Thursday, July 12, 2007

A look at filial responsibility laws in six more states

Today I looked at a few more states listed on this website:

Everyday Simplicity: Filial Responsibility Laws: List of States Having Them:

Connecticut is interesting. The basic statute seems to be “Relatives obliged to furnish support, when”, link here.

The law seems to have been rewritten and revised, as shown in a complicated explanation in the statute. Curiously, I cannot find a concrete statement in this statute that literally says that adult children must support indigent statement. But a related statute refers to this idea by listing exceptions in the case of abandonment or emancipation, here. “No liability for support of deserting parent".

"Sec. 46b-219. (Formerly Sec. 17-326). No liability for support of deserting parent. No person shall be liable under any provision of the general statutes for the support of a parent who wilfully deserted such person continuously during the ten-year period prior to such person reaching his majority. For the purposes of this section, wilful desertion means total neglect of parental responsibility in failing to provide reasonable support and care within the financial capability of the parent. Any person claiming the provisions of this section as a defense shall have the burden of proof of such willful desertion."

Massachusetts, the only state to fully accept gay marriage at present, has a filial responsibility law, 273/20, "Neglect or refusal to support parent" here under "Non-Support, Desertion and Illegitimacy," modified as recently as March 2006. (see also the index to all related Mass. laws).

Section 20. Any person, over eighteen, who, being possessed of sufficient means, unreasonably neglects or refuses to provide for the support and maintenance of his parent, whether father or mother, residing in the commonwealth, when such parent through misfortune and without fault of his own is destitute of means of sustenance and unable by reason of old age, infirmity or illness to support and maintain himself, shall be punished by a fine of not more than two hundred dollars or by imprisonment for not more than one year, or both. No such neglect or refusal shall be deemed unreasonable as to a child who shall not during his minority have been reasonably supported by such parent, if such parent was charged with the duty so to do, nor as to a child who, being one of two or more children, has made proper and reasonable contribution toward the support of such parent.

Iowa is interesting in its simplicity. The requirement for support can extend to grandparents and grandchildren (“remote relatives”). Here is the basic statute.

252.2 Parents and children liable.
The father, mother, and children of any poor person, who is unable to maintain the poor person's self by labor, shall jointly or severally relieve or maintain such person in such manner as, upon application to the board of supervisors of the county where such person has a residence or may be, they may direct.

But then this extends to other family members, at least grand-relatives; link.

252.5 Remote relatives.
In the absence or inability of nearer relatives, the same liability shall extend to grandparents, if of ability without personal labor, and to the grandchildren who are of ability by personal labor or otherwise.

South Dakota also includes the duty to support siblings in some cases. Notice the wording in 7-28 to make it look like a personal entitlement from an impoverished sibling. This is “loyalty to blood” taken to the soap opera level. Here is the basic statute.

25-7-27. Adult child's duty to support parent when necessary--Notice required. Any adult child, having the financial ability to do so, shall provide necessary food, clothing, shelter, or medical attendance for a parent who is unable to provide for oneself. However, no claim may be made against such adult child until the adult child is given written notice that the child's parent is unable to provide for oneself, and such adult child has refused to provide for the child's parent. Notice required by this section shall be given within ninety days after the necessary food, clothing, shelter, or medical attendance, claimed in the notice, was first provided for the parent. However, in the case of fraud or misrepresentation, notice shall be provided within ninety days after such fraud or misrepresentation is known or should have been known. If the parent or someone acting on behalf of the parent makes application for assistance pursuant to chapter 28-13, the county shall give the written notice required herein within ninety days after it receives the application or notice required under § 28-13-1, 28-13- 32.3, 28-13-32.4, or 28-13-34.1, whichever is sooner.

South Dakota mentions remote relatives, but apparently in the context of going after other siblings to share support. Here is the law.

25-7-28. Adult child's right of contribution from brothers and sisters for support of parent-- Notice required. In the event necessary food, clothing, shelter, or medical attendance is provided for a parent by a child, he shall have the right of contribution from his adult brothers and sisters, who refuse or do not assist in such maintenance, on a pro rata share to the extent of their ability to so contribute to such support; provided that no right of contribution for support shall accrue except from and after notice in writing is given by the child so providing for his parent.

There was a complicated and convoluted case in South Dakota, reported in 2003 by Fleming & Curti, “Attempt to Force Children to Pay Father’s Hospital Bills Fails,” link here.


The law is 2919.21 "Non Support or contributing to non-support of dependents.

(A) No person shall abandon, or fail to provide adequate support to:

(3) The person’s aged or infirm parent or adoptive parent, who from lack of ability and means is unable to provide adequately for the parent’s own support.; (E) It is an affirmative defense to a charge under division (A)(3) of this section that the parent abandoned the accused or failed to support the accused as required by law, while the accused was under age eighteen, or was mentally or physically handicapped and under age twenty-one. (G)(1) Except as otherwise provided in this division, whoever violates division (A) or (B) of this section is guilty of nonsupport of dependents, a misdemeanor of the first degree. If the offender previously has been convicted of or pleaded guilty to a violation of division (A)(2) or (B) of this section or if the offender has failed to provide support under division (A)(2) or (B) of this section for a total accumulated period of twenty-six weeks out of one hundred four consecutive weeks, whether or not the twenty-six weeks were consecutive, then a violation of division (A)(2) or (B) of this section is a felony of the fifth degree. If the offender previously has been convicted of or pleaded guilty to a felony violation of this section, a violation of division (A)(2) or (B) of this section is a felony of the fourth degree.

The link is here.


There is an important paper online, "Finances, Families, and 'Filial' Laws: The Real World as Classroom," by Katherine C. Pearson, Professor of Law and Director, Elder Law and Consumer Protection Clinic, Penn State Dickinson School of Law," dated December 2006. The series is called "Family Focus on: Families and the Future." The article says that in Pennsylvania, a law was passed on July 7, 2005 to move Act 43 "indigent support" rules from the Welfare Code to the Domestic Relations Code, "placing it side-to-side with child support and spousal support laws, which duplicates it in those respects, making it clear that adult children's support of a parent is the real goal." The article notes that much of the Pennsylvania Bar Association wanted to repeal this law, and the article notes well the practical difficulties with enforcement. Here is the link.
There is another reference on Pennsylvania from the National Council on Family Relations in Minneapolis (ironically, Minnesota does not have such a "poor law") here, where it reads "Act 43 exists as a potential creditor's claim anytime someone believes a particular adult child or financially solvent 'statutory' family member should be the payer for the 'indigent person.'" Presumably, although this is speculative, such a person in Pennsylvania could get a call from a debt collector demanding payment for a parent's debt.

I could not find the text of the 2005 Pennsylvania statute Act 43-2005 online, but I found a Pennsylvania Bulletin reference that implies that the state could force an adult child to support an indigent parent even if the parent is not on welfare. The link is this. Mark D. Freeman has an elderlaw site and discusses the PA law in his "New Nursing Home Law Update" here, although it appears that the law's scope isn't limited just to nursing homes.

Apparently New York does not have such a law, although in the 1970s Ed Koch (when a Congressman, before he became mayor in 1978) told constituents that he thought adult children should have such responsibilities.

General Remarks:

Other good sources are:

Katie Wise. “Caring for the Elderly: Sharing Public and Private Responsibility for the Elderly.” NYU Law School, May 3, 2002. (The PDF link no longer works. Do a search on "'Katie Wise' 'Caring for the Elderly' and read the cached HTML of a word document.) (Note: The document has appeared again in a new location, here.) This dates back to 2002. On page 573 (page 11 on the pdf file) there is a section "The Current Status of Filial Responsibility Laws" with a count of 28 states (as of 2002) with such laws, with their never having been enforced in 11 of the states. The article presents balanced arguments for individual filial responsibility and societal or socially shared responsibility, which could parallel some of the debates on health care (even though custodial nursing home care is not part of Medicare). It also gives international comparisons. It warns that changing demographics is likely to make the issue politically more volatile. It also presents somewhat libertarian arguments that adult children should not have legal filial responsibility because they did not enter into voluntary "contracts" to be born and raised. One's identity and consciousness also seems like a spiritual given.

Other additional sources: Katherine Pearson, Pennsylvania State University, School of Law (new link given above), “Agency and the Elderly: The Responsible Thing to Do about “Responsible Party” Provisions in Nursing Home Arrangements
Kisten B. Wilson, Bar Journal, 1999 Family Law Issue, “Filial Responsibility: A New Look at an Old Legal Concept”.

The National Center for Policy Analysis has a 2005 paper that argues that something like 1/3 of Medicaid nursing home expenses could be saved by states enforcing these laws.

Many of these state laws seem to be worded in an archaic manner, and reflect an assumption, unchallenged before modern times in the latter half of the 20th Century, that blood relationships trump, that procreation is essentially mandatory (or else one stays home and takes care of those who do bear children) and a life activity so fundamental and essential that anyone who does not engage in it is in a sense “disabled.” Given the demographics of lower birth rates and longer life spans, states are bound to start looking at these laws, even outside of the better known issue of preventing people from giving away assets to kids to qualify for Medicaid (the look-back period problems). It could give a whole new spin (by reviving an old spin) on “family values”, the gay marriage debate, and the social significance of sexual intercourse itself.

Earlier correspondence: Sept 7, 2006, from the National Council of Family Relations, blog link.

Practical burdens, mention of major New York Times late 2006 story here.

In June 2007 on that "Major Issues" blog I covered the USA Today series on eldercare.

In my Urchin reports for (where I have this essay on filial responsibility laws) I find plenty of evidence of concern (from the search arguments) by visitors for this issue, especially in California.

Please refer to a related post on Saturday July 7 on this blog.

(There are more states on this blog on Oct. 2, 2007.)

Tuesday, July 10, 2007

Life companies would like some retirees to help sell to other retirees -- but what about the ethics?

I spent the last twelve years of my information technology career, before I “retired” at the end of 2001, were spent in a life insurance company, acquired twice. In the spring of 2005, I was approached by a different major life insurance company about becoming a life insurance agent in my area.

On a Saturday morning I took a multiple choice personality test, which I passed (I could tell what answers they wanted), and then started the first of four sessions. The general plan would have been to obtain the life insurance license quickly and be able to sell life policies. The longer term plan was to become a financial planner. In retrospect, it does appear that this particular company intended that the agent take the fill three or four year course to become a Certified Financial Planner or Chartered Financial Analyst. The compensation would have been by commissions, but for three years was to include a substantial “training bonus.” This compensation appeared to constitute a bridge until the time one could be fully certified. In life insurance sales, over time a substantial income could come from renewal commissions. Another concept is cross-selling (as a result of corporate mergers and consolidation of insurance companies as financial services companies) to the same customer of different financial products, and that involves the expertise and licensure issue discussed below.

The job would have required getting a ‘fast start” and an exercise to generate 200 or more leads. I think this would involve trolling existing social networking contacts, which I do not have to an appropriate level for this kind of exercise; I get emails all the time offering insurance sales leads as a leftover from this episode and I can see how lists for "prospecting" (and maybe "cold calling") are "traded". In general, new agents often have to hustle to find customers. (When I was working and saw the sales literature, one of the techniques expected of agents in the early 90s was to set up weekend kiosks at shopping malls to attract and collar prospects.) One issue that came up in the third interview, and which led me to stop the process, was that no outside income was allowed (except for an existing pension from a previous job). The company claimed that this was a requirement of Sarbanes-Oxley if they paid a training bonus. Obviously, then, I could not have continued blogging for ad revenue, and probably the public exposure from my domains and blogs would have been perceived as interfering with the public reputation that I would need as an agent. But I question if they could legally prevent me from earning money from selling my own separate intellectual property (novels or screenplays) having nothing to do with the job, because I own the copyright to anything I produce myself with my own resources. (Comments anyone?)

Indeed, in many communities, the life insurance agent is somewhat of a social lynchpin, particularly in smaller communities, as in the Gulf area after the hurricanes. In this case, it appeared that the company wanted to expand in rural and exurban areas.

In 2003, while still in Minnesota, I had been approached by another company for a narrower idea: getting people with whole life policies to switch to term. This was said to be a $40 trillion treasure chest. In fact, I had first gotten a call from this company on Sept. 13, 2001, a curious harbinger of the economic dislocations to come after Sept. 11.

But all of these ideas, to perspective employers, seemed motivated by the idea of using the business background that I had gained in twelve years of working as an individual contributor in a life insurance company. In most cases, especially with younger applicants, they have to train their sales people with all of the business knowledge.

For me, the practical question is, with all that business and technical knowledge, why wouldn’t I be interested in trying to sell it? That’s not an idle question. In 2003, I was still drawing some unemployment (in Minnesota it was generous and flexible) and I could have been pressured to work in direct sales.

Now, as a matter of personal temperament, I do not like to manipulate people, to buy things or for anything else. I am much happier with analyzing and researching something and presenting it as truth. But one can see that it is natural for corporate America to believe that sales is a natural progression in a career, particularly when so much manufacturing and productive infrastructure has been offshored.

The New York Times, on p A1 on Sunday July 8, 2007, Charles Duhigg has an article, “For Elderly Investors, Instant Experts Abound.” Here is the link (will require NY Times registration and perhaps purchase). Several life companies (none of them among the two mentioned earlier her) are mentioned as promoting quick-and-dirty certifications in elder-oriented financial advice, including “Certified Senior Adviser,” “Certified Retirement Financial Adviser”, “Registered Financial Gerontologist”, “Certified Retirement Counselor” The courses were usually a few days for a few thousand dollars, and certification was obtained by passing very easy and common-sense multiple choice tests. It does not appear that the life company that contacted me in 2005 was pushing these short-circuited pseudo-financial-planner titles.

What seems galling is that retirees are believing that they can become public advocates for other seniors with such superficial strategies. Barbara Ehrenreich had warned about such corporate rah-rah mentations in her book “Bait and Switch.” One practice criticized in the article was the selling of deferred annuities to other seniors. This has been seen as deceptive. Perhaps a deferred annuity makes sense to a senior who is still working, in good health and with a long enough life expectancy to collect all of the premium back with interest. Sometimes "agents" have been caught in the middle, and become liable for possible civil accusations of fraud, as their companies deny wrongdoing. As a whole, the life insurance industry has strict rules against practices like twisting and churning.

A huge area of potential elder-oriented financial advice would deal with long term care insurance. This is a complicated subject, as a recent USA Today series demonstrates. Long term care could become more critical if states start enforcing filial responsibility laws, beyond what they must do now because of increased federal look-back rules regarding asset spend-down.

A related story appears in the Monday July 9, 2007 The Washington Times, “Morally sound stocks sought: investors can specify religion,” by Julia Duin. One investment advisor company mentioned was Stewardship Partners. Companies could be excluded if they supported stem-cell research and gay rights. A more obvious application of this concept ought to be green-friendly companies.

Update: May 28, 2008

The "no outside income rule" seems to be related to the conflicts that occur in some insurance operations where some people act as brokers (paid by clients) and still might earn contingent commissions. There is a paper in "Insurance Journal" Nov. 16, 2004, "Independent Insurance Agents Defend Themselves at Senate Hearing over Broker Compensation," link here.

The US Government Printing text of the Sarbannes-Oxley law is here. The closest match to a provision in the laws may occur in Title II on p 28. In general, an insurance company, when providing various kinds of contingent or draw-like compensation to new agents, might have difficulty making sure that the agent did not break rules regarding acting as a broker and "agent" at the same time if it did not have a "no moonlighting" policy. In theory, even an income-earning blog could be perceived as giving "advice", at least indirectly, to clients who knew the agent.

Saturday, July 07, 2007

Filial Responsibility Laws -- Virginia, Maryland, California

Filial Responsibility Laws in different states, starting with the Commonewealth of Virginia

The Code in Virginia is 20-88, and is available online at this (in the online copy of the code of Virginia) reference:

The Virginia statute ("Support of parents by children") states quite bluntly:

“It shall be the joint and several duty of all persons eighteen years of age or over, of sufficient earning capacity or income, after reasonably providing for his or her own immediate family, to assist in providing for the support and maintenance of his or her mother or father, he or she being then and there in necessitous circumstances.”

Later it reads:

"To the extent that the financial responsibility of children for any part of the costs incurred in providing medical assistance to their parents pursuant to the plan provided for in § 32.1-325 is not restricted by that plan and to the extent that the financial responsibility of children for any part of the costs incurred in providing to their parents services rendered, administered or funded by the Department of Mental Health, Mental Retardation and Substance Abuse Services is not restricted by federal law, the provisions of this section shall apply. A proceeding may be instituted in accordance with this section in the name of the Commonwealth by the state agency administering the program of assistance or services in order to compel any child of a parent receiving such assistance or services to reimburse the Commonwealth for such portion of the costs incurred in providing the assistance or services as the court may determine to be reasonable. If costs are incurred for the institutionalization of a parent, the children shall in no case be responsible for such costs for more than sixty months of institutionalization.

"Any person violating the provisions of an order entered pursuant to this section shall be guilty of a misdemeanor, and on conviction thereof shall be punished by a fine not exceeding $500 or imprisonment in jail for a period not exceeding twelve months or both.”

The statute does allow for the possibility of emancipation in the case of abandonment. It is not clear what would happen in “gay-related” cases.

32.1-325 appears to refer to Medicaid.

But it would appear from reading this law that filial responsibility could be assessed, for at least up to five years of nursing home care, even if the parent had no assets to “spend down.” Again, I have not yet heard of any cases where this has been enforced (it would be particularly problematic it the adult child is out of state), but I am surprised that the major media (including gay media) have slept on this for so long.

I’ll start checking some other states in the near future.

The federal lookback period, extended to 60 months and discussed in the previous posting, would appear to related to the Federal Share of Medicaid nursing home expenses. The rules are quite complicated. I worked on the New York State Medicaid Management Information System (for Bradford National Corporation as the consultant) from 1977-1979 on the MARS (Management and Administrative Reporting), and many of the reports dealt with federal shares for indigent elderly in nursing homes, with various rules about SNF’s and ICF’s, that programmers had to become quite conversant about in doing system tests for the State.

(Oct. 10, 2009): The first paragraph of the Virginia statute would seem to address filial responsibility as a "social contract" issue or as if it were part of a family code, as well as serving the purpose of a "poor law" and dealing with abuse of Medicaid. That is, an adult child must provide for himself/herself plus created family and children (if any), and in addition, facilitate the care of the parent properly in an unpaid manner (or sometime a paid manner), although the parents' funds can be used for the parents' care without commingling once the adult child performs according to this section (including not behaving in a manner as to jeopardize acquiring and keeping this care). It would appear that the law could be used to make the childless experience more "family responsibility" no matter what disruption occurs in their own lives. The law does take into proper account past parental neglect or abuse, but does not consider a disabled parent "morally" accountable for his or her own problems because of lifestyle or past behavior (alcohol, drugs, smoking, HIV, etc); the adult child must own the "moral responsibility". The law also needs to be interpreted in connection with disabled adult neglect laws, which are somewhat similar to child neglect laws. One can be a responsible party "in fact" without formal custody or guardianship.

It's also instructive to look at the statute in Virginia for "neglect of an incpacitated adult". Although there are some caveats toward the end, it is worded generally enough that, in conjunction with the filial responsibility statute, it could conceivably be used against an adult child who someone believes is not "diligent" enough, link (18.2-369). The adult services departments of a number of states, including Virginia, have (third-party-written, probably) literature that suggest that "lack of affection" could be construed as neglectful or abusive, a concept we normally connect to (voluntary) marriage.

The Virginia law does not appear to be predicated on the marital status (or possible history of divorced) of the parents. Generally, that's true of filial responsibility laws in general. The "moral obligation" (and legal obligation) comes from procreation itself, not from the martial relationship that society may believe should be backing up having children.


The basic statute is 13-102 in Family Law. The link is here: The master index to Maryland statutes is here.

It reads:

"(a) If a destitute parent is in this State and has an adult child who has or is able to earn sufficient means, the adult child may not neglect or refuse to provide the destitute parent with food, shelter, care, and clothing.

(b) If a destitute adult child is in this State and has a parent who has or is able to earn sufficient means, the parent may not neglect or refuse to provide the destitute adult child with food, shelter, care, and clothing.

(c) A person who violates any provision of this section is guilty of a misdemeanor and on conviction is subject to a fine not exceeding $1,000 or imprisonment not exceeding 1 year, or both."


The basic link to the California Family Code Section 4400-4405 is this. The basic California Family Code Index is this. Yes -- how ironic -- to use "The 4400" as a pun!

The text reads bluntly:

"4400. Except as otherwise provided by law, an adult child shall, to
the extent of his or her ability, support a parent who is in need
and unable to maintain himself or herself by work."

Again, these requirements seem to be independent of any previous viatical spend-down gifts to adult children. Conceivably, in some states, once a Medicaid nursing home bill has been paid, an adult child's debt might exist and the adult child could get a call from a debt collector, although I haven't heard that this has really happened (yet). Imagine the emotionality of this issue.

The District of Columbia (Washington DC) does not appear to have such a law.

In general, these statutes emphasize poverty or destitution of the parents with non-impoverished adult children.

I certainly welcome detailed comments from visitors. This is a real “sleeping dog” and probably at Rottweiler. I have a related post with three more states on Thurs. July 12.

Thursday, July 05, 2007

As look back period for Medicaid nursing home care increases, wonder about filial responsibility laws

Last week financial and investing consultant John Waggoner wrote a column for USA Today (Friday June 29, p 3B), “When it’s time to tap your assets, order is important.” This is in reference to the spending of a parent’s assets by adult children providing the parent with eldercare and often paying for funds to care for assisted living or nursing home care.

As often noted, Medicare does not pay for custodial care. It only pays for Skilled Nursing Facility (SNF) care (for a specific number of days) when the patient is expected to get better. Often private supplemental insurance will extend the number of days of SNF care, and this may be part of a long term care policy or a separate coverage.

So adult children find themselves spending down a parent’s assets until Medicaid can pick up nursing home care (or sometimes Home Health Aides). The article gave some tax advice on various kinds of withdrawals. IRA’s (traditional, and Roth, which behave differently), and home equity, and unconverted 401K’s. The article also discussed homestead. In many states, a spouse can draw Medicaid to pay for the other legal spouse’s custodial care without selling the house, whereas a single person could not.

One great concern that I have is “filial responsibility laws” which in theory mean that adult children can be pursued for their parents’ custodial care expenses. I have a major reference here. Some books claim that this was commonly required in the days before Medicare, which is hard to grasp since Medicare, as noted above, doesn’t normally pay for nursing home care. There is a particular reference, the Kabb Law firm, that one can explore now. There is a sub headline “New Medicaid Law Means Parents Could Be on the Hook for Parents’ Nursing Home Bills”.

Much of the concern has to do with federal tightening of the "Look Back Period" in the Deficit Reduction Act of 2005, S. 1932, and the provision “SEC. 6011. LENGTHENING LOOK-BACK PERIOD; CHANGE IN BEGINNING DATE FOR PERIOD OF INELIGIBILITY” The visitor can study the provisions in detail in footnote [6] on that file.

Social Security gives this link on S 1932 (Hr 4241)
Apparently, this bill was signed into law Feb. 8, 2006,
The govtrack references is S. 1932 in the 109th Congress, link here.

What matters to many people, of course, is what happens when a parent has few assets, assuming these rules are in effect. If an adult child has assets (that is, other than those that were "given" to the child during the "lookback period", and particularly from parents who have no assets to "give away"), can a state go after the adult child? The Waggoner USA Today article doesn’t say that states can, but some websites do. Could there be triage (if there a siblings, an adult child without his own children is more “at risk” than another sibling with kids – again, what about legal marital status? Imagine where this could go (with gay marriage)?

I haven’t heard of cases where this has actually happened yet, even though the texts of some state laws seem to suggest it is possible. Here is a typical link.

What is clear is that the demographics are absolutely scary. Medicine makes it possible to keep people alive longer, without maintaining a comparable level of self-sufficiency-maintaining life skills. Alzheimer’s Disease can turn into the catastrophe that we predicted with AIDS twenty years ago. Medical progress with pharmaceuticals is slow but steady, and encumbered by liability concerns. Furthermore, in an age of individualism, “personal responsibility” has tended to stay within the confines of adult cognition, to the extent that many adults isolate themselves from filial responsibility by not marrying and having their own children. This does seem like a matter of time…

The inability of the Senate to pass a "pseudo-amnesty" bill regarding immigration also heightens the eldercare concern, as many of the people available to work in nursing homes and as home health aides are immigrants, sometimes "illegal". Conceivably adult children could be penalized for hiring them in the future. There could be more pressure on adult children to make themselves present to provide actual physical care, or modify their own homes to be able to do so. Today (July 5, 2007) the DC Examiner Blog Board had an editorial by La Shawn Barber, "Now that amnesty is dead, locals must act against employers."

I’ll dig more into the legal facts in the near future and place more specific material as I find it. I welcome constructive comments.

See Aug. 1, 2008

See the 8/1/2008 entry on this blog more discussion of how look-back works (based on Kiplinger). The actual law is very tricky and both lengthens look-back and changes the date from which it applies. It's designed to force beneficiaries to treat "give aways" as "loans."

Section 6011 of Chapter 2 of S 1932 has the exact rules (link given above). The Congressional Research Summary reads as follows:

"Subchapter A: Reform of Asset Transfer Rules - Amends SSA title XIX (Medicaid) to revise requirements relating to long-term care.

Section 6011 -
Lengthens from the usual 36 months to 60 months, or five years, the look-back period for counting for eligibility purposes all income and assets disposed of by the individual for less than fair market value after this Act's enactment.
Changes the start date of the ineligibility period, for all less-than-fair-market-value transfers made on or after enactment of this Act, to the first date of a month during or after which assets have been transferred, or the date on which the individual is eligible for Medicaid and would otherwise be receiving institutional level care based on an approved application but for the application of the penalty period, whichever is later, and which does not occur during any other period of ineligibility as a result of an asset transfer policy.
Specifies the criteria by which an application for an undue hardship waiver shall be approved.

Requires each state to provide for a hardship waiver of the transfer of assets requirement in specified circumstances for individuals residing in nursing facilities. Authorizes the state to make bed hold payments for hardship waiver applicants."

Sunday, July 01, 2007

Social security offset, and social security bridge: related, but different concepts

A note about the social security offset and social security bridge.

It’s important to realize that social security offset and social security bridge are related but separate concepts.

Suppose someone has worked for a typical company and retires after 25 years at age 66, at full retirement age. (Actually, it’s probably not a very typical company in today’s global economy, if one could stay there so long and never be laid off.) Suppose his last five years his or her salary or credited service income had been $6000 a month.

A typical pension might pay 2% a year for every year of service (up to 25 years, and then much less for each year – a typical pension is not a whole lot more than 50% even for a very long term person). That would be 50% here, or $3000 a month.

But many companies take off a social security offset. Not every plan does, but many do. The theory is that a retirement income is supposed to be based on a combination of pension, 401K or IRA withdrawals, other investments (maybe even home equity), and social security. Now that idea is getting to be socially objectionable, perhaps, to those who argue (credibly) that social security is a pyramid that could crumble. Companies, they say, should not ride on this concept.

A typical retirement plan might offet 2% a year of one’s expected social security benefit. If this individual expects a benefit of $1400 a month, in this example, the offset would be 2 x 25% or 50%, or $700 a month. The resulting pension would be $3000 - $700 = $2300.

The social security offset can be assessed even when the person waits until full retirement age, or later.

What happens if someone retires much earlier? Many companies, even in the go-go 90s, started encouraging “early retirement” for highly salaried employees in the 50s and offering buyouts at 55 or even 50. It’s typical that someone can collect early retirement after age 55, with a certain minimum years of service (often that is ten years). If someone retires, say, at 58 with 12 years of service, the base pension might start out as 12 x 2% x $6000, or $1440. This will get reduced in early retirement by an actuarial formula based on life expectancy and the increased expected number of payments (in a “life annuity”). The reduction could be more complicated with spousal survival benefits (“with x years certain”) – typically spousal benefits reduce the base benefit slightly. In this example, the reduction could be something like 30% or so, bringing the total base amount down to about $1000. But some companies offer (or used to offer) a “social security bridge” until age 62. That would negate a lot of the offset (maybe even most of it) until age 62. The assumption was that the individual, if still not working elsewhere, would file a protective SSA statement and start benefits, which, however, are actuarially reduced by early start. It’s also likely that the company will compute the (penalizing) social security offset more favorably, because the expected social security benefit at 62 would be less than if the person started at full retirement age.

Of course, all of this is becoming mute point as companies are finding it harder to fund pension plans, all with stricter accounting rules (after the various scandals in 2002), and with people living longer. This is especially serious with state and local governments and school districts, and large labor unions. Pensions are rapidly being frozen and eliminated for newer employees. That is why the individual savings plan, heavily tax deferred and geared to encourage ample saving during one’s young adulthood, have become some important in conservative and libertarian plans for the coming retirement crisis. Of course, this all runs into problems like student loan debts and health care debts, so thoroughly vetted by liberals like Michael Moore in his recent film “Sicko.”

There was an earlier discussion of the offset on Feb. 27 2006 on this blog.