Social Security: The House that Roosevelt Built

24 Pages Posted: 21 Jul 2011

See all articles by Pamela J. Perun

Pamela J. Perun

Women’s Institute for a Secure Retirement

Patricia Dilley

University of Florida Levin College of Law; National Academy of Social Insurance (NASI)

Date Written: July 21, 2011

Abstract

Critics of the Social Security program are fond of disparaging it as a “Ponzi” scheme or as a redistributive transfer of income from the young to the old. Others go even further, labeling the Social Security trust fund as a fiction or claiming the program is bankrupt. Some also suggest that the government bonds held in the trust fund are mere IOUs. Still others say that the program’s legal basis is ephemeral, subject to the whims of Congress.

These assertions are untrue. This brief sets the record straight on Social Security on the following points: • Social Security is neither a “Ponzi scheme” nor an income transfer program from the young to the old. • Social Security is a pension plan in the form of a defined benefit plan. • Like most other defined benefit plans, contributors earn a right to a benefit paid at retirement based on their earnings.

• The Social Security trust is a valid trust, and the trust fund is invested as required by law. • By law, contributions are held in a trust. • Trust assets not needed to pay current benefits and costs are invested to increase revenues to pay for future benefits. • Federal law requires trust assets to be invested in the safest possible investment: special government bonds backed by the full faith and credit of the United States government. • The bonds held by the Social Security trust are entitled to the same legal status and repayment rights as other full faith and credit obligations of the United States.

• Social Security’s financial status is strong, and the program is not a major contributor to the long-term federal deficit. • Social Security’s trust holds $2.4 trillion in assets for retirement benefits alone. • The program is projected to be able to pay 100% of scheduled benefits for the next 25 years. After 2036, non-interest income is sufficient to pay approximately 77% of scheduled benefits for decades, and 74% of scheduled benefits in 2085.

Suggested Citation

Perun, Pamela and Dilley, Patricia, Social Security: The House that Roosevelt Built (July 21, 2011). Available at SSRN: https://ssrn.com/abstract=1891885 or http://dx.doi.org/10.2139/ssrn.1891885

Pamela Perun (Contact Author)

Women’s Institute for a Secure Retirement ( email )

1140 19th Street, N.W. Suite 550
Washington, DC 20036
United States

Patricia Dilley

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States
352-392-2270 (Phone)
352-392-7647 (Fax)

National Academy of Social Insurance (NASI)

1776 Massachusetts Avenue, NW
Suite 615
Washington, DC 20036-1904
United States

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