Social Security underpaid 82% of dually entitled widows and widowers

I read a lot of audit reports from the Social Security Administration’s Office of Inspector General, but I don’t think I have ever read one as damning as the one issued on Valentine’s Day.

The purpose of the internal audit was to determine whether the Social Security Administration has adequate controls to inform widows and widowers of their option to claim survivor benefits initially and delay applying for their own retirement benefits until age 70, when those benefits would be worth more than their survivor benefits.

The short answer is no. But it gets worse. Based on a random sample, the inspector general found that 82% of current beneficiaries who are dually entitled to survivor benefits and their own retirement benefits would have received a higher monthly benefit amount if SSA had informed them of the option to delay their retirement application until age 70.

Normally, when someone claims Social Security benefits, the application covers all benefits for which the claimant is eligible unless he or she specifically limits the scope of the application.

The Bipartisan Budget Act of 2015 limited the ability to claim only spousal benefits to those people born before Jan. 1, 1954. But the law did not alter the ability of surviving spouses and eligible surviving ex-spouses to make separate claiming decisions for their retirement and survivor benefits, regardless of when they were born.

Retirement benefits increase by 8% per year for every year they are delayed beyond full retirement age up to age 70. Survivor benefits do not.

(More: An adviser’s guide to Social Security survivor benefits)

It is not the first time the Office of Inspector General identified a problem with the proper payment of survivor benefits, as I reported last year. In the 2017 report, SSA was criticized for not awarding survivor benefits soon enough.

In the report issued Wednesday, the Office of the Inspector General focused on widows and widowers who are being underpaid. It identified 13,564 widows and widowers who are currently receiving survivor benefits and who were dually entitled to widow’s or widower’s benefits and retirement benefits before age 70. From this population, the office selected a random sample of 50 beneficiaries.

Of the 50 beneficiaries, 41 — 82% of the sample — were eligible for a higher monthly benefit amount had they delayed their retirement application until age 70.

For example, in January 2011 an individual applied for retirement and widow’s benefits. She was eligible for a $1,403 widow’s benefit and a $1,140 retirement benefits. SSA paid a combined widow’s and retirement benefit amount of $1,403, consisting of $263 as a widow and $1,140 as a retiree, the report said. By limiting the scope of her application, she would have received the widow’s $1,403 monthly benefit and retained the option to apply for higher retirement benefits at a later date.

“We did not find any evidence that SSA employees informed the widow about her option to delay her retirement application up to age 70 to increase her retirement benefits,” the report said.

The widow turned 70 in August 2015. SSA paid her the combined retirement and widow benefits totaling $39,708 for the period August 2015 to September 2017. Had the widow delayed filing for retirement benefit until age 70, she would have received $52,708 during the period, the report said. As a result, SSA underpaid the widow $13,000.

Of the 41 beneficiaries in the random sample, 34 were 70 or older, and SSA underpaid them a total of $485,911. In addition, seven beneficiaries were under 70 and SSA will underpay them $36,300 annually beginning in the year they attain age 70. Only one beneficiary — representing 2% of the random sample — correctly applied only for survivor benefits initially and delayed her retirement application until the retirement benefit exceeded the widow’s benefit.

Based on this random sample, the inspector general’s report estimates that 11,123 dually eligible surviving spouses would have been eligible for a higher monthly benefit amount had they delayed their retirement application until age 70. Of these, the audit report estimates that SSA underpaid about $131.8 million to 9,224 beneficiaries who were age 70 and older. In addition, the report estimates SSA will underpay an additional 1,899 beneficiaries who were under age 70 about $9.8 million annually beginning in the year they attain age 70.

The report concluded that SSA needs to improve controls to ensure it informs widows and widower of their option to delay their application for retirement benefits. It recommended that the agency take appropriate action for the 41 beneficiaries who were identified in the audit and determine whether it should review the remaining population of more than 13,500 dually eligible survivors who may have been underpaid. SSA agreed with all of the report’s findings.

(More: How Social Security treats the survivors of young workers)