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A recent call with a financial advisor in Illinois is representative of a common question relating to the repayment of Social Security benefits.
Welcome to the Retirement Learning Center’s (RLC’s) Case of the Week. Our ERISA consultants regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans, and other types of retirement savings and income plans, including nonqualified plans, stock options, Social Security, and Medicare. This is where we highlight the most relevant topics affecting your business.
Can the government take back Social Security benefits paid in error?
An advisor called who is working with a distraught client claiming that the government had just taken money from her bank account. The advisor wanted to know if there was a way to get the money back.
It seems the funds were removed from the widow’s bank account under the federal “reclamation” process. The Social Security Administration (and other federal agencies) use the reclamation process to recoup payments of federal benefits issued after death.
If an individual receives benefit payments via direct deposit to an account or by cashed check, and if that individual was not eligible for those benefits, the government reclaims the amounts through the financial institution holding the account or that honored the check. The Social Security Administration will send Form FS-133, Notice of Reclamation, to the financial institution with instructions for returning the specified amounts. In this situation, the transaction was between the financial institution and the Treasury (on behalf of the Social Security Administration). If the financial institution carried out the reclamation in error (e.g., the recipient is still alive), the recipient must provide satisfactory proof to the financial institution to reverse the transaction. (See Reclamations for more details.)
The reclamation process contrasts with the recoupment of overpayment process, where individuals (or beneficiaries) receive notice of overpayment and first are requested to repay the specified amounts. The individual (or beneficiary) can request an appeal. Refer to the link Repay overpaid Social Security benefits.
In the case at hand, the deceased continued to receive Social Security retirement benefits for several months after death. The Social Security payments were electronically transmitted to the couple’s joint bank account, and it was from this account that the amounts were removed by the financial institution and remitted.
Frequently, beneficiaries are confused by the timing of Social Security payments. First, Social Security payments are always one month behind. For example, a November Social Security payment is made in December. Next, an individual must be alive for the entire month to be eligible for that month’s Social Security payment. As an example, if an individual dies on April 27th, they are not eligible for April’s Social Security retirement payment.
The Social Security Administration (and other federal agencies) use the reclamation process to recoup payments of federal benefits issued after death.