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Type of trust fund in the United States

The Federal Old Age and Survivors Insurance Trust Fund and Federal Disability Insurance Trust Fund (collectively, the Social Security Trust Fund or Trust Funds) are trust funds that provide for payment of Social Security (Old Age, Survivors, and Disability Insurance; OASDI) benefits administered by the United States Social Security Administration. The Social Security Administration collects payroll taxes and uses the money collected to pay Old Age, Survivors, and Disability Insurance benefits by way of trust funds. When the program runs a surplus, the excess funds increase the value of the Trust Fund. As of 2021, the Trust Fund contained (or alternatively, was owed) $2.908 trillion. The Trust Fund is required by law to be invested in non marketable securities issued and guaranteed by the "full faith and credit" of the federal government. These securities earn a market rate of interest. Excess funds are used by the government for non Social Security purposes, creating the obligations to the Social Security Administration and thus program recipients. However, Congress could cut these obligations by altering the law. Trust Fund obligations are considered "intra governmental" debt, a component of the "public" or "national" debt. As of December 2022 (estimated), the intragovernmental debt was $6.18 trillion of the $31.4 trillion national debt. Of this $6.18 trillion, $2.7 trillion is an obligation to the Social Security Administration. According to the Social Security Trustees, who oversee the program and report on its financial condition, program costs are expected to exceed non interest income from 2010 onward. However, due to interest (earned at a 3.6% rate in 2014) the program will run an overall surplus that adds to the fund through the end of 2019. Under current law, the securities in the Trust Fund represent a legal obligation the government must honor when program revenues are no longer sufficient to fully fund benefit payments. However, when the Trust Fund is used to cover program deficits in a given year, the Trust Fund balance is reduced. One projection scenario estimates that, by 2034, the Trust Fund could be exhausted. Thereafter, payroll taxes are projected to only cover approximately 76% of program obligations. There have been various proposals to address this shortfall, including: reducing government expenditures, such as by raising the retirement age; tax increases; and, borrowing.

The Board of Trustees of the Trust Funds is composed of six members: The Managing Trustee is responsible for investing the funds, which has been delegated to the Bureau of the Fiscal Service.

The Social Security system is primarily a pay as you go system, meaning that payments to current retirees come from current payments into the system. The program was initially established in 1935 in response to the Great Depression. The first to file for Social Security was Ida Mae Fuller in 1940. Fuller paid $24.75 in taxes during her three years working under the social security program, and drew an aggregate of $22,889 in benefits before passing at age 100. This represents a ratio of $925 in benefits for every dollar she paid into the program. In 1977, President Jimmy Carter and the 95th Congress increased the FICA tax to fund Social Security, phased in gradually into the 1980s. In the early 1980s, financial projections of the Social Security Administration indicated near term revenue from payroll taxes would not be sufficient to fully fund near term benefits (thus raising the possibility of benefit cuts). The federal government appointed the National Commission on Social Security Reform, headed by Alan Greenspan (who had not yet been named Chairman of the Federal Reserve), to investigate what additional changes to federal law were necessary to shore up the fiscal health of the Social Security program. The Greenspan Commission projected that the system would be solvent for the entirety of its 75 year forecast period with certain recommendations. and pursuant to the recommendations of the Greenspan Commission advanced the time frame for previously scheduled payroll tax increases (though it raised slightly the payroll tax for the self employed to equal the employer employee rate), changed certain benefit calculations, and raised the retirement age to 67 by the year 2027. As of the end of calendar year 2010, the accumulated surplus in the Social Security Trust Fund stood at just over $2.6 trillion. Social Security benefits are paid from a combination of social security payroll taxes paid by current workers and interest income earned by the Social Security Trust Fund. According to the projections of the Social Security Administration, the Trust Fund will continue to show net growth until 2022 because the interest generated by its bonds and the revenue from payroll taxes exceeds the amount needed to pay benefits. After 2022, without increases in Social Security taxes or cuts in benefits, the Fund is projected to decrease each year until being fully exhausted in 2034. At this point, if legislative action is not taken, the benefits would be reduced.

In 2011 and 2012, the federal government temporarily extended the reduction in the employees' share of payroll taxes from 6.2% to 4.2% of compensation. The resulting shortfall was appropriated from the general Government funds. This increased public debt, but did not advance the year of depletion of the Trust Fund.

Joe Biden's campaign platform proposed new payroll taxes for those making $400,000 or more per year (but after taking office, his tax proposal included only Medicare tax changes).

The Trust Fund represents a legal obligation of the federal government to program beneficiaries. Under current law, when the program goes into an annual cash deficit, the government has to seek alternate funding beyond the payroll taxes dedicated to the program to cover the shortfall. This reduces the trust fund balance to the extent this occurs. The program deficits are expected to exhaust the fund by 2034. Thereafter, since Social Security is only authorized to pay beneficiaries what it collects in payroll taxes dedicated to the program, program payouts will fall by an estimated 21%. The trust fund is expected to peak in 2021 at approximately $3.0 trillion. Debate regarding whether the proper debt to GDP ratio for evaluating U. S. credit risk is the "debt held by the public" or "total debt" (i. e., debt held by the public plus intragovernmental debt) will be rendered moot, as the amounts will converge substantially. On the other hand, if other parts of the budget are in surplus and program recipients can be paid from the general fund, then no additional debt need be issued. However, this scenario is highly unlikely.

Some commentators believe that whether the trust fund is a fact or fiction comes down to whether the trust fund contributes to national savings or not. If $1 added to the fund increases national savings, or replaces borrowing from other lenders, by $1, the trust fund is real. If $1 added to the fund does not replace other borrowing or otherwise increase national savings, the trust fund is not "real". Some economic research argues that the trust funds have led to only a small to modest increase in national savings and that the bulk of the trust fund has been "spent". Others suggest a more significant savings effect.