First Report of the Trustees of the Social Security Trust Fund: 1941

for the longest time the earliest Annual Report of the Social Security Trustees readily available was that of the second Report in 1942 and that only in a fairly clumsy PDF format that doesn’t allow my browser to cut and paste (though I can from most PDFs). But the fine people (no snark) at made the 1941 Report available recently in HTML. And in the course of that dispel some myths about the origins of the Trust Fund which contrary to a certain strain of opinion was not a product of the 1983 legislation. Follow the link in the title or check out the excerpts under the fold. All from the actual text of the Report transmittal to Congress.

Update: Dan here…Paul Krugman comments in Conscience of a Liberal on this post.

The Federal old-age and survivors insurance trust fund was created pursuant to section 201 of the Social Security Act Amendments of 1939, approved August 10, 1939. This trust fund became effective on January 1, 1940, and superseded the old-age reserve account established under the Social Security Act of 1935. The trust fund is held by a Board of Trustees composed of the Secretary of the Treasury, the Secretary of Labor, and the Chairman of the Social Security Board, all ex officio. The trust fund so held is available for the payment of old-age annuities and survivors insurance benefits and the necessary expenditures incurred by the Social Security Board and the Treasury Department in the administration of the program. The Secretary of the Treasury is designated as the Managing Trustee.

Resources made available to the trust fund included the securities held by the Secretary of the Treasury for the old-age reserve account, accounts standing to the credit of the old-age reserve account on the books of the Treasury as of January 1, 1940, and interest on the investments. The appropriation to the trust fund for the fiscal year ending June 30, 1941, and for each fiscal year thereafter, are required by section 201 of the Social Security Act, as amended, to be equivalent to 100 percent of the taxes (including interest, penalties, and additions to taxes) received under the Federal Insurance Contributions Act and covered into the Treasury. Interest on and proceeds from the sale or redemption of any securities held by the trust fund are required to be credited to the fund.

i.e. receipts from FICA and any interest on the Trust Funds are not fungeable, they are required to be credited to the Trust Fund.

The old-age and survivors insurance trust fund provides a financial margin of safety for the system against the first impacts of unforeseen changes in the upward trend of disbursements as well as against these short-term fluctuations and contingencies. At the end of June 1940 approximately 50 million persons already held social security account numbers and about 42 million workers had made contributions toward benefits under the system. In the future, millions of additional workers will come under the program as they obtain jobs in covered employments. Most of the rights now being accumulated toward benefits by these contributors and insured workers will not mature for many years. Consequently, benefits under the program are expected to increase markedly over a long period. This results from the fact that larger numbers of workers will be eligible and will qualify for benefits and from the expectation that the proportion of the population in ages 65 and over, estimated at 7 per-cent in 1940, may eventually rise to perhaps 14 to 16 percent. Hence the essential assurance of future financial soundness of the system, with its rising rate of disbursement, rests on a graduated increase in contribution rates or provision of income from other sources, or both.

It is a reserve fund. And increases in contribution rates were anticipated right from the beginning, the common belief that FDR promised that rates would never go up being simple after the fact bullshit. And the growth in beneficiary population over time equally anticipated.

During the period January 1 to June 30, 1940, new investments amounting to $324.9 million were made for the fund and securities amounting to $22.0 million were redeemed as required to meet current withdrawals for benefit payments and administrative expenses. The new investments were in the form of special old-age and survivors insurance trust fund notes bearing 2.5 percent interest. As a result of these transactions the average interest rate on investments of the trust fund was 2.91 percent on June 30, 1940.

The assets of the old-age and survivors insurance trust fund as of June 30, 1940, were $1,744.7 million.

The Trust Fund has ALWAYS been invested in Special Treasuries designated for that purpose.