Popular Social Security Loopholes Closed in Recent Budget Act
By Mark Johnson, Ph.D., J.D.
Social Security claims strategies that gained popularity among married couples are being eliminated under the recent Bipartisan Budget Act of 2015. Recognized by Congress as “unintended loopholes,” the claims tactics resulted in increased benefits for couples in retirement.
One way to increase Social Security benefits by married couples who are both still working at age 66 or older is a technique known as double claiming. Under this strategy, one of the working partners files to collect Social Security benefits worth half of the higher earner’s benefit amount. This allows the lower earning spouse to defer their own benefit, which then increases in value for every year deferred. When the lower earner does collect on their benefit, they enjoy a higher benefit payment.
The ability to use the double claim approach is changing after December 31, 2015. Social Security recipients who turn 62 in 2016 or later will be considered to be filing for their own benefit in regard to the determination of deferment.
Another technique known as “file and suspend” is being eliminated as of May 2016. Under this claims strategy, a Social Security recipient could file for payment of benefits and then immediately suspend the benefits. As the previous rules were written, however, a spouse and even some dependent children could collect benefits despite the suspension status of the Social Security member’s account.
Beginning in May 2016, the ability for a spouse or dependent to receive benefits on a suspended account will no longer be available. A Social Security member will still be able to suspend their benefits, and in doing so will accrue a higher payment when they ultimately resume collecting benefits.
The file-and-suspend was initially intended to help participants who started to collect benefits, and then decided to return to work. While working, the ability to suspend benefits allowed the recipient to take advantage of receiving a higher benefit level at a future date. It became clear, however, that the spousal and dependent benefit was resulting in significantly higher than expected costs to the Social Security Fund.
There are several benefits that will remain available to Social Security participants, including:
• For married couples with a significant earnings disparity, the lower earner can file to receive up to 50 percent of the higher earner’s benefit level.
• Surviving spouses will continue to inherit their deceased partner’s Social Security benefit level, if it is higher than their own.
• All Social Security recipients can increase their monthly benefit level by deferring payment, up to age 70.
Full retirement age under Social Security, defined as the age at which a person may first become entitled to full or unreduced retirement benefits, is currently 66. Beginning in 2000, the Social Security Administration began a 22-year transition period during which the full retirement age is increasing from the former level of 65 to age 67.
A person who defers their benefit past full retirement age will receive an 8% increase annually, for every year of deferment up to age 70. Age 62 is the earliest point at which a person can begin to collect Social Security. Early filers receive 75% of the amount they would earn at full retirement age, in order to spread the earned benefit over a longer period of time.
The Social Security rules are very complicated. Additional information is available from the Social Security Administration’s website, or personal financial planners.
ABOUT THE AUTHOR: Mark Johnson, J.D., Ph.D. Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances.
ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.
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