Social Security Overpayments Are a Self-Inflicted Wound
Overpayments from the Social Security Administration (SSA) are in the news. At a recent congressional hearing, the SSA Acting Commissioner blamed the media for the “misinformation … that the Social Security Administration is attempting to collect $21 billion [in overpayments].” She also announced that she was “putting together a team to review … overpayment policies and procedures.”
Overpayments occur in both the Social Security and Supplemental Security Income (SSI) programs when benefits that should not have been paid are issued. They are stressful for beneficiaries who receive demands for repayments months or even years after their earnings or pensions were received. These repayments require complex calculations in arcane areas of law and policy, and are therefore a major and difficult administrative burden for SSA. In addition, because some of the recipients are enrolled in SSI and therefore poor, the agency often forgives the debt owed as uncollectable and taxpayers lose out.
Based on SSA overpayment rate statistics, there are roughly $12 billion in overpayments annually, split evenly between the Social Security and SSI program segments administered by SSA. This often occurs in the disability segments when the beneficiary has work earnings above a certain level and does not report these earnings to the agency, as required. These earnings are eventually discovered through other data feeds and exchanges, forcing SSA to recover the overpayments.
Asset holdings are another source of payment inaccuracy in SSI. Benefits are supposed to stop when the beneficiary has more than the allowed minimum amount of resources in any month. While individuals are required to report any changes in assets, SSA also has access to account information in financial institutions, mainly local banks, and is thus able to determine when an overpayment is due to be repaid.
In the retirement part of the program, overpayments are mainly caused by beneficiaries who formerly worked for state and local governments and now receive non-covered pensions (because their employers did not withhold Social Security taxes from their salaries). Windfall Elimination Provision/Government Pension Offset (WEP/GPO) are provisions created to reduce those Social Security benefits, provided the retiree reports his government pension, as required. Overpayments are determined when SSA eventually discovers the existence and amount of the pension which has not been reported.
Interestingly, SSA is itself often the reason for the overpayment problem. This is seen in three specific areas, assets, pensions and earnings. First, during the pandemic years of 2020 and 2021, federal and state governments sent out several waves of “Economic Impact Payments” to most taxpayers. These payments were recovery rebates and emergency stimulus payments, as well as payments to college students. Recipients included SSI beneficiaries even if they did not pay taxes. Initially, as in the past, SSA stated that these payments would not be counted as resources for twelve months—a generous fixed period of time. Then in August 2021, despite its own language describing the payments as economic stimulus, SSA declared that they were in fact “disaster assistance,” and therefore were permanently excluded from being “resources.” Because money is fungible, after months or even years, it is quite difficult today to determine the source of these funds. Perhaps SSA thought the assets would be quickly spent by the poor. But as recent Federal Reserve data show, from 2019 to 2022, the median value of financial assets held by families increased by 31 percent, and this increase was widespread across the income distribution. So apparently, even poor households, including SSI beneficiaries, did not spend their economic stimulus payments and kept them. SSA has thus made a double mistake: Contrary to law and past policy it has excluded these stimulus payments from being counted as (above the limit) assets. And, despite not being able to determine whether the payments are still held by individuals, SSA has sent overpayment notices, causing confusion and agency work to clean up the mess.
SSA is also partly to blame when it comes to the Windfall Elimination Provision/Government Pension Offset. Accurate and current data on pension payouts are available through the IRS tax form databases. It is thus reasonable and legal for the IRS to share the data with SSA to enable it to calculate Social Security retirement benefit amounts accurately. This also allows taxpayers and the IRS to compute the correct amount of income taxes to be paid by individual retirees on their Social Security benefits. Yet the agency’s efforts in this regard have been desultory. SSA senior officials recently curtly dismissed the SSA Inspector General’s suggestion that SSA ask for legislative authority to get the needed data.
With respect to data on earnings used in adjusting disability payments, SSA currently relies on annual income tax data from the IRS, and quarterly unemployment insurance premiums data from the Department of Labor and state unemployment insurance agencies. The data, however, come with a considerable delay. In 2015, Congress authorized SSA to get more current payroll data (in a Payroll Information Exchange) for a significant portion of the labor force. Incredibly, this data exchange is still not in place, and the prospect of implementing the necessary regulations is clearly a low priority for SSA.
It is impossible for SSA to eliminate overpayments entirely, but everyone—beneficiaries, taxpayers and the agency itself—would be better off if SSA did a better job.
Mark J. Warshawsky is a senior fellow at the American Enterprise Institute. He previously served as deputy commissioner for retirement and disability policy at the Social Security Administration.
