Social Security payee system could fail your clients

The Social Security Administration is having its own version of a problem that may sound familiar to financial advisors: figuring out what to do for beneficiaries with caregivers who are careless, or crooked.

The SSA names official benefits handlers, or “representative payees,” for beneficiaries who cannot handle the benefits themselves, such as children receiving Social Security death benefits, or people with severe mental or physical disabilities that interfere with their ability to manage their finances.

Related: 15 best practices to protect clients from elder financial fraud

Many users of private disability insurance or private long-term care insurance who file claims end up getting their Social Security benefits payments through representative payees.

The SSA now has about 6 million representative payees collecting benefits on behalf of about 8 million beneficiaries, and it has only limited ability to police the program, Gale Stallworth Stone testified at a recent hearing on the payee program in Washington.

Stone, the acting inspector general for the SSA, told members of the House Ways & Means Social Security and oversight subcommittees that the SSA conducted just 2,590 face-to-face payee interviews during the 12-month period that ended Sept. 30.

Stone gave many examples of payee abuse, including one involving a woman in Philadelphia who held people with mental disabilities in her basement and collected their Social Security benefits for years.

One recommendation Stone gave is for the SSA to make its service for representative payees less responsive.

The agency “should consider developing systems that prohibit employees from taking certain steps related to processing payee actions and payment, until systems issues or discrepancies are resolved,” Stone said.