2001 OASDI Trustees Report

III. FINANCIAL OPERATIONS OF THE TRUST FUNDS AND
LEGISLATIVE CHANGES IN THE LAST YEAR

A. OPERATIONS OF THE OLDAGE AND SURVIVORS INSURANCE
(OASI) AND DISABILITY INSURANCE (DI) TRUST FUNDS, IN
FISCAL YEAR 2000

Detailed information on the operations of the OASI and DI Trust Funds¹ during fiscal year 2000 is presented in this section. Fiscal year data are shown in this section because final calendar year data for 2000 were not available at the time this report was prepared. All other data in the body of the report are on a calendar year basis. Appendix C provides projections for fiscal years 2001-10.

1. OASI Trust Fund

A statement of the income and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund in fiscal year 2000, and of the assets of the fund at the beginning and end of the fiscal year, is presented in table III.A1. Included in total receipts during fiscal year 2000 were $419.9 billion in payroll tax contributions. These contributions were partially offset by transfers totaling $1.7 billion to the general fund of the Treasury for the estimated amount of refunds to employees who worked for more than one employer during a year and paid contributions on earnings in excess of the contribution and benefit base. In addition, $7,220,000 was received from the general fund of the Treasury representing partial payment for the estimated taxes that would have been paid on deemed wage credits for military service in 2000 if such credits had been considered to be covered wages. The remainder of this payment, $218,780,000, is expected to be transferred, with interest, in 2001.

Net contributions thus amounted to $418.2 billion, an increase of 7.3 percent over the amount in the preceding year. The increase in OASI tax contributions from fiscal year 1999 to fiscal year 2000 is due to increased earnings and the increases in the contribution and benefit base that became effective on January 1 of each year 1999 and 2000. Offsetting these two factors is the reduction in the OASI allocation of the OASDI tax rate effective January 2000. (Table VI.A1 shows the tax rates and contribution and benefit bases in effect for past years.)

Income from taxation of benefits amounted to $12.5 billion, of which nearly 99 percent represented amounts credited to the trust funds in advance, on an estimated basis. The remaining 1 percent of the total income from taxation of benefits represented amounts withheld from the benefits paid to nonresident aliens.

Note: Totals do not necessarily equal the sums of rounded components.

Special payments are made to uninsured persons who either attained age 72 before 1968, or who attained age 72 after 1967 and had 3 quarters of coverage for each year after 1966 and before the year of attainment of age 72. The costs associated with providing such payments to persons having fewer than 3 quarters of coverage are reimbursable from the general fund of the Treasury. Accordingly, a reimbursement of $364,000 was transferred to the OASI Trust Fund in fiscal year 2000, as required by section 228 of the Social Security Act. The reimbursement reflected the costs of payments made in fiscal year 1998.

The OASI Trust Fund was credited with interest netting $53.5 billion which consisted of (1) interest earned on the investments of the trust fund, (2) interest on transfers between the trust fund and the general fund account for the Supplemental Security Income program due to adjustments in the allocation of administrative expenses, (3) interest arising from the revised allocation of administrative expenses among the trust funds, and (4) interest on reimbursements to the trust fund for costs associated with union activities and pension reform. The remaining $475,351 of receipts consisted of gifts received under the provisions authorizing the deposit of money gifts or bequests in the trust funds.

Of the $353.4 billion in total disbursements, $347.9 billion was for net benefit payments. The amount of net benefit payments in fiscal year 2000 represents an increase of 4.7 percent over the corresponding amount in fiscal year 1999. This increase is due primarily to (1) the automatic cost-of-living benefit increases of 1.3 percent and 2.4 percent which became effective for December 1998 and December 1999 respectively, under the automatic-adjustment provisions in section 215(i) of the Social Security Act, (2) an increase in the total number of beneficiaries, and (3) an increase in the average benefit amount. The increases in items 2 and 3 were largely due to elimination of the retirement earnings test for beneficiaries over age 64 in 2000. (See section III.B for further details on this legislation.)

Provisions of the Railroad Retirement Act require an annual financial interchange between the Railroad Retirement and OASDI programs. The purpose of such provisions is to put the OASI and DI Trust Funds in the same financial position they would have been had railroad employment always been covered by Social Security. Under those provisions, the Railroad Retirement Board and the Commissioner of Social Security determined that a transfer of $3.5 billion to the Social Security Equivalent Benefit Account from the OASI Trust Fund was required in June 2000.

The remaining $2.0 billion of disbursements from the OASI Trust Fund represented net administrative expenses. The expenses of administering the OASDI and Medicare programs are allocated and charged directly to each of the various trust funds through which those programs are financed, on the basis of provisional estimates. Similarly, the expenses of administering the Supplemental Security Income program are also allocated and charged directly to the general fund of the Treasury on a provisional basis. Periodically, as actual experience develops and is analyzed, adjustments to the allocations of administrative expenses for prior periods are effected by interfund transfers and transfers between the OASI Trust Fund and the general fund account for the Supplemental Security Income program, with appropriate interest adjustments.

Section 1131 of the Social Security Act authorizes annual reimbursements from the general fund of the Treasury to the OASI Trust Fund for additional administrative expenses incurred as a result of furnishing information on deferred vested benefits to pension plan participants, as required by the Employee Retirement Income Security Act of 1974 (Public Law 93-406). The reimbursement in fiscal year 2000 amounted to $3,262,782.

The OASI Trust Fund was reimbursed $291,802 for expenses of providing certain information required by the Coal Industry Retiree Health Benefit Act of 1992 (part of the Energy Policy Act of 1992, Public Law 102-486). The fund was also reimbursed $3,399,511 (including $84,293 in interest) for costs associated with union activities, as authorized by Public Law 105-78.

The assets of the OASI Trust Fund at the end of fiscal year 2000 totaled $893.0 billion, consisting of $893.5 billion in U.S. Government obligations and, as an offset, an extension of credit amounting to $0.5 billion against securities to be redeemed within the following few days. The effective annual rate of interest earned by the assets of the OASI Trust Fund during calendar year 2000 was 6.9 percent, as compared to 7.0 percent earned during calendar year 1999. Table III.A2 shows the total assets of the fund and their distribution at the end of each fiscal year 1999 and 2000.

Note: Special issues are always purchased at par value. Therefore, book value and par value are the same for each special issue, and the common value is shown above. Where the maturity years are grouped, the amount maturing in each year is the amount shown divided by the number of years.

All securities held by the trust funds are backed by the full faith and credit of the United States Government. Those currently held by the OASI Trust Fund are special issues (i.e., securities sold only to the trust funds). These are of two types: short-term certificates of indebtedness and long-term bonds. The certificates of indebtedness are issued through the investment of receipts not required to meet current expenditures, and they mature on the next June 30 following the date of issue. Special-issue bonds, on the other hand, are normally acquired only when special issues of either type mature on June 30. The amount of bonds acquired on June 30 is equal to the amount of special issues maturing, less amounts required to meet expenditures on that day.

Section 201(d) of the Social Security Act provides that the public-debt obligations issued for purchase by the OASI and DI Trust Funds shall have maturities fixed with due regard for the needs of the funds. The usual practice has been to spread the holdings of special issues, as of each June 30, so that the amounts maturing in each of the next 15 years are approximately equal. Accordingly, the amounts and maturity dates of the OASI special-issue bonds purchased on June 30, 2000, were selected in such a way that the maturity dates of the total portfolio of special issues were spread evenly over the 15-year period 2001-15. See table III.A9 for the amount of bonds purchased on June 30, 2000.

2. DI Trust Fund

A statement of the income and disbursements of the Federal Disability Insurance Trust Fund in fiscal year 2000, and of the assets of the fund at the beginning and end of the fiscal year, is presented in table III.A3.

Line entries in the DI statement are similar to those in the OASI statement and the explanations of the OASI entries generally apply to DI as well. One additional source of disbursements in the DI statement is $67,262,839 for the costs of vocational rehabilitation services furnished to disabled-worker beneficiaries and to those children of disabled workers who were receiving benefits on the basis of disabilities that began before age 22. Reimbursement from the trust funds for the costs of vocational rehabilitation services is made only in those cases where the services contributed to the successful rehabilitation of the beneficiaries.

Net contributions amounted to $70.0 billion, an increase of 13.0 percent from the amount in the preceding fiscal year. This increase is attributable to the same factors, insofar as they apply to the DI program, that accounted for the change in contributions to the OASI Trust Fund. Note, however, that the DI allocation of the OASDI tax rate increased in January 2000.

Of the $56.0 billion in total disbursements, $54.2 billion was for net benefit payments. This represents an increase of 7.5 percent over the corresponding amount of benefit payments in fiscal year 1999. This increase in DI benefit payments was due to the same factors that resulted in the net increase in benefit payments from the OASI Trust Fund, except that elimination of the retirement earnings test at the normal retirement age did not affect DI benefits. However, the number of persons receiving benefits from the DI Trust Fund increased more rapidly in 2000 than the number receiving benefits from the OASI Trust Fund.

Note: Totals do not necessarily equal the sums of rounded components.

The assets of the DI Trust Fund at the end of fiscal year 2000 totaled $113.8 billion, consisting of $113.7 billion in U.S. Government obligations and cash totaling $45 million. The effective annual rate of interest earned by the assets of the DI Trust Fund during calendar year 2000 was 6.6 percent, the same as the rate earned during calendar year 1999. Table III.A4 shows the total assets of the fund and their distribution at the end of each fiscal year 1999 and 2000.

Note: Special issues are always purchased at par value. Therefore, book value and par value are the same for each special issue, and the common value is shown above. Where the maturity years are grouped for special issues, the amount maturing in each year is the amount shown divided by the number of years.

3. OASI and DI Trust Funds, Combined

A statement of the operations of the income and disbursements of the OASI and DI Trust Funds, on a combined basis, is presented in table III.A5. The entries in this table represent the sums of the corresponding values from tables III.A1 and III.A3. For a discussion of the nature of these income and expenditure transactions, reference should be made to the two preceding subsections covering OASI and DI separately.

Note: Totals do not necessarily equal the sums of rounded components.

To provide a context for estimates of future trust fund income and expenditures provided later in this report, table III.A6 compares past estimates of contributions and benefit payments for fiscal year 2000, as shown in the 1996-2000 Annual Reports, with the corresponding actual amounts in 2000.

A number of factors can contribute to differences between estimates and subsequent actual amounts, including actual values for key economic, demographic, and other variables that differ from assumed levels. Another factor contributing to such differences is new legislation. In particular, legislation eliminating the retirement earnings test for workers over the normal retirement age was enacted shortly after publication of the 2000 report. Consequently, actual OASI benefit payments in 2000 were larger than estimated for the 2000 report. In addition, the actual amount of DI benefit payments in 2000 was significantly below estimates in the 1996-97 reports, due to slower-than-expected growth in the number of disabled workers.

At the end of fiscal year 2000, about 45.3 million persons were receiving monthly benefits under the OASDI program. Of these persons, about 38.7 million and 6.6 million were receiving monthly benefits from the OASI Trust Fund and the DI Trust Fund, respectively. The number of persons receiving benefits from the OASI and DI Trust Funds grew by 1.8 percent and 2.5 percent, respectively, during the fiscal year. The estimated distribution of benefit payments in fiscal years 1999 and 2000, by type of beneficiary, is shown in table III.A7 for each trust fund separately.

Note: Totals do not necessarily equal the sums of rounded components.

Net administrative expenses charged to the OASI and DI Trust Funds in fiscal year 2000 totaled $3.6 billion. This amount represented 0.7 percent of contribution income and 0.9 percent of expenditures. Corresponding percentages for each trust fund separately and for the OASDI program as a whole are shown in table III.A8 for each of the last 5 years.

Tables III.A2 and III.A4, presented earlier, showed the assets of the OASI and DI Trust Funds at the end of fiscal years 1999 and 2000. The changes in the invested assets of the funds between those two dates are a result of the acquisition and disposition of securities during fiscal year 2000. Table III.A9 presents these investment transactions for each trust fund separately and combined.

Note: All investments are shown at par value.

¹ Trust fund data are available by month, quarter, or year on the Internet at http://www.ssa.gov/OACT/ProgData/fundsQuery.html.

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