Financial Assistance
The Basics of Social Security and Supplemental Security Income
Food Stamp Program
Tax Relief for the Elderly
Income Taxes
Private Pensions
Age Discrimination in Employment
The Basics of Social Security and Supplemental Security Income
By Philip Senturia, formerly managing attorney of the Benefits Unit at Gateway Legal Services, Inc, a not-for-profit legal aid organization, and currently an attorney advisor at the Social Security Administration Office of Disability Adjudication and Review in St. Louis.
Editors’ Note: The information in this booklet on Social Security and Supplemental Security Income (SSI) is designed to give you a brief idea of what these programs are all about and what you have to do to qualify for them. All figures used to determine eligibility for benefits are current as of January 2009, and are subject to change at any time. For more detailed information about Social Security and SSI, call or visit the Social Security Administration Office nearest you.
Introduction to Social Security
For most American workers, the initials "FICA" on the paychecks may mean nothing more than a payroll deduction. Some refer to it as "just another tax," while other persons only now that it means money they have earned and cannot spend.
Actually, the letters "FICA" stand for "Federal Insurance Contributions Act," the official name for the federal law that set up the Social Security Program of 1935. Social Security provides a minimum income for eligible workers and their families when the worker retires, becomes severely disabled, or dies. Following are some basic facts you should know about Social Security.
General Eligibility
Full retirement age for individuals born in 1937 or earlier is 65 years old. For each year later a person was born, their retirement age goes up two months, until 1943. Individuals born from 1943 through 1954 will all retire at age 66. After 1954, the retirement age moves upward again two months per year through 1960. For instance, someone born in 1938 reaches full retirement age at 65 years and two months of age, while someone born in 1959 reaches full retirement age at 66 years and 10 months of age. For individuals born in 1960 or later, full retirement age is 67. Eligibility for Social Security benefits depends on how long you have contributed to the program as a worker. In order to qualify for retirement, disability or survivors benefits for you or your family, you must have a certain number of years of coverage. Historically, workers generally earned a quarter of coverage for each three-month calendar quarter in which wages were paid of $50 or more. A quarter of coverage is now often called a “credit” because the quarters of coverage can be earned at any time during a year. A highly paid worker can earn all four quarters, or credits, in the beginning of the year. (Four quarters, of course, make one year of coverage.)
In 2009, for example, a worker receives one credit for each $1,090 of earnings, up to a maximum of four credits based on annual earnings of $4,360 or more. This amount goes up each year, and was lower in the past. This amount includes gross wages paid and net self-employment income. Just more than 10 years of coverage (40 quarters) will generally fully insure a worker and family for life, but less than that will also be enough for full coverage if the worker has achieved a certain amount of work credit. The work credit requirement differs, depending on whether you are applying for retirement benefits or whether your spouse and dependents are applying for survivors benefits after your death. To find out how many quarters you have or how many you need to qualify, contact your local Social Security Administration office. To be eligible for disability payments, you must meet the following test:
(1) You were recently employed; and
(2) You possess the same amount of work credit that would be required if you reached retirement age in the year you were disabled; and
(3) You have 20 quarters (five years) of coverage out of the preceding 40 calendar quarters (ten years) before you became disabled. The required coverage is lower if you became disabled before the age of 31. It is important to apply for disability benefits soon after you become disabled, because a lengthy delay may make you ineligible.
NOTE: For those disabled by blindness, (1) and (2) above are required, but not (3).
How Much to Expect
Being "covered" or insured only means that you and your family can get benefits. The amount you receive in monthly paychecks depends on the average yearly earnings of your working career under Social Security. These basic benefits are now automatically adjusted upward every January to keep pace with the cost of living. Because workers do not pay FICA tax beyond a certain amount of earnings in a year, there is always a maximum amount for retirement benefits. As of January 2009, the normal maximum monthly amount of retirement insurance benefits for an individual who reaches full retirement age in 2009 is $2,323. Sometimes, a retired person’s dependents (such as spouse or minor children) will also receive payments, up to a total of about 50% more.
If you are retired or near retirement and you want to figure out your Social Security benefits, call the Social Security Administration toll free at 1-800-772-1213 and ask to receive a Personal Earnings and Benefit Estimate Statement (PEBES). These statements are now also automatically sent annually to any individual who paid taxes on income during the previous year.
Social Security also now encourages people to file applications and seek information via their website, www.socialsecurity.gov, which has many useful functions, including frequently asked questions and complete lists of the rules and regulations covering Social Security’s programs.
The amount of retirement benefits you receive can be affected by whether you take “early retirement.” You may choose to retire as early as age 62. However, for each month you take your benefits early, your monthly benefits are permanently reduced by a certain percentage (depending on your full retirement age). For an individual born in 1943, for instance, taking retirement at age 62 instead of age 66 (four years early) would result in a 25% reduction of their monthly payments on a
permanent basis.
Working After Payments Start
After retirement, you may get an opportunity to go back to work on a full-time or part-time basis. Before you decide to work, you should know how your earnings would affect your Social Security benefits.
Workers younger than full retirement age can earn $14,160 in 2009 ($1,180 per month) without affecting their retirement checks at all. For every two dollars ($2) of earned income above that limit, Social Security will reduce their checks by one dollar ($1).
A Note About So-Called “Notch Babies”
The term “notch” refers to Social Security benefits paid to people born between 1917 and 1921. The notch resulted from a 1972 change in the Social Security law that used a flawed formula to calculate how much someone’s benefits should be.
This flawed formula provided excess benefits to those people whose benefits were calculated under it. Before Congress corrected this error in 1977, the benefits for many people born between 1910 and 1916 were calculated using the flawed benefit formula; they received an unintended windfall from Social Security.
When Congress fixed the mistake, it wanted to avoid an abrupt change for those who were about to retire, so it provided a transition period. Therefore, when Social Security benefits are calculated for people born between 1917 and 1921, two computations are used. One calculation uses the new (and correct) 1977 formula, and the other uses a special transition formula. Benefits are based on whichever calculation pays the higher benefit. Benefits for everyone born in 1922 and later are calculated using only the new and correct 1977 formula, which generally results in lower benefits than those computed using the “notch” calculation method.
Thus, the “notch babies” (those born between 1917 and 1921) receive less money than those people born before 1917 who had similar work histories, but generally receive more benefits than those born in 1922 or later. Thus, the argument of “pro-notch baby” groups is that beneficiaries born between 1917 and 1921 should get more money simply because people born between 1910 and 1916 are getting too much money. Naturally, the people born after 1921 would also want to receive this extra money. This would result in the whole system changing back to the incorrect formula from 1972, resulting in billions and billions of extra dollars spent each year. The government has completed an investigation into the notch and determined that no changes will be made.
The discontent of “notch babies” is kept alive by profiteering “lobbying” groups who mislead people born between 1917 and 1921 into thinking that they are receiving fewer benefits than people both older and younger than they are. This is not true.
Introduction to Supplemental Security Income (SSI)
The Social Security Administration also administers the Supplemental Security Income (SSI) program. This program provides a basic monthly income to blind, disabled and elderly (age 65 or older) persons who urgently need financial assistance. Unlike Social Security, you can receive SSI checks even if you have never worked or if you do not qualify for Social Security for some other reason.
Who Qualifies?
SSI is available to persons who meet the income requirements and who are 65 or older, blind, or disabled.
"Blindness" is defined under the SSI program as central visual acuity of 20/200 or less in the better eye with the use of a corrective lens or visual field restriction to 20 degrees or less.
SSI defines a person as "disabled" if that person is unable to engage in any substantial gainful employment due to a physical or mental impairment that has lasted or is expected to last for at least 12 months or is expected to result in death.
As of January 2009, one’s individual “countable” income must be less than $673 a month. A couple’s countable income cannot be more than $1,010 a month. Social Security uses the term “countable” because not all income counts. The first $20 of most income, $65 more of wages, one-half of wages above $65, food stamps, home energy and housing assistance, and other exemptions are not counted as income. The Social Security Administration considers gross wages, rather than net income, or “take home” pay.
NOTE: By law, the above figures are subject to change once a year.
A single person can have available assets (i.e. easily converted to cash) up to $2,000 and still receive SSI. A couple can have up to $3,000. In addition, you may own a car worth $4,500 or less, a home of any market value as long as you reside in it, household goods worth $2,000 and a life insurance policy worth $1,500 (face value) without losing SSI benefits. There are some exceptions to these limitations. Contact the Social Security Office in your community for more information.
What May Reduce Your SSI Benefits?
Any unearned income over $20 a month reduces the amount of your SSI check. This type of income includes Social Security payments, pensions, gifts and other unearned money. People who work while receiving SSI can earn up to an additional $65 per month without having their benefits reduced. For every two dollars ($2) of earned income above that amount, their SSI check is reduced by one dollar ($1).
Eligible people living in a friend’s or relative’s home may face a reduction in SSI benefits. Also, an unmarried couple living together may be listed by the Social Security Administration as "holding out as husband and wife." When this happens, and both persons are receiving SSI, each check will be reduced, if necessary, so that the two checks together will equal the amount that a couple would receive. If you feel that such rulings are wrongly applied to your situation, you can challenge them administratively or in court. (See Appeals Process)
Appeals Process
If your application for Social Security or SSI benefits is denied or if any of your benefits are reduced or terminated, you have the right to appeal the decision. Here are the steps:
(1) After the action is taken against you, you must make a written request for reconsideration or for a hearing in front of an administrative law judge within 60 days of the denial. Note: If you previously were receiving benefits, and you are being terminated because you have medically improved and are now able to work, and you disagree, and you file your request for reconsideration or hearing within 10 days of the denial, your benefits will continue until the reconsideration decision is made.
(2) If you win an appeal at any level, you will be entitled to all of the benefits you would have received if your application had been granted right away.
(3) If an administrative law judge finds against you, you have a right to request a review by the Social Security Appeals Council in Virginia within 60 days of the adverse decision. The council can refuse to review the case.
(4) If the council refuses to review or decides against you, you have another 60 days to appeal to the U.S. District Court.
Under an experimental new appeals structure, many Missouri applicants for benefits based on disability are able to skip the reconsideration stage.
Forms are available from any Social Security Administration office or on the Internet at http://www.socialsecurity.gov. You are allowed to have a friend or relative assist in any appeal proceeding. You may also want to contact an attorney to help with an appeal or any other matter concerning the Social Security and SSI programs. In new claims for benefits, most attorneys only charge a fee if the claim is successful and charge a percentage of the retroactive benefits award. Consult the listing at the end of this booklet for legal assistance information.
It is illegal for attorneys or other representatives to charge any fee for help in any Social Security matter without getting the approval of the Social Security Administration.
Representative Payees
Some Social Security recipients receive checks on behalf of beneficiaries. These recipients are known as representative payees. Their primary responsibility is to use the Social Security money for the basic or personal needs of the beneficiary.
The representative payee is usually a spouse or other relative, friend or legal guardian. An institution such as a nursing home can also be designated as a representative payee.
Appointment of a representative payee begins with a friend or relative notifying the Social Security office that an individual is incapable of handling her or his own affairs. A doctor’s statement to that effect must also be filed. The Social Security Administration then determines whether the individual is mentally competent to continue receiving her or his own checks. If the Social Security Administration finds that the individual is not competent to do so, it will select a representative payee. This selection may be challenged.
If, at some point after the appointment of a representative payee, an individual feels competent to personally receive the Social Security checks, that individual can ask the Social Security Administration to stop payment to the representative payee. For more details about stopping representative payments or changing your representative payee, call or visit the Social Security office nearest you.
Food Stamp Program
By Karen Warren and Paul Hargadon of Legal Services of Eastern Missouri, Inc. Karen is a managing attorney at Legal Services working with the Public Benefits Project, the Elder Law Project, and the Special Projects Unit. Paul is a public benefits specialist with the Public Benefits Project.
Editors’ Note: This information is designed to give you a brief description of the Food Stamp Program and what you have to do to qualify for it. The rules listed below are specific to individuals 60 and older; other rules may apply if you are younger than 60 or are an immigrant (non-citizen). All figures are current as of January 2009, but are subject to change. For more information, call or visit the Family Support Division Office (formerly the Division of Family Services) nearest to you. Information on the Food Stamp program and other programs administered by the Family Support Division is available on the Internet at http://www.dss.mo.gov/fsd/index.htm.
The Food, Conservation, and Energy Act of 2008 renamed the Food Stamp program the “Supplemental Nutrition Assistance Program” (SNAP) effective October 1, 2008. At this time, the program is still called the Food Stamp Program in Missouri.
Introduction
Steadily rising food costs pose special problems for millions of older Americans on fixed incomes. The Food Stamp Program helps stretch the food budgets of persons with eligible incomes. Food stamp benefits are issued on an electronic benefits transfer (EBT) card. It is issued by the federal government and looks like a credit/debit card, but it can only be used to purchase food.
How to Get Food Stamps
To apply for food stamps, you can have an application mailed to you or you can visit the nearest Missouri Family Support Division (FSD) office to apply in person. FSD is required to take your application on the same day that you visit the office. If you request an application by mail, FSD is required to mail you one on the same day that you request an application. As with all financial assistance programs, you must meet certain income eligibility requirements. You should provide proof to the FSD office of all income, rent, utility, child care, and medical expenses – including out-of-pocket expenses for health insurance premiums, doctor bills, prescription bills, required medical equipment or supplies, and transportation costs you incur to obtain medical services. Because income and expenses are evaluated for program eligibility, you should be careful to provide documentation and verification in order to obtain the maximum amount of food stamp benefits. However, do not delay applying if you do not have all of these pieces of verification.
The application process starts the day you apply, even if you do not have all of the verifying information. FSD has 30 days to process the application. However, if you have less than $150 in monthly gross income and $100 or less in liquid resources, or your rent and utilities exceed your income and resources, you are eligible for “expedited” food stamps, which means that FSD must give you food stamps within seven days of your application. The only piece of information required for expedited food stamps is verification of your identity.
At initial application and when there is a break in the food stamps certification period, applicants will be screened for expedited (emergency) food stamp benefits. Expedited food stamp benefits are prorated, from the date of application through the end of the application month. In some circumstances, the eligibility specialist (caseworker) may screen the household to determine if the criteria for expedited service benefits are met for the following month.
Income Requirements
Eligibility is determined on a “household” income basis. A “household” is a person living alone or people living together who meet two tests: (1) they buy food together and (2) they prepare food together. If you share a residence and buy and store your food separately from that of your companions, you will not be considered part of the household for food stamps purposes.
Certain household members are mandatory food stamps household members, regardless of how they purchase and prepare meals. These household members are as follows: (1) spouses; (2) parents and children under 22 years old; and (3) children, except foster children, under 18 years old who are under the parental control of a person other than their parents and that individual is exercising parental control (i.e. grandparents may apply for grandchildren in their care, even if they do not have “legal” custody).
NOTE: Foster children may be included in the food stamps household, but their income must also be included in determining the household income.
However, if you are at least 60 years old, living with others, and unable to purchase and prepare food because of a permanent disability, you can be your own household as long as the others with whom you live do not have an income greater than 165% of the poverty level. The burden is on you to show that situation exists if you want to be considered for food stamps apart from other household members.
The countable income for persons 60 years or older is the net monthly income. Net monthly income is the gross monthly income (monthly income before deductions) minus the following: 20% of gross earned income; a standard deduction, based on the number of eligible members in the household; dependent care expenses; shelter and utility costs that exceed 50% of income; and allowable medical expenses over $35 a month. It is important for you to tell your eligibility specialist (caseworker) about all your medical expenses, including over the counter medications you take at your doctor’s directions and any transportation costs for getting medical care.
Many people mistakenly believe that the Food Stamp Program is designed to help only the desperately poor or nonworking people. However, elderly and disabled households are often eligible for a $14 minimum monthly benefit. In addition, households with an elderly or disabled member are not subject to a gross income test.
Resource Limits
Households with at least one member 60 years old or older may have resources up to $3,000.
Food Stamp Exclusions
Food stamps may be used only to purchase food. However, hot food that has already been prepared cannot be purchased with food stamp benefits (i.e. food prepared at grocery store salad bars, buffets, and meat departments, and the purchase of meals at restaurants). In addition, you may not use food stamp benefits to purchase non-food items, and the regulations explicitly exclude the purchase of tobacco, pet food, alcoholic beverages, and paper products with food stamp benefits.
Denial: Right to Appeal
If your application for food stamp benefits is denied, you may appeal the denial through the fair hearing process. To request a hearing, you may visit the FSD office, contact your caseworker by telephone, or send a written request. A fair hearing must be requested within ninety (90) days of the date of denial. Just as with Social Security and SSI, you may want the help of an attorney. FSD can provide information to you regarding free legal assistance available in your area.
If FSD sends a notice to terminate or reduce your food stamp benefits, you may also request a fair hearing. If the request is made within ten (10) days of the date of the notice, you may request to continue to receive benefits, at the current benefit amount, until the decision from the fair hearing is received. If the hearing decision is in your favor, you will continue to receive benefits. However, if the hearing decision is not in your favor, you may be required to pay back the benefits
that you received.
If you are not satisfied with the decision from the fair hearing, you may appeal to the circuit court in your county. This appeal must be made within ninety (90) days of the date of the fair hearing decision.
Tax Relief For The Elderly
By Harry Charles, attorney at law and CPA. Mr. Charles is a sole practitioner concentrating on tax disputes. He is also and adjunct tax professor at Washington University School of Law. All tax sections are attributable to Mr. Harry Charles.
The Missouri Property Tax Credit (commonly called "circuit breaker")
For 2008, the State of Missouri has expanded the Property Tax Credit (PTC). If a taxpayer is single and a renter or part year homeowner, the first question is whether their total household income is $27,500 or less. If married filing combined, the total income must be $29,500 or less. For 100% service connected disabled veterans, they can exclude VA payments from the income calculation. For those taxpayers who owned and occupied their home for the entire year, the income limit for a single person is $30,000. For those filing married combined, the income limit is $34,000. As before, 100% service connected disabled veterans can exclude their VA payments. Taxpayers must have paid real estate taxes or rent on the home that they occupied. Secondly, taxpayers must truthfully state that they did not employ illegal or unauthorized aliens. The final test is whether the taxpayer or their spouse was 65 years of age or older as of December 31, 2008 and either was a Missouri resident for the entire 2008 calendar year. If neither the taxpayer nor their spouse was 65 years or older as of December 31, 2008 and neither was a full-year Missouri resident, the State provides the first of three fallback qualifiers. If the taxpayer or their spouse was 100 percent disabled as a result of military service, then they qualify for the PTC. The second fallback qualifier allows the PTC if the taxpayer or their spouse was 100 percent disabled in 2008. The third fallback qualifier allows the PTC if the taxpayer was 60 years of age or older as of December 31, 2008 and received surviving spouse social security benefits.
Qualifying taxpayers who are not required to file a federal tax return should file Form MO-PTC. For those who are required to file a federal return but do not claim an income modification or a pension exemption, file MO-1040P. Those who must file a federal tax return and have modifications to income or claim other tax credits, use both MO-1040 and MOPTS.
The Department of Revenue offers free preparation of the Missouri individual income tax return and/or property tax credit by Department of Revenue employees at the Tax Assistance Offices. The offices are located in Jefferson City (573-751-7191), St. Louis (314-877-0177), Cape Girardeau (573-290-5850), Springfield (417-895-6474), Joplin (417-629- 3070), Kansas City (816-889-2920) and St. Joseph (816-387- 2230). Additional information is available at http://dor.mo.gov/tax/assistance.htm.
Homestead Preservation Credit
The Homestead Preservation Credit offers qualified taxpayers (65 or over and/or 100 percent disabled) a tax credit if their real estate property taxes increase 2.5 percent in a nonreassessment year (even numbered year) or 5 percent in a reassessment year (odd numbered year). The credit is for the amount that exceeds the 2.5 or 5 percent tax increase. The legislature must appropriate money for the credit and taxpayers must claim it each year that they qualify. The filing period for the 2009 HPC will be from April 1, 2009 to October 15, 2009. No extensions are available. The Department of Revenue advises on its website that the Form HPC and instructions will be available in March 2009.
Income Taxes
Taxable Income
The basic federal rules are as follows. For taxpayers who are single and 65 or over at the end of 2008, they must file a return if their gross income was at least $10,300. For taxpayers filing as head of household who were 65 or older, the income required for filing is $12,850. For those filing married jointly, if one is 65 or over, the income required for filing is $18,950. For married filing jointly and both are 65 or over, the income required for filing is $20,000. For married filing separately at any age, the income required for filing is $3,500. For qualifying widow(er) with dependent child and 65 or over, the income required for filing is $15,450.
The taxable part of social security benefits is usually no more than 50 percent. However, up to 85 percent can be taxed if the total of one half of the taxpayer’s benefits and all of their other income is more than $34,000 ($44,000 for married filing jointly) or the taxpayer filed married filing separately and lived with their spouse at any time during 2008.
Deductions from Income Taxpayers are allowed to deduct from their adjusted gross income the greater of either their standard or itemized deductions. The standard deductions for most people are as follows: (1) for single or married filing separately, the standard deduction is $5,450, (2) for married filing jointly or qualifying widow(er) with dependent child, the number is $10,900, and for (3) head of household, the standard deduction is $8,000. There are higher standard deductions for taxpayers or their spouses who were born before January 2, 1944 and/or blind. Each condition (age and blindness) increases the deduction.
There is a federal tax credit for the elderly or the disabled, which is available to taxpayers who were 65 or older at the end of 2008 or were under 65 but permanently and totally disabled, received taxable disability income in 2008 and as of January 1, 2008 had not reached mandatory retirement age. The federal credit has income limits which are set forth in IRS Publication 524, Credit for the Elderly or the Disabled.
Missouri increased its standard deduction amounts.
Residential Dwelling Accessibility (DAT) Tax Credit
Missouri enacted a tax credit for making a taxpayer’s principal residential dwelling accessible for individuals with disabilities. The disabled individual must permanently live in the dwelling. The credit is issued on a first come, first served basis and is available to any individual or married couple with a federal adjusted gross income of $30,000 or less. These qualifying taxpayers can get a credit equal to the lesser of 100 percent of their cost or $2500 per taxpayer, per year. For taxpayers with income between $30,000 to $60,000, the limit is 50 percent of cost, or $2,500, whichever is less. The credit cannot be obtained in successive tax years. The credit must be claimed by April 15 of the tax year via Forms MO-DAT and MO-TC.
Selling a Home If a taxpayer decides to sell his/her home and receives more for the home than was paid, including improvements, the taxpayer has realized a gain on the sale, which may be taxable. For taxpayers who sold their main home in 2008, they may be able to exclude up $250,000 ($500,000 on a joint return). IRS Publication 523, Selling Your Home, sets forth the rules and includes charts on calculating the gain. In recognition of current economic problems, there are special rules for foreclosures or repossessions of a principal residence. If a lender cancels a taxpayer’s duty to pay back their principal home mortgage, this can trigger a Form 1099-C, Cancellation of Debt, which is an income document, reported to the IRS. For discharges of indebtedness as described above made after 2006 and before 2013, taxpayers can exclude from their gross income this “phantom income.” However, they must reduce the basis of their home by amount excluded. IRS Form 882 sets forth the rules.
DependentsThe rules for claiming dependents on a tax return are complicated. Essentially, dependents can be qualifying children or qualifying relatives. Qualifying children are your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. The child must be under age 19 at the end of the year, under age 24 at the end of the year and a full-time student, or any age if permanently and totally disabled. Qualifying relatives are not qualifying children and do not have to live with the taxpayer. These include a child, stepchild, foster child, or a descendant of any of them, brother, sister, half brother, half sister, stepbrother, stepsister, father,
mother, grandparent, or other direct ancestor, but not foster parent, stepfather, stepmother, son or daughter or your brother or sister, the taxpayer’s son-in-law, daughter-in-law, mother-in-law, brother-in-law or sister-in-law. A taxpayer generally cannot claim a married person as a dependent if they filed a joint return. The taxpayer must have provided over half the support for a qualifying relative; a qualifying child must not have provided more than half of their own support. The rules
are set forth in IRS Publication 501, Exemptions, Standard Deduction and Filing Information.
Midwest Disaster Exemption
Taxpayers may be able to claim a $500 exemption of they provided housing to a person displaced by a Midwestern disaster. IRS Form 8914 covers the rules.
Private Pensions
By Pam Coffin of Mercer Human Resource Consulting. Ms. Coffin specializes in pension work. She is also a long term participant in the Legal Services, Inc., Volunteer Lawyers Program.
Eligibility
Many retired and disabled workers who are receiving Social Security benefits have worked in one or more jobs that were covered by an employer-sponsored retirement plan, such as a pension plan or a “401(k)” plan. This chapter describes plans subject to a federal law called ERISA, which covers many retirement investment plans. Those plans that are not subject to ERISA (primarily plans for employees of government and church-related organizations) are subject to different rules. If the plan requires employees to contribute in order to participate, employees have a 100% “vested” right to the benefits for which they have paid. Employer-paid benefits are usually subject to a “vesting” schedule, which may require employees to work for as long as 5 years in order to “vest” in all or part of the employer-paid benefits. Employees who last worked for a company before 1989 may not have a vested right to employer-paid benefits if they worked for less than 10 years.
Vesting is based on “service” with the employer. Service usually means a calendar year or other 12-month period during which an employee is credited with 1,000 hours. However, some plans simply require 12 months of work and do not count hours. If an employee terminates employment before that person has a vested right to any part of the benefit and does not return to work for the employer for 5 or more years, prior service will be lost. Once the employee becomes vested, however, that employee will always be vested in the benefits earned under that plan. Slightly different rules apply if an employee last worked for a company before 1989.
Payment of Benefits Upon Termination or Retirement
Many plans automatically “cash out” employees whose vested benefit is worth $5,000 or less by paying the entire benefit in a lump sum. (The limit was $3,500 for payments made before 1998; it was $1,750 for payments made before 1985.) An employee who was cashed out is not entitled to a pension from the plan at retirement because that employee has already received the benefit.
Employees (and surviving spouses) who receive taxable lump sums must be allowed to elect whether to take a lump sum in cash (less 20% federal income tax withholding) or to have it directly rolled over to a traditional IRA or an eligible retirement plan that accepts rollovers. For distributions made after 2001, eligible retirement plans include tax-qualified retirement plans, tax-sheltered annuities and certain eligible state or local government deferred compensation plans. Taxable amounts that are rolled over are not taxed until they are actually paid out. Beginning in 2002, lump sums that include after-tax employee contributions can be rolled over to a traditional IRA or a tax-qualified defined contribution plan that accepts after tax amounts. Distributions that are required to be made because the employee is over age 70-1/2 cannot be rolled over. Distributions made after 2007 can also be rolled over into a “Roth” IRA. For distributions in 2008 and 2009, the Roth IRA option is available only if the recipient’s gross income for the year is $100,000 or less and, if the recipient is married, he or she files a joint federal tax return with his or her spouse. Please note that any pre-tax amount that is rolled over to a Roth IRA is included in the recipient’s income for the year. However, if certain rules are met, distributions from the Roth IRA (including any investment earnings) will be tax-free. See Individual Retirement Plans, below.
Beginning March 28, 2005, new rules apply to automatic cash outs of vested benefits worth between $1,000 and $5,000. If an employee who has not reached the plan’s normal retirement age does not make an affirmative election to have the benefit directly rolled over or to receive cash, the plan sponsor must establish an IRA for the employee and deposit the benefit in the IRA. The employee can withdraw the money from the IRA at any time (subject to a 10% penalty unless the employee is at least age 59-1/2 or meets certain other requirements). Many plans – especially pension plans – have been amended to either (1) eliminate cash outs for benefits worth more than $1,000 or (2) require the employee’s consent to pay lump sums in excess of $1,000. This avoids the need to set up an IRA.
If the plan does not cash out small benefits – or if the employee’s pension was too large to cash out – the employee will be entitled to receive a benefit upon reaching the plan’s “normal retirement age” – usually age 65. Many plans permit payment to begin earlier – at the “early retirement date” if the employee meets the plan’s eligibility rules. Early retirement eligibility rules typically require the employee to be 55 or 60 years old with 10 or 15 years of service. Monthly payments under early retirement pensions are normally smaller than monthly payments beginning at normal retirement because the employee has fewer years of service and because the payment period will be longer.
Pension plans must pay benefits in the form of an annuity, although they can offer other optional forms. An annuity means that periodic payments are made (usually monthly) as long as the employee lives. Married employees are entitled to receive a form of payment called a “qualified joint and survivor annuity.” A qualified joint and survivor annuity usually pays a reduced monthly benefit during the employee’s life in order to provide periodic payments (usually 50% of the employee’s payment) to the surviving spouse after the employee’s death. Under this form of payment, the spouse to whom the employee was married at retirement is entitled to the survivor benefit even if they are later divorced. Beginning in 2008, married employees must also be offered a “qualified optional survivor annuity” that pays a reduced benefit during the employee’s life and a different percentage (usually 75%) of the employee’s payment to the spouse after the employee’s death. A married employee can elect to receive a different form of payment only if the spouse consents.
Monthly benefit payments – or installment payments made over a period of 10 or more years -- are generally subject to federal income tax withholding like wages. However, the recipient may elect not to have tax withheld. Plan distributions are not subject to Social Security (FICA) tax.
Usually, 401(k) plans pay benefits in the form of a lump sum or in installments.
Plan distributions generally must begin by April 1 of the calendar year beginning after the employee reaches age 70-1/2 or, if later, after the employee stops working for the company that sponsors the plan.
Disability Benefits
Some pension plans pay disability pensions to employees who must quit working for the company because they become disabled. Some plans require the employee to qualify for Social Security disability; others have different standards. Most pay disability benefits only to employees who become disabled after completing a minimum period of service – such as 10 or 15 years.
Pre-Retirement Death Benefits
If the employee dies after becoming vested and before receiving any benefits under the plan and if the employee was married at death, the surviving spouse will be entitled to a surviving spouse benefit under a pension plan. However, some plans permit the employee to waive the coverage (with the spouse’s consent). The survivor benefit is usually payable at death or, if later, when the employee could have elected to begin receiving benefits had the employee survived. Most pension plans do not pay pre-retirement death benefits to non-spouse beneficiaries, although this is becoming more common, especially in a type of pension plan called a “cash balance” plan.
In a 401(k) plan, the surviving spouse is entitled to receive the employee’s vested account balance unless the employee designated a non-spouse beneficiary (with spousal consent). An unmarried employee can also name a non-spouse beneficiary for the account.
A lump sum distribution paid to a non-spouse beneficiary in 2007 or later can be directly rolled over to an IRA. Income tax will be withheld from a distribution paid directly to the beneficiary unless the beneficiary elects otherwise.
Post-Retirement Death Benefits
Once payment begins under a plan, a death benefit will be payable only if a death benefit is provided under the form of payment in effect at retirement. If the employee was married and if payment was made in the form of a joint and survivor annuity, the surviving spouse will receive payments (usually 50% of the employee’s payment) for life. If payment was being made for the life of the employee only, no death benefit will be payable.
Common Problems
- The employee or survivor fails to notify the employer of changes in address after the employee leaves employment (or dies).
- The employee or survivor fails to apply for benefits when eligible.
- The employer’s or the plan’s records are incomplete or incorrect with respect to the employee’s eligibility for plan benefits.
- The employee does not work for an employer long enough to become “vested.”
- The employee does not work in an eligible classification long enough to earn a benefit.
- Union membership does not guarantee coverage under a pension plan – the employee must also work for employers who contribute to the plan.
In some cases, the insolvency of the plan or the employer will affect benefits. The PBGC – a federal insurance agency – guarantees some (but not all) benefits under most types of pension plans. Benefits under other types of plans – such as 401(k) plans – are not guaranteed or insured. However, the employer and others who operate plans of all kinds are required by law to use plan assets only for the purpose of paying benefits and expenses.
If a plan is terminated or a former employee who is entitled to a benefit cannot be located, the PGBC or the Social Security Administration may be asked to notify the employee that benefit is due.
Qualified Domestic Relations Orders
As a general rule, an employee’s benefits in a retirement plan cannot be assigned or reached by creditors prior to payment to the employee. However, a court can order a plan to pay benefits to a spouse, former spouse, or child to satisfy the employee’s support obligations or to divide marital property in a divorce. The order will be valid only if it meets certain requirements. In many cases, payment cannot be made to the spouse or other person under the order until the employee is eligible to receive benefits from the plan. A lump sum paid to a spouse or former spouse under a qualified domestic relations order can be directly rolled over to an IRA or other plan (and is subject to 20% federal income tax Questions about your ERISA rights can be directed to the withholding if it is not directly rolled over).
Information About the Plan
Federal law requires the employer (or the plan administrator) to furnish plan participants and beneficiaries with a summary plan description that contains information about the important provisions of the plan. A copy of the plan document must also be made available upon request. Participants are entitled to request a benefit statement once a year, showing the benefit earned to date and whether it is vested.
Claims for Benefits
If an employee or beneficiary applies for a benefit and is denied (or receives less than the applicant believes said applicant is entitled to receive), the plan must provide a written explanation of the reasons for the denial, a description of any additional information needed to review the claim, and a copy of the plan’s claim review procedures. The employee must make a claim for benefits in writing and retain a copy as a record. An employee’s request for review of a denied claim must be made in writing and must follow the rules set forth in the plan’s claim procedures (including the plan’s time limit for filing the request). The plan must, in turn, provide its decision on the review in writing.
Sometimes a claim is denied because the employer or the plan has incomplete or incorrect information. The employee may use the employee’s own records, Social Security records, or the employer’s records to support the claim. Sometimes a claim is denied because the plan is not being operated in compliance with applicable law (or with the terms of the plan document). In such a case, the employee may be able to get a court to force the employer to comply.
If the claim is denied on review, the employee may have to obtain the assistance of an attorney. Pension cases are seldom easy. Even if the employee wins, no damages are available under ERISA. A court can award the employee the benefit due and attorneys’ fees. In some cases, the court may also order the employer to pay the employee a penalty for failing to provide plan information on a timely basis. If the employee loses, however, the employee may be ordered to pay the opposing side’s attorney’s fees.
Questions about your ERISA rights can be directed to the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory (314-539-2691 in St. Louis) or contact the:
Division of Technical Assistance and Inquiries Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Avenue NW
Washington D.C. 20210
You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publication hotline of the Employee Benefits Security Administration at 1-866444-3272 or by visiting its Web site at www.dol.gov/ebsa.
Individual Retirement Programs
Individual retirement programs are available to employees and people who are self-employed. The most common is the Individual Retirement Account or “IRA.” Most people who are working can contribute the maximum amount each year to an IRA, even if they are covered under a retirement plan at work. Spouses can also set aside the maximum amount each year, even if they are not working. The annual contribution limit is $4,000 for 2006. The limit increases to $5,000 for 2008 and later years. Individuals who are age 50 or over by the end of the calendar year can also make a “catch-up” contribution for the calendar year. The maximum annual “catch-up” contribution is $1,000 per individual for 2006 and later years. Most people can choose between making tax-deductible contributions to a traditional IRA or nondeductible contributions to a Roth IRA. Both types of IRA have advantages and disadvantages. Traditional IRA distributions are generally fully taxable and must begin after the individual reaches age 70-1/2. Roth IRA distributions are tax-free if certain requirements are met. An individual who works past age 70-1/2 can contribute to a Roth IRA. Distributions from Roth IRAs are not required to begin after the individual reaches age 70-1/2.
Self-employed persons also have the option of setting up a retirement plan – called a “Keough” plan that enables them to set aside more money than an IRA. If the person has employees, they must also be covered under the plan.
Age Discrimination in Employment
It is increasingly common for senior citizens to delay their retirement or to work in post-retirement jobs to supplement a fixed income. Despite more than four decades of federal and state laws prohibiting age discrimination, such discrimination still exists in the job market.
The federal Age Discrimination in Employment Act of 1967 (ADEA) applies to employers with at least 20 employees and protects individuals, both applicants and employees, age 40 and over from discrimination in hiring, promotions, terminations, and the terms and conditions of employment. This law applies to private employers, employment agencies, labor organizations, state employers, and federal employers. The State of Missouri also prohibits age discrimination against those 40 to 70 years of age under a law known as the Missouri Human Rights Act (MHRA). Missouri’s law applies to private and state (but not federal) employers with at least six employees. Individuals alleging age discrimination at work may file a charge with the Equal Employment Opportunity Commission (EEOC) or the Missouri Commission on Human Rights (MCHR). A charge filed with one agency is considered “dual” filed with the other.
The EEOC also enforces three other laws: Title VII of the Civil Rights Act of 1964 (prohibiting discrimination based on race, color, sex, pregnancy, national origin, and religion); the Americans with Disabilities Act or ADA (prohibiting discrimination based on disability); and the Equal Pay Act or EPA (prohibiting pay discrimination based on gender). Missouri’s anti-discrimination law also prohibits such discrimination. This article focuses primarily on age discrimination.
Age Discrimination and Retaliation
Age discrimination can take many forms. For example, an advertisement expressly seeking applicants under 40 (e.g., “young faces sought”) could be a violation under the ADEA and the MHRA, unless the job plainly requires a much younger person, such as a job modeling children’s clothing. Most age discrimination is less obvious. An employer may pass over older employees to promote less qualified under-40 employees, or terminate older employees while hiring younger workers to perform the same duties. If you believe that you are experiencing age or other prohibited discrimination, whether as an applicant seeking a position or as a current employee, then you should report such discrimination to the employer and contact the EEOC or MCHR about filing a charge. Federal and Missouri laws also prohibit retaliation for reporting or opposing what you reasonably believe is discrimination, or participating in the EEOC/MCHR investigation process. If you believe your employer has retaliated against you, then you will want to include an allegation of retaliation in your charge. If such retaliation occurs as a result of your filing a charge, then you can amend that charge to add retaliation or file a second charge.
Federal Older Workers Benefit Protection Act
The ADEA has a special provision known as the Older Workers Benefit Protection Act (OWBPA). Under the OWBPA, if an employer offers an age-protected employee a severance package in return for the employee’s waiver of ADEA rights, the employer first must advise the employee in writing to consult with an attorney. The employer must give the employee at least 21 days to consider the offer. In a large termination program, sometimes called a reduction-in-force or RIF, age-protected employees must be given a minimum of 40 days to consider the offer. In a RIF, the employer must inform such employees in writing of the group or class of employees offered such exit incentive, eligibility factors required for participation, applicable time limits, job titles and ages of all eligible employees, and ages of those employees in the same job or organizational unit not offered the exit incentive. Even if an age-protected employee signs such waiver, that employee has up to seven days to revoke it. It is highly recommended that an employee timely consult with an experienced attorney before signing a waiver and accepting a severance package. If you sign a waiver but still have concerns about discrimination, then contact the EEOC.
Important Charge-Filing Deadlines
A victim of possible age or other prohibited discrimination may file a charge with the EEOC or MCHR. To preserve a possible claim under MHRA, the employee must file a charge within 180 days of the last alleged act of age discrimination. To preserve a possible claim under the ADEA, the employee must file a claim within 300 days of the last alleged act of age discrimination. This “last alleged act” is usually the date on which the employee first learned of the alleged discrimination even if the result of discrimination will not occur until later. For example, if an employer told an employee on January 1 that she would be terminated on February 1, then the employee should file a charge within 180 days of January 1, rather than February 1, to preserve rights under Missouri anti-discrimination law and within 300 days of January 1 to preserve rights under federal anti-discrimination law.
Filing a Charge of Discrimination
If you contact the EEOC in person or by telephone, you will be interviewed about the alleged discrimination about the possibility of filing a charge. There is no fee required for doing so. If you decide to file a charge, then the EEOC intake investigator typically will draft a charge for your review and signature. MCHR most likely will follow a similar intake procedure. If you decide to file a charge, the EEOC will “docket” the charge and your employer (or prospective employer if you were an applicant) will be promptly sent a copy of the charge and given an opportunity to respond. Occasionally, a charge may be dismissed without investigation because, for example, it does not state a violation but the individual insisted on filing a charge, the charge was filed more than 180 or 300 days after the last alleged discriminatory act, or the employer does not have enough employees under the applicable statute. In most instances, however, the charge will be investigated. Never hesitate to contact the investigator about the progress of the investigation or to provide additional information about documents or witnesses.
What Happens After the Charge is Field?
Once the EEOC investigation is over, an employee typically will receive a written “notice of right-to-sue,” which allows that employee to sue regardless of whether the EEOC concluded that discrimination occurred. Alternatively, one may request a notice of right-to-sue before the investigation has been completed. If insufficient time has passed since the charge was filed, then the requester may have to wait a few weeks or months to receive the notice right-to-sue. This notice is required before one can sue under two other federal antidiscrimination laws, Title VII (which covers race, gender, religion, color, and national origin) and the Americans with Disabilities Act. However, an employee may file suit under the ADEA and the EPA without first receiving the EEOC’s notice as long as at least 60 days have passed since the charge was filed. Once the EEOC has issued a notice of right-to-sue under the ADEA (or the EPA), then suit must be filed within 90 days of receiving such notice.
As part of the EEOC’s processing of a charge, you and the employer may be asked to participate in a free mediation to help settle the matter before the investigation is completed or a notice of right-to-sue is issued. If either party declines, then no mediation will occur. Even if no mediation occurs, the EEOC investigator may ask the parties to consider settlement or help the parties negotiate a settlement. The EEOC also may conclude after an investigation that a violation of the law has occurred and issue a “Determination” letter to the charging party and the employer. At that point, the EEOC will attempt to “conciliate” a settlement between the parties in an effort to settle the matter. If conciliation fails, then a notice of right-to-sue will issue to the charging party. Although the EEOC finds that a violation has occurred in under 10% of all charges investigated, the lack of such determination does not prevent the EEOC from issuing you a notice of right-to-sue under the ADEA or the other federal statutes enforced by the EEOC.
MCHR’s procedures for issuing a state notice of right-to-sue under the Missouri Human Rights Act are generally more restrictive. For instance, MCHR may administratively close a charge file without issuing a state notice of right-to-sue. In addition, MCHR typically will not issue such notice until at least 180 days have passed since the charge was filed although one may obtain a notice at an early point under some circumstances. If MCHR closes the file without issuing such notice, then in most instances the right to sue under state law will be forfeited. If MCHR does issue a state notice of right-to-sue, then suit alleging age discrimination under state law must be filed within 90 days of date on which MCHR mailed the notice. In addition, under the state law (but not the ADEA), suit under Missouri must filed within two years of the last alleged discriminatory act.
The procedures followed by the EEOC and MCHR, and the laws the two agencies enforce, are complex, varied, and subject to differing court interpretations and legislative amendment. Anyone considering filing a charge with either agency is strongly advised to seek legal advice from an experienced attorney.
Should I File Suit?
Even with the most compelling evidence, filing a lawsuit can be a great risk. Few cases get to a jury; a significant percentage are settled or dismissed. In addition, under the ADEA damages are limited. One may seek back pay. For example, if a court or jury concludes that an employee who earned $50,000 per year was terminated because of age, then that employee may obtain back pay, $50,000 or a pro-rated amount for the period since his or her termination, less any interim money earned at another job held since the unlawful termination. For a willful ADEA violation, the employee may obtain double back pay, also known as liquidated damages, but it can be very difficult to prove willfulness. Damages under Missouri law can be more generous than the ADEA. In addition to back pay, a prevailing employee may be able to obtain damages for emotional distress and possibly punitive damages, which are meant to deter and punish the employer for committing unlawful discrimination. In deciding whether to sue.
In deciding whether to file suit, you must keep in mind that litigation can be very demanding and continue for many months, or even years. It can exact a huge personal cost in both money and mental (and even physical) health. As noted above, state and federal anti-discrimination laws are complex, varied, and subject to differing court interpretations and legislative amendment.
Extra Guidance for State Government Employees
Employees who work for Missouri state government, school districts, municipalities, and similar public entities cannot sue their employers under the ADEA according to the U.S. Supreme Court interpretation of that law, but may be able to sue such employers in state court under the Missouri Human Rights Act. Despite this restriction on ADEA lawsuits, state employees may file charges of age discrimination with either the EEOC or MCHR.
A Word of Caution
Not every person 40 or over who is not hired, terminated from a job, denied a promotion, or treated worse than other employees in the workplace has an age or other viable claim of discrimination. An employer may discharge or refuse to hire or promote a senior citizen for any reason, as long as it is not based on age or some other basis prohibited by law (e.g., sex, race, national origin, disability). Even if the “real” or main reason for the employer’s decision was age, such discrimination may be very difficult to prove. Lawsuits can be extraordinarily costly in terms of dollars, time, and emotional demands. They may take many months or years to settle or go to trial. Some claims are dismissed without a trial.
Any applicant or employee who may have experienced discrimination is strongly advised to contact an experienced attorney before filing a charge or lawsuit. Most attorneys will charge a fee for consultation but that fee can be the most important investment you make. For private attorney referral information, please contact the EEOC at the numbers below, the Bar Association of Metropolitan St. Louis at (314) 621-6681, or the local chapter of the National Employment Lawyers Association/NELA-St. Louis at (314) 621-8363.
More Questions?
These federal and state laws, deadlines, and procedures concerning age and other forms of unlawful discrimination are complex and confusing, and even inconsistent with each other at times. To find out more information on employees’ rights under the ADEA or MHRA, visit the EEOC’s Web site, http://www.eeoc.gov, which includes links related to filing a charge, understanding federal anti-discrimination law, and contacting the EEOC. Beginning in 2008, one may file an on-line inquiry with the EEOC by following the prompts found at https://apps.eeoc.gov/eas. Interested persons also may contact the EEOC’s St. Louis office at (314) 539-7800 or go to the local office at 1222 Spruce Street, 8th Floor, St. Louis, MO 63101. To contact MCHR, call 877-781-4236 or go in person to the agency’s local office at 111 N. 7th Street, Suite 903, St. Louis, MO 63101. See also http://www.dolir.mo.gov/hr/faq.htm.
Illinois Human Rights Act
While this article does not address one’s rights under Illinois anti-discrimination law, such information may be obtained at http://www.state.il.us/dhr or by calling (312) 814- 6200 (Chicago), (217) 785-5100 (Springfield), or (618) 993- 7463 (Marion). Charges against Illinois employers also may be filed with the EEOC’s St. Louis office or Chicago office, depending on the location of the employer.