Column: What’s the real deadline for the file and suspend strategy?
Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out maximizemysocialsecurity.com/ask-larry.
I’ve written about this before and must do so again as Social Security has dragged its feet to issue any formal clarification on the issue. The agency left this issue unresolved, only 16 days from the April 29 deadline.
Some 1.2 million people will turn 66 between April 30 and August 31 of this year. My understanding on first reading the new Social Security law, which passed in November, was that if you turned 66 during this period (or thereafter) you could still a) file for your retirement benefit and suspend its collection (since the new law does not preclude anyone doing that on an ongoing basis), but you could not b) provide anyone benefits on your work record while your retirement benefit remained in suspension, c) collect benefits on anyone else’s work record while your benefit was in suspension and d) could not change your mind down the road and request all suspended benefits be paid in a lump sum.
Avram Sacks and some other private-sector attorneys who help people with their Social Security problems looked at the November law and reached a different conclusion. In their view, the new law permits someone who turns 66 to still do b, c and d through Aug. 31, 2016, provided they file and suspend prospectively by April 29 and turn 66 no later than four months after they prospectively filed and suspended. (The four months is based on Social Security’s standard practice of taking retirement benefit applications up to four months before the date of entitlement.) Hence, someone turning 66 on Aug. 31 would need to file and suspend precisely on April 29. Someone turning 66 on Aug. 30 would need to file and suspend on April 28 or April 29, etc.
I assumed that the view held by Avram and the other private-sector private lawyers was invalid and that the standard view (my view) of the deadline was correct. But yesterday, Avram informed me that he had heard of three local offices that had told people they could file and suspend prospectively based on Avram’s reading of the law. These were cases of people who were turning 66 after April 29, but before Sept. 1.
My view is that if someone is born between May 1, 1950 and Sept. 1, 1950, that individual (who will have attained age 66 between April 30, 2016 and Aug. 31, 2016) will be able to file in April 2016 a claim for benefits to be first paid with a payment for May through August 2016. They will also be able to request in April 2016 that payment of those benefits be suspended, but when the payment of benefits is suspended, no one will be able to receive benefits on the suspended account.
Here’s Avram’s response to my view:
I believe this view is totally wrong and that interpretation would be struck down in a court of law. Why? The answer lies in the text of the language used to identify the effective date of the new subsection (z) to Section 202 of the Social Security Act. The relevant effective date paragraph, Section 831(b)(3) of the Bipartisan Budget Act of 2015 states: “The amendments made by this subsection shall apply with respect to requests for benefit suspension submitted beginning at least 180 days after the date of the enactment of this Act.” In other words, the new legislation is effective based on when the request for suspension is submitted, and NOT when the suspension becomes effective. If you believe that the basis for the effective date of the new rule is when the suspension becomes effective, that is contrary to the plain language of the legislation, and I do not believe it would hold up in court.
If you can provide some other basis for his interpretation, I would be willing to consider it. But if a request for suspension of benefits to be first paid in May through August of 2016 can be submitted in April 2016, then there is no basis for applying new subsection (z) to the suspension.
If Congress wanted to state that the new law was effective with respect to suspensions that first become effective with benefit payments for May 2016, Congress could have so stated. But that is not what the law states. The law states that it first becomes effective with respect to suspension requests that are first submitted 180 days after the Nov. 2, 2015 date of enactment. That is, it is first effective with suspension requests submitted on or after April 30, 2016.
What should you do if you turn 66 after April 29, but before September 1?
Were I in this boat, I would first run a very precise Social Security software program and set my birth date back four months to see whether filing and suspending retirement benefits was even in my interest to do. If I turned 66 on, say, June 1, I’d run the program pretending my birthday was Feb. 1. If it told me to file and suspend to provide my spouse, young children or disabled children benefits on my work record during months they could receive such benefits and while my retirement benefit was in suspension, I’d have to take a gamble. Here’s why.
For married people, filing for a retirement benefit — whether or not one immediately or subsequently suspends it — comes at a risk that one’s spouse will pass away. In this case, the surviving spouse can no longer collect a full widow(er) benefit while letting their own retirement benefit grow through 70. Instead, they can only collect an excess widow(er) benefit, which could be small or zero.
Another risk is that Avram’s view won’t be up upheld by the courts even if legally correct. Our judicial system is far from perfect. Furthermore, were you to take Avram’s view and act on it, your relatives might not be given benefits when you do ask for them, despite what some local office told you would be the case. Or they might provide the benefits and years later decide they shouldn’t have done so and request full repayment.
This scenario — receiving Social Security benefits for years, which you were told were legally yours, and then having them all clawed back — is the biggest Social Security horror story imaginable. But the nightmare is all too real, as I will explain next week.
And another risk in following Avram’s proposed strategy is that it will be ruled invalid, and you will have not have pursued the second-best alternative — whatever that might be.
If you want to file and suspend before April 30, can you do so safely online?
There is an online form to file for your retirement benefit. I think it’s incredibly confusing and does not provide any clear directions for you to specify that you want not just to file for your retirement benefit, but also suspend it. What I believe you need to do in using this form is a) specify that you want to start your retirement benefit (you’ll need to specify the month you want your benefit to start), b) specify that you don’t want to take a spousal benefit while delaying your own retirement benefit. (You aren’t asking for spousal benefits on your spouse’s work record in this scenario. Instead, you are trying to provide your spouse or child benefits on your work record.) And finally, c) write in the Remarks section that “I wish to file for my retirement benefit effective (fill in the date), but voluntarily and immediately suspend my retirement benefit effective (fill in the same date) in order to receive delayed retirement credits.”
Frankly, I would go into the local office to file and suspend either effectively immediately or prospectively (again, no guarantee this will work based on Avram’s reading if the prospective filing date is after April 29 and before September 1.) I think it’s pretty easy to get confused by the online form and you only have one shot to get this right. Of course, the folks at the local office can also screw you up, so don’t leave until you see the Remarks section has been properly filled out as above or with words to the precise effect.
After I had written this column, I received this email from Social Security’s Press Office:
As you know, a worker must be full retirement age (FRA) to request voluntary suspension. As a result of the new law, a worker must be FRA prior to April 30, 2016 to voluntary suspend his or her Social Security benefits and have other benefits, such as spousal benefits, still payable on that record. If a person attains FRA on or after April 30, 2016 and decides to voluntarily suspend benefits, other benefits on that record are also suspended.
We continue to provide information and training to our employees, nationwide, and will address this specific issue, again.
It’s good that Social Security is finally on record on this issue, which I raised back in February, but the courts may differ. I find Attorney Sacks’s reading of the law quite persuasive.