Money Matters - May 16. 2016

Bipartisan Budget Act of 2015 Impacts ‘File and Suspend’ Social Security Strategies  

On Nov. 2, 2015, President Obama signed the Bipartisan Budget Act of 2015. The act makes important changes to rules governing Social Security claims for retirees concerning the Restricted Application and the Voluntary Suspension. The changes will have a significant impact on the options retirees have as they consider how and when to file for Social Security benefits.

 

How the Rules Are Changing

• Restricted Application: Section 831(a) of the new law phases out so-called “restricted applications.” Previously, an individual eligible for a spousal benefit could elect to receive that benefit while allowing his or her own retirement benefit to grow, then switching to that retirement benefit once it is maximized. As the law is phased in, restricted applications will no longer be available. Whenever an individual files, they are claiming all benefits he or she is eligible for, with no opportunity for delayed retirement credits post-filing. This is termed “deemed” filing.
• Voluntary Suspension: Prior to Section 831(b) of the new law, an individual could file for benefits, then suspend receipt of benefits, allowing their benefit to grow while a spouse could claim benefits based on his or her work record. The new law stipulates that a voluntary suspension stops all benefits payable under the earnings record of the person whose benefit was suspended. In other words, the spouse will no longer be able to collect a spousal benefit during the time in which the wage earner’s benefit is suspended.
• Filing strategy impact: As the new law is phased in, “File and Suspend” claiming strategies, which combine restricted application and voluntary suspension, will have limited availability to some individuals, and no availability to others. These strategies had created opportunities for retirees to maximize the value of their own retirement benefits, while generating Social Security cash flow earlier on in retirement.

How the Rule Change Will Be Implemented, and Who Will Be Affected

• Married: The impact on planning for couples is nuanced. With the rules being phased in, there are now three sets of individuals who will be impacted differently, depending upon their birth dates. In addition, with a married couple, each spouse could fall under a different set of rules, depending upon birth date.
• Widow: Notably all of these changes concern the interaction between retirement and spousal benefits, and do not include widow benefits. So, widows will continue to have the opportunity to restrict an application to only widow or only retirement benefits and later switch to the other benefit.
• Divorced: The impact on divorced cases is very similar to married. The important situations to consider are for those born on or before Jan. 1, 1954, who still have access to the restricted application, and related spousal benefits, and those born after, who do not.

Plan Sponsors and participants with questions should call Nationwide’s Participant Solutions Center at 1.866.975.6363.

Provided by Nationwide Retirement Institute. Nationwide Retirement Institute provides practical thought leadership through timely insights and education, tools and consultative support.