Updated May 11, 2020
Social Security Trust Fund Investment Practices
Background
U.S. Treasury, and they are indistinguishable from all other
Social Security is a self-financing program that provides
revenues in the general fund. Social Security benefits and
monthly cash benefits to retired or disabled workers, and to
administrative expenses are also paid from the general fund
the eligible family members of retired, disabled, or
of the U.S. Treasury. When Social Security payments are
deceased workers. There are about 64.5 million
made from the general fund, an equal amount of U.S.
beneficiaries in 2020.
government obligations are redeemed from the Social
Security trust funds.
Workers gain benefit eligibility for themselves and their
family members by working in jobs covered by Social
Key Points
Security, among other requirements. An estimated 178
million workers (93% of all workers in 2020) are covered
ï‚·
Social Security is a self-financing program, with 92.4% of its
by Social Security. Covered workers and their employers
total 2019 income from dedicated tax revenues.
must pay Social Security payroll taxes, which are the
ï‚·
Social Security tax revenues are invested in interest-bearing
program’s primary source of income. The program also
U.S. government obligations held by the Social Security
receives income from the federal income taxes that some
trust funds, as required by law.
beneficiaries pay on a portion of their benefits. Together,
ï‚·
Trust fund holdings—about $2.9 trillion in U.S. Treasury
these dedicated tax revenues represent 92.4% of Social
securities in 2019—represent funds dedicated to pay
Security’s total income.
current and future Social Security benefits.
Social Security operates with a trust fund financing
ï‚·
The effective interest rate earned on all obligations held by
mechanism. The Social Security trust funds are accounts
the trust funds in 2019 was 2.8%; the average interest rate
within the U.S. Treasury that (1) track income and
on new special issues was 2.2%.
expenditures for the program and (2) hold the accumulated
ï‚·
The trust funds earned approximately $81 billion in interest
assets for the program. As such, they represent funds
in 2019, representing 7.6% 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 about $2.9 trillion in U.S.
government obligations purchased by the trust funds are
Treasury securities. In 2019, the trust fund holdings earned
backed by the full faith and credit of the United States and
approximately $81 billion in interest, representing 7.6% 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 85-year history,
Section 201 of the Social Security Act (42 U.S.C. 401)
the program has collected $23.0 trillion and paid out $20.1
requires the managing trustee of the Social Security trust
trillion, leaving trust fund reserves of about $2.9 trillion
funds (the Secretary of the Treasury) to invest Social
available for future program spending. As long as the trust
Security tax revenues in special “nonmarketable†federal
funds have a sufficient balance, they represent the authority
public-debt obligations called special issues (i.e., securities
and an obligation for the U.S. Treasury to issue benefit
available only to the trust funds, not to the general public).
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.â€
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 (the 2020 intermediate assumptions
U.S. government obligations go into the general fund of the
reflect the Board of Trustees’ understanding of Social
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Social Security Trust Fund Investment Practices
Security at the start of 2020; they do not include potential
The maturity dates of new special-issue securities are set by
effects of the Coronavirus Disease 2019, or COVID-19).
a standardized procedure. Revenues are invested
Following depletion of trust fund reserves, the program
immediately in short-term issues called certificates of
would operate with current tax revenues; however, they are
indebtedness, which mature on the next June 30. On June
projected to cover only about three-fourths of scheduled
30 of each year, certificates of indebtedness that have not
benefit payments through 2095.
been redeemed are reinvested in longer-term special-issue
bonds. In general, the maturities of the bonds range from 1
Investment Guidelines
to 15 years; the goal is to have about one-fifteenth of them
Section 201 of the Social Security Act (42 U.S.C. 401)
mature each year, depending on the needs of the trust funds.
provides the following guidelines for trust fund investment:
Issues
ï‚· Funds not immediately in demand for benefits or
Although some policymakers have questioned whether the
administrative expenses are to be invested in interest-
current investment practices have constrained the trust
bearing obligations guaranteed as to both principal and
funds’ earnings, various advisory councils, congressional
interest by the United States.
committees, and other groups have generally endorsed the
ï‚·
practices over the years. These practices have been justified
Obligations are to be purchased at the issue price or at
as a way to ensure safety of principal and stability of
the market price for outstanding obligations.
interest and to avoid intrusion into private markets. These
ï‚· The Managing Trustee of the Social Security trust funds
practices have also been regarded as a way to avoid the
(the Secretary of the Treasury) is required to invest in
political influences that would be inherent in investing
special “nonmarketable†federal public-debt
outside the U.S. government. In general, the goal has been
obligations—special issues to the trust funds that are not
to place the trust funds in the same position as any long-
available to the general public—except when the
term investor seeking a safe rate of return by investing in
Secretary determines that the purchase of marketable
U.S. securities, and neither advantage nor disadvantage the
federal securities is “in the public interest.â€
trust funds relative to these investors or other parts of the
ï‚·
government.
Special issues shall have maturities fixed with due
regard for the needs of the trust funds and will pay a rate
Policymakers interested in ways to potentially increase
of interest, calculated at the time of issue, equal to the
interest income to the trust funds (or, as in past years, to
average market yield on all marketable interest-bearing
prevent any surplus Social Security tax revenues from being
obligations of the United States that are not due or
used for other, non-Social Security spending purposes) have
callable (redeemable) for at least four years.
introduced legislation to alter trust fund investment
ï‚· Marketable federal securities purchased by the trust
practices. Some past proposals would have provided for the
funds may be sold at the market price. Special issue
investment of a portion of the trust fund reserves in
obligations may be redeemed at par plus accrued interest
equities.
(without penalty for redemption before maturity).
(Investment in special issues gives the trust funds the
The Social Security Administration’s Office of the Chief
same flexibility as holding cash.)
Actuary provides estimates of how various provisions to
The Treasury Department has determined that the purchase
alter trust fund investment practices would affect the
of marketable federal securities (i.e., public issues) would
financial status of the Social Security trust funds. See
be in the public interest only when it might serve to
Individual Changes Modifying Social Security, Category G:
stabilize the market for Treasury issues. Because an
Investment in Marketable Securities, at
“unstable market†would be characterized by falling bond
https://www.ssa.gov/OACT/solvency/provisions/
prices, purchases of marketable federal securities at these
index.html.
times would appear to be advantageous for the trust funds.
Related Resources
In practice, however, open market purchases have been
rare. Although the trust funds have held public issues in the
CRS Report RL33028, Social Security: The Trust Funds
past, they currently hold special issues only.
Social Security Administration (SSA), Frequently Asked
Interest earned on the trust fund holdings is credited
Questions about the Social Security Trust Funds
semiannually (June 30 and December 31) by issuing
additional securities to the trust funds. In calendar year
Social Security Trust Fund Cash Flows and Reserves, by
(CY) 2019, interest earnings totaled approximately $81
David Pattison, Social Security Bulletin, vol. 75, no. 1,
billion (7.6% of total income for the Social Security trust
February 2015
funds). The effective interest rate earned on all obligations
held by the trust funds in CY2019 was 2.8%. (The effective
SSA, Office of the Chief Actuary, Actuarial Note 142,
rate reflects the entire portfolio of securities held by the
Social Security Trust Fund Investment Policies and
trust funds.) The average interest rate earned on new special
Practices, by Jeffrey L. Kunkel, January 1999
issues in CY2019 was 2.2%. (Social Security
Administration, Office of the Chief Actuary, Average and
Barry F. Huston, Analyst in Social Policy
Effective Interest Rates, at https://www.ssa.gov/OACT/
ProgData/annualinterestrates.html.)
IF10564
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Social Security Trust Fund Investment Practices
Disclaimer
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