2002 OASDI Trustees Report

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

A. OPERATIONS OF THE OLD-AGE AND SURVIVORS INSURANCE (OASI) AND DISABILITY INSURANCE (DI) TRUST FUNDS, IN CALENDAR YEAR 2001

Detailed information on the operations of the OASI and DI Trust Funds¹ during calendar year 2001 is presented in this section. Section IV.A provides projections for calendar years 2002-11.

1. OASI Trust Fund

A statement of the income and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund in calendar year 2001, and of the assets of the fund at the beginning and end of the calendar year, is presented in table III.A1. Included in total receipts during calendar year 2001 were $444.1 billion in employment tax contributions. These contributions were partially offset by transfers totaling $2.7 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 total earnings in excess of the contribution and benefit base.

In addition, $7 million was received from the General Fund of the Treasury representing partial payment for the taxes that were payable on estimated deemed wage credits for military service in 2001. The remainder of the amount that should have been received totals $264 million. This amount, together with the remainder of the amount that should have been received for deemed wage credits based on military service in 2000 ($219 million) totals $482 million. Estimates presented later in this report do not include receipt of this total amount because no date has been set for the transfer. Although recent legislation eliminated deemed wage credits for military service after 2001, current law still requires payments for military service through 2001 and periodic adjustments for 1984-2001 to the extent that estimated amounts differ from actual wage credits.

Net contributions thus amounted to $441.5 billion, an increase of 4.8 percent over the amount in the preceding year. The increase in OASI tax contributions from calendar year 2000 to calendar year 2001 is due to increased earnings and the increases in the contribution and benefit base that became effective on January 1 of each year 2000 and 2001. (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 $11.9 billion in 2001. Nearly 99 percent represented 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 represented amounts withheld from the benefits paid to nonresident aliens.

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

The OASI Trust Fund was credited with interest netting $64.7 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 $1,400 of receipts consisted of gifts received under the provisions authorizing the deposit of money gifts or bequests in the trust funds.

Of the $377.5 billion in total disbursements, $372.3 billion was for net benefit payments. The amount of net benefit payments in calendar year 2001 represents an increase of 5.6 percent over the corresponding amount in calendar year 2000. This increase is due primarily to (1) the automatic cost-of-living benefit increase of 3.5 percent which became effective for December 2000 under the automatic-adjustment provisions in section 215(i) of the Social Security Act, (2) an increase in the total number of beneficiaries, (3) an increase in the average benefit amount, and (4) an adjustment to the December 1999 benefit increase, effectively changing that increase from 2.4 percent to 2.5 percent, reflected in August 2001 benefit payments.

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 $3.3 billion to the Social Security Equivalent Benefit Account from the OASI Trust Fund was required in June 2001.

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 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.

The vast majority of OASI disbursements recorded as administrative expenses represent the cost of administering the program and are charged to the trust fund by the Social Security Administration ($1.7 billion in 2001). In addition, the Department of the Treasury charges directly to the trust fund certain expenses that it incurs in helping to administer the OASI program ($229 million in 2001). Finally, there are some relatively small adjustments which reduced total administrative expenses by $8 million in 2001. The first of these adjustments is an offset ($3 million in 2001) representing income from the sale of excess supplies and equipment. The second adjustment represents net reimbursements 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. Such reimbursements totaled $5 million in 2001.

The assets of the OASI Trust Fund at the end of calendar year 2001 totaled $1,071.5 billion, consisting of $1,071.8 billion in U.S. Government obligations and, as an offset, an extension of credit amounting to $0.3 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 2001 was 6.7 percent, as compared to 6.9 percent earned during calendar year 2000. Table III.A2 shows the total assets of the fund and their distribution at the end of each calendar year 2000 and 2001.

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 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, 2001, were selected so that the maturity dates of the total portfolio of special issues were spread evenly over the 15-year period 2002-16. The amount of bonds purchased on June 30, 2001 is shown in table III.A9.

2. DI Trust Fund

A statement of the income and disbursements of the Federal Disability Insurance Trust Fund in calendar year 2001, and of the assets of the fund at the beginning and end of the calendar 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 $58 million 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 $74.9 billion, an increase of 5.4 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, that accounted for the change in contributions to the OASI Trust Fund.

Of the $61.4 billion in total disbursements, $59.6 billion was for net benefit payments. This represents an increase of 8.4 percent over the corresponding amount of benefit payments in calendar year 2000. 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 2001 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 calendar year 2001 totaled $141.0 billion, consisting of $140.9 billion in U.S. Government obligations and cash totaling $46 million. The effective annual rate of interest earned by the assets of the DI Trust Fund during calendar year 2001 was 6.5 percent, compared to 6.6 percent earned during calendar year 2000. Table III.A4 shows the total assets of the fund and their distribution at the end of each calendar year 2000 and 2001.

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 calendar year 2001, as shown in the 1997-2001 Annual Reports, with the corresponding actual amounts in 2001.

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. 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 2001 were larger than estimated for the 1998-2000 reports.

At the end of calendar year 2001, about 45.9 million persons were receiving monthly benefits under the OASDI program. Of these persons, about 39.0 million and 6.9 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 0.6 percent and 3.6 percent, respectively, during the calendar year. The estimated distribution of benefit payments in calendar years 2000 and 2001, 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 calendar year 2001 totaled $3.7 billion. This amount represented 0.7 percent of contribution income and 0.8 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 calendar years 2000 and 2001. The changes in the invested assets of the funds between those two dates are a result of the acquisition and disposition of securities during calendar year 2001. 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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