III. FINANCIAL OPERATIONS OF THE TRUST FUNDS ANDLEGISLATIVE CHANGES IN THE LAST YEAR
A.
OPERATIONS OF THE OLD‑AGE AND SURVIVORS INSURANCE
(OASI) AND DISABILITY INSURANCE (DI) TRUST FUNDS, IN
CALENDAR YEAR 2007
Detailed information on the operations of the OASI and DI Trust Funds1 during calendar year 2007 is presented in this section. Chapter IV provides projections for calendar years 2008 through 2085.
A statement of the income and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund in calendar year 2007, and of the
assets of the fund at the beginning and end of the calendar year, is presented in table III.A1. As shown in the table, total trust fund receipts in 2007 amounted to $675.0 billion, while disbursements totaled $495.7 billion, resulting in an increase in trust fund assets during 2007 of $179.3 billion.
The reported income and disbursements for 2007 were both affected by a transfer made from the
OASI Trust Fund to the
DI Trust Fund to correct a long-standing, but small, error in the allocation of benefit payments between the trust funds. For beneficiaries entitled to benefits both as disabled workers (payable from the
DI Trust Fund) and as disabled adult children of retired or deceased workers (payable from the
OASI Trust Fund), their benefit payments have initially been made entirely from the
DI Trust Fund. Periodic transfers from the
OASI Trust Fund to reimburse the
DI Trust Fund for the share of benefits paid due to the disabled adult child entitlement have not been made for many years. To correct the allocation error, on an estimated basis for months through September 2007, a transfer from the OASI Trust Fund to the DI Trust Fund was made in September 2007. The transfer totaled $5.6 billion, consisting of a principal amount of $3.3 billion, the balance being interest. Further details of the various components of trust fund income and disbursements are discussed in the following paragraphs.
Included in total receipts during calendar year 2007 were $562.8 billion in employment tax contributions. These contributions were partially offset by transfers totaling $1.9 billion to the general fund for the estimated amount of refunds to employees who worked for more than one employer during a year and paid contributions on total earnings in excess of the contribution and benefit base.
Net contributions thus amounted to $560.9 billion in 2007, an increase of 4.9 percent over the corresponding amount in 2006. This increase in OASI tax contributions is due to increased earnings and the increase in the contribution and benefit base. (Table VI.A1 shows the tax rates and contribution and benefit bases in effect for past years.)
Income based on taxation of benefits amounted to $17.2 billion in 2007. About 99 percent of this income represents amounts credited to the trust funds, on an estimated basis, generally in advance of the actual receipt of taxes by the Treasury. The remaining 1 percent of the total income from taxation of benefits represents amounts withheld from the benefits paid to nonresident aliens.
Special payments are made to uninsured persons who meet certain requirements. The costs associated with providing such payments are largely reimbursed from the
General Fund of the Treasury. Accordingly, a transfer of $12 thousand was made in 2007, reflecting costs incurred in fiscal year 2006.
The OASI Trust Fund was credited with interest netting $97.0 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 certain reimbursements to the trust fund, including interest on the transfer related to the trust fund allocation error described earlier. The remaining $569 thousand of receipts consisted of gifts received under the provisions authorizing the deposit of money gifts or bequests in the trust funds.
Of the $495.7 billion in total OASI disbursements, $489.1 billion was for net
benefit payments, including the reimbursable costs of vocational rehabilitation services.
2 Excluding the $3.3 billion interfund transfer due to the trust fund allocation error described earlier, net benefit payments would have been $485.8 billion. This lower amount of net benefit payments in calendar year 2007 represents an increase of 5.5 percent over the corresponding adjusted amount
3 in calendar year 2006. This increase is due primarily to (1) an increase in the total number of beneficiaries and (2) an increase in the average benefit amount. The increase in the average benefit amount in 2007 was due in large part to the
automatic cost-of-living benefit increase of 3.3 percent which became effective for December 2006 under the automatic-adjustment provisions in section 215(i) of the Social Security Act.
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 $3.6 billion to the Social Security Equivalent Benefit Account from the OASI Trust Fund was required in June 2007.
The remaining $3.1 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 allocated for administering the Supplemental Security Income program are 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. As described earlier, the interest adjustments arising from the reallocation of administrative expenses are recorded in the trust fund accounting under investment income.
In 2007, 82 percent of OASI net administrative expenses represented the cost of administering the program. Such costs are charged to the trust fund by the Social Security Administration ($2.5 billion in 2007). In addition, the Department of the Treasury charges directly to the trust fund certain expenses ($0.6 billion in 2007) that it incurs in helping to administer the OASI program. In addition a relatively small adjustment ($257,483 in 2007) to administrative expenses is an offset representing income from the sale of excess supplies and equipment.
Finally, certain net reimbursements are made from the General Fund of the Treasury for administrative costs incurred by the Social Security Administration in performing certain legislatively mandated activities that are not directly related to the OASI program. These reimbursements include the costs associated with union activities related to administering the OASI program and providing information to participants in certain pension plans. Such reimbursements totaled $4 million in 2007.
The assets of the OASI Trust Fund at the end of calendar year 2007 totaled $2,023.6 billion, consisting of $2,024.4 billion in U.S. Government obligations and, as an offset, an extension of credit amounting to $0.8 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 2007 was 5.2 percent, as compared to 5.3 percent earned during calendar year 2006. Table VI.A5, presented in Appendix A, shows a detailed listing of OASI Trust Fund holdings by type of security, interest rate, and year of maturity at the end of each year 2006 and 2007.
All securities held by the trust funds are backed by the full faith and credit of the United States Government, as required by law. 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 on a daily basis for 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 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, 2007, with an interest rate of 5.000 percent, were selected so that the maturity dates of the total portfolio of special issues were spread evenly over the 15-year period 2008-22. The amount of bonds purchased on June 30, 2007 is shown in table III.A7.
A statement of the income and disbursements of the Federal Disability Insurance Trust Fund in calendar year 2007, and of the assets of the fund at the beginning and end of the calendar year, is presented in table III.A2.
Net contributions amounted to $95.2 billion, an increase of 4.9 percent from the amount in the preceding calendar year. This increase is attributable to the same factors, insofar as they apply to the DI program, which accounted for the change in contributions to the OASI Trust Fund.
Of the $98.8 billion in total disbursements, $95.9 billion was for net benefit payments. Excluding the $3.3 billion interfund transfer due to the trust fund allocation error, net benefit payments would have been $99.1 billion. This amount represents an increase of 7.3 percent over the corresponding adjusted amount ($92.4 billion) of benefit payments in calendar year 2006. 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. However, the number of persons receiving benefits from the DI Trust Fund increased more rapidly in 2007 than the number receiving benefits from the OASI Trust Fund largely due to a) the current ages of the baby-boom generation, b) the recent increase in the normal retirement age (NRA), and c) the special administrative action, undertaken by SSA beginning in 2001, to identify and award benefits from the DI Trust Fund to a substantial number of current and former recipients of SSI benefits whose disability insured status under the DI program was not previously recognized. Total DI disbursements, which started to exceed non-interest income in 2005, continue to exceed such income in 2007. However, as in 2005 and 2006, total DI income (including interest) in 2007 exceeds total disbursements.
The assets of the DI Trust Fund at the end of calendar year 2007 totaled $214.9 billion, consisting of $215.0 billion in U.S. Government obligations and, as an offset, an extension of credit amounting to $0.2 billion against securities to be redeemed within the following few days. The effective annual rate of interest earned by the assets of the DI Trust Fund during calendar year 2007 was 5.3 percent, as compared to 5.4 percent earned during calendar year 2006. Table VI.A6, presented in Appendix A, shows a detailed listing of DI Trust Fund holdings by type of security, interest rate, and year of maturity at the end of each year 2006 and 2007.
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.A3. The entries in this table represent the sums of the corresponding values from tables III.A1 and III.A2. 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.
To provide a context for estimates of future trust fund income and expenditures provided later in this report, table III.A4 compares past estimates of contributions and benefit payments for calendar year 2007, as shown in the 2003-07 Annual Reports, with the corresponding actual amounts in 2007.
4
A number of factors can contribute to differences between estimates and subsequent actual amounts, including actual values for key demographic, economic, and other variables that differ from assumed levels. In addition, new legislation or other administrative initiatives that were unanticipated at the time the earlier estimates were completed can contribute to such differences.
At the end of calendar year 2007, about 49.9 million persons were receiving monthly benefits under the OASDI program. Of these persons, about 40.9 million and 8.9 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 1.1 percent and 3.5 percent, respectively, during the calendar year. The estimated distributions of benefit payments in calendar years 2006 and 2007, by type of beneficiary, are shown in table III.A5 for each trust fund separately.
Net administrative expenses charged to the OASI and DI Trust Funds in calendar year 2007 totaled $5.5 billion. This amount represented 0.8 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.A6 for each of the last 5 years.
Changes in the invested assets of the OASI and DI funds between the end of 2006 and the end of 2007 are a result of the acquisition and disposition of securities during calendar year 2007. Table III.A7 presents these investment transactions for each trust fund separately and combined.
