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Social Security: The Trust Fund
Dawn Nuschler
Specialist in Income Security
Gary Sidor
Information Research Specialist
June 16, 2009August 20, 2010
Congressional Research Service
7-5700
www.crs.gov
RL33028
CRS Report for Congress
Prepared for Members and Committees of Congress
c11173008
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Social Security: The Trust Fund
Summary
The Social Security program pays benefits to retired and 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.
The Social Security program is financed primarily through payroll taxes that are deposited in the
U.S. Treasury and credited to the Social Security trust fund. Any revenues credited to the trust
fund in excess of program costs (benefit payments and administrative expenses) are invested in
special U.S. government obligations (debt instruments of the U.S. government)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, any surplus 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 fundedfinanced and how the Social
Security trust fund works. It will be updated as needed to reflect legislative or other activityannually to reflect current projections of the financial
status of the Social Security trust fund.
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Social Security: The Trust Fund
Contents
Introduction ................................................................................................................................1
How the Social Security Program Is Financed .............................................................................1
The Social Security Trust Fund as a Designated Account.............................................................2
Social Security Trust Fund Revenues ....................................................................................2
Social Security Trust Fund Costs...........................................................................................23
Social Security Trust Fund Operations...................................................................................23
Investment of the Social Security Trust Fund.........................................................................8
The Social Security Trust Fund and the Federal Budget .........................................................89
On-Budget Versus Off-Budget...............................................................................................9
The Social Security Trust Fund as Accumulated Holdings ...........................................................9 10
The Social Security Trust Fund and the Level of Federal Debt............................................. 14
The Social Security Trust Fund and Federal Default ............................................................ 1415
The Social Security Trust Fund and Benefit Payments ......................................................... 1415
Figures
Figure 1. Ratio of Current (Annual) Revenues to Costs for the Social Security Trust Fund,
1957-2036................................................................................................................................78
Tables
Table 1. Annual Revenues, Costs, and Cash Flow Surplus or Deficit for the Social
Security Trust Fund, 1957-1983 ...............................................................................................4
Table 2. Annual Revenues, Costs, and Cash Flow Surplus for the Social Security Trust
Fund, 1984-20082009......................................................................................................................5
Table 3. Projected Annual Revenues, Costs, and Cash Flow Surplus or Deficit for the
Social Security Trust Fund, 20092010-2036.....................................................................................6
Table 4. Accumulated Holdings of the Social Security Trust Fund, 1957-20082009.......................... 1112
Table 5. Projected Accumulated Holdings of the Social Security Trust Fund, 20092010-2036 ........... 13
Contacts
Author Contact Information ...................................................................................................... 1516
Acknowledgments .................................................................................................................... 1516
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Social Security: The Trust Fund
Introduction
The Social Security program pays benefits to retired and disabled workers and their family
members, and to the family members of deceased workers. The program is financed primarily
through payroll taxes that are deposited in the U.S. Treasury and credited to the Social Security
trust fund. Any revenues credited to the trust fund in excess of program costs (benefit payments
and administrative expenses) are invested in special U.S. government obligations (debt
instruments of the U.S. government). The Social Security trust fund is both a designated account
within the U.S. Treasury and the accumulated holdings of special U.S. government obligations.
Both represent the funds As of December 2009, there were 52.5
million Social Security beneficiaries. Sixty-four percent of those beneficiaries were retired
workers and 15% were disabled workers. The remaining 21% were survivors or the spouses and
children of retired or disabled workers.1
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.2
The Secretary of the Treasury (as the Managing Trustee of the Social Security trust fund) is
required by law to invest Social Security revenues in securities backed by the U.S. government. 3
The purchase of government securities allows any surplus Social Security revenues to be used for
other (non-Social Security) government spending needs at the time.4
The Social Security trust fund is both a designated account within the U.S. Treasury and the
accumulated holdings of special U.S. government obligations. Both represent the funds
designated to pay current and future Social Security benefits.
How the Social Security Program Is Financed
The Social Security program is financed primarily by revenues from Federal Insurance
Contributions Act (FICA) taxes and Self Employment Contributions Act (SECA) taxes. FICA
taxes are paid by both employers and employees, but it is employers who remit the taxes to the
U.S. Treasury. Employers remit FICA taxes on a regular basis throughout the year (for example,
weekly, monthly, quarterly or annually), depending on the employer’s level of total employment
taxes (including FICA and federal personal income tax withholding). The FICA tax rate of 7.65%
each for employers and employees has two components: 6.2% for Social Security and 1.45% for
Medicare Hospital Insurance. In 20092010, employers and employees each pay 6.2% of wages up to
$106,800 in Social Security payroll taxes.1 The SECA tax rate is 15.3% for self-employed
individuals, with 12.4% for Social Security and 2.9% for Medicare Hospital Insurance. In 2009,
2010,
1
Social Security Administration (SSA), Fast Facts & Figures About Social Security, 2010, SSA Publication No. 1311785, August 2010, p. 14, http://www.socialsecurity.gov/policy/docs/chartbooks/fast_facts/2010/fast_facts10.pdf.
2
Social Security Administration, Trust Fund FAQs, http://www.socialsecurity.gov/OACT/ProgData/fundFAQ.html.
3
Social Security Act, Title II, §201(d).
4
This is often referred to as “borrowing from the Social Security trust fund.”
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self-employed individuals pay 12.4% of net self-employment income up to $106,800 in Social
Security payroll taxes, with one-half of the SECA taxes allowed as a deduction for federal income
tax purposes.25 SECA taxes are normally paid once a year as part of filing an annual individual
income tax return.6
In addition to Social Security payroll taxes, the Social Security program has two other sources of
income. Certain Social Security recipientsbeneficiaries must include a portion of Social Security benefits in
taxable income for the federal income tax, and the Social Security program receives part of those
taxes.37 In addition, the Social Security program receives interest from the U.S. Treasury on its
investments in special U.S. government obligations.
The Internal Revenue Service (IRS) processes the tax returns and tax payments for federal
employment taxes and federal individual income taxes. All of the tax payments are deposited in
the U.S. Treasury along with all other receipts from the public for the federal government.
1
The limit on wages subject to the Social Security payroll tax is indexed annually to average wage growth. The
Medicare Hospital Insurance component of the FICA tax is levied on total wages.
2
Self-employed individuals are required to pay Social Security payroll taxes if they have annual net earnings of $400
or more. Only 92.35% of net self-employment income (up to the annual limit) is taxable.
3
The taxes associated with including Social Security benefits in federal taxable income go to the Social Security trust
fund and the Medicare Hospital Insurance trust fund. See CRS Report RL32552, Social Security: Calculation and
History of Taxing Benefits, by Janemarie Mulvey and Christine Scott.
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The Social Security Trust Fund as a Designated
Account
Within the U.S. Treasury, there are numerous accounts established for internal accounting
purposes. Although all of the monies within the Treasury are federal monies, the designation of an
account as a trust fund allows the government to track revenues (and expenditures) dedicated for
specific purposes. In addition, the government can affect the level of revenues and expenditures
associated with a trust fund through changes in the law. Social Security 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 (2) the Federal
Disability Insurance (DI) trust fund.48 This report refers to the two separate 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 Trust Fund Revenues
The Social Security trust fund receives a credit equal to the Social Security payroll taxes
deposited in the U.S. Treasury by the IRS.9 The payroll taxes are allocated between the OASI and
5
Self-employed individuals are required to pay Social Security payroll taxes if they have annual net earnings of $400
or more. Only 92.35% of net self-employment income (up to the annual limit) is taxable.
6
The limit on wages and net self-employment income subject to the Social Security payroll tax is adjusted annually
based on average wage growth, if a Social Security cost-of-living adjustment (COLA) is payable. Because no COLA
was payable in 2010, there was no increase in the limit on wages and net self-employment income subject to the Social
Security payroll tax from 2009 to 2010. The Medicare Hospital Insurance component of the FICA and SECA tax is
levied on total wages. For more information on the Social Security COLA, see CRS Report 94-803, Social Security:
Cost-of-Living Adjustments, by Gary Sidor.
7
The taxes associated with including Social Security benefits in federal taxable income go to the Social Security trust
fund and the Medicare Hospital Insurance trust fund. See CRS Report RL32552, Social Security: Calculation and
History of Taxing Benefits, by Christine Scott and Janemarie Mulvey.
8
Social Security Act, Title II, §201.
9
A portion of the federal income taxes paid on Social Security benefits and the interest income on Social Security trust
fund investments are also credited to the Social Security trust fund.
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Social Security: The Trust Fund
The payroll taxes are allocated between the OASI and
DI trust funds based on a proportion specified by law. 510 Currently, of the 6.2% payroll tax rate,
5.3% is
allocated to the OASI trust fund and 0.9% is allocated to the DI trust fund.611
Social Security Trust Fund Costs
The U. S. Treasury makes Social Security benefit payments to entitled individuals on a monthly
basis. The Treasury is directed by the Social Security Administration (SSA) as to whom to pay
and the amount of the payment. When benefit payments are made by the Treasury, the Social
Security trust fund is debited for the payments. Periodically, the Social Security trust fund is also
debited for the administrative costs of the Social Security program. These administrative costs are
incurred by several government agencies, including SSA, the U.S. Treasury, and the IRS.
Social Security Trust Fund Operations
The annual revenues to the Social Security trust fund are used to pay current Social Security
benefits and administrative expenses. If, in any year, revenues are greater than costs, the
Secretary of the Treasury (as the Managing Trustee of the Social Security trust fund) is required
to invest surplus surplus
Social Security revenues in securities backed by the U.S. government.7 The
purchase of government securities allows surplus Social Security revenues to be used for other
governmentthe U.S. Treasury are available for spending by the government on
other (non-Social Security) spending needs at the time. 8 If, in any year, costs are greater than revenues, the cash
4
Social Security Act, Title II, §201.
Social Security Act, Title II, §201(b).
6
The share allocated to the DI trust fund was last changed (to 0.9%) in 2000. The proportional split between the OASI
and DI trust funds has been altered five times since 1985.
7
Social Security Act, Title II, §201(d).
8
This is often referred to as “borrowing from the Social Security trust fund.”
5
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revenues, the cash flow deficit is offset by selling some of the accumulated holdings of the trust
fund (government
securities) to help pay benefits and administrative expenses.
There are two measures of Social Security trust fund operations: the annual cash flow operations
and the accumulated holdings (or trust fund balance).912 The annual cash flow operations of the
Social Security trust fund are a measure of current revenues and current costs. The cash flow
operations are positive when current revenues exceed costs (a cash flow surplus) and negative
when current costs exceed revenues (a cash flow deficit). In years with cash flow deficits, the
Social Security program (unlike other federal programs that operate without a trust fund) may use
the accumulated holdings of the Social Security trust fund from prior years to help pay benefits and
and administrative expenses.1013
Although Social Security is often referred to as a pay-as-you-go system (meaning that current
revenues are used to pay current costs), changes made to the Social Security program in 1983,
including the coverage of federal workers, an increase in the full retirement age, and the taxation
of Social Security benefits,
began a sustained period of annual cash flow surpluses. In the 2009
through 2009.14 The 2010 Annual Report, the Social Security trustees project annual cash flow surpluses to continue
through 2015. Beginning in 2016, however, program costs are projected to exceed revenues and
annual cash flow deficits are projected to continue throughout the remainder of the 75-year
projection period (under the intermediate assumptions).11
On average, over the 75-year projection period (2009 to 2083), the Social Security trustees
project that program costs will exceed income (tax revenues plus interest income) by an amount
equal to 2.00% of taxable payroll (costs are projected to exceed income by 14%).12 The gap
between income and costs, however, is projected to increase over the 75-year projection period.
For example, in 2030, the cost of the program is projected to exceed income by an amount equal
to 3.56% of taxable payroll (costs are projected to exceed income by 27%). By the end of the
projection period, in 2083, the cost of the program is projected to exceed income by an amount
equal to 4.34% of taxable payroll (costs are projected to exceed income by 33%). According to
the Social Security trustees, the Social Security program could be brought into actuarial balance
over the next 75 years with changes equivalent to an immediate 16% increase in the payroll tax
(from a rate of 12.4% to 14.4%) or an immediate reduction in benefits of 13% (or some
combination of the two options). The Social Security trustees point out that larger changes would
be needed to maintain trust fund solvency beyond the next 75 years.13
As shown in Table 1, during the 1957 to 1983 period, the cash flow operations of the Social
Security trust fund (annual revenues less annual costs) were negative in 21 of the 27 years.
9
of the Social Security Board of Trustees, however, projects that the Social Security program will
run cash flow deficits (program costs will exceed tax revenues) in 2010 and 2011, followed by a
return to cash flow surpluses in 2012 to 2014. Beginning in 2015, cash flow deficits are projected
10
Social Security Act, Title II, §201(b).
The share allocated to the DI trust fund was last changed (to 0.9%) in 2000. The proportional split between the OASI
and DI trust funds has been altered five times since 1985.
12
The accumulated holdings of the Social Security trust fund in U.S. government obligations are oftenalso referred to as the
Social Security trust fund balance.
1013
Certain government projects may be given “budget authority until expended,” which allows the authority to spend
funds on the project to be carried over each year until all of the authority to spend funds has been exhausted.
11
The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal
Disability Insurance Trust Funds, Washington, DC, May 12, 2009.
12
Program costs and income are evaluated as a percentage of taxable payroll because Social Security payroll taxes are
the primary source of funding for the program. The projected 75-year actuarial deficit (2.00% of taxable payroll)
represents $5.3 trillion in present value terms.
13
Projections by the Social Security trustees are based on the intermediate assumptions of the 2009 Annual Report.
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14
The Social Security Amendments of 1983 (P.L. 98-21) made a number of program changes, including the coverage
of federal workers, an increase in the full retirement age and the taxation of Social Security benefits. For more
information on the 1983 amendments, see CRS Report RL30920, Major Decisions in the House and Senate on Social
Security: 1935-2009, by Gary Sidor.
11
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to reemerge and continue throughout the remainder of the 75-year projection period (under the
intermediate assumptions). 15
As shown in Table 1, during the 1957 to 1983 period, the cash flow operations of the Social
Security trust fund (annual revenues less annual costs) were negative in 21 of the 27 years.
Table 1. Annual Revenues, Costs, and Cash Flow Surplus or Deficit
for the Social Security Trust Fund, 1957-1983
($ in billions)
Year
Annual Revenues
(not including
interest)
Annual
Costs
Annual Cash Flow Surplus or Deficit
(annual revenues less annual costs)
1957
$7.50
$7.60
($0.10)
1958
8.50
8.90
(0.40)
1959
8.90
10.80
(1.90)
1960
11.90
11.80
0.10
1961
12.30
13.40
(1.10)
1962
13.10
15.20
(2.10)
1963
15.60
16.20
(0.60)
1964
16.80
17.00
(0.20)
1965
17.20
19.20
(2.00)
1966
22.60
20.90
1.70
1967
25.40
22.50
2.90
1968
27.00
26.00
1.00
1969
31.50
27.90
3.60
1970
34.70
33.10
1.60
1971
38.30
38.50
(0.20)
1972
42.90
43.30
(0.40)
1973
51.90
53.10
(1.20)
1974
58.90
60.60
(1.70)
1975
64.30
69.20
(4.90)
1976
71.60
78.20
(6.60)
1977
78.70
87.30
(8.60)
15
The Social Security Board of Trustees is composed of three officers of the President’s cabinet (the Secretary of the
Treasury, the Secretary of Labor and the Secretary of Health and Human Services), the Commissioner of Social
Security and two public representatives who are appointed by the President and subject to confirmation by the Senate.
The Board of Trustees issues an annual report to Congress on the financial status of the Social Security trust fund. The
trustees make three sets of projections based on low-cost, intermediate and high-cost assumptions reflecting the
uncertainty surrounding projections for a 75-year period. The trust fund projections cited in this CRS report are based
on the intermediate (or “best guess”) assumptions of The 2010 Annual Report of the Board of Trustees of the Federal
Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, August 5, 2010, available at
http://www.socialsecurity.gov/OACT/TR/2010/.
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Year
Annual Revenues
(not including
interest)
Annual
Costs
Annual Cash Flow Surplus or Deficit
(annual revenues less annual costs)
1978
88.90
96.00
(7.10)
1979
103.00
107.30
(4.30)
1980
116.70
123.60
(6.90)
1981
139.40
144.40
(5.00)
1982
145.70
160.10
(14.40)
1983
156.30
171.20
(14.90)
Source: Table prepared by the Congressional Research Service (CRS) from data provided in The 20092010 Annual
Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust
Trust Funds, Washington, DC, May 12, 2009, Table VI.A4.
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August 5, 2010, Table VI.A4.
Table 2 shows the actual cash flow operations of the Social Security trust fund (annual revenues,
costs,
and cash flow surplus) for the 1984 to 20082009 period. Table 3 shows the projected cash flow
operations of the Social Security trust fund (projected annual revenues, costs, and cash flow
surplus or deficit) for the 20092010 to 2036 period, as projected by the Social Security trustees in the
20092010 Annual Report (under the intermediate assumptions).
Table 2. Annual Revenues, Costs, and Cash Flow Surplus
for the Social Security Trust Fund, 1984-20082009
($ in billions)
Year
Annual Revenues
(not including
interest)
1984
$183.10
$180.40
$2.70
1985
197.50
190.60
6.90
1986
212.80
201.50
11.30
1987
225.60
209.10
16.50
1988
255.20
222.50
32.70
1989
276.70
236.20
40.50
1990
301.10
253.10
48.00
1991
307.80
274.20
33.60
1992
317.20
291.90
25.30
1993
327.70
308.80
18.90
1994
350.00
323.00
27.00
1995
364.80
339.80
25.00
1996
385.70
353.60
32.10
1997
413.90
369.10
44.80
1998
439.90
382.30
57.60
1999
471.20
392.90
78.30
2000
504.80
415.10
89.70
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Annual
Costs
Annual Cash Flow Surplus
(annual revenues less annual costs)
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Social Security: The Trust Fund
Year
Annual Revenues
(not including
interest)
2001
529.10
438.90
90.20
2002
546.30
461.70
84.60
2003
546.90
479.10
67.80
2004
568.70
501.60
67.10
2005
607.80
529.90
77.90
2006
642.50
555.40
87.10
2007
674.70
594.50
80.20
2008
689.00
625.10
63.90
2009
689.20
685.80
3.40
Annual
Costs
Annual Cash Flow Surplus
(annual revenues less annual costs)
Source: Table prepared by the Congressional Research Service (CRS) from data provided in The 20092010 Annual
Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust
Trust Funds, Washington, DC, May 12, 2009, Table VI.A4.
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August 5, 2010, Table VI.A4.
Table 3. Projected Annual Revenues, Costs, and Cash Flow Surplus or Deficit
for the Social Security Trust Fund, 20092010-2036
($ in billions)
Yeara
Annual Revenues
(not including
interest)
2009
$701.30
$682.50
$18.80
2010
727.60
709.30
18.30
2011
763.60
735.10
28.50
2012
810.40
772.40
38.00
2013
855.50
822.70
32.80
2014
898.60
880.20
18.40
2015
943.50
941.20
2.30
2016
986.40
1,005.30
(18.90)
2017
1,031.40
1,074.30
(42.90)
2018
1,077.00
1,147.50
(70.50)
2019
1,125.20
1,226.20
(101.00)
2020
1,175.50
1,308.80
(133.30)
2021
1,227.90
1,394.30
(166.40)
2022
1,282.50
1,482.40
(199.90)
2023
1,339.60
1,574.10
(234.50)
2024
1,399.10
1,669.40
(270.30)
2025
1,461.30
1,767.90
(306.60)
2026
1,526.00
1,869.50
(343.50)
2027
1,593.70
1,974.90
(381.20)
2028
1,664.40
2,083.70
(419.30)
2029
1,738.50
2,194.60
(456.10)
2030
1,815.90
2,309.30
(493.40)
2031
1,897.00
2,426.80
(529.80)
2032
1,981.80
2,547.20
(565.40)
2033
2,070.30
2,670.00
(599.70)
2034
2,162.80
2,795.10
(632.30)
2035
2,259.20
2,922.90
(663.70)
2036
2,360.00
3,054.40
(694.402010
673.10
714.60
(41.40)
2011
734.80
741.70
(6.90)
2012
781.10
779.30
1.80
2013
832.60
827.40
5.20
2014
885.20
881.30
3.90
2015
937.10
940.1
(3.00)
2016
992.30
1,003.20
(10.90)
2017
1,045.90
1,071.30
(25.40)
2018
1,099.30
1,144.20
(44.90)
2019
1,150.80
1,222.20
(71.40)
2020
1,203.80
1,305.20
(101.40)
2021
1,258.20
1,391.80
(133.60)
2022
1,314.80
1,481.80
(167.00)
2023
1,374.10
1,576.10
(202.00)
2024
1,436.50
1,674.10
(237.60)
2025
1,501.30
1,775.90
(274.60)
2026
1,569.30
1,880.90
(311.60)
2027
1,640.90
1,989.50
(348.60)
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Annual
Costs
Annual Cash Flow Surplus or Deficit
(annual revenues less annual costs)
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Social Security: The Trust Fund
Yeara
Annual Revenues
(not including
interest)
2028
1,715.80
2,101.40
(385.60)
2029
1,793.60
2,215.60
(422.00)
2030
1,875.30
2,332.10
(456.80)
2031
1,961.70
2,452.90
(491.20)
2032
2,051.80
2,577.30
(525.50)
2033
2,145.70
2,705.00
(559.30)
2034
2,243.80
2,835.20
(591.40)
2035
2,346.60
2,968.50
(621.90)
2036
2,454.50
3,106.10
(651.60)
Annual
Costs
Annual Cash Flow Surplus or Deficit
(annual revenues less annual costs)
Source: Table prepared by the Congressional Research Service (CRS) from data provided in The 20092010 Annual
Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust
Trust Funds, Washington, DC, May 12, 2009August 5, 2010, Table VI.F8 (intermediate assumptions).
a.
Projections for years after 2036 are not shown because the Social Security trust fund is projected to be
exhausted in 2037 under the intermediate assumptions.
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One way to measure the annual cash flow operations over time is to take the ratio of current
revenues to current costs for each year. A ratio greater than 100% indicates positive cash flow (a
cash flow surplus). Conversely, a ratio less than 100% indicates negative cash flow (a cash flow
deficit). Figure 1 shows the ratio of current revenues to current costs for the Social Security trust
fund over the historical period from 1957 to 20082009 and over the future period from 20092010 to 2036,
as projected by the Social Security trustees in the 20092010 Annual Report (under the intermediate
assumptions).1416
As shown in the figure, in 20082009, revenues of $689.2 billion divided by costs of $625 billion results
in a ratio of 110%685.8 billion
results in a ratio just over 100% (100.5%), indicating a cash flow surplus for the Social Security
trust fund. By
comparison, in 20162020, projected revenues of $986 billion1.2 trillion divided by projected costs
of $1.3 trillion
results in a ratio of 9892%, indicating a cash flow deficit for the Social Security trust
fund. In the 2010. In the 2009 Annual Report, the Social
Security trustees project that the ratio of current
revenues to current costs will fall below 100% in
2016 and remain below 100% for the rest of the projection period, with 2010 and 2011 and again starting in 2015, with
the gap between revenues
and costs increasing over time (under the intermediate assumptions).
16
The 2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal
Disability Insurance Trust Funds, Washington, DC, August 5, 2010, Tables VI.A4 and VI.F8 (intermediate
assumptions).
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Figure 1. Ratio of Current (Annual) Revenues to Costs
for the Social Security Trust Fund, 1957-2036
125%
Ratio
120%
115%
110%
105%
100%
95%
90%
85%
Historical Period
(1957-20082009)
80%
Projected Period
(20092010-2036)
2034
2027
2020
2013
2006
1999
1992
1985
1978
1971
1964
1957
75%
Source: Figure prepared by the Congressional Research Service (CRS) from data provided in The 20092010 Annual
Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust
Trust Funds, Washington, DC, May 12, 2009August 5, 2010, Tables VI.A4 and VI.F8 (intermediate assumptions).
Notes: Annual revenues do not include interest on accumulated holdings of U.S. government obligations. A ratio
above 100% indicates a cash flow surplus for the year. A ratio below 100% indicates a cash flow deficit.
14
The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal
Disability Insurance Trust Funds, Washington, DC, May 12, 2009, Tables VI.A4 & VI.F8 (intermediate assumptions).
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While the Social Security program has experienced cash flow deficits in the past and is projected
to do so in the future, Social Security
When the Social Security trust fund operates with a cash flow deficit, benefits can continue to be
paid by the Treasury at levels
scheduled under current law as long as the accumulated balance in
the Social Security trust fund
is positive. This is because the Social Security program has budget
authority to pay benefits as
long as the balance in the Social Security trust fund (the designated
account) is positive.
However, when current revenues are not sufficient to pay benefits, the U.S.
government must
raise the funds necessary to honor the redemption of U.S. government
obligations held by the
Social Security trust fund as they are needed to pay benefits. If there are
no surplus governmental
receipts, the U.S. government may raise the necessary funds by
increasing taxes or other income,
reducing other spending, or borrowing (or some combination of these options)borrowing from the public (i.e.,
replacing bonds held by the trust fund with bonds held by the public), or some combination of
these options.
Investment of the Social Security Trust Fund
The Secretary of the Treasury is required by law to invest Social Security revenues that are not
needed to pay current benefits and administrative expenses in securities in securities
backed by the U.S.
government.1517 In addition, the Social Security trust fund receives interest on its holdings of
17
Social Security Act, Title II, §201(d).
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its holdings of special U.S. government obligations. Each government security issued by the
Treasury for
purchase by the Social Security trust fund must be a paper instrument in the form of
a bond, note
or certificate of indebtedness.16 18 Any interest or proceeds from the sale of government securities
securities held by the Social Security trust fund must be paid in the form of paper checks from the general
general fund of the Treasury to the Social Security trust fund.17 19 The interest rates paid on the government
government securities issued to the Social Security trust fund are tied to market rates.1820
For internal federal accounting purposes, when special U.S. government obligations are
purchased by the Social Security trust fund, the Treasury is shifting surplus Social Security
revenues from one government account (the Social Security trust fund) to another government
account (the Treasury’s “general fund” account). The special U.S. government obligations are
physical documents held by the Social Security Administration, not the U.S. Treasury. The
government securities held by the Social Security trust fund are redeemed on a regular basis.
These special U.S. government obligations, however, are not resources for the government
because they represent both an asset and a liability for the government.
The Social Security Trust Fund and the Federal Budget
The Social Security program is indirectly part of the annual congressional budget process. This
creates some confusion on the part of the public.
15
Social Security Act, Title II, §201(d).
Social Security Act, Title II, §201(d). The Social Security trust fund may purchase certain other government
securities, such as those issued by Fannie Mae or Freddie Mac, but this option is seldom used.
16
17
Social Security Act, Title II, §201(f). The funds are then used to purchase additional government securities credited
to the Social Security trust fund.
18
For more information, see CRS Report RS20607, Social Security: Trust Fund Investment Practices, by Dawn
Nuschler.
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Social Security: The Trust Fund
On-Budget Versus Off-Budget
For federal budget purposes, on-budget status generally refers to programs that are included in the
annual congressional budget process, whereas off-budget status generally refers to programs that
are not included in the annual congressional budget process.
The Social Security program is a government program that, like the Postal Service, has had its
receipts and (most) outlays designated by law as off-budget.1921 The off-budget designation,
however, has no practical effect on program funding, spending, or operations. The annual
congressional budget resolution, in its legislative language, separates the off-budget totals
(receipts and outlays) from the on-budget totals (receipts and outlays). The report language
accompanying the congressional budget resolution usually shows the unified budget totals (which
combine the on- and off-budget amounts) as well as the separate on- and off-budget totals. The
President’s budget tends to use the unified budget measures in discussing the budget totals. The
President’s budget documents also include the totals for the on- and off-budget components, as
required by law. The Congressional Budget Office uses the unified budget numbers in its analyses
of the budget; it generally does not include on- and off-budget data in its regular annual reports.
18
Social Security Act, Title II, §201(d). The Social Security trust fund may purchase certain other government
securities, such as those issued by Fannie Mae or Freddie Mac, but this option is seldom used.
19
Social Security Act, Title II, §201(f). The funds are then used to purchase additional government securities credited
to the Social Security trust fund.
20
For more information, see CRS Report RS20607, Social Security: Trust Fund Investment Practices, by Dawn
Nuschler.
21
Although the Social Security program is off-budget, the annual congressional budget process does provide the budget
authority for Social Security administrative spending. SSA’s administrative funding, which is paid for out of the Social
Security trust fund, is subject to an annual appropriated limit. In contrast, the Social Security program has budget
authority to pay benefits as long as the balance in the Social Security trust fund (the designated account) is positive.
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The unified budget framework is important because it includes all federal government revenues
and expenditures providing a more comprehensive picture of the size of the federal government,
as well as the impact of the federal budget on the economy. In the unified budget, the Social
Security program is a large source of both federal government revenues (26.131% in FY2008FY2009) and
expenditures (20.719% in FY2008). 20FY2009).22 For purposes of the unified budget, the annual Social Security
cash flow surplus or deficit is counted in determining the overall federal budget surplus or deficit.
The Social Security Trust Fund as Accumulated
Holdings
The Social Security trust fund can be (and often is) viewed as a trust fund, similar to any private
trust fund, that is to be used for paying current and future benefits (and administrative expenses).
By law, any Social Security revenues credited to the trust fund (within the U.S. Treasury) in
excess of program costs are invested
in non-marketable U.S. government obligations. These
obligations are physical (paper)
documents issued to the trust fund and held by the Social
Security Administration. When the
obligations are redeemed, the Treasury must issue a check (a
physical document) to the Social
Security trust fund for the interest earned on the obligations.2123
However, unlike a private trust that may hold a variety of assets and obligations of different
borrowers, the Social Security trust fund can hold only non-marketable U.S. government
obligations. The sale of these obligations by the U.S. government to the Social Security trust fund
19
Although the Social Security program is off-budget, the annual congressional budget process does provide the budget
authority for Social Security administrative spending. SSA’s administrative funding, which is paid for out of the Social
Security trust fund, is subject to an annual appropriated limit. In contrast, the Social Security program has budget
authority to pay benefits as long as the balance in the Social Security trust fund (the designated account) is positive.
20
Percentages calculated by the Congressional Research Service (CRS) from data provided in: Office of Management
and Budget, Historical Tables, Budget of the U.S. Government, Fiscal Year 2010, Tables 2.1, 2.4, 6.1 and 13.1.
21
The funds are then used to purchase additional government securities credited to the Social Security trust fund.
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is federal government borrowing (from itself) and counts against the federal debt limit. The
requirement that the Social Security trust fund purchase U.S. government obligations serves
several purposes, such as:
•
offering a mechanism for the Social Security program to recoup the surplus
revenues loaned to the rest of the government,
•
paying interest so that the loan of the surplus revenues does not lose value over
time,
•
ensuring that the Social Security trust fund (and not other government accounts)
receives credit for the interest earnings,
•
ensuring a level of return (interest) to the Social Security trust fund, and
•
providing a means outside of the securities market for the U.S. government to
borrow funds.
The accumulated holdings of the Social Security trust fund represent the sum of annual surplus
Social Security revenues (for all past years) which were invested in U.S. government obligations,
plus the interest earned on those obligations. As a result of surplus Social Security revenues for
the past 2526 years (1984 to 20082009) and the interest income credited to the Social Security trust fund,
the accumulated holdings of the Social Security trust fund totaled $2.45 trillion at the end of
calendar year 20082009. It is the accumulated holdings of the Social Security trust fund (or the trust
22
Percentages calculated by the Congressional Research Service (CRS) from data provided in: Office of Management
and Budget, Historical Tables, Budget of the U.S. Government, Fiscal Year 2011, Tables 2.1, 2.4, 6.1 and 13.1.
23
The funds are then used to purchase additional government securities credited to the Social Security trust fund.
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Social Security: The Trust Fund
fund balance) that many people refer to when discussing the Social Security trust fund. Table 4
shows the accumulated holdings of the Social Security trust fund for the historical period from
1957 to 20082009. Table 5 shows the accumulated holdings of the Social Security trust fund for the
future period from 20092010 to 2036, as projected by the Social Security trustees in the 20092010 Annual
Report (under the intermediate assumptions). The Social Security trustees project that the level of
accumulated holdings will begin to decline in 2024 and that the Social Security trust fund will be
exhausted in 2037.
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Table 4. Accumulated Holdings of the Social Security Trust Fund, 1957-20082025 and that the Social Security trust fund will be
exhausted in 2037.24
The Social Security trustees project that, on average over the next 75 years (2010 to 2084),
program costs will exceed total income (tax revenues plus interest income) by an amount equal to
1.92% of taxable payroll (on average, costs are projected to exceed income by 14%).25 The gap
between income and costs, however, is projected to increase over the 75-year projection period.
For example, in 2035, the cost of the program is projected to exceed income by an amount equal
to 3.50% of taxable payroll (costs are projected to exceed income by 26%). By the end of the
projection period, in 2084, the cost of the program is projected to exceed income by an amount
equal to 4.12% of taxable payroll (costs are projected to exceed income by 31%).
The Social Security trustees project that the Social Security trust fund would remain solvent
throughout the 75-year projection period, for example, if
•
the combined employer and employee payroll tax rate were increased during the
period in a manner equivalent to an immediate increase of 1.84 percentage points
(from 12.4% to 14.24%);26
•
benefits scheduled under current law were reduced during the period in a manner
equivalent to an immediate benefit reduction of 12%; or
•
general revenue transfers equivalent to $5.4 trillion (in present value terms) were
made to the Social Security trust fund during the period.
These potential revenue and benefit changes illustrate the magnitude of changes needed for the
Social Security trust fund to remain solvent throughout the 75-year projection period. The Social
Security trustees point out that some combination of these approaches could be used and that
larger changes would be needed to maintain trust fund solvency beyond the 75-year period.27
24
Under the intermediate assumptions of the 2010 Annual Report, the Social Security trustees project that program
costs will exceed total income (tax revenues plus interest income) beginning in 2025. At that point, the trust fund
balance will begin to be drawn down to help pay benefits and administrative expenses. The trustees project that the
assets (government securities) held by the trust fund will be depleted in 2037. Following projected trust fund
exhaustion, the program would continue to operate with annual tax revenues.
25
Program costs and income are evaluated as a percentage of taxable payroll because Social Security payroll taxes are
the primary source of funding for the program. The projected 75-year actuarial deficit (1.92% of taxable payroll)
represents $5.4 trillion in present value terms.
26
The Social Security trustees note that the projected increase in the payroll tax rate needed for the trust fund to remain
solvent throughout the 75-year projection period (1.84 percentage points) differs from the projected 75-year actuarial
deficit (1.92% of taxable payroll) for two reasons. The 2010 Annual Report states on page 4: “First, the necessary tax
rate is that required to maintain solvency throughout the period, but not to result in any trust fund reserve at the end of
the period. Second, the necessary tax rate is increased based on the expectation that any change in tax rates will affect
the proportion of employee compensation that is paid in wages.”
27
The 2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal
Disability Insurance Trust Funds, Washington, DC, August 5, 2010, p. 4.
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Table 4. Accumulated Holdings of the
Social Security Trust Fund, 1957-2009
($ in billions)
Congressional Research Service
Year
Accumulated
Holdingsa
1957
$23.00
1958
23.20
1959
22.00
1960
22.60
1961
22.20
1962
20.70
1963
20.70
1964
21.20
1965
19.80
1966
22.30
1967
26.30
1968
28.70
1969
34.20
1970
38.10
1971
40.40
1972
42.80
1973
44.40
1974
45.90
1975
44.30
1976
41.10
1977
35.90
1978
31.70
1979
30.30
1980
26.50
1981
24.50
1982
24.80
1983
24.90
1984
31.10
1985
42.20
1986
46.90
1987
68.80
1988
109.80
1989
163.00
1990
225.30
1991
280.70
11
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Social Security: The Trust Fund
Year
Accumulated
Holdingsa
1991
280.70
1992
331.50
1993
378.30
1994
436.40
1995
496.10
1996
567.00
1997
655.50
1998
762.50
1999
896.10
2000
1,049.40
2001
1,212.50
2002
1,378.00
2003
1,530.80
2004
1,686.80
2005
1,858.70
2006
2,048.10
2007
2,238.50
2008
2,418.70
2009
2,540.30
Source: Table prepared by the Congressional Research Service (CRS) from data provided in The 20092010 Annual
Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust
Trust Funds, Washington, DC, May 12, 2009August 5, 2010, Table VI.A4.
a.
The accumulated holdings of the Social Security trust fund are also referred to as the trust fund balance.
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Table 5. Projected Accumulated Holdings of the
Social Security Trust Fund, 20092010-2036
($ in billions)
Yeara
Congressional Research Service
Accumulated
Holdingsb
2009
$2,555.50
2010
2,693.90
2011
2,848.80
2012
3,022.90
2013
3,204.00
2014
3,383.50
2015
3,558.10
2016
3,722.40
2017
3,873.80
2018
4,008.80
2019
4,123.60
2020
4,215.40
2021
4,282.30
2022
4,322.20
2023
4,332.40
2024
4,306.60
2025
4,242.00
2026
4,135.90
2027
3,985.00
2028
3,786.10
2029
3,538.00
2030
3,237.20
2031
2,881.70
2032
2,469.30
2033
1,997.90
2034
1,465.70
2035
870.50
2036
2092010
$2,617.00
2011
2,730.10
2012
2,858.80
2013
3,001.00
2014
3,152.70
2015
3,308.50
2016
3,467.80
2017
3,624.60
2018
3,773.70
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Social Security: The Trust Fund
Yeara
Accumulated
Holdingsb
2019
3,906.60
2020
4,018.70
2021
4,106.80
2022
4,168.30
2023
4,200.20
2024
4,200.40
2025
4,162.50
2026
4,084.50
2027
3,964.10
2028
3,798.80
2029
3,586.60
2030
3,326.40
2031
3,015.90
2032
2,652.40
2033
2,233.30
2034
1,757.10
2035
1,222.00
2036
625.50
Source: Table prepared by the Congressional Research Service (CRS) from data provided in The 20092010 Annual
Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust
Trust Funds, Washington, DC, May 12, 2009August 5, 2010, Table VI.F8 (intermediate assumptions).
a.
Projections for years after 2036 are not shown because the Social Security trust fund is projected to be
exhausted in 2037 under the intermediate assumptions.
b.
The accumulated holdings of the Social Security trust fund are also referred to as the trust fund balance.
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The Social Security Trust Fund and the Level of Federal Debt
As part of the annual congressional budget process, the level of federal debt (the federal debt
limit) is set for the budget by Congress. The federal debt limit includes debt held by the public as
well as the internal debt of the U.S. government (i.e., debt held by government accounts).
Borrowing from the public and the investment of the Social Security trust fund in special U.S.
government obligations both fall under the restrictions of the federal debt limit. This means that
the Social Security trust fund balance may have implications for the federal debt limit. The sale of
government securities to the Social Security trust fund is a transaction between federal accounts;
it does not generate any resources for the government. It is the interest payments on federal debt
held by the public that is considered the more relevant measure of the impact of the federal
budget on the economy.
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The Social Security Trust Fund and Federal Default
The special obligations purchased by the Social Security trust fund are backed by “the full faith
and credit” of the U.S. government. This is a promise by the U.S. government to redeem the
securities (debt instruments). Technically, like any other borrower, the federal government could
default on any or all of its outstanding obligations. The implications for the economy, and for the
private market for government securities, of a federal government default on the special
obligations held by the Social Security trust fund would depend on the views of private investors.
The impact would be determined by whether private investors think this is a precursor to a federal
government default on securities held by the public (a general government default). There is no
precedent for a federal government default, which makes it difficult to predict the implications.
The Social Security Trust Fund and Benefit Payments
The accumulated holdings of the Social Security trust fund, which represent budget authority for
the program, can be viewed as a measure of funds dedicated to pay current and future benefits.
However, beginning in 2016, when revenues are projected to be below levels needed to pay
benefits, 22 benefits in 2010, 2011,
and again beginning in 2015,28 these funds will be available to pay benefits only as the
government raises the
resources necessary to pay for the securities as they are redeemed by the
Social Security trust
fund. The securities are a promise, by the U.S. government, to raise the
necessary funds.2329 When
the system is operating with a cash flow surplus, the surplus Social
Security revenues (which are
invested in government securities held by the trust fund) are used to
fund other government
activities at the time. The surplus Social Security revenues, therefore, are
not available to finance
benefits directly when the system is operating with a cash flow deficit.
benefits directly when the system is operating with a cash flow deficit.
Stated another way, when the Social Security trust fund runs a cash flow deficit, the trust fund
cashes in more federal government securities than the amount of current Social Security tax
revenues. Because general revenues are used to redeem the federal government securities held by
the trust fund, this results in increased spending for Social Security from the general fund. With
respect to the Social Security program’s reliance on general revenues, it is important to note that
the program is relying on revenues collected for Social Security purposes in previous years that
were used by the federal government at the time for other (non-Social Security) spending needs.
The program draws on those previously collected Social Security tax revenues (plus interest)
when current Social Security tax revenues fall below current program expenditures.
The Social Security trustees project that the accumulated holdings of the Social Security trust
fund will be exhausted in 2037 and that only an estimated 76% of scheduled 78% of annual benefits scheduled under
current law will will
be payable with incoming receipts at that pointtime (based on the intermediate
assumptions of the
2009 2010 Annual Report). The Social Security Act does not state what would
happen to the payment
of benefits scheduled under current law in the event of Social Security trust fund exhaustion. Two possible scenarios are the
22
The Social Security
28
In the 2010 Annual Report, the Social Security trustees project that revenues will fall below program costs in 2010
and 2011, followed by a return to cash flow surpluses in 2012 to 2014. The trustees project that revenues will fall
below program costs beginning in 2016, based on the
intermediate assumptions of the 2009 Annual Report.
23
If there are no surplus governmental receipts, policymakers would have three options: raise taxes or other income,
reduce spending, or borrow (or some combination of these options).
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Social Security: The Trust Fund
payment of full monthly benefits on a delayed schedule or the payment of partial (reduced)
monthly benefits on time. 24again in 2015 and each year thereafter through the end of the 75-year projection period (under the
intermediate assumptions).
29
If there are no surplus governmental receipts, the U.S. government may raise the necessary funds by increasing taxes
or other income, reducing other spending, borrowing from the public (i.e., replacing bonds held by the trust fund with
bonds held by the public), or some combination of these options.
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trust fund exhaustion. Two possible scenarios are the payment of monthly benefits in full on a
delayed schedule or the payment of partial (reduced) monthly benefits on time. 30
Author Contact Information
Dawn Nuschler
Specialist in Income Security
dnuschler@crs.loc.gov, 7-6283
Gary Sidor
Information Research Specialist
gsidor@crs.loc.gov, 7-2588
Acknowledgments
This report was originally written by Christine Scott.
2430
For information on the legal entitlement to benefits and trust fund exhaustion, see CRS Report RL32822, Social
Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues, by Kathleen S. Swendiman and Thomas
J. Nicola,; and CRS Report RL33514, Social Security: What Would Happen If the Trust Funds Ran Out?, by Kathleen
RomigChristine
Scott.
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