935 act, annual appropriations to the
old-age reserve account were made by Congress. The Secretary of the
Treasury was required to submit annually to the Bureau of the Budget
an estimate of the amount of appropriation sufficient, on a reserve
basis, as an annual premium for the payments required under title
II. Table 1 shows the appropriations for the fiscal years from 1937
through 1940.
Although the 1935 statue did not specify that the annual
appropriations to the old-age reserve account be equal to the amount
of contributions paid into the system, in practice these
appropriations were approximately equivalent to contributions
collected, less an allowance for administrative expenses. This
practice was based on the approximate correspondence between taxes
collected, minus administrative expenses, and the estimated annual
premium required for title II benefits computed on a 3-percent
reserve basis as specified in the act. In reaching this
correspondence, account was taken of uncertainties involved in
estimates necessarily based on somewhat arbitrary assumptions and on
long-range projections into the future.
Table 1.--Receipts,
disbursements, and assets of the old-age reserve account
for specified periods, January 1, 1937, to December 31, 1939
1/
|
January 1 to
June 30, 1937
|
July 1, 1937, to
June 30, 1938
|
July 1, 1938, to
June 30, 1939
|
July 1, 1939, to
Dec. 31, 1939
|
Receipts
(total): |
$267,261,810.97 |
$515,412,232.89 |
$416,951,054.81 |
$550,000,000.00
|
Transfers from
appropriations 2/ |
265,000,000.00 |
387,000,000.00 |
390,000,000.00 |
268,000,000.00
|
Balance of appropriation
available for transfer 3/ |
--- |
113,000,000.00
|
--- |
282,000,000.00
|
Interest on
investments |
2,261,810.97 |
15,412,232.89 |
26,951,054.81 |
--- |
Disbursements (total
benefit payments): |
26,969.35 |
5,404,062.87 |
13,891,583.23 |
4/ 5,905,193.58 |
Net addition to the
account |
267,234,841.62 |
510,008,170.02 |
403,059,471.58 |
544,094,806.42
|
Total assets (as of end
of period) |
267,234,841.62 |
777,243,011.64 |
1,180,302,483.22
|
1,724,397,289.64
|
Investments (3-percent
special Treasury notes): |
267,100,000.00
|
662,300,000.00
|
1,177,200,000.00
|
1,435,200,000.00
|
Maturing June 30,
1941 |
264,900,000.00 |
264,900,000.00 |
264,900,000.00 |
264,000,000.00
|
Maturing June 30,
1942 |
2,200,000.00 |
382,000,000.00 |
382,000,000.00 |
382,000,000.00
|
Maturing June 30,
1943 |
--- |
15,400,000.00 |
497,400,000.00 |
497,400,000.00
|
Maturing June 30,
1944 |
--- |
--- |
32,900,000.00 |
290,900,000.00
|
Unexpended
balance: |
134,841.62 |
114,943,011.64 |
3,102,483.22 |
289,197,289.64
|
To credit of
appropriation |
61,810.97 |
113,012,391.44 |
66,121.86 |
282,068,217.77
|
To credit of disbursing
officer |
73,030.65 |
1,930,620.20 |
3,036,361.36 |
7,129,071.87 |
1/ On basis of the Daily
Statement of the U.S. Treasury (unrevised). 2/ Appropriations by
Congress: available July 1, 1936--$ 265,000,000.00
Appropriations by Congress: available July 1, 1937--
500,000,000.00 Appropriations by Congress:
available July 1, 1938-- 360,000,000.00
Appropriations by Congress: available May 6, 1939--
30,000,000.00 Appropriations by Congress:
available July 1, 1939-- 550,000,000.00 3/ Amounts available
transferred in a later period. Appropriation balance for
fiscal year 1938 tansferred to fiscal year 1939. Appropriation
balance as of December 31, 1939, transferred during period
January-June 1940. 4/ Effective August 10,
1939 lump-sum payments to covered workers reaching age 65 were
no longer certified. |
Since it was necessary under the 1935 act to estimate
appropriations in advance of tax collections, a flexible procedure
was adopted. Transfers to the old-age reserve account from the
appropriations credit were made monthly. These transfers were
periodically adjusted to tax collections.
In addition to the appropriations transferred to the account, the
other source of income was interest on investments held by the
account. The earnings on investments increased from $2.3 million in
1937 to $27.0 million in 1939, reflecting the increase in the assets
of the account.
Throughout the first 3 fiscal years of the program, disbursements
from the account consisted exclusively of lump-sum payments to the
estates of deceased insured workers and to persons reaching age 65.
These lump-sum payments increased from $27,000 in the first 6 months
of operation (January 1 to June 30, 1937) to $13.9 million in the
fiscal year 1939. Monthly benefits under the original set were not
scheduled to begin until January 1, 1942.
The amounts in the account not needed to finance current
withdrawals were invested by the Secretary of the Treasury as
prescribed in the Social Security Act of 1935. The investments of
the account were exclusively in special issues of Treasury notes
bearing the 3-percent interest. The amounts of such obligations held
at the end of each fiscal year are indicated in table 1.
During the first 6 months of the fiscal year 1940, the financing
of the program continued to operate under the provisions of the
old-age reserve account. The 1940 Treasury Department Appropriation
Act contained an appropriation of $580.0 million for transfer to the
old-age reserve account, of which $30.0 million was made available
in 1939. Hence, on July 1, 1939, the appropriation available for
transfer to the account amounted to $550.0 million. During the first
6 months of the fiscal year, $268.0 million was transferred to the
account from the appropriation, and $258.0 million of the transfers
was invested. The $10.0 million transfers in excess of investments
were deposited with the disbursing officer to provide cash for the
payment of benefits.
Although the amended provisions for the payment of benefits did
not become effective until January 1, 1940, lump-sum payments to
workers attaining age 65 were discontinued on August 10, 1939, when
the amending act was approved. Consequently, the amount of payments
from the account during the first 6 months of the fiscal year 1940
was decreased. This action reduced the number of cases in which
deductions had later to be made from monthly annuities payable to
qualified aged workers. Lump-sum death payments continue to be made
to survivors or to the estates of covered workers who died before
January 1, 1940. The total amount of lump-sum payments from July 1,
to December 31, 1939, was $5.9 million.
As indicated in table 1, on December 31, 1939, the last day of
operation of the old-age reserve account, there was to its credit
$1,724.4 million, including the unexpended 1940 appropriation
balance of $282.0 million.
Summary of the
Operations of the Trust Fund, January 1 to June 30,
1940
The Federal old-age and survivors insurance trust fund came into
existence on January 1, 1940, as required by the Social Security Act
Amendments of 1939. A statement of the operations of the fund from
that date to June 30, 1940, is incorporated in table 2. This
statement also shows the assets of the fund at the end of the fiscal
year 1940.
Receipts of the old-age and survivors insurance trust fund from
January 1 to June 30, 1940, included the securities held by the
Secretary of the Treasury for the old-age reserve account, and the
amounts standing to the credit of the old-age reserve account on the
books of the Treasury on January 1, 1940, including the unexpended
1940 appropriation balance. During the 6-month period the unexpended
appropriation balance was made available for investment. Since the
appropriation for the entire fiscal year 1940 was made, in
accordance with the provisions of the Social Security Act of 1935,
prior to the enactment of the 1939 amendments, the appropriation
provisions of the amended set did not become effective until July 1,
1940. The trust fund was also credited with interest earnings for
the year, amounting to $42.5 million. Of this amount, $566,311
represented accrued interest on securities redeemed during the
6-month period.
The total fund is available, as needed, for benefit payments
required under title II of the amended act, and for reimbursements
for administrative expenses. Benefit payments are paid out of the
fund by the Managing Trustee, in accordance with section 205(I) of
the Social Security Act, as amended, upon receiving certifications
from the Social Security Board. Total benefit payments made from
January 1 to June 30, 1940, amounted to $9.9 million.
Table 2.--Receipts, disbursements,
and assets of the Federal old-age and survivors insurance trust fund
as of June 30, 1940 1/
Receipts (January 1 to
June 30, 1940): |
|
$1,766,886,117.49
|
Transfers from the
old-age reserve account: |
|
|
Investments |
$1,435,200,000.00
|
|
Cash with the disbursing
officer |
7,129,071.87 |
|
1940 appropriation
credit |
282,068,217.77 |
|
Interest on
investments |
42,488,827.85 |
|
Disbursements (January 1
to June 30, 1940): |
|
22,188,161.97
|
Benefit
payments |
9,899,894.97 |
|
Reimbursements for
administrative expense |
12,288,267.00 |
|
Total assets of fund
(receipts less disbursements) |
|
1,744,697,955.52
|
Total investments
held: |
|
1,738,100,000.00
|
3 percent old-age reserve
account notes |
1,413,200,000.00
|
|
Maturing June 30,
1941 |
264,900,000.00 |
|
Maturing June 30,
1942 |
382,000,000.00 |
|
Maturing June 30,
1943 |
497,400,000.00 |
|
Maturing June 30,
1944 |
268,900,000.00 |
|
2 ½ percent old-age and
survivors insurance trust fund notes: |
324,900,000.00
|
|
Maturing June 30,
1944 |
283,000,000.00 |
|
Maturing June 30,
1945 |
41,900,000.00 |
|
Unexpended
balance: |
|
6,597,955.52 |
To credit of fund
account |
500,242.33 |
|
To credit of disbursing
officer |
6,097,713.19 |
|
1/ On basis of the Daily Statement of the U.S.
Treasury (unrevised). |
The 1939 amendments provide that the Managing Trustee shall pay
from the trust fund for each 3-month period the amount of
administrative expenses, as estimated by him and the Chairman of the
Social Security Board, of both the Treasury and the Social Security
Board under titles II and VIII of the Social Security Act and the
Federal Insurance Contributions Act. This provision became effective
on January 1, 1940. Between that date and June 30, 1940, two
repayments for administrative expenses were made, totaling $12.3
million. These reimbursements were approximately 4 percent of
contributions collected from January 1 to June 30, 1940.
During the period January 1 to June 30, 1940, new investments
amounting to $324.9 million were made for the fund and securities
amounting to $22.0 million were redeemed as required to meet current
withdrawals for benefit payments and administrative expenses. The
new investments were in the form of special old-age and survivors
insurance trust fund notes bearing 2.5 percent interest. As a result
of these transactions the average interest rate on investments of
the trust fund was 2.91 percent on June 30, 1940.
The assets of the old-age and survivors insurance trust fund as
of June 30, 1940, were $1,744.7 million.
Statement on
the Expected Operation and Status of the Trust Fund
During the Fiscal Years 1941-1945
Estimates of receipts and disbursements on a calendar year basis
were presented in the Report of the Committee on Finance of the
Senate on H.H. 6635 (S. Rept. 734, 76th Cong., 1st sess.). This
report, as well as the Report of the Committee on Ways and Means of
the House of Representatives on this bill, cautioned that the
estimates presented were subject to a margin of error and that "only
after experience has been obtained in paying benefits for several
years will we have a better picture of the probable future
development of the system."
Experience during the fiscal year 1940--the year in which the
payments of monthly benefits began--has been unique in many
respects, and is not considered to be representative of operations
which may be expected for later years of the program. For various
reasons, monthly benefit payments in the initial period have been
unusually low. Monthly old-age and survivors benefits were payable
in only the last six months of the fiscal year 1940. Monthly
benefits to those who had previously received lump-sum payments were
reduced by the amounts received under the provisions of the 1935
act. Furthermore, persons aged 65 and over prior to 1937 could
qualify for benefits only during the latter part of the period
January to June 1940 because they had been excluded from coverage by
the provisions of the 1935 Act. Although extensive efforts have been
made to acquaint insured persons and their dependents with their
rights under the provisions of the act, there was a lag in the
presentation of claims during the first period of operation.
Tax collections during the fiscal year 1940 also were not
typical. In the first six months of the fiscal year, collections
were higher than in previous periods because of the taxation
retroactively to January 1, 1939, of wages of persons 65 and over
enabled by the amendments of 1939 to qualify toward benefits. Other
amended coverage provisions became effective on January 1, 1940,
thus affecting tax liability in the last six months of the fiscal
year and collections in only the last quarter of the fiscal
year.
Business conditions which will be reflected in the future
operations of the old-age and survivors insurance system may be
dependent to a large degree upon the state of international affairs
and the domestic armament program. In addition to uncertainties
concerning pay rolls and employment, as they affect the volume of
contributions paid into the old-age and survivors insurance system,
there are also marked uncertainties as to the effects of unusual
circumstances upon the promptness of retirement of aged workers, the
dependency of other persons as insured workers, and other factors.
It is not possible to forecast with confidence the employment
opportunities for aged workers, their distribution among various
industries, and the effect of the defense program on different
industrial groups. If aged workers who are insured remain in covered
employments and additional persons in the upper ages obtain such
employment, then upon a reversal of those tendencies, their
subsequent retirements would occasion a sharp increase in the
benefits.
The estimates contained in the reports of the Congressional
committees referred to above continue to furnish a useful guide to
the in rates of retirement and mortality. Because of these factors,
a range of from $5,000 million to $7,000 million in the estimate of
the trust fund at the end of fiscal year 1945 may be regarded as
reasonable.
Table 3.--Estimates of operations
of the Federal old-age and survivors insurance trust fund, fiscal
years 1941-45
(Subject to the limitations stated in the
text) (In millions)
|
Fiscal year |
|
1941 |
1942 |
1943 |
1944 |
1945
|
Fund at
beginning of year |
$1,745 |
$2,363 |
$2,965 |
$3,653 |
$4,775 |
|
Transactions
during year: |
Appropriations (taxes) |
667 |
725 |
906 |
1,450 |
1,450 |
Interest on
investments |
56 |
71 |
86 |
105 |
128 |
Total
income |
723 |
796 |
992 |
1,555 |
1,578 |
Benefit
payments |
78 |
165 |
274 |
402 |
548 |
Administrative expenses |
27 |
29 |
30 |
31 |
32 |
Total
disbursements |
105 |
194 |
304 |
433 |
580 |
Net increase
in fund |
618 |
602 |
688 |
1,122 |
998 |
|
Fund at end
of year |
2,363 |
2,965 |
3,653 |
4,775 |
5,773
|
Actuarial
Status of the Trust Fund
The uncertainties as to tax income and benefit outgo during the
next few years have been outlined in the preceding section. In
considering the actuarial aspects of operations in the longer
future, the unreliability of any specific estimates is of such
degree that only the general course of financial development of the
program may be indicated. It is possible to demonstrate the assured
upward trend in benefit disbursements and the relation of this trend
to an income base, admittedly artificial as a guide to the future
but derived from the present wage and employment pattern, from an
"intermediate" estimate of population growth, and free from the
graduated tax increases of the Federal Insurance Contributions Act.
Short-term changes in business conditions or employment will cause
substantial variations from the trend. Furthermore, basic changes in
the economy, such as altered productivity or new lines of industrial
pursuits, as well as changes in mortality rates, dependency and
other factors may occur which may cause the actual experience to
vary significantly from any specific projections.
The numerous influences on future cost which are potential in a
system of this magnitude and complexity, and in a program with such
inherent interplay within the life pattern of more than one-half of
our population, were indicated to Congress on pages 2473-2488 of the
"Hearings Relative to the Social Security Amendments of 1939 Before
the Committee on Ways and Means, House of Representatives,
Seventy-sixth Congress." These numerous factors of affecting costs
are not susceptible of effective revaluation within a short period
of time. Consequently, it is the opinion of the Board of Trustees
that no better basis for illustrations of long-range trends can at
this time be adduced than that which rests upon the assumptions
outlined in the above citation.
Illustrations of future cost possibilities must recognize an
upward trend in benefit outgo for long periods ahead. The amendments
of 1939 greatly improved the protection afforded covered groups in
the population by bringing monthly benefits to widows and children
of deceased covered workers. These new protections, while of major
significance to the security of insured workers and their families,
represent only about one-fourth of the costs of the program; the
remaining portion of the disbursements is for old-age protection.
This is significant since, with a larger number and percentage of
the population at ages above 65 definitely anticipated for the
future, the number of qualified beneficiaries may be expected to
increase more or less steadily for perhaps a century.
The actuarial status of the trust fund may be measured by a
variety of methods. One method is to estimate the income and
disbursements of the fund during specified future periods as shown
by table 4, according to which annual tax collections would be
expected to rise from an average of almost $1 billion for the first
5 years of operation under the amended set to an average of $1.7
billion during the second 5 years of operation and to approximately
$2.5 billion 35 or 40 years hence.
Annual benefit payments may be expected to increase from an
average of about $0.3 billion for the first 5 years to almost $1
billion for the second 5 years. After a 40-year period, average
annual benefit payments may have risen to a magnitude of about $3.5
billion and, after a 50-year period to over $4 billion. A further
rise after that period may be expected because of the anticipated
increase in the number of persons qualifying for benefits and in the
average benefit payments.
Table 4.--Estimated average annual
benefit payments and tax income of the Federal old-age and survivors
insurance trust fund for future quinquennial periods, fiscal years
1941-90 1/
(Subject to the limitations stated in the
text) (In billions)
Fiscal
year period |
Average
annual benefit payments
|
Average
annual tax income
|
1941-45 |
$0.3 |
$1.0 |
1946-50 |
0.9 |
1.7 |
1951-55 |
1.5 |
2.0 |
1956-60 |
1.9 |
2.1 |
1961-65 |
2.4 |
2.2 |
1966-70 |
2.8 |
2.3 |
1971-75 |
3.1 |
2.4 |
1976-80 |
3.5 |
2.5 |
1981-85 |
3.9 |
2.6 |
1986-90 |
4.1 |
2.6
|
1/ The figures in this table after the first quinquennial
period are based on the chart; the benefit-payment figures represent
the average of the two examples given there. Figures for the first
quinquennial period are based on table 3.
The accompanying chart illustrates by two examples the possible
trend over a 45-year period (1945-90) of future contribution income
and future benefit payments. The range in the benefit figures shown
in the chart does not represent minimum or maximum values. The
examples are merely illustrative of reasonable projections. The
values upon which this chart is based are those discussed by the
Actuarial Consultant of the Social Security board in the Hearings of
the Committee on Ways and Means previously cited.
As indicated in the chart, throughout the initial period taxes
exceed benefits. This would result in a fund accumulation which
provides interest earnings to meet a portion of the current benefit
payments. If disbursements and collections under the program should
follow the growth curve of example 2, benefits would begin to exceed
taxes within 35 years; but because of the interest earnings of the
fund, total annual income might continue to exceed annual benefits
indefinitely. If, however, future experience should more closely
approximate the curve of example 1, benefits would exceed taxes
within approximately 20 years and would exceed the sum of taxes and
interest on the fund within the following 5 years; and since the
prior accumulation in the trust fund under the conditions of this
example would cover excess disbursements for only a limited period,
additional income would eventually be required. Because of the
cumulative growth of the disbursements, any long-term deficiency in
the finances of the program would be apparent well in advance, and,
therefore, could be met without serious shock or disturbance, by
moderate changes in the financial provisions.
Expected
Relations Between Size of the Trust Fund and
Disbursements
On the basis of present estimates it is apparent that during the
ensuing five fiscal years the trust fund will exceed three times the
highest annual expenditures anticipated during that five-fiscal-year
period. This condition is reported at this time to the Congress in
accordance with section 201(b)(3) of the Social Security Act.
The primary consideration with respect to the size of the trust
fund is its role in relation to the financial integrity of the
social insurance program. In addition, the Board of Trustees must
have regard for the relationship of the fund to the fiscal position
of the Government and the economic position of the Nation.
The present low level of current disbursements may be increased
sharply with a change in employment conditions within the next few
years; nor is this level representative of what is likely to be the
long-term experience. The probable future level of benefit payments
is high and the trend of such payments will be steeply ascending
over the next generation and longer. The actuarial analysis
discussed on pages 14-17 indicates that a generation hence
disbursements will be at least three to four times greater than the
maximum disbursements which may be expected in the next five fiscal
years. Prudent management, therefore, requires emphasis on the
long-range consideration of income and disbursements.
Having regard for these long-range as well as for short-range
commitments and for fiscal and economic relationships, the Board
believes that the trust fund is not excessive in size.
Summary and
Conclusion
In presenting this report to Congress in accordance with section
201(b) of the Social Security Act, as amended, the Board of Trustees
reports that the purposes to be served by the amendments of 1939
have been safeguarded in every respect.
The essential function performed by the old-age reserve account
have been taken over by the new trust fund. These functions are
strengthened and the interests of the beneficiaries emphasized by
the modification of procedure under which appropriations to the fund
are now related directly to the tax collections.
During the six months of operation of the old-age and survivors
insurance trust fund (January 1 to June 30, 1940), receipts of the
fund, including the investments held by and amounts credited to the
old-age reserve account, the transfers from the 1940 appropriation
balance, and interests on investments, totaled $1,766.9 million.
Disbursements from the fund for benefit payments and reimbursements
for administrative expenses were $22.2 million. On June 30, 1940,
assets of the trust fund amounted to $1,744.7 million of which $1,
738.1 million represented investments.
The trust fund augmented by the anticipated income of the next
five fiscal years is ample to assure the payment of benefits and
administrative expenses for this period. However, the next five-year
period is but the introduction to several generations during which
the trend in benefits, while predictable in degree, will be
pronouncedly upward.
The future benefits to which we are now committed will require
large scale outlays many times greater than the level of payments in
the first five years. Expected income will also be increasing, but
whether or not additional income will be needed in the long-distant
future cannot be determined at this time. In view of the short
period during which the amended act has been in force and the
magnitude of the long-range commitments of the program, the Board
makes no recommendation at this time for changing the tax rates
under sections 1400 and 1410 of the Federal Insurance Contributions
Act. |