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## Trust Fund FAQs

Office of the Chief Actuary 

**Frequently Asked Questions**      about the Social Security Trust Funds    

What are the Social Security Trust Funds?

   The Social Security Trust Funds are the Old-Age     and Survivors Insurance (OASI) and the Disability      Insurance (DI) Trust Funds.  These funds are accounts managed     by the Department of the Treasury.  They serve two purposes:       (1) they provide an accounting mechanism for tracking all income to and disbursements      from the trust funds, and (2) they hold the accumulated asset reserves. These     accumulated reserves provide automatic spending authority to pay benefits.      The Social Security Act limits trust fund expenditures to benefits      and administrative costs. 

     Benefits to retired workers and their families, and to families of deceased      workers, are paid from the OASI Trust Fund.  Benefits to disabled workers and      their families are paid from the DI Trust Fund. Benefit payments accounted for about 99 percent of the total     cost of the combined OASI and DI funds in calendar year 2022.

     A Board of Trustees oversees the financial operations of the trust funds.  The     Board reports annually to the Congress on the financial     status of the trust funds.

How are the trust funds invested?

By law, income to the trust funds must be invested, on a daily basis,      in securities guaranteed as to both principal and interest by the     Federal government.  All securities held by the trust funds are     "special issues" of the United States Treasury.  Such securities are      available only to the trust funds. 

     In the past, the trust funds have held marketable Treasury     securities, which are available to the general public.      Unlike marketable securities, special issues can be redeemed at any time at      *face value*. Marketable securities are subject to the forces of the      open market and may suffer a loss, or enjoy a gain, if sold before maturity.      Investment in special issues gives the trust funds the same flexibility as      holding cash. 

     Data on trust fund investments provide     a breakdown by interest rate and trust fund for any month after 1989.     

What interest rate do the trust funds' invested assets earn?

The rate of interest on special issues is determined by a      formula enacted in 1960.     The rate is determined at the end of each month and applies to new      investments in the following month. 

      The numeric average of the 12 monthly      interest rates for 2022 was 2.958 percent.  The annual          effective interest rate (the average rate of return on *all*     investments over a one-year period) for the OASI and DI Trust Funds, combined,      was 2.352 percent in 2022.  This lower effective rate resulted because      the funds hold special-issue bonds acquired in past years when      interest rates were lower.     

What happens to the taxes that go into the trust funds?

 Tax income is deposited on a daily basis and is invested in      "special-issue" securities.  The cash     exchanged for the securities goes into the general fund of the     Treasury and is indistinguishable from other cash in the general fund.     

If all the income is invested, how do benefits get paid each month?

Money to cover program cost (mainly benefit payments) from the trust funds      comes from the redemption or sale of securities held by the trust funds.       When "special-issue" securities are redeemed, interest is paid.  In fact,      the principal amount of special issues redeemed, plus the corresponding      interest, is just enough to cover the required cost.

What were the amounts of securities bought and sold during recent years?

The amount bought in 2022 was $1,398 billion, while the amount sold     was $1,420 billion.     See investment transactions for more     detail and earlier years.

Why do some people describe the "special issue"     securities held by the trust funds as worthless IOUs?        What is SSA's reaction to this criticism?

Money flowing into the trust      funds is invested in U. S. Government securities.  Because the government     spends this borrowed cash, some people see the     trust fund asset reserves as an accumulation of securities that the      government will be unable to make good on in the future.       Without legislation to restore long-range solvency of the     trust funds, redemption of long-term securities prior to maturity     would be necessary.

     Far from being "worthless IOUs," the investments held by the trust funds     are backed by the full faith and credit of the U. S. Government.     The government has always repaid Social Security, with interest.     The special-issue securities are, therefore, just as safe as U.S.     Savings Bonds or other financial instruments of the Federal government.   

     Many options are being considered to restore long-range      trust fund solvency.     These options are being considered now, well in advance of the year     the trust fund reserves are likely to be depleted.  It is thus likely that legislation     will be enacted to restore long-term solvency, making it unlikely that      the trust funds' securities will need to be redeemed on a large scale     prior to maturity.

Can the Social Security Trust Funds remain solvent without making changes to the program?

     In the annual Trustees Report,      projections are made under three alternative sets of economic,     demographic, and programmatic assumptions.  Under one of these sets (labeled "Low Cost")      in the 2023 Trustees Report, the combined trust funds would be temporarily depleted before      returning to positive levels by the end of the 75 year projection period.  Under      the other two sets (the "Intermediate" and "High Cost") in the 2023 Trustees Report, the combined trust      fund reserves become depleted within the next 15 years.  The intermediate      assumptions reflect the Trustees' best estimate of future experience.  

     Some benefits could be paid even if the trust fund reserves are depleted.  For example,     under the intermediate assumptions, annual income to the trust funds is projected     to equal about eighty percent of program cost once the trust fund reserves become     depleted.  If no legislation has been enacted to restore long-term solvency     by that time, about three-quarters of scheduled benefits could be paid in      each year thereafter. 

     The Trustees believe that extensive public discussion and analysis of the     long-range financing problems of the Social Security program are essential in      developing broad support for changes to restore the long-range balance     of the program.     

Were the asset reserves of the Social Security Trust Funds depleted in the past?

The reserves of the larger trust fund (OASI), from which retirement benefits are     paid, were nearly depleted in 1982.  No beneficiary was shortchanged because     the Congress enacted temporary emergency legislation that permitted      borrowing from other Federal trust funds and then later enacted     legislation to strengthen OASI Trust Fund financing.  The borrowed     amounts were repaid with interest within 4 years.

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