Recently, the Trump administration made two significant and controversial policy changes aimed at addressing waste and fraud within Social Security. Firstly, the administration announced the reinstatement of garnishing entire benefit checks from individuals who have received overpayments, reversing a previous reform that limited clawbacks to a smaller amount. Social Security officials anticipate this adjustment will enable the government to recoup an additional $7 billion over a decade.
Subsequently, it was declared that beneficiaries would no longer be permitted to modify their direct deposit details over the phone. Instead, they will be required to utilize an online process with two-factor authentication or physically visit a Social Security office. This measure is intended to enhance security and prevent certain types of fraud.
Both decisions have faced criticism. Concerns have been raised by former officials and experts regarding the potential negative impact of the new clawback policy on financially vulnerable beneficiaries who cannot afford to have their entire checks withheld. Additionally, the additional security protocols surrounding bank account information might pose challenges for many seniors lacking proficiency in using computers.
Here is an overview of the key points:
Each year, the Social Security Administration disburses billions of dollars in accidental overpayments to individuals with disabilities and the elderly. Errors may arise when beneficiaries fail to report life events that could affect their benefits or when incorrect payments continue while changes are being processed. Upon identifying such mistakes, the government seeks to recover the funds by deducting them from the individual’s future benefits.
The Trump administration recently revealed its decision to revert to withholding 100% of a person’s benefits to recoup overpayments. This policy had been in place until March 2024 when the Biden administration limited the maximum withholding to 10% of a recipient’s monthly check. Acting Social Security Commissioner Lee Dudek justified this change by emphasizing the need to protect taxpayer funds. The updated rules will only impact individuals who receive overpayments after March 27, and the 10% limit still stands for Supplemental Security Income recipients.
Nevertheless, this move has faced backlash. The Biden administration initially altered the withholding rules following publicized cases of beneficiaries facing sizable overpayment debts due to government errors or complex program rules. The shift back to full withholding raised concerns about the potential financial strain on those heavily reliant on Social Security.
The restored policy has prompted bipartisan criticism, with lawmakers like Sen. Rick Scott denouncing the impact on vulnerable individuals. Former Social Security commissioner Martin O’Malley previously cited the 10% cap as a measure to prevent undue financial hardship on beneficiaries.
Returning to the 100% withholding rule is a contentious issue that has sparked debate and scrutiny.
“Cruel-hearted and seemingly intended to cause significant hardship and distress for beneficiaries without their fault,” O’Malley stated to Yahoo Finance. The proposed action is expected to disproportionately impact individuals receiving Social Security Disability Insurance, as the program restricts how much they can earn from work before losing benefits. Studies have revealed that, on average, work-related overpayments for Americans with disabilities amount to over $8,000.
To address overpayment issues, the Social Security Administration implemented new regulations last year that simplify the process of forgiving debts for enrollees not responsible for the overpayment — for instance, those who reported an income increase but received extra funds while their adjustment was being processed. These reforms are set to remain in effect, as reported by KFF News. The administration has also announced that beneficiaries can request a lower withholding rate if they cannot afford to have their entire payment withheld.
However, concerns have been raised about the impact of the Trump administration’s plan to reduce Social Security’s workforce on the ability to seek debt forgiveness. “The workforce is being significantly downsized,” noted Jack Smalligan, a senior fellow at the Urban Institute. “How will individuals navigate this when the agency was already operating with historically low staffing levels?”
Moreover, the recent changes to direct deposit procedures have sparked controversy. Following reports suggesting broader restrictions on Social Security’s phone services, the administration clarified that existing beneficiaries must update their bank information online or in person to prevent fraud attempts. Concerns have been raised that seniors lacking computer skills or easy access to offices may encounter difficulties in making these updates, especially with the adoption of an appointment-only system by Social Security offices and the potential reduction in staffing levels.
The urgency of these changes for seniors is underscored by external circumstances like bank mergers that necessitate updates to direct deposit details. O’Malley expressed concern about the challenges faced by elderly or disabled individuals who may struggle with these adjustments. He also questioned the potential impact on online services, which are utilized for the majority of direct deposit fraud incidents. While the prevalence of phone-based direct deposit fraud remains unclear, a 2019 report by the Social Security Inspector General documented thousands of such cases.
Data on online fraud between 2013 and 2017 has been detailed by the agency’s online portal, but information regarding phone fraud is not publicly available. Former officials have expressed concerns about identity fraud over the phone, noting an increase in sophisticated scams in recent years. Social Security employees are trained to detect potential fraud over the phone by questioning callers and directing them to visit a field office in person for account changes if they suspect foul play. The agency has implemented new protections, such as requiring individuals moving benefits to certain financial institutions to visit a field office after noticing a pattern of fraud. Additionally, plans were in place to utilize tools to filter out fraudulent phone calls using robocalls, voice synthesizers, and known problematic numbers. It remains uncertain if the Trump administration explored these tools before announcing its policy change. Jordan Weissmann is a senior reporter at Yahoo Finance, providing the latest personal finance and business news.
