On November 2, 2015, the Bipartisan Budget Act of 2015 was signed by President Obama. While the primary purpose of this legislation was to authorize an increase in the federal debt limit, the inclusion of Section 831, entitled “Closure of Unintended Loopholes” had a major effect on the popular claiming strategies of “File and Suspend” and “Restricted Application” used by many Social Security recipients.
These strategies were allowed through provisions added in 2000 by the Senior Citizens Freedom to Work Act through a concept referred to as “voluntary suspension of benefits”. The law allowed those who had already started collecting Social Security benefits to stop their payments and earn additional retirement credits (“Delayed Retirement Credits”). These claiming strategies became quite popular and allowed those entering retirement to formulate various methods to ensure that they take maximum advantage of their Social Security benefits.
However, over the years, there has been significant debate over whether Congress actually intended to create such a broad ability to maximize benefits. The Center for Retirement Research published estimates that these strategies could result in an additional annual cost of $9.5 billion to Social Security. The Obama Administration’s budget proposal for Fiscal Year 2015 called for changes to the law to prevent “duplicative or excessive benefit payments” including “aggressive Social Security claiming strategies which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits”
FILE AND SUSPEND and RESTRICTED APPLICATIONS – “THE WAY WE WERE”
Restricted Application allowed an individual who was at least Full Retirement Age, who had not previously filed for any benefits, and whose spouse has established a filing date (and may have suspended), filed for ONLY the spousal benefit based upon the spouse’s record. The “restricted” terminology indicates that the filing is not for their own benefit but for spousal benefits, which allows their own account to continue to grow.
File & Suspend allowed an individual who was at least Full Retirement Age (currently 66 years of age) to file for his or her own retirement benefit and then immediately suspend receipt of those benefits until a future date up until age 70.
- The act of FILING established the date of filing which provides the benchmark for dependent, spousal, children’s benefits to be paid. Generally a spouse would then file for spousal benefits.
- The act of SUSPENDING invoked the process where the individual does not collect his or her benefits while still allowing other eligible individuals to collect. During the suspension, the individual’s account continue to grow at 8 pecent per year until age 70.
THE FUTURE IS NOW – THE EFFECT OF SECTION 831 OF THE BIPARTISAN BUDGET ACT OF 2015
Section 831a – Restricted Application
Section 831a effective eliminates the ability to file a restricted application. Under the changes to Social Security law, anyone who applies for an early retirement benefit or a spousal benefit is “deemed” to have APPLIED FOR ANY AND ALL AVAILABLE BENEFITS. Anyone therefore who applies for reduced/early benefits would automatically get the benefit that was greater – the retirement OR the spousal, but not both. Under Section 831a, as incorporated in Section 202(r)(1) of the Social Security Act changes the “deemed filing” definition to include ALL benefits rather than only EARLY benefits, essentially extending the “deemed filing” to age 70. Therefore, a spouse will no longer be able to file a restricted application to claim a spousal benefit at Full Retirement Age as has been done in the past.
Section 831b – File and Suspend
Section 831b, as added as Section 202(z) to the Social Security Act mandates that if an individual files and then suspends benefits then:
- All benefits payable to that individual are suspended – based on the individual’s earning record (retirement) and also ANY OTHER person’s earning record (spousal or children’s). This requires that if there is a suspension of benefits, it cannot be selective. This may also apply to benefits for an ex-spouse.
- No other individual will be eligible for benefits based on the earning record of someone who suspended benefits voluntarily. This requirement negates the various file and suspend strategies allowing one party to enable their spouse to collect while delaying retirement benefits.
THERE IS STILL TIME FOR SOME – BUT THE CLOCK IS TICKING