In a landmark ruling on June 26, 2015, the Supreme Court ruled (in a 5-4 decision) that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional. As such, the Supreme Court ruling makes same-sex marriage a legal right nationwide.
This ruling by the Supreme Court clearly has wide reaching implications. With respect to Social Security benefits specifically, this ruling has significant implications for same-sex couples. The Social Security Administration (SSA) is no longer prevented from recognizing same-sex marriages in determining entitlement to Social Security benefits or eligibility for Supplemental Security Income (SSI) payments. As we speak, the Social Security Administration (SSA) is working closely with the Department of Justice to develop and implement additional policy and processing instructions to provide same-sex couples access to all the same benefits as heterosexual couples.
If you are a same-sex couple and believe you may be eligible for retirement, spousal or survivors benefits, the SSA encourages you to apply now to protect you against the loss of any potential benefits. By applying for eligible benefits now you can secure your filing date and, as such, settlement of any claims will go back to that filing date.
The decision on same-sex marriage that was just handed down by the Supreme Court has seismic implications for what's right and fair and good for married couples who love each other, are committed to each other and who also happen to be gay. Supreme Court Justice Anthony Kennedy wrote for the majority in this historic decision. Marriage is a "keystone of our social order", Justice Kennedy said, adding that the plaintiffs in this case were seeking "equal dignity in the eyes of the law". With that, same-same couples will now be eligible for all benefits available to any married couple.
As I wrote in my blog just two short weeks ago, it was time for all 50 states to recognize the rights and privileges of same sex couples and to provide them with all the social security benefits afforded heterosexual couples. Well, that day has arrived! It's more than just a civil rights victory for same-sex couples across the country, it's also an important financial win. In some cases, as with heterosexual couples, social security spousal and survivor benefits may be a lifeline keeping couples and surviving spouses from a life of poverty.
The Supreme Court on this same day in 2013 struck down a law that prevented the federal government from recognizing same-sex marriage. But same-sex marriage was still banned in 13 states: Arkansas, Kentucky, Georgia, Louisiana, Michigan, Mississippi, Missouri, North Dakota, South Dakota, Nebraska, Ohio, Texas and Tennessee. However, once this latest Supreme Court's ruling takes effect in two weeks, those states must also recognize same-sex couples who were married in a state where it was already legal. Those states must also issue marriage licenses to couples who want to get married now.
With the Supreme Court's decision recognizing same-sex marriage as a constitutional right, those couples will be able to use the same Social Security income maximization strategies available to heterosexual couples. These strategies include spousal, ex-spousal, disability and survivor benefits which can result in significant increases in lifetime social security benefits. The New York Times estimated that, before this Supreme Court ruling, a same-sex couple would receive anywhere from $41,000 - $468,000 in reduced benefits when compared to a heterosexual couple! Clearly, this is an enormous win, financially and otherwise, for same-sex couples.
This is not just a great day for same-sex couples in America. The Supreme Court ruling sends a signal to the world that America is a country where the goals of equality, dignity, fairness and justice apply to all Americans. Confirming the legal right to marry under the law also affords same-sex couples with the financial rights and benefits within the social security system that they paid into and will likely need in navigating the economic challenges of retirement; the same challenges faced by all Americans who are approaching or are in retirement today.
The general perception in the marketplace is that for successful people who have accumulated a large amount of savings, social security is an insignificant part of their retirement income. Some people may even surmise that social security is such a minimal component of a wealthier person's retirement income that some may not even bother to file for their eligible benefits. As it turns out, social security represents one of the largest single components of an affluent person's retirement income!
According to a 2014 study by Vanguard, a financial services powerhouse, the two largest components of retirement income for the affluent were social security and good old pensions. Surprisingly, it was not from large portfolios of stocks and bonds or other investments.
In this Vanguard study of over 2,600 households, the median income of the group (age 60-79) was $69,500 with median financial assets of $395,000. (The value of their home was excluded). They found that nearly half the aggregate wealth of these households came from the two mothers of guaranteed income programs, social security (28 percent) and traditional defined-benefit pensions (20%).
The median annual income from these households includes $22,000 from social security, with an additional $20,000 from pensions. Tax-deferred retirement accounts came in third (among those who have them) at $13,000.
There is no question that these percentages will gradually change in the coming years, especially with the significant decline in the percentage of the population who will have a defined benefit plan as part of their retirement assets. Most corporations have shifted from defined benefit plans to 401(k) plans in an effort to save money. In doing so, however, they have transferred the risk and responsibility for securing retirement income from the corporation to their employees, many of whom are ill equipped to take on this challenge.
A large portion of income in retirement for the wealthy comes from another surprising source. Work! Twenty nine percent of affluent retirees get some income from employment, with a median annual income of $24,600. For households more reliant on retirement accounts for income, the rate of labor force participation was even higher at 40%. It is likely that the trend to work longer and deeper into retirement will continue to increase as life expectancies continue to increase and the cost to finance a potentially longer retirement also increases.
Clearly, for both the affluent and the not so affluent, social security has become an increasingly important component of retirement income planning. It is likely the largest, if not the only, pension plan that new and certainly future retirees have. It provides guaranteed lifetime income and is also one of the few income sources in retirement that offers a hedge against inflation, given that it provides cost of living adjustments.
As people strive to meet the financial challenges of retirement, the need to fully understand one's social security options and the many ways one can potentially maximize their eligible benefits becomes even more important, if not critical. Unfortunately, social security is an enormously complex program governed by over 2,700 rules. A typical couple could have as many as 567 possible filing options. It's no wonder that over 90% of filers receive less money from social security then they are entitled to.
Today, social security supports over 60 million people and the numbers are expected to continue to grow as the population ages. What is also clear is that the importance of social security in one's retirement also continues to grow whether you are affluent or otherwise. Leaving money on the table should not be an option. Since social security agents are prohibited from offering advice it makes good sense to seek out a specialist in social security planning to help ensure that you receive all the benefits you are entitled to.
The New Jersey Law Journal just published an article which I co-authored on Social Security & Divorce. You can check it out here: Social Security Considerations in Divorce
Like many issues involving conflicts between state laws, federal laws and the related on-going legal proceedings, social security is currently caught up in a political and legal quagmire. The issue at hand pertains to social security benefits for same-sex couples.
On June 26, 2013, the U.S. Supreme Court ruled in the "Windsor case" that a ban on federal benefits for gay couples, enacted under the Defense of Marriage Act ("DOMA), was unconstitutional. As a result, same-sex marriages were recognized under the law and, for purposes of social security benefits, all claims filed on or after that date (including pending claims) would be governed by the Windsor rules. Same-sex couples would be eligible for the same benefits available to heterosexual couples.
So it's settled then, right? Not so fast. At present, 37 states have legalized same-sex marriage but 13 have still banned it. Given that social security is a "federal" and not a "state" program surely same-sex couples anywhere in the U.S. should be afforded the right to receive all federal benefits, including social security, which the Supreme Court just approved, correct? Apparently that is not the case.
Although social security is a federal program it is administered at the state level. In those states where same-sex marriage is not "yet" legal, applications for benefits by same-sex couples are not being processed. The U.S. Attorney General's office is actively working to change that and will persist until all states recognize and process social security benefits which same-sex couples are entitled to under federal law.
So what happens today if a same-sex couple applies for social security spousal benefits? Well, it depends. For example, let's assume Robert and Michael were married in MA (a state that recognizes gay marriage) and they are domiciled in MA when Robert files for spousal benefits off of Michael's record. Assuming they otherwise meet all the criteria for spousal benefits, then Robert will receive social security spousal benefits off of his spouse Michael's record.
However, if Robert and Michael (who were legally married in MA) moved to Texas (a state which still does not recognize gay marriage) and filed for social social security spousal benefits in Texas, while domiciled in Texas, they would not receive these benefits. Even though they meet all other criteria for entitlement, the social security administration in Texas will hold the claim since they were domiciled, at the time of filing, in a state that does not recognize same-sex marriage.
It's important to note, however, that same-sex couples who are domiciled in a state that does not currently recognize same-sex couples should still file for benefits in order to establish the date of their request. This way, if (and most likely "when") those states were to subsequently recognize same-sex marriage, couples could petition for back benefits based on their filing date.
There remains much confusion and likely inconsistent enforcement of the rules surrounding same-sex benefits. For example, assume Mary and Helen were married in New York, a state that recognizes same-sex marriage. At full retirement age, while domiciled in New York, Mary files for spousal benefits on Helen's record. However, while the application is pending, Mary and Helen move to Texas and become domiciled in Texas, a state which still does not recognize same-sex marriage. Will Mary receive her otherwise eligible social security spousal benefits? Yes, Mary's claim will be approved because when it was filed Mary and Helen were domiciled in a state (New York) which recognizes same-sex marriage. The date of filing in New York is the date used to determine month of entitlement.
Although the highest court in the land has already recognized the legal validity of same-sex marriage, the battle to enforce the rights and privileges for same-sex couples continues on even in the social security system, one of the largest and most vital of federal entitlement programs. Same-sex couples share the same financial issues and challenges in retirement and have paid into the system in the same manner as heterosexual couples. They should be afforded the same rights and privileges due any legally eligible beneficiary in the social security system. It's time for all states to enforce the legal rights and privileges of all eligible recipients of social security benefits as was clearly stated and mandated by the Supreme Court.
Social security is arguably the most robust pension program ever created. Not only does it provide guaranteed lifetime retirement benefits which are enhanced by cost of living (COLA) adjustments but it also provides benefits for spouses, divorced spouses, widows/widowers, children, children in care and disabled workers. On the other hand, the complexity of the program rivals that of the tax code. Social security is governed by over 2,700 rules which are written in a cryptic style that most CPA's and attorneys would struggle to decipher.
This complexity can often times work against you when you have a dispute over benefits with social security. If you go into a social security office to file for a benefit you believe you are eligible for, but are told that you are not, what recourse do you have? Well, you can file to have your request reviewed by a supervisor and they will eventually get back to you with a decision.
It is always helpful, however, to be able to reference the social security "rule book" which is called the POMS (Program Operations Manual System). Unfortunately, trying to identify the applicable code sections and then deciphering and interpreting those code sections is indeed challenging. Working with a social security advisor (someone certified in social security planning) may be well worth it as he/she can arm you with the applicable POMS section(s) to take with you to the social security office to support your claim.
I had a client who's wife had filed for her benefits prior to full retirement age (FRA). He had decided to defer his own benefits to age 70. I told him that, since he was now age 66 (his FRA), he was also eligible to collect spousal benefits while deferring his own benefits to age 70. When he went to social security to file for spousal benefits he was told he was not eligible to do so because his own benefit was more than half of his wife's benefit. I told him that the social security agent was incorrect. She was applying the "deemed filing rule" to his request but, since he had now reached FRA, the deemed filing rule no longer applied.
I printed out the applicable section from POMS and told him to go back to social security with this information and file for spousal benefits again. Although he had to involve a social security supervisor he was able to receive his $1,000 per month spousal benefit (worth over $50,000 from age 66-70!) that he was originally told he was not eligible for.
In another instance, a client told me that she had gone into social security approximately 3 months prior to turning age 70 in order to ready her paperwork so that she could commence receiving her maximum eligible benefits when she turned age 70. The social security agent instead insisted that she take retroactive benefits (6 months of back payments, lump-sum) and that she would start her benefit amount based on a start date as if she had filed 6 months earlier.
The problem with doing that is she would also be permanently reducing her lifetime monthly benefits going forward by approximately 6% per year. This is because she would forfeit the option to increase her benefit amount by an 8% annualized delayed retirement credit (DRC) to age 70. By starting her benefits 9 months prior to age 70 she would be forgoing a 6% permanent increase in her benefits (i.e. 9 months worth of DRC's to her age 70).
The issue here is that POMS assumes someone filing for benefits after FRA intends to file for any eligible retroactive benefits unless that applicant specifically declines retroactive benefits in order to preserve their DRC's. Unfortunately, applicant's are not typically told what their options are and these default provisions may often lock them into permanently lower lifetime benefits.
Therefore, in addition to being an enormously complex system, it is important to know that the default provisions built into the social security may not always align with your personal goals and objectives. Knowing what your options are and working with a social security specialist who can arm you with specific POMS references may be the best way to ensure that your options are clear to you and you can confidently go to social security to file for all the benefits you are entitled to.
Social security is such a robust program that it not only covers retired workers but also provides benefits for spouses, ex-spouses, widows/widowers, children and children-in-care. But arguably one of the most important benefits, or "safety nets", are the benefits afforded to the disabled. In fact there are nearly 9 million Americans currently receiving social security disability benefits. These benefits are often a lifeline that protects the disabled from becoming impoverished.
So when benefit reductions target the disabled you have to scratch your head and wonder why this would be? More disturbing perhaps is that these benefit reductions emanated from the Social Security Administration (SSA) and not from Congress. As far as I know, the SSA's job is to administer the social security program and not to set policy. The American people, through their voice when they elect their public officials, should decide what should and shouldn't be policy.
Shockingly, that's not what happened on December 23, 2014. In the blur of pre-holiday hustle and bustle the SSA "clarified" a provision in their Program Operating Manual System (POMS) which effectively removed a benefit which many non-disabled beneficiaries are eligible for. Most policy makers did not pick up on this because of the surreptitious manner in which the SSA implemented this change and also because of the timing of this change.
By way of background, when a disabled worker receives social security disability benefits their benefits are paid from the disability trust fund and not from the retirement trust fund. But when they reach full retirement age (FRA, typically age 66) their benefits continue as is but their benefits automatically convert to retirement benefits, unless they actively choose to withdraw that conversion.
This automatic conversion at FRA to retirement benefits however precludes them from filing for a spousal, widow, divorced spousal or divorced widow(er) benefit (auxiliary benefits) and deferring their own retirement benefits to age 70 so that they can grow by 8% per year plus cost of living adjustments. This deferral could have provided these disabled retirees with a significant increase in retirement benefits, the same benefits available to non-disabled retirees.
However, the way the new language in the POMS is written, if a disabled worker were to pull their disability benefits prior to FRA (in order to file for auxiliary benefits) to avoid the automatic conversion to retirement benefits, then they would have to pay back all of the disability benefits that they have received to date from social security. This typically could amount to tens of thousands or even hundreds of thousands of dollars. Therefore this new provision effectively shuts down this option for the disabled and denies them benefits which are available to non-disabled workers.
So who will this policy really affect? What's the big deal anyway? Well, for one, it will affect the disabled wife of a client of mine that I am meeting with this week. It could also affect other disabled workers and anyone who may become disabled, which of course could be any of us!
It's unusual to find public policy that specifically discriminates against the disabled as this change by the SSA appears to do. The SSA claims they are not setting policy but merely clarifying a provision in POMS. But like many administrative "clarifications" it involves some interpretation. This is a grey area that could have easily been "clarified" to allow for this benefit to continue as is.
The bigger issue here is that the bureaucrats at the SSA should not be the ones setting public policy regarding social security benefits, which they are effectively doing through their interpretation of their rule book (POMS). It is time for Congress to address this particular issue in its larger discussion on the changes they feel are necessary to keep social security viable. Whether this is done by changes to benefits, tax increases or some combination of both is for Congress to decide. It is for us to decide who should be in Congress and who should speak for us.
Ash Ahluwalia, NSSA, CCSCA, MBA