The SS Trust Fund has always operated the same way since the inception under FDR. Contributions are converted into interest bearing, non-market T-bills. As far as SS is concerned, these T-bills are the same as those held by the Chinese and are backed by the full faith and credit of the US.
By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds.
In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash.
However, in terms of the USG, the SSTF represents an unfunded liability and is part of the $17.3 trillion national debt and is held under "Intragovernmental Holdings" as distinct from the publicly held debt. All trust funds are treated similarly including the HI (Medicare) and federal employee pension funds.
JFK was the first to break open the piggy bank hand help himself.
This is a myth. The Social Security Trust Fund was created in 1939 as part of the Amendments enacted in that year. From its inception, the Trust Fund has always worked the same way. The Social Security Trust Fund has never been "put into the general fund of the government."
Most likely this myth comes from a confusion between the financing of the Social Security program and the way the Social Security Trust Fund is treated in federal budget accounting. Starting in 1969 (due to action by the Johnson Administration in 1968) the transactions to the Trust Fund were included in what is known as the "unified budget." This means that every function of the federal government is included in a single budget. This is sometimes described by saying that the Social Security Trust Funds are "on-budget." This budget treatment of the Social Security Trust Fund continued until 1990 when the Trust Funds were again taken "off-budget." This means only that they are shown as a separate account in the federal budget. But whether the Trust Funds are "on-budget" or "off-budget" is primarily a question of accounting practices--it has no affect on the actual operations of the Trust Fund itself.
Semantics and spin is what we got here. We may never know the truth.