Good news, folks. Apparently employees in Social Security field offices finally got official instructions on how to implement the new claiming rules — 11 days before the first claiming option known as file and suspend disappears forever.
The lack of clarity over the new rules authorized by the Bipartisan Budget Act of 2015 has been a source of frustration for financial advisers and their clients. The legislation was signed into law on Nov. 2, 2015, but the agency's only official communications with its field offices were contained in two separate emergency messages issued in February with the promise that specific instructions would follow.
In the meantime, the range of advice issued by local offices and hotline operators was inconsistent. If it wasn't such a serious breakdown of communication, in might be downright funny.
Some Social Security applicants were told they could not file and suspend their benefits even though they were clearly eligible because they met the requirements of being 66 or older by the end of April and could submit their requests by the April 29, 2016 deadline.
Others, like David Moore, a financial adviser in North Carolina, were told they could file and suspend even though their 66th birthday clearly missed the April cutoff.
The old file and suspend strategy allows someone at full retirement age or later to file for their retirement benefits but immediately suspend them so they continue to grow by 8% per year up until age 70. In the meantime, the action can trigger a benefit for a spouse or minor dependent child worth up to half of the worker's full retirement age benefit amount. It also locks in an option to request a lump sum payout of suspended benefits instead of collecting the delayed retirement bonus.
Under the new rules that take effect on April 30, 2016, no one can collect a benefit during the suspension period and the lump sum payout option goes away. “After that, if a worker suspends his or her retirement benefit, then spousal benefit based on that person's earnings will also be suspended,” the agency said in an updated summary of the new rules.
Mr. Moore, who turns 66 in mid-May, and I exchanged several emails on the topic. He applied for Social Security in early April.
“Today I received a phone call from my local Social Security Administration office going over my request,” Mr. Moore said via email. “She asked if I had considered filing and suspending my benefits,” he wrote. “I told her I had, but since I would not reach my full retirement age until May, I was not eligible.”
The SSA representative said he was wrong. As long as he submitted his request to file and suspend by April 29 he would be fine. (Wrong.) Her supervisor confirmed the erroneous information, telling Mr. Moore that as long as he would be age 66 within four months of the April 29 deadline, he could file and suspend his benefits under the old rules. (Wrong again.)
The first SSA employee even sent him some case study examples supplied by SSA headquarters to prove her point. He shared the email with me. I pointed out that the individual in the case study could file and suspend because he turned 66 before the April 29 filing deadline, unlike Mr. Moore who would miss it by a couple of weeks.
Last week, Mr. Moore received a follow-up email from his SSA contact. Oops. It turns out that he is not eligible to file and suspend after all.
“We have gotten further instructions today which state that you would have to be full retirement age and make the request before April 30, 2016, in order to fall under the old rules,” the SSA representative wrote in an email to Mr. Moore dated April 18 — 11 days before the final deadline to file and suspend under the old rules.
“Since you would be full retirement age on May 16, you would fall under the new rules,” she added. “I apologize.”
I wonder how many other people have received similar letters. It reminds me a bit of the old “Saturday Night Live” skits where Gilda Radner played the confused elderly woman, Emily Litella, who complained loudly about some misconstrued slight and then dismissed her argument with her signature tagline, “Never mind.”
The Social Security Administration disagrees with my characterization of the agency's efforts to train their employees on how to implement the new claiming rules.
"We continue to provide information and training to our employees nationwide, and do not believe there is widespread misinformation being disseminated to the public" SSA spokesman Darren Lutz said in an email.
Mr. Lutz noted that since December the agency has issued instructions to its field offices and telephone representatives, updated its website about the new claiming rules and provided interactive training videos.
I'm sure the training efforts were well-intended, but the results have been spotty and less-than-impressive based on the emails I continue to receive from financial advisers and consumers.
In some parts of the country, drop-in visitors to local Social Security offices have been told that there are no appointments available until May or later. They were given time-stamped documents verifying that they tried to file and suspend before the April 29 deadline and would be grandfathered under the old rules. Stay tuned. This could be interesting.
(Questions about new Social Security rules? Find the answers in my new ebook.)
Mary Beth Franklin is a contributing editor to InvestmentNews
and a certified financial planner.
(This article has been updated with responses from the Social Security Administration.)
