With more than 2,700 rules governing Social Security benefits, it's amazing that monthly payments to 59 million beneficiaries — including retired and disabled workers, their spouses, dependent children and survivors — go as smoothly as they do.
But with more than $800 billion a year in Social Security payments at stake, even minor errors can add up to big bucks.
(More: 10 Social Security Questions for Divorced Spouses)
For example, a recent report by the Office of the Inspector General of the Social Security Administration found that the agency improperly paid 1,013 beneficiaries an estimated $12.4 million in spousal benefits that they were not supposed to receive because they were subject to Government Pension Offset (GPO) rules.
And if the error is not corrected, the agency will continue to pay those 1,000-plus individuals about $2.5 million a year in improper benefits.
In addition, the audit report identified 7,794 spousal beneficiaries who could have received some Social Security benefits because their monthly benefits exceeds their current GPO amount by at least $100.
GPO reduces monthly Social Security benefits for spouses and surviving spouses who receive a government pension based on employment where FICA taxes were not paid. The GPO reduction is generally two-thirds of the government pension.
If two-thirds of the government pension is equal to, or more than the monthly Social Security spousal or survivor benefit, the beneficiary will not receive their Social Security spousal or surviving spousal benefit and the agency will suspend the individual's benefits. But if the monthly spousal amount increases and exceeds the GPO amount, the Social Security Administration (SSA) must pay the beneficiary the difference between their monthly benefit and the GPO amount.
The GPO rule affects federal workers employed before 1984 who participated in the Civil Service Retirement System, which was not subject to FICA payroll taxes. It also affects state employees, including public school teachers in some cases, in a dozen states including Alaska, California, Colorado, Connecticut, Illinois, Louisiana, Maine, Massachusetts, Missouri, Ohio, Nevada and Texas. Plus, employees of some local governments in Georgia, Kentucky and Rhode Island are also affected by GPO rules.
The GPO rule only affects a portion of Social Security beneficiaries. Although more than 6 million people received Social Security spousal and survivor benefits in 2014, SSA said only 438,000 spousal beneficiaries did not receive a monthly benefit amount because of GPO.
For beneficiaries who are subject to GPO reductions, SSA is supposed to record their pension start date, monthly pension amount, offset amount and date of any expected pension increases on the Master Beneficiary Record.
When SSA increases a spouse's monthly benefit amount because of a cost-of-living adjustment, it produces an alert for individuals whose benefits SSA has suspended because of the GPO. To resolve this alert, SSA employees must verify the current pension amount, update the Mater Beneficiary Record pension and GPO amounts and pay any benefit due the beneficiary.
The inspector general chose 100 beneficiaries as a random sample. For 87 of the beneficiaries in the sample, the report said SSA had not verified or updated the Master Beneficiary Record with current pension or GPO amount for an average of 15.8 years.
When the inspector general obtained cost of living increases from the pension paying agencies to determine their current pension and GPO amount, it found that 12 of the 87 beneficiaries were underpaid $139,803 because SSA withheld an excess GPO amount; one was overpaid $19,609 because SSA under withheld GPO; and 74 were properly paid but their pension and GPO amounts listed on the Mater Beneficiary Record were incorrect.
“Generally, these errors occurred because SSA employees had not resolved alerts that required they verify and update the Master Beneficiary Record with current pension and GPO amounts,” the report found. “SSA needs to improve its controls to identify and pay spousal beneficiaries who have an excess withholding of GPO,” the report concluded.
The Social Security Administration agreed with the report and promised to update pension amounts as necessary and establish applicable overpayment and underpayments.
In the meantime, what should you do if you are concerned that you might be affected by a possible underpayment due to outdated GPO estimates?
“If you have questions about how your Social Security benefits are impacted by GPO, please visit your local office and ask to speak with a representative,” Social Security spokesman William Jarrett said.
(Questions about Social Security? Find the answers in my ebook.)