2005 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 2004

Detailed information on the operations of the OASI and DI Trust Funds1 during calendar year 2004 is presented in this section. Chapter IV provides projections for calendar years 2005-79.

1. OASI Trust Fund

A statement of the income and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund in calendar year 2004, 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 2004 were $473.3 billion in employment tax contributions. These contributions were partially offset by transfers totaling $1.2 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.

Tax revenues that should have been received by the trust fund in 2000 and 2001, based on estimated deemed wage credits for military service prior to 2002, have been paid in full. Public Law 108-203 provided that the trust funds be compensated for these taxes plus an adjustment for interest lost due to the delay in remitting the taxes. The total amount of the compensation to the OASI Trust Fund includes adjustments for actual data for years 1983-2001, and was specified in the legislation to be $625 million.2

Net contributions thus amounted to $472.8 billion, an increase of 3.7 percent over the amount in the preceding year. The increase in OASI tax contributions from calendar year 2003 to calendar year 2004 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 $14.6 billion in 2004, an increase of about 16.8 percent from 2003. Nearly 99 percent of this income represented amounts credited to the trust funds, based on estimated Federal personal income taxation of benefits, 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 $79.0 billion, an increase of about 5 percent over 2003. Credited interest 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 $34,121 of receipts consisted of gifts received under the provisions authorizing the deposit of money gifts or bequests in the trust funds.

Of the $421.0 billion in total disbursements, $415.0 billion was for net benefit payments. The amount of net benefit payments in calendar year 2004 represents an increase of 3.8 percent over the corresponding amount in calendar year 2003. This increase was due to (1) an increase in the total number of beneficiaries and (2) an increase in the average benefit amount primarily because of the automatic cost-of-living benefit increase of 2.1 percent which became effective for December 2003 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 2004.

A disbursement of $3 million was made in 2004 to cover the costs of vocational rehabilitation services furnished to disabled widow(er) beneficiaries and to those children of retired or deceased 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.

The remaining $2.4 billion of disbursements from the OASI Trust Fund represented net administrative expenses. The expenses incurred by various Federal agencies for administering the OASDI and Medicare programs are allocated and charged directly to each of the 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 ($2.1 billion in 2004). 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 ($307 million in 2004). Finally, there are some relatively small adjustments which reduced total administrative expenses by $17 million in 2004. The first of these adjustments is an offset ($6 million in 2004) 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 $12 million in 2004.

The assets of the OASI Trust Fund at the end of calendar year 2004 totaled $1,500.6 billion (10.7 percent more than at the end of 2003), consisting of $1,500.8 billion in U.S. Government obligations and, as an offset, an extension of credit amounting to $0.1 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 2004 was 5.7 percent, as compared to 6.0 percent earned during calendar year 2003. A detailed listing of OASI Trust Fund holdings by type of security, interest rate, and year of maturity at the end of each calendar year 2003 and 2004 can be found in appendix A.

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, 2004, with an interest rate of 4.625 percent, were selected so that the maturity dates of the total portfolio of special issues were spread evenly over the 15-year period 2005-19. The amount of bonds purchased on June 30, 2004 is shown in table III.A7.

2. DI Trust Fund

A statement of the income and disbursements of the Federal Disability Insurance Trust Fund in calendar year 2004, and of the assets of the fund at the beginning and end of the calendar year, is presented in table III.A2.

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.

Net contributions amounted to $80.3 billion, an increase of 3.7 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 $80.6 billion in total disbursements, $78.2 billion was for net benefit payments. This represents an increase of 10.3 percent over the corresponding amount of benefit payments in calendar year 2003. This increase in DI benefit payments is 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 2004 than the number receiving benefits from the OASI Trust Fund largely due to a) the current ages of the baby-boom generation, b) the scheduled 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 Supplemental Security Income (SSI) benefits whose disability-insured status under the DI program was not previously recognized.

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

The assets of the DI Trust Fund at the end of calendar year 2004 totaled $186.2 billion, consisting of $186.2 billion in U.S. Government obligations and, as an offset, an extension of credit amounting to $3 million 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 2004 was 5.7 percent, compared to 5.9 percent earned during calendar year 2003. A detailed listing of DI Trust Fund holdings by type of security, interest rate, and year of maturity at the end of each calendar year 2003 and 2004 can be found in appendix A.

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.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.

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.A4 compares past estimates of contributions and benefit payments for calendar year 2004, as shown in the 2000-04 Annual Reports, with the corresponding actual amounts in 2004.3

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 previously 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. For example, in the case of DI benefit payments, the special administrative action, noted in the previous subsection and described in greater detail in the section on short-range estimates, was not yet quantified in the 2000 report. Furthermore, the size of the resulting workload and the schedule for the completion of these cases have been revised several times over the past 3 years. The evolving understanding of this special workload played a significant role in the past variation in estimates for DI benefits in 2004.

At the end of calendar year 2004, about 47.7 million persons were receiving monthly benefits under the OASDI program. Of these persons, about 39.7 million and 7.9 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 0.7 percent and 4.7 percent, respectively, during the calendar year. The estimated distributions of benefit payments in calendar years 2003 and 2004, by type of beneficiary, are shown in table III.A5 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 2004 totaled $4.5 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 2003 and the end of 2004 are a result of the acquisition and disposition of securities during calendar year 2004. Table III.A7 presents these investment transactions for each trust fund separately and combined. Tables VI.A5 and VI.A6, presented in appendix A, show the assets of the OASI and DI Trust Funds at the end of calendar years 2003 and 2004.

Note: All investments are shown at par value.

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

2This legislation also required the deposit of $105 million to the DI Trust Fund and $173 million to the Hospital Insurance Trust Fund.

3Estimated amounts used to calculate percentage errors are before rounding to amounts shown in the annual reports.

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