On Novem­ber 2, 2015, Pres­i­dent Oba­ma signed into law the Bipar­ti­san Bud­get Act of 2015, leg­is­la­tion that rais­es the fed­er­al debt lim­it and estab­lish­es the frame­work for a two-year bud­get deal. The leg­is­la­tion, need­ed to avoid an impend­ing default on U.S. debt, also con­tains mul­ti­ple unre­lat­ed pro­vi­sions, includ­ing an elim­i­na­tion of two Social Secu­ri­ty retire­ment ben­e­fit claim­ing strate­gies and a pro­vi­sion to pre­vent a sig­nif­i­cant increase in Medicare Part B pre­mi­ums for some.

 

Social Security

A Social Secu­ri­ty claim­ing strat­e­gy used by mar­ried cou­ples, com­mon­ly referred to as “file and sus­pend,” has received quite a bit of atten­tion over the last sev­er­al years. The strat­e­gy involves one spouse fil­ing an appli­ca­tion for retire­ment ben­e­fits when he or she reach­es full retire­ment age and imme­di­ate­ly request­ing that ben­e­fits be sus­pend­ed, allow­ing his or her eli­gi­ble spouse to file for spousal ben­e­fits. The file-and-sus­pend strat­e­gy has been most com­mon­ly used when one spouse has much low­er life­time earn­ings, and thus will receive a high­er retire­ment ben­e­fit based on his or her spouse’s earn­ings record rather than on his or her own earn­ings record.

In a pro­vi­sion labeled “clo­sure of unin­tend­ed loop­holes,” the leg­is­la­tion effec­tive­ly elim­i­nates this strategy–if an indi­vid­ual choos­es to sus­pend retire­ment ben­e­fits, nei­ther the indi­vid­ual nor his or her spouse can receive spousal ben­e­fits dur­ing the sus­pen­sion peri­od. This pro­vi­sion will be effec­tive in six months and applies to new file-and-sus­pend claims. Those who are both eli­gi­ble and have imple­ment­ed the file-and-sus­pend strat­e­gy before the six-month peri­od ends will not be affect­ed by the change.

Anoth­er strat­e­gy that has been used to poten­tial­ly increase retire­ment income involves one spouse fil­ing for spousal ben­e­fits first, then switch­ing to his or her own high­er retire­ment ben­e­fit lat­er. If a spouse reach­es full retire­ment age and is eli­gi­ble for both a spousal ben­e­fit based on his or her spouse’s earn­ings record and a retire­ment ben­e­fit based on his or her own earn­ings record, he or she could choose to file a restrict­ed appli­ca­tion for spousal ben­e­fits only, then delay apply­ing for retire­ment ben­e­fits on his or her own earn­ings record (up until age 70) in order to earn delayed retire­ment cred­its.

The leg­is­la­tion elim­i­nates this strat­e­gy. Any­one apply­ing for either a spousal or retire­ment ben­e­fit is deemed to have filed an appli­ca­tion for the oth­er type of ben­e­fit as well. This change affects indi­vid­u­als who attain age 62 after cal­en­dar year 2015. Indi­vid­u­als who reach age 62 on or before Decem­ber 31, 2015, will con­tin­ue to be able to file restrict­ed appli­ca­tions for spousal ben­e­fits once they reach full retire­ment age.

 

 

Medicare Part B

For 2016, there will be no auto­mat­ic increase in month­ly Social Secu­ri­ty ben­e­fits. The fact that Social Secu­ri­ty ben­e­fits are not increas­ing also affects Medicare Part B pre­mi­ums. A “hold harm­less” pro­vi­sion in the Social Secu­ri­ty Act pro­tects about 70% of Social Secu­ri­ty ben­e­fi­cia­ries from increas­es in Medicare Part B pre­mi­ums when there is no Social Secu­ri­ty cost-of-liv­ing increase (the stan­dard pre­mi­um is cur­rent­ly $104.90). That means, how­ev­er, that Medicare Part B pre­mi­um increas­es have to be spread out over the rough­ly 30% of Medicare ben­e­fi­cia­ries who are not pro­tect­ed by this pro­vi­sion. These ben­e­fi­cia­ries include those with high­er incomes who are sub­ject to income-adjust­ed Part B pre­mi­ums, low-income ben­e­fi­cia­ries whose Part B pre­mi­ums are paid by Med­ic­aid, ben­e­fi­cia­ries who are enrolled in Medicare but not yet receiv­ing Social Secu­ri­ty ben­e­fits, and new Medicare or Social Secu­ri­ty enrollees. Pre­mi­ums for some of these indi­vid­u­als were sched­uled to increase by as much as 52%.

 

To pre­vent this out­come, the leg­is­la­tion sets a new 2016 Part B pre­mi­um of $120 for cer­tain ben­e­fi­cia­ries not pro­tect­ed by the “hold harm­less” pro­vi­sion. This fig­ure is the amount the pre­mi­um would be if the increase was spread among all ben­e­fi­cia­ries. These ben­e­fi­cia­ries will pay an addi­tion­al $3 in month­ly Part B pre­mi­ums until the short­fall is made up. Those pay­ing high­er income-adjust­ed Part B pre­mi­ums will pay more. The pro­vi­sion will apply in 2017 as well if there is again no Social Secu­ri­ty cost-of-liv­ing adjust­ment.

 

 

Other provisions

The leg­is­la­tion includes sev­er­al oth­er pro­vi­sions worth not­ing, includ­ing:

  • Changes affect­ing sin­gle-employ­er Pen­sion Ben­e­fit Guar­an­ty Cor­po­ra­tion (PBGC) pre­mi­ums, and mod­i­fi­ca­tion of the rules relat­ing to the use of mor­tal­i­ty tables.
  • Repeal of the require­ment estab­lished by the Afford­able Care Act for employ­ers with more than 200 employ­ees to auto­mat­i­cal­ly enroll new full-time equiv­a­lent employ­ees into a qual­i­fy­ing health plan, and to auto­mat­i­cal­ly con­tin­ue enroll­ment of cur­rent employ­ees.
  • Mod­i­fi­ca­tion of part­ner­ship audit rules, and clar­i­fi­ca­tion of the rules gov­ern­ing recog­ni­tion of fam­i­ly part­ner­ship own­er­ship inter­ests.
  • Changes to improve the finan­cial health of the Social Secu­ri­ty dis­abil­i­ty pro­gram, includ­ing a tem­po­rary real­lo­ca­tion of a por­tion of the pay­roll tax rate.