Possible Effects of Government Standoff on Social Security

While we definitely hope that an agreement or compromise can be reached by Tuesday, this article describes one possible outcome of default for people who are relying on the Social Security checks that are scheduled to be issued on August 3rd.

“NEW YORK — As the Treasury Department prepares to hit the swiftly-approaching debt limit with no agreement to lift it in sight, fears are growing that the government might opt to skip the next round of Social Security payments.

Experts warn that the program is such a vital source of support for so many low-income and elderly Americans that even one delayed payment could trigger a domino effect, sending millions of households into delinquency on a broad range of bills.

“What we are talking about here,” said Joan Entmacher, vice president for family economic security at the National Women’s Law Center, “is not the financial markets — not that they are not important — but the very ability of millions of Americans to buy food, pay their utility bills, their rent or mortgage and to generally function.”

If Social Security payments don’t come, Entmacher said, “there are a whole series of very serious, deeply frightening consequences that could, and very likely would, follow.”

There are about 54.8 million Americans who receive some form of Social Security benefits each month, according to government data (see Table 2). Most payments are made to retirees, disabled individuals and certain dependent children and adults. The next monthly payment is due Aug. 3. Another 15 million Americans are also due veterans’ benefits, federal or postal employee retirement benefits and other payments on that date.

For a substantial share of the people who receive Social Security benefits, that income is essential. About 40 percent of all unmarried individuals who receive social security benefits rely on the program for at least 90 percent of their income, the Social Security Administration’s inspector general found in a November 2010 report. About 90 percent of women over age 80 derive nearly all of their income from Social Security benefits.

Losing that income could prove disastrous. Households that don’t pay utility bills eventually face shut off. Banks can charge account overdraft fees. And creditors also generally charge late fees for overdue payments. Credit card companies can raise a customer’s interest rate due to overdue bills.

“Suddenly the credit card with 19 percent interest goes up to an unmanageable 30 percent interest,” said Entmacher. “I don’t think it requires too much imagination to consider what happens to American households from there.”

Until now, Social Security income has not only been essential for many households but also very reliable. About 88 percent of all Social Security recipients receive their benefits via direct deposit, according to the Social Security Administration. That means government funds appear in more than 47 million recipients’ bank accounts or on dedicated debit cards around the third day of each month. For some recipients, the expectation of regular payment has shaped their financial lives for more than a decade.

“Millions of people arrange their household budgets around those payments,” said Entmacher. “They know that if they write a check for their rent or their mortgage and put it in the mail on August 1 or 2 then by the time the check clears their Social Security will have arrived. So, they put that check in the mail and make that payment on time.”

Others have set up automatic bill arrangements that pay out just before or after the payment date. If payments don’t go out Aug. 4, millions of people might overdraw their bank accounts, Entmacher said.

The average bank charges an average of $30 to $35 per overdraft, said Kathleen Day, a spokeswoman with the Center for Responsible Lending.

“We think that it would be more than unfortunate if banks choose to take advantage of people who are financially vulnerable and use this potential situation to generate overdraft fees,” said Day. “Of course, we don’t know what will happen yet. No one does.”

Many of the nation’s largest banks have, so far, shied away from public statements about the way that overdrafts would be handled if the government  fails to pay Social Security benefits in the event of default.

On Thursday, Bank of America, declined to comment on what its spokesperson described as a hypothetical situation. A bank spokesperson also declined to comment on conversations the bank has had with federal regulators.

The federal agency that regulates banks has instructed financial institutions to use judgment in assessing any overdraft fees that may result from social security benefit delays, the New York Times reported Thursday. The Treasury Department declined to answer questions Thursday about what, if any, limits would be imposed on overdraft fees if social security payments are simply delayed to avoid default.

In a statement emailed to The Huffington Post, the Treasury Department indicated that it is making plans in the event that a debt-ceiling compromise is not reached in Congress before Aug. 2.:

While only Congress has the ability to ensure the government pays all of its bills, Treasury will provide more information as we get closer to Aug. 2 regarding how the government would operate without new borrowing authority if the debt limit is not increased.

There is some debate about exactly how much money the United States would have on hand to pay interest on its debts if a debt-ceiling compromise is not reached in the next few days. According to the Treasury, about $90 billion in debt matures on Aug. 4 and the government must pay more than $30 billion in interest on Aug. 15., Bloomberg reported.

“Our view right now,” said Nariman Behravesh, chief economist at IHS, an economic forecasting and market analysis company, “is that the chances of default are very low mostly because the kind of financial meltdown that could occur as a result of an actual default is almost unimaginable.”

Without an increase in the debt limit, the Treasury Department will have to make what could be a series of economically disruptive moves to prevent default, Behravesh said. At the least disruptive end of the scale would be a decision to furlough a large number of federal workers for a short period of time until the debt ceiling could be raised, Behravesh said. The government could also delay payments to federal contractors.

“Those are not ideal choices but they could probably be managed for a short period of time,” said Behravesh. “If a compromise is reached in a day or two, they’re no biggie.”

Near the other end of that scale would be a delay in payments due to states for things such as roads, schools amd foster care subsidies. Skipping those payments could lead to additional public worker furloughs and a hold on state and local government spending.

Then there are the millions of social security payments due Aug. 3. President Obama told CBS News earlier this month that he could not promise that Social Security benefits would be issued if a debt-ceiling compromise is not reached.

It is possible that that furloughing government workers and delaying other payments would not raise enough cash to pay interest on the national debt, Behravesh said. In that case, social security benefits would have to be held.

“We think they would try to avoid this at all costs because it would be effectively hari-kari , and by that I do mean political suicide,” Behravesh said. “But if that happens, there is no question that the consequences would, almost immediately, be enormous and painful for a lot of households.”"

This article was written by Janelle Ross of the Huffington Post.

Social Security Press Release

With much of the world focusing on the current debate in Washington, I discovered this press release from the Social Security Administration that provides more information on one of the difficult issues that our government is facing. Dated May 13, 2011, this release came from a Board of Trustees meeting within the Social Security administration. Currently, in 2011, roughly 55 million people recieve Social Security benefits in the form of retirement, disability and survivor’s benefits.

The Social Security Board of Trustees today released itsannual report on the financial health of the Social Security Trust Funds. Thecombined assets of the Old-Age and Survivors Insurance, and DisabilityInsurance (OASDI) Trust Funds will be exhausted in 2036, one year sooner thanprojected last year. The DI Trust Fund, while unchanged from last year, will beexhausted in 2018 and legislative action will be needed soon. At a minimum, areallocation of the payroll tax rate between OASI and DI would be necessary, aswas done in 1994. The Trustees also project that OASDI program costs willexceed non-interest income in 2011 and will remain higher throughout theremainder of the 75-year period.

In the 2011 Annual Report to Congress, the Trustees announced:

The projected point at which the combined Trust Fundswill be exhausted comes in 2036 — one year sooner than projected last year. Atthat time, there will be sufficient non-interest income coming in to pay about77 percent of scheduled benefits.

The point at which non-interest income fell below programcosts was 2010. Program costs are projected to exceed non-interest incomethroughout the remainder of the 75-year period.

The projected actuarial deficit over the 75-yearlong-range period is 2.22 percent of taxable payroll — 0.30 percentage pointlarger than in last year’s report.

Over the 75-year period, the Trust Funds would requireadditional revenue equivalent to $6.5 trillion in present value dollars to payall scheduled benefits.

“The current Trustees Report again reflects what we havelong known to be true — we need changes to ensure the long-term solvency ofSocial Security and to restore younger workers’ confidence in the program,”said Michael J. Astrue, Commissioner of Social Security. “The report alsohighlights the more near-term shortfall in the Disability Insurance Trust Fund.Our disability programs are complex, and there is a long history of wellintended ‘reforms’ causing unintended consequences. The President sent toCongress our Work Incentive Simplification Proposal, which would be a goodstart for bipartisan debate. I urge the House and Senate to review thisproposed legislation carefully and schedule hearings this year.”

Other highlights of the Trustees Report include:

Income including interest to the combined OASDI TrustFunds amounted to $781 billion ($637 billion in net contributions, $24 billionfrom taxation of benefits, $117 billion in interest, and $2 billion inreimbursements from the General Fund of the Treasury) in 2010.

Total expenditures from the combined OASDI Trust Fundsamounted to $713 billion in 2010.

The assets of the combined OASDI Trust Funds increased by$69 billion in 2010 to a total of $2.6 trillion.

During 2010, an estimated 157 million people had earningscovered by Social Security and paid payroll taxes.

Social Security paid benefits of $702 billion in calendaryear 2010. There were about 54 million beneficiaries at the end of the calendaryear.

The cost of $6.5 billion to administer the program in2010 was a very low 0.9 percent of total expenditures.

The combined Trust Fund assets earned interest at aneffective annual rate of 4.6 percent in 2010.

The Board of Trustees is comprised of six members. Fourserve by virtue of their positions with the federal government: Timothy F.Geithner, Secretary of the Treasury and Managing Trustee; Michael J. Astrue,Commissioner of Social Security; Kathleen Sebelius, Secretary of Health andHuman Services; and Hilda L. Solis, Secretary of Labor. The two public trusteesare Charles P. Blahous, III and Robert D. Reischauer.

The 2011 Trustees Report will be posted atwww.socialsecurity.gov/OACT/TR/2011/ by Friday afternoon.

Of course, this report reflects the projection of the Social Security Administration’s situation only if nothing is done to rework the system in order to make it more self-sustaining.

Good News for Nashvillians with no Health Insurance

One of the most important elements in a successful Social Security Disability claim is a wealth of medical records. At every step of the process to winning your disability case, medical records are reviewed, doctors are consulted and consultative examinations are performed. The claims examiners at the Disability Determination Section (DDS) and the Administrative Law Judges (ALJs) at the hearing level have to be able to show to their superiors solid evidence of a severe medical impairment to support a finding of disability and prevent a medical review and loss of benefits. The best way for a person to show beyond a shadow of a doubt that they suffer from a disabling impairment, is to have a good treatment history showing multiple visits to a doctor, hospital or clinic for that impairment.

It is difficult to stress how crucial regular treatment is. A solid medical treatment history can even help your attorney expedite your case so that you don’t have to wait as long to receive your benefits. Without solid medical evidence, the majority of cases are lost. However, especially when trying to prove that you cannot perform any job in the local or national economy, and thus show entitlement to disability benefits, financial issues can play a huge role. We have a number of clients who call and have lost their insurance or simply can’t afford to pay expensive medical bills to receive the treatment that they need.

The good news is that there are several safety net clinics currently in Nashville that provide medical treatment for those who do not have or can’t afford health insurance. This article, by Tom Wilemon of The Tennessean names a few.

“Twenty-one percent of adults in Nashville have no health insurance and many of them don’t know where to go to see a doctor, according to a report issued Tuesday.

Half of the uninsured who participated in focus groups had never heard of safety net clinics. These clinics, which include United Neighborhood Health Services, University Community Health Services and Matthew Walker Comprehensive Health Center, receive federal funding to provide care to the uninsured.

“As a community we could do a better job of informing people about these clinics, which were established to serve the poor, uninsured and underserved, and of linking people to care,” said Dr. William Paul, director of the Metro Public Health Department.

The Safety Net Consortium of Middle Tennessee commissioned the report. Community health centers and safety net clinics already provide care for 23 percent of the Davidson County population.”

It is our hope that our clients and others who are trying to show eligibility for disability benefits can use these resources to get the medical treatment that they need and deserve.

Q&A for Congress regarding Social Security

I recently found this article on Congress.org as a part of a question and answer session, in which common misconceptions and some of the more confusing portions of the Social Security Administration could be clarified. Enjoy!

“How long do you have to contribute into Social Security to become eligible to draw it out? What other programs draw money from Social Security?”

Anyone born in 1929 or later needs to have worked for 10 years in order to be eligible for retirement benefits through Social Security.

In order to qualify for benefits, a person must have earned 40 credits. A beneficiary earns one credit for every $1,120 of earnings, up to a maximum of four credits per year. Thus, a person qualifies to receive benefits if they have worked for ten years and made more than $4,500 a year.

The administration keeps track of your credits even when you change jobs or are out of work, and they accrue over the course of your working life. There are special rules for certain kinds of work.

The Social Security trust fund is actually two separate trust funds, the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds.

Disability insurance is available to those who are unable to work due to “total disability.” The Social Security Administration determines whether an applicant meets the requirements of being unable to work as he or she did before and unable to adjust to other work because of a medical condition. The program does not cover “short-term” disability.

Eligibility for disability benefits also depends on how old a person is when he or she becomes disabled. If a person becomes disabled before age 24, he generally needs to have worked for one and a half years, earning six credits, in the three years before becoming disabled in order to qualify for benefits. There is a shifting scale for older workers.

A smaller percentage of the payroll taxes collected for Social Security are paid into the DI trust fund than the OASI trust fund. About one dollar of every seven brought in by the payroll taxes goes into disability insurance.

Perhaps as a result, according to the 2010 annual report on the health of the Social Security trust funds, the DI trust fund is projected to be exhausted as early as 2018. The OASI trust fund, on the other hand, is expected to be exhausted in 2037, though payments have already begun to exceed tax income.

“How many individuals, who have never paid one cent into the Social Security Fund, are receiving checks?”

If you have never paid a cent into Social Security, you cannot collect a check, except in some rare cases, such as survivor’s benefits.

If a person who has worked and paid Social Security taxes passes away, certain members of the family may receive benefits. Again, eligibility for the benefits depends on how many years the deceased had worked and how old he or she was.

Widows or widowers may receive full benefits at full retirement age or reduced benefits. Disabled widows or widowers may receive benefits as early as age 50 or if he or she is the caretaker of a deceased beneficiary’s minor child. There are several other such allowances.

According to the Congressional Research Service, as of December 2009, 52.2 million people received Social Security benefits. 64 percent of those beneficiaries were retired workers, 15 percent were disabled workers and 21 percent were survivors or the spouses and children of retired or disabled workers.

“Is Social Security funded entirely from payroll taxes? If so, is there a maximum income beyond which no payroll tax is deducted?”

Social Security is indeed funded entirely through payroll taxes paid by employers and employees, with the self-employed paying an equivalent of the combined employer and employee tax rates.

The program limits the amount of earnings subject to taxation for a given year. The current “taxable maximum,” beyond which no payroll tax is deducted, is $106,800. If a person earns more than that, they will only pay the tax on that amount.

According to the Social Security Administration, this limit generally increases when there is a rise in the national average wage index, a calculation also used to compute a person’s retirement benefit.

— Frances Symes, Congress.org

Disability Recipients by State