Updated May 3, 2019
Social Security Trust Fund Investment Practices
Background
administrative expenses are also paid from the general fund
Social Security is a self-financing program that provides
of the U.S. Treasury. When Social Security payments are
monthly cash benefits to retired or disabled workers, and to
made from the general fund, an equal amount of U.S.
the eligible family members of retired, disabled, or
government obligations are redeemed from the Social
deceased workers. There are 63 million beneficiaries.
Security trust funds.
Workers gain benefit eligibility for themselves and their
Key Points
family members by working in jobs covered by Social
Security, among other requirements. An estimated 176
Social Security is a self-financing program, with 91.7% of its
million workers (93%) are covered by Social Security.
total 2018 income from dedicated tax revenues.
Covered workers and their employers must pay Social
Social Security tax revenues are invested in interest-bearing
Security payroll taxes, which are the program’s primary
U.S. government obligations held by the Social Security
source of income. The program also receives income from
trust funds, as required by law.
the federal income taxes that some beneficiaries pay on a
Trust fund holdings—more than $2.9 tril ion in U.S.
portion of their benefits. Together, these dedicated tax
Treasury securities in 2018—represent funds dedicated to
revenues represent 91.7% of Social Security’s total income.
pay current and future Social Security benefits.
Social Security operates with a trust fund financing
The effective interest rate earned on all obligations held by
mechanism. The Social Security trust funds are accounts
the trust funds in 2018 was 2.9%; the average interest rate
within the U.S. Treasury that (1) track income and
on new special issues was 2.9%.
expenditures for the program and (2) hold the accumulated
The trust funds earned $83 bil ion in interest in 2018,
assets for the program. As such, they represent funds
representing 8.3% of Social Security’s total income.
dedicated to pay current and future Social Security benefits.
(There are two separate trust funds: the Old-Age and
Survivors Insurance [OASI] Trust Fund and the Disability
The holdings of the Social Security trust funds represent the
Insurance [DI] Trust Fund. They are referred to here on a
amount of money that the U.S. Treasury’s general fund
combined basis as the Social Security trust funds.)
owes to the Social Security trust funds. There is no separate
pool of cash set aside for Social Security purposes.
As required by law, Social Security tax revenues are
However, that is not to say that the holdings of the Social
invested in interest-bearing U.S. government obligations.
Security trust funds are not “real” assets. The U.S.
Currently, the trust funds hold more than $2.9 trillion in
government obligations purchased by the trust funds are
U.S. Treasury securities. In 2018, the trust fund holdings
backed by the full faith and credit of the United States and
earned $83 billion in interest, representing 8.3% of Social
Security’s
guaranteed with respect to both principal and interest by the
total income.
United States, as specified in Section 201(d) of the Social
Security Act (42 U.S.C. 401[d]).
In the past, attention has focused on alternative investment
practices in an effort to increase the interest earnings of the
Stated another way, the holdings of the Social Security trust
trust funds, among other goals. This In Focus explains
funds (the asset reserves) represent the accumulated total of
current Social Security trust fund investment practices.
surplus Social Security tax revenues collected for the
The Trust Funds
program over the years, plus the interest earned on
securities held by the trust funds. Over its 84-year history,
Section 201 of the Social Security Act (42 U.S.C. 401)
the program has collected $21.9 trillion and paid out $19.0
requires the managing trustee of the Social Security trust
trillion, leaving trust fund reserves of more than $2.9
funds (the Secretary of the Treasury) to invest Social
trillion available for future program spending. As long as
Security tax revenues in special “nonmarketable” federal
the trust funds have a sufficient balance, they represent the
public-debt obligations called special issues (i.e., securities
authority and an obligation for the U.S. Treasury to issue
available only to the trust funds, not to the general public).
benefit payments scheduled under current law.
The Secretary may invest in marketable federal securities,
which are available to the general public, if that is
Since 2010, Social Security has relied on trust fund reserves
determined to be “in the public interest.”
to supplement current tax revenues to pay benefits
scheduled under current law. Those reserves are projected
The Social Security tax revenues that are exchanged for the
to be depleted in 2035. (2019 Annual Report of the Social
U.S. government obligations go into the general fund of the
Security Board of Trustees, intermediate assumptions.)
U.S. Treasury, and they are indistinguishable from all other
Following depletion of trust fund reserves, the program
revenues in the general fund. Social Security benefits and
would operate with current tax revenues; however, they are
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Social Security Trust Fund Investment Practices
projected to cover only about three-fourths of scheduled
immediately in short-term issues called certificates of
benefit payments. It is unclear how the U.S. Treasury would
indebtedness, which mature on the next June 30. On June
handle the payment of benefits under such a scenario.
30 of each year, certificates of indebtedness that have not
been redeemed are reinvested in longer-term special-issue
Investment Guidelines
bonds. In general, the maturities of the bonds range from 1
Section 201 of the Social Security Act (42 U.S.C. 401)
to 15 years; the goal is to have about one-fifteenth of them
provides the following guidelines for trust fund investment:
mature each year, depending on the needs of the trust funds.
Funds not immediately in demand for benefits or
Issues
administrative expenses are to be invested in interest-
Although some policymakers have questioned whether the
bearing obligations guaranteed as to both principal and
current investment practices have constrained the trust
interest by the United States.
funds’ earnings, various advisory councils, congressional
committees, and other groups have generally endorsed the
Obligations are to be purchased at the issue price or at
practices over the years. These practices have been justified
the market price for outstanding obligations.
as a way to ensure safety of principal and stability of
The Managing Trustee of the Social Security trust funds
interest and to avoid intrusion into private markets. These
(the Secretary of the Treasury) is required to invest in
practices have also been regarded as a way to avoid the
special “nonmarketable” federal public-debt
political influences that would be inherent in investing
obligations—special issues to the trust funds that are not
outside the U.S. government. In general, the goal has been
available to the general public—except when the
to place the trust funds in the same position as any long-
Secretary determines that the purchase of marketable
term investor seeking a safe rate of return by investing in
federal securities is “in the public interest.”
U.S. securities, and neither advantage nor disadvantage the
trust funds relative to these investors or other parts of the
Special issues shall have maturities fixed with due
government.
regard for the needs of the trust funds and will pay a rate
of interest, calculated at the time of issue, equal to the
Policymakers interested in ways to potentially increase
average market yield on all marketable interest-bearing
interest income to the trust funds (or, as in past years, to
obligations of the United States that are not due or
prevent any surplus Social Security tax revenues from being
callable (redeemable) for at least four years.
used for other, non-Social Security spending purposes) have
Marketable federal securities purchased by the trust
introduced legislation to alter trust fund investment
funds may be sold at the market price. Special issue
practices. Some past proposals would have provided for the
obligations may be redeemed at par plus accrued interest
investment of a portion of the trust fund reserves in
(without penalty for redemption before maturity).
equities.
(Investment in special issues gives the trust funds the
same flexibility as holding cash.)
The Social Security Administration’s Office of the Chief
The Treasury Department has determined that the purchase
Actuary provides estimates of how various provisions to
of marketable federal securities (i.e., public issues) would
alter trust fund investment practices would affect the
be in the public interest only when it might serve to
financial status of the Social Security trust funds. See
stabilize the market for Treasury issues. Because an
Individual Changes Modifying Social Security, Category G:
“unstable market” would be characterized by falling bond
Investment in Marketable Securities, at
prices, purchases of marketable federal securities at these
https://www.ssa.gov/OACT/solvency/provisions/
times would appear to be advantageous for the trust funds.
index.html.
In practice, however, open market purchases have been
Related Resources
rare. Although the trust funds have held public issues in the
past, they currently hold special issues only.
CRS Report RL33028, Social Security: The Trust Funds
Interest earned on the trust fund holdings is credited
Social Security Administration (SSA), Frequently Asked
semiannually (June 30 and December 31) by issuing
Questions about the Social Security Trust Funds
additional securities to the trust funds. In calendar year
(CY) 2018, interest earnings totaled $83 billion (8.3% of
Social Security Trust Fund Cash Flows and Reserves, by
total income for the Social Security trust funds). The
David Pattison, Social Security Bulletin, vol. 75, no. 1,
effective interest rate earned on all obligations held by the
February 2015
trust funds in CY2018 was 2.9%. (The effective rate
reflects the entire portfolio of securities held by the trust
SSA, Office of the Chief Actuary, Actuarial Note 142,
funds.) The average interest rate earned on new special
Social Security Trust Fund Investment Policies and
issues in CY2018 was 2.9%. (Social Security
Practices, by Jeffrey L. Kunkel, January 1999
Administration, Office of the Chief Actuary, Average and
Effective Interest Rates, at https://www.ssa.gov/OACT/
Barry F. Huston, Analyst in Social Policy
ProgData/annualinterestrates.html.)
IF10564
The maturity dates of new special-issue securities are set by
a standardized procedure. Revenues are invested
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Social Security Trust Fund Investment Practices
Disclaimer
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