Most people would agree that for horrendous crimes there should be no statute of limitations for prosecution.   For example, the Federal government and most states impose no statute of limitations on murder charges.   But in the case of sexual assault, state laws vary from requiring charges to be filed within only two years of the incident, to within several years of a minor reaching age 18, or even longer.

When it comes to tax fraud, the statute of limitations is usually three years from when the tax return was filed, but it can be extended to six years if the person omitted more than 25% of their income. There is no statute of limitations for civil tax fraud, which means the IRS can audit and collect tax debt indefinitely. (If you’re worried, consult a tax attorney about the meaning of “willful”, civil, and criminal as they might apply to you!)

Why is the statute of limitations the lead paragraph in a personal finance column?

Because the one place where there is NO statute of limitations is the “Clawback” process of Social Security!    

And, let’s be clear from the start:  When Social Security decides the Agency made a mistake in calculating and paying out benefits, it is clawing back money from elderly and disabled people who innocently received the monthly checks based on the Agency’s own mistaken calculations.

Not Fraud but Ineptitude

This is all about errors, not fraud, in these mis-calculation cases – now totaling $21.6 BILLION in Clawbacks from more than 2 million benefit recipients.   The mistakes were made by the Agency in its own processes.  Recipients relied on Social Security’s benefit calculations.

For many years, the Agency failed to offset some non-covered public pensions, despite the W-2 forms given to the IRS, thus “overpaying” millions of teachers and other public servants because they didn’t calculate the “WEP”.  They also failed to track the reported work income of people receiving SSDI (disability payments).   If a recipient earned only slightly more than the limit in any month benefits could be denied.

Now, in one fell swoop the agency demands clawbacks of $75,000 or more, of money paid out going back 20 years or longer.   That is money long ago spent by the recipients who had nothing to do with the calculations, and who counted on the Agency to determine the amount of their benefits.

Despite the promises of the new Social Security Commissioner David O’Malley in his recent public testimony to Congress, there appears to be no effort to limit Social Security’s clawback reach.   Even worse, the Commissioner’s well-publicized clawback “limitation” of 10% of the monthly benefit check does not apply to those who are deemed ineligible for <<any>> disability benefits because their small earnings may have exceeded monthly limits.  They are just cut off completely, before any chance to appeal.

Consider these current horror stories from my readers in the past month:

• Christine is a 42 year old deaf and disabled person, who works part-time scrubbing floors in a hospital. She just received a clawback letter for $55,048 – dating back to December 2006!  Even worse, her disability benefit – and her Medicare insurance payment – were stopped immediately.  She will be homeless and have to rely on Medicaid.  All because, years ago, she might have earned “too much” during a few months to qualify for SSDI – a mistake SS just discovered in recent months – and fails to document.
• Therese is an elderly woman mortgaged her home to pay an $18,504.70 clawback demand from Social Security for payments going back many years. After our pressure, the SS agent agreed that the clawback demand was an error – and said they would process a return of the money.

Then, two weeks ago, Therese received another, separate demand for a recalculated clawback amount going back to 2006, saying she now owes $75,343.50 and announcing that her retirement benefit would be cut off.  Therese will lose her house if she cannot pay the mortgage out of her monthly check.

Clawback Limitation Needed Now

In our 60 Minutes segment last fall, and updated two weeks ago, economist Larry Kotlikoff and I demanded an 18-month limitation on clawbacks because of Agency error.  That 18- month period could start from the moment the Agency discovered its mistake – or 18 months from the original miscalculation (resulting in a lower clawback).

Let’s make it clear.  These recipients did not commit a crime!  Social Security made the mistake in its calculations – and these beneficiaries relied on the Agency’s determination of benefits.

It’s time to set a Statute of Limitations on Social Security Clawbacks. And that’s The Savage Truth.