Social Security Trust Fund

Definition: The Social Security Trust Fund is actually a combination of two funds: the Old-Age and Survivors Insurance (OASI) and the Disability Insurance (DI) Trust Funds, managed by the Department of the Treasury. The Fund provides an accounting mechanism for tracking all income, which comes primarily from payroll taxes and disbursements, and holds the assets. Payroll tax income is exchanged for "special-issue" securities, which are like Treasury bonds, which are held in the Fund. The payroll tax income itself goes into the General Fund. The "special-issue" securities are redeemed by the Treasury to pay each year's benefits.Since there are 3.3 workers for every beneficiary, there has been a surplus in the Fund.

However, as Baby Boomers start to retire and draw down these benefits, there will be fewer workers to support them. By 2040, the Social Security Trust Fund will be depleted and, instead of a surplus, there won't be enough revenue from payroll taxes to cover the benefits.

Different proposals are being developed to restore solvency. They require either a decrease in benefits paid, an increase in taxes or an increase in debt. Since the debt is already unsustainable, policy makers must choose between the remaining two, unpopular evils. As a result, no real changes to restore the solvency of the Social Security Trust Fund have been implemented.

A Board of Trustees oversees the financial operations of the trust funds. The Board reports annually to the Congress on the financial and actuarial status of the trust funds. (Source: SocialSecurityOnline, (Trust Fund FAQ)