Is the effective deadline to file and suspend later than everyone thinks?

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Editor’s Note: Boston University economist Larry Kotlikoff has spent every week, for over three years, answering questions about what is likely your largest financial asset — your Social Security benefits. His Social Security original 34 “secrets” and his Social Security gotchas have prompted so many of you to write in that we feature “Ask Larry” every Monday. Find a complete list of his columns here. And keep sending us your Social Security questions.

Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version. His new book, “Get What’s Yours — the Secrets to Maxing Out Your Social Security Benefits,” (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) was published in February before the changes from the Bipartisan Budget Act of 2015 went into effect.

For the past few weeks, Social Security expert Larry Kotlikoff has been keeping readers updated on how the budget act changes a number of Social Security rules. We’ll continue publishing updates on what this new law means for your Social Security benefits. Stay tuned.

Avram Sacks is an outstanding attorney and an expert on Social Security provisions. He’s been in touch with me in recent days with an interesting perspective on the deadline for filing and suspending. He believes that the effective deadline may be four months beyond the April 29, 2016 deadline that I’ve written about. He thinks that, legally speaking, one can go into the local Social Security office within four months of turning 66, provided you go by April 29, 2016 and say: a) “I’m going to turn 66 within four months of today,” b) “Yes, the date at which I will turn 66 will be after April 29, 2016, so it would seem from reading the Program Operating Manual System (POMS) that I cannot file and suspend under the new law,” c) “But the actual law passed by Congress, not the POMS, is definitive,” d) “And I believe that legally I can file for and also suspend my benefit in advance,” e) “Hence, I am hereby formally submitting a request to file for my retirement benefit the day I turn 66 and also suspend it the same day,” so f) “Please sign and time-stamp this written request so that if I need to take Social Security to federal court on this matter, I will have documentation of having submitted my request.”

I wouldn’t count on Avram’s view holding up in an appeal’s process. I would only try to file and suspend if:

  1. Doing so was the right thing to do in the first place in terms of maximizing my lifetime Social Security benefits;
  2. I was not jeopardizing an alternative strategy;
  3. I understood that there are two risks. One risk is that the Social Security Administration would take this request to file and suspend and simply file me for my retirement benefit and ignore my request to suspend. The other risk is that they would grant my request to file and suspend, but not permit my spouse or children to collect on my work record while my retirement benefits remain in suspension. (They could easily do this if they read the situation as me having missed the deadline.) Either way, if my spouse or ex-spouse of 10 or more years of marriage died before I reached 70, I would forfeit the ability to collect a full widow(er) benefit until 70. Instead, I’d be handed, in that grim state, just my excess widow(er) benefit, which could, in fact, be zero.

That all said, below is an extract of Avram’s email to me describing why he thinks the effective deadline for file and suspend is four months later than everyone thinks.

Avram Sacks: In the wake of recently enacted budget legislation that is phasing out several Social Security benefit claiming strategies, much has been written about when the new law will take effect and who can still exercise a strategy known as “claim and suspend” until then.

Claim and suspend is a strategy that permits an individual at or after reaching full retirement age (currently age 66) to claim a Social Security retirement benefit and then immediately suspend the claim. By doing so, a worker allows their own benefit to grow by accruing delayed retirement credits that increases their benefit until age 70 (at the rate of two-third percent per month for each month during which payment was delayed) while enabling a spouse, minor child or a disabled adult child to claim a benefit on the worker’s account. Claim and suspend also allows a worker who exercised the strategy at full retirement age to retroactively collect, at a later date, all of the benefits that would have been paid if the individual then needed the money or had a changed circumstance, such as a diagnosis of a terminal illness that would result in the individual collecting little, if any, of their benefit if the worker stuck to the original plan.

Under the new legislation, a worker is still able to suspend a benefit. However, once suspended, no one else may collect a benefit on that worker’s account during the time the benefit is suspended. This, of course, defeats the purpose of the claim and suspend strategy.

The new law takes effect on April 30, 2016. However, that does not mean, as some experts are saying, that a worker must be 66 (full retirement age) by then in order to exercise claim and suspend. I believe that an exact reading of the legislation along with existing federal rules and regulations would allow a worker who reaches age 66 by August 31, 2016, to still exercise claim and suspend under the old rules. Here’s why:

The Social Security Act and governing regulations permit people to file for Social Security benefits prior to the month in which all factors for entitlement are met. An internal agency rule says that an application may be filed as much as four months in advance of that time. This means that a worker reaching age 66 in August 2016 can file an application for full retirement benefits in April 2016. (And because one attains a given age under the Social Security Act on the day before the anniversary of one’s birth, individuals born on September 1, 1950 will reach age 66 by August 31, 2016.)

It’s clear that a worker can file in April 2016 for a benefit to begin in August 2016, but can that worker also suspend the benefit in April 2016? Social Security staff is likely to say that you can’t suspend a claim in April 2016 unless you have already reached age 66. That is because the internal operating guidelines of the Social Security Administration, the POMS (Program Operations Manual System), state that one must be at full retirement age in order to suspend a benefit. (See POMS GN 02409.110.) But the U. S. Supreme Court has held that the POMS has “no legal force” and “does not bind the SSA.” The POMS is entitled to deference only to the extent that it does not contradict a law or regulation.

In this case, I believe the POMS requirement that one must be at full retirement age in order to request that a benefit be suspended, contradicts a regulation. The regulation states: “If you apply for benefits, and we have not made a determination that you are entitled to benefits, you may voluntarily have your benefits suspended for any month for which you have not received a payment.” (See 20 CFR §404.313.) The regulation says that if you are not yet entitled to a benefit, you may still request that benefits be suspended. There is no law or regulation that limits requests like this to those who are already at full retirement age. That limitation is arbitrary and capricious, taking away rights you have under the law and regulations, and none of this is changed under the new law so long as you reach age 66 before September 1, 2016.

So if your 66th birthday falls at any time between May 2, 2016 and September 1, 2016, and you want to exercise file and suspend so that another person, such as a spouse, minor child or disabled adult child can get a benefit on your account while your own benefit accrues delayed retirement credits, what should you do? You should hand deliver a letter to your local Social Security field office that is addressed to the Social Security Administration, states your name, address and Social Security Number and that you want to file for your Social Security retirement benefits to begin in the month you reach full retirement age. Do this no more than four months prior to the month of your 66th birthday. You should also state that you want to suspend the benefit as of that same month, making clear that no benefit should be paid at this time. Keep a copy of the letter for yourself and make sure that the copy you keep is date stamped by the field office staff as having been received. If the request is denied, you have a right to appeal the denial, all the way up to federal district court if necessary.

If the Social Security Administration denies your request to suspend benefits, the appeal could be a long process and may take years to resolve. However, there is nothing to lose from trying this, and much to gain; namely, the potential for tens of thousands of dollars in additional retirement benefits. If you can’t convince the Social Security Administration that the law allows this, once the matter gets to federal court, a judge might be more unbiased in adjudicating this than a Social Security employee who may be unwilling to disregard internal agency guidelines even if they are contrary to law.