Federal Benefit Payments Require Direct Deposit for Retirees
Beginning March 1, 2013, retirees receiving Social Security payments and other beneficiaries of federal benefit plans are required to begin receiving payments electronically. That means they will have to receive their benefits via direct deposit to a bank or credit union account or on a debit card. This article explains the new requirement, along with ten facts about Social Security that you might not know.
Ten Fast Facts about Social Security
1. Social Security benefits are paid to about 57 million people. Most (40 million) are retirees and their families. The rest are workers who become disabled and families in which a parent or spouse dies.
2. About 161 million people work and pay Social Security taxes today.
3. Social Security replaces about 40% of an average wage earner's income after retiring, and most financial advisers say retirees will need 70% or more of pre-retirement earnings to live comfortably. This money must come from retirement plans, pensions and other savings.
4. Money paid in taxes is not held in personal accounts for individuals to use when they get benefits. Your taxes are being used now to pay people who are getting benefits today.
5. You pay Social Security taxes on your earnings up to a certain amount. The amount for 2013 is $113,700.
6. When you work, 85 cents of every Social Security tax dollar paid goes to a trust fund that makes payments to current retirees and their families and to surviving spouses and children of workers who died. The other 15 cents goes to a trust fund that pays benefits to people with disabilities and their families, as well as covers the costs of managing the Social Security programs.
7. Workers earn Social Security "credits." In 2013, you earn one credit for each $1,160 in earnings -- up to a maximum of four credits per year. (This amount usually goes up every year.)
8. Most people need 40 credits (10 years of work) to qualify for benefits. Younger people need fewer credits to be eligible for disability benefits or for family members to be eligible for survivors' benefits when the worker dies.
9. Social Security benefits replace a percentage of earnings when you retire, become disabled or die. Benefits are based on how much you earned during your career. Higher benefits are paid to those with higher lifetime earnings.
10. Your payments also depend on when you retire. If you wait until you reach your "full retirement age," you will receive more than if you start receiving payments after retiring earlier. If you delay receiving benefits until after your full retirement age, your payments will be increased by a certain percentage, depending on the year you were born.
-- Source: Social Security Administration
Like it or not, retirees receiving Social Security and other beneficiaries of federal benefit plans are required to begin receiving payments electronically by March 1, 2013, if they aren't already doing so. Under the government's "Go Direct" program, you can choose between having a direct deposit made to a bank or credit union account and transferring the amount to a Direct Express® Debit MasterCard® card. It's the law.
Those who haven't chosen an electronic payment option for Social Security and other benefit checks by March 1, 2013, will be out of compliance with the law. In that case, the money will be put on the Direct Express® card. If you're already receiving benefit payments electronically, you don't have to do anything. You'll continue to receive your payment as usual.
Why Is Uncle Sam Making the Change?
Electronic payments are considered a safer, more convenient and cost-effective way for people to receive their federal benefits. You don't have to go to a bank or other financial institution to cash in or deposit the check. This can be beneficial to elderly and disabled people or others who don't have access to transportation. And you can't dismiss the savings to Uncle Sam: The government figures it will avoid a $120 million price tag by ending the printing and mailing of paper checks.
When you arrange to receive your federal benefit payment electronically, the U.S. Treasury Department sends an electronic message to your bank or credit union or Direct Express® card account crediting your account with the exact amount of the benefit. There's no printing or mailing of checks. It's the same basic direct deposit system that businesses around the country use to transfer millions of dollars every day.
No bank account or credit check is required for the Direct Express® card. Nor do you have to pay fees for signing up for the card, monthly fees or overdraft fees. Simply use the card to pay for ordinary purchases. Alternatively, if you prefer to use a prepaid debit card, the Direct Express® card is a safe, low- or no-cost electronic payment option.
Despite the perceived advantages, some recipients -- especially older people suspicious of technology or uncomfortable with it -- may be opposed to the change. The Treasury Department has said that it will grant exceptions only in rare circumstances. But automatic waivers are granted to individuals born on or before May 1, 1921 so most people in their nineties are exempt from the new requirement. Recipients who live in remote areas without sufficient banking infrastructure may apply for a waiver as well as recipients for whom electronic payments would impose a hardship due to a mental impairment. Waiver applications can be requested by calling 800-333-1795.
If you're applying for federal benefits, be prepared to sign up for direct deposit. To ensure a smooth enrollment, you should have the following information ready:
• Social Security number or claim number;
•The 12-digit federal benefit check number;
• The account type (such as checking or savings);
• The account number; and
• The financial institution's routing number.
To sign up for the Direct Express® card, all you have to do is notify the federal benefit agency at the time of enrollment. Once you're approved for federal benefits, you will receive their Direct Express® card and an information packet in the mail.
If you are caring for someone who currently receives federal benefit payments on paper checks, or if you receive a paper check on behalf of someone else, the Treasury Department is also requiring you to have these payments switched to an electronic option by March 1, 2013. A representative payee can sign up for direct deposit or the Direct Express® card by calling the U.S. Treasury Electronic Payment Solution Center at 800-333-1795, Monday through Friday from 8 a.m. to 8 p.m. ET. For direct deposit, you can also switch to the online method at http://www.godirect.org/ or at your bank or credit union.
Note: If a person born before May 1, 1921 has a representative payee, that person's benefit still must be converted to electronic payment by the March 1 deadline. In other words, the automatic exception granted to individuals born on or before May 1, 1921 doesn't apply to recipients with a representative payee.
What Payments Do the New Rules Cover?
The requirement to begin receiving payments electronically applies to payments from the following federal benefit agencies:
•Social Security Administration, including Social Security and Supplemental Security Income (SSI) payments;
•Veterans Affairs (VA);
•Railroad Retirement Board;
•Office of Personnel Management; and
•Department of Labor (Black Lung).
Do you still have questions about the new requirements? To learn more about the Go Direct program, visit http://www.godirect.org/ or ask at your bank or credit union.