	Introduction

The Old-Age, Survivors, and Disability Insurance (OASDI) program provides monthly benefits to retired or disabled workers and their family members and to the family members of deceased workers. These monthly benefits constitute a substantial portion of income for a large segment of recipients. The payroll tax and the taxation of monthly benefits are major contributors to the OASDI program's revenues. Annual surpluses are not needed to cover scheduled benefits, and the money is credited to the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund, or trust funds. The OASDI Trust Funds are invested in nonmarketable U.S. government securities (government bonds), where they earn interest. This interest provides a third source of revenue to the OASDI program. The combined OASDI Trust Funds had approximately $2.9 trillion in assets at the beginning of 2018. Under current law, the trust funds' assets may be invested only in U.S. government securities issued by the Secretary of the Treasury. Although this event may never come to pass, the historically higher returns on equity investment may motivate policymakers to enact changes to the OASDI Trust Funds' investment options and practices. Current Policies and Practices3

Section 201(c) of the Social Security Act establishes the Board of Trustees of the OASDI Trust Funds and states that the Secretary of the Treasury shall be the managing trustee. 3. 4. If it is determined to be in the public interest, the managing trustee may purchase non - special issues (e.g., marketable U.S. securities) at the original or market price. The 1957-1959 Advisory Council on Social Security Financing acknowledged that the trust funds could invest in public (i.e., marketable) issues, but recommended amending the Social Security Act to allow investment in public issues only "when they will provide currently a yield equal to or greater than the yield that would be provided by the alternative of investing in special issues." In practice, the trustees have adopted two administrative policies to address this gap. Principle 1: Nonintervention in the Private Economy

The principle of nonintervention has long been recognized as important in the consideration of the trust funds' finances. The purchase or sale of large quantities of marketable government securities in the open market by the OASDI Trust Funds could cause market disruptions and appear as interference in the open market operations of the Federal Reserve. The effective interest rate is the interest earned during the calendar year on all of the securities held by the trust funds divided by the average amount of securities held by the trust funds during the year. This trend is expected to continue. For 2018, the trustees project that program costs will exceed program revenues. As a result, the council's final report recommended investing a portion of the trust funds in equities to help alleviate pressure on the OASDI program's long-term actuarial balance. Subsequent years would require similar redemptions as well. Equity Investment and Risk

Investing the trust funds' assets in equities could introduce instability to the financial markets. The higher average returns offered by equity investments are accompanied by higher risk. At the same time, the equity returns demonstrated a higher degree of volatility. These rates of return are higher than what would have been earned if the NRRIT invested solely in government securities ( Figure 1 ); prior to the act's implementation, the NRRIT was invested in government securities in much the same manner as the OASDI Trust Funds. Table 1 shows that under current law, the long-range actuarial balance is -2.84% of taxable payroll, indicating that under intermediate assumptions provided in T he 2018 Annual Report , an approximately 2.84-percentage-point increase in payroll tax rate (from current the 12.40% to 15.24%) or a comparable reduction in benefits would be needed to maintain program solvency throughout the projection period and result in a trust funds ratio of 100% at the end of the projection period. Once the trust funds are depleted, the OASDI program's cost is projected to remain greater than revenues indefinitely. The board of the NRRIT is composed of seven trustees who have expertise in financial management and pension plans. However, should Congress pass legislation to reduce the actuarial deficit, available research suggests that investing the trust funds' newly increased assets in equities could result in a higher trust funds ratio (i.e., greater solvency) than if the trust funds' assets were invested in only government bonds. Although much smaller in scale, the practices of the RRB provide a framework and history for the use of equity investment in a trust fund (see CRS Report RS22782, Railroad Retirement Board: Trust Fund Investment Practices ). This would, however, require putting aside current investment principles and methods that have guided investment practices.
The Old-Age, Survivors, and Disability Insurance (OASDI) program provides monthly benefits to retired or disabled workers and their family members and to the family members of deceased workers. These monthly benefits constitute a substantial portion of income for a large segment of recipients.
The OASDI program is financed primarily by payroll taxes on covered earnings up to an annual limit, as well as federal income taxes paid by some beneficiaries on a portion of their OASDI benefits. OASDI program revenues are invested in federal government securities held by the Federal Old-Age Survivors Insurance (OASI) and Federal Disability Insurance (DI) Trust Funds, where they earn interest. The interest earned on assets in the trust funds provides a third stream of revenue to the OASDI program.
The OASDI Trust Funds are overseen by a Board of Trustees, which is composed of six members: the Secretary of the Treasury, who is the managing trustee; the Secretary of Labor; the Secretary of Health and Human Services; the Commissioner of Social Security; and two public trustees, who are appointed by the President with advice and consent of the Senate. By law, the assets of the OASDI Trust Funds may be invested only in federal government securities issued by the Secretary of the Treasury. Although the Managing Trustee may invest in U.S. securities that are sold on the open market (marketable securities) if it is deemed in the public interest to do so, in practice, the OASDI Trust Funds' assets are invested in nonmarketable U.S. securities, known as special issues. The practice of investing solely in special issues has led the Board of Trustees to effectively adopt the principles of (1) nonintervention in the private economy, (2) security, (3) neutrality, and (4) minimal management. Although not explicitly codified in the Social Security Act, these principles have provided a framework to guide the trustees in their investment operations.
At the beginning of 2018, the trust funds reported asset reserves of around $2.9 trillion, which represents the projected peak value of the funds. The OASDI program's total costs are projected to exceed its total revenues, due largely to the aging of the baby boomers, thus requiring the trust funds to draw down their assets to pay scheduled benefits. The trustees expect this trend to continue indefinitely, with the trust funds' reserves reaching depletion in 2034. To extend the trust funds' solvency, some argue the trust funds' assets should be invested in equities (i.e., stocks sold on the open market). The main argument for this approach is that equities have historically produced higher rates of return, on average, than U.S. securities, which are the trust funds' only investment option under current law. Proposals favoring equity investment seek to earn higher rates of return for the trust funds than provided by special issues. However, the higher average rates of return associated with equity investing come with more risk. Investing the trust funds in equities would expose them to a higher degree of volatility than the current investment practices.
The trustees estimate that bringing OASDI program revenues into balance with program costs would require an immediate permanent increase of 2.78 percentage points in the payroll tax rate, from 12.40% to 15.18%, a permanent reduction in benefits of about 17%, or some combination of the two approaches. Although investing in equities may result in a higher return on the trust funds' assets, such a proposal would, by itself, have little effect on the program's long-term outlook, and it would have budgetary implications by requiring the immediate liquidation of the trust funds' existing assets. Because the trust funds are projected to be depleted in 2034 and because costs are expected to exceed revenues indefinitely, any proposal to invest the trust funds' asset in equities without first bringing the OASDI program into balance would result in little change to the program's solvency. Should Congress pass legislation that reduces the actuarial deficit, research indicates that including equity in the trust funds' investment practices could improve the program's financial position. This practice, if enacted, would disregard several of the trust funds' investment principles.