KKAJ Blog Archives for July 2016

July 29, 2016

FAQs about Social Security Retirement Benefits

For years, people have questioned...

the long-term viability of the Social Security system. In June, the Social Security Board of Trustees released its annual report on the long-term financial status of the Social Security Trust Funds. It projects that the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds will become depleted in 2034. Additionally, the Disability Insurance Trust Fund will become depleted in 2023.
More generally, people approaching retirement age often have other questions about benefits they may be eligible to receive from the Social Security Administration (SSA). Here are the answers to several common inquiries.

How Soon Can I Start Collecting Retirement Benefits?

If you want to receive full retirement benefits from the SSA, you must wait until you reach the so-called full retirement age (FRA). But you may apply for benefits as early as age 62. Starting early will reduce your monthly benefits by as much as 30%, but, of course, you'll receive benefits for more years. Your tax adviser can help figure out the exact monthly benefit reduction and help you determine if you likely will be better off waiting until your FRA to start taking benefits.

What Is My FRA?

Your FRA depends on the year in which you were born. 
Year of Birth           Full Retirement Age
1937 or earlier         65
1938                        65 and 2 months
1939                        65 and 4 months
1940                        65 and 6 months
1941                        65 and 8 months
1942                        65 and 10 months
1943–1954              66
1955                        66 and 2 months
1956                        66 and 4 months
1957                        66 and 6 months
1958                        66 and 8 months
1959                        66 and 10 months
1960 and later         67
If you were born on January 1 of any year, refer to the previous year. If you were born on the first of the month, the SSA figures your benefit (and your FRA) as if your birthday were in the previous month.

How and When Do I Apply for Social Security Retirement Benefits?

Apply for retirement benefits three months before you want your payments to start. The SSA may request certain documents in order to pay benefits, including:
•Your original birth certificate or other proof of birth,
•A marriage certificate or divorce decree when applying for spousal benefits,
•Proof of U.S. citizenship or lawful alien status if you were not born in the United States,
•A copy of your U.S. military service paper(s) if you performed military service before 1968, and
•A copy of your W-2 Form(s) and/or self-employment tax return for the prior year.
For most retirees, the easiest way to apply for benefits is by using the online application.

What Happens if I Receive Social Security Retirement Benefits While Still Working?

If you're under FRA and earn more than the annual limit (subject to inflation indexing), your benefits will be reduced, as follows:
•If you're under FRA for the entire year, you forfeit $1 in benefits for every $2 earned above the annual limit. For 2016, the limit is $15,720.
•In the year in which you reach FRA, you forfeit $1 in benefits for every $3 earned above a separate limit, but only for earnings before the month you reach FRA. The limit in 2016 is $41,880.
Beginning with the month in which you reach FRA, you can receive your benefits without regard to your earnings.

Can I Collect More Benefits if I Retire After My FRA?

You can receive increased monthly benefits by applying for Social Security after reaching FRA. The benefits may increase by as much as 32% if you wait until age 70, but of course you'll receive benefits for fewer years. After age 70, there is no further increase. Your tax adviser can help calculate the payout for waiting to collect your retirement benefits and help you determine if you likely will be better off waiting beyond your FRA to start taking benefits.

Can I Manage Retirement Benefits for an Incapacitated Person?

If a Social Security recipient needs help managing his or her retirement benefits — perhaps an elderly parent — contact your local Social Security office. You must apply to become that person's representative payee in order to assume responsibility for using the funds for the recipient's benefit.

Do I Qualify for Social Security Survivors Benefits?

A spouse and children of a deceased person may be eligible for benefits based on the deceased's earnings record as follows: 
A widow or widower can receive benefits:
•At age 60 or older,
•At age 50 or older if disabled, or
•At any age if she or he takes care of a child of the deceased who is younger than age 16 or disabled.
A surviving ex-spouse might also be eligible for benefits under certain circumstances. In addition, unmarried children can receive benefits if they're: 
•Younger than age 18 (or up to age 19 if they are attending elementary or secondary school full-time), or
•Any age and were disabled before age 22 and remain disabled.
Under certain circumstances, benefits also can be paid to stepchildren, grandchildren, stepgrandchildren or adopted children. In addition, dependent parents age 62 or older who received at least one-half support from the deceased may be eligible to receive benefits.
A one-time payment of $255 may be made only to a spouse or child if he or she meets certain requirements. Survivors must apply for this payment within two years of the date of death.

Are Social Security Benefits Subject to Income Tax?

You'll be taxed on Social Security benefits if your provisional income (PI) exceeds the thresholds within a two-tier system. 
PI between $32,000 and $44,000 ($25,000 and $34,000 for single filers). Recipients in this range are taxed on the lesser of 1) one-half of their benefits or 2) 50% of the amount by which PI exceeds $32,000 ($25,000 for single filers). 
PI above $44,000 ($34,000 for single filers). Recipients above this threshold are taxed on 85% of the amount by which PI exceeds $44,000 ($34,000 for single filers) plus the lesser of 1) the amount determined under the first tier or 2) $6,000 ($4,500 for single filers). 
PI equals the sum of 1) your adjusted gross income, 2) your tax-exempt interest income, and 3) one-half of the Social Security benefits received.
If you have additional questions about receiving Social Security retirement benefits, contact your financial adviser. He or she can help you navigate the application process and understand tax issues related to receiving retirement benefits.

Highlights of New Trustees Report

In its annual report to Congress, the Social Security Board of Trustees announced that the asset reserves of the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds increased by $23 billion in 2015. The combined trust fund reserves are still growing and will continue to do so through 2019.
Here are some other highlights from the report:
•Total income, including interest, to the combined OASDI Trust Funds amounted to $920 billion in 2015. 
•Total expenditures from the combined OASDI Trust Funds amounted to $897 billion in 2015.
•The SSA paid benefits of $886 billion in calendar year 2015. There were about 60 million beneficiaries at the end of the calendar year.
•During 2015, an estimated 169 million people had earnings covered by Social Security and paid payroll taxes.
•The combined Trust Fund asset reserves earned interest at an effective annual rate of 3.4% in 2015.
Even though the income exceeded expenses from the OASDI Trust Funds and asset reserves increased in 2015, the reserves are projected to be gradually depleted over the next 18 years. Unless Congress takes action to reverse the situation, the OASDI Trust Funds are expected to be insolvent by 2034. 
This underscores the importance of saving for retirement while you're working. Social Security benefits should be viewed only as a supplement to your other assets.

July 13, 2016

Avoid Costly Employer Mistakes

Running a business these days is increasingly complex. With employment-related claims and lawsuits on the rise, management must have a basic understanding of numerous federal, state and local laws. Here are three cases that illustrate some employer liability trends.
Case #1. Giving a positive reference could cost millions. This court case, involving reference checks about a drug-addicted physician, reminds employers of the risks of recommending former employees and associates.
Facts of the case: A licensed anesthesiologist was a shareholder in a medical practice, which exclusively provided anesthesia services to a local hospital. After an investigation, the doctor's partners found he was abusing the drug Demerol. Eventually, the hospital stopped allowing the physician to practice there and the medical practice partners fired him.
The termination letter the partners gave the doctor stated: "...you have reported to work in an impaired physical, mental, and emotional state. Your impaired condition has prevented you from properly performing your duties and puts our patients at significant risk..."
A few months later, the doctor applied for a job at a facility in another state. The facility initiated a background check, including examining referral letters provided from the medical practice and hospital where the doctor previously practiced. 
Letters from two former partners stated, according to court documents, that the doctor "was an excellent anesthesiologist" ... "recommend him highly" ... and that he is sure to be "an asset to [future employer's] anesthesia service."
The hospital's response to a questionnaire from the facility about the doctor was brief: "Our records indicate that (he) was on the Active Medical Staff ... in the field of Anesthesiology from March 04, 1997 through September 04, 2001."
The medical facility hired the doctor and a short time later, problems developed. In one incident, one of the doctor's patients was severely injured. The court noted the doctor later admitted to the facility's staff "that he had been diverting and using Demerol...and that he had become addicted ..." 
The injured patient's family sued the doctor and the facility in cases that were settled.
The facility and its insurer then filed suit against the doctor's former medical practice, partners, and the hospital charging "intentional misrepresentation, negligent misrepresentation, strict responsibility misrepresentation, and general negligence." A jury awarded the facility and the insurer $8.24 million.
In U.S. Appeals Court, a two-part decision was recently handed down. The court — based on state law — found the hospital was justified in providing a "name, rank, and serial number" reference letter. In other words, it gave limited factual information about employment. The court exonerated the hospital because it had no affirmative duty to disclose negative information about the doctor.
However, the court upheld the jury's decision against the medical practice because of the partners' misleading letters about the doctor, stating: "The defendants owed a duty to (the facility) to avoid affirmative misrepresentation in the referral letters. In the state, 'although a party may keep absolute silence and violate no rule of law or equity,...if he volunteers to speak and to convey information which may influence the conduct of another party, he is bound to [disclose] the whole truth." (Kadlec Medical Center v. Lakeview Anesthesia Associates and Lakeview Medical Center)
Lesson for Employers: Although this case involves Louisiana state law, its results are an alert to employers. It highlights the importance of knowing how state law and state court decisions treat the obligations and liabilities of providing information and references on former employees and associates.
Case #2. Hiring and promoting one gender over another is illegal. A Texas restaurant chain paid $1 million and furnished remedial relief to settle a sex discrimination lawsuit filed by the EEOC. The EEOC had charged the chain with discriminating against a class of male applicants and employees. 
The EEOC charged that the chain refused to hire or promote men to the position of bartender in its restaurants. The chain had a plan for an 80-20 ratio of women to men behind the bar, according to the EEOC. Men who worked as servers at the restaurants were generally denied promotion to bartender because of their gender. The few men who were promoted to bartender weren't allowed to work lucrative "girls-only" bartending events. The case was settled before going to trial. (EEOC v. Razzoo's, Civil Action No. 3:05-CV-0562-P, Northern District of Texas, Dallas Division).
Lesson for Employers: Explained Suzanne M. Anderson, EEOC supervisory trial attorney and lead counsel on the lawsuit: The chain's "decision to hire and promote by gender is a clear violation of federal law. A hiring ratio is illegal whether it is 80-20 whites to blacks or 80-20 women to men."
Case #3. Allowing any type of music to be played on the job can create a hostile work environment. A Silicon Valley manufacturer of semiconductor production equipment had to pay $168,000 to settle a racial harassment and retaliation lawsuit brought by the EEOC. 
The EEOC charged the company with subjecting an African American employee to racial harassment after a co-worker played and "rapped" out loud to music lyrics that included anti-black racial epithets. 
The employee complained several times to his supervisors that the language was offensive to him. The EEOC's lawsuit charged that delaying effective corrective action by more than half a year constitutes unlawful harassment, and that Cooke was fired in retaliation for his earlier complaints.
While the employer denied liability and admitted no wrongdoing, it agreed to incorporate a "Statement of Zero-Tolerance Policy and Equality Objectives" in employment policies. Additionally, the manufacturer agreed to amend its policies to refer specifically to harassment through the playing of music, and to include offensive musical lyrics in its examples of racial harassment. 
Lesson for Employers: The EEOC's attorney noted that employers must respond promptly after being put on notice of racially offensive language or conduct in the workplace. 
Acting EEOC District Director Michael Baldonado added that many employers face this kind of situation. "How do you manage the culture clash — across generations, race and ethnicity, you name it — in a workplace that gets more diverse every day? I think it's critical to try to put yourself into the shoes of the other person and take all complaints of discrimination seriously. Together we can try to defuse tensions and prevent situations from developing into discrimination and harassment." 
These three issues are just a sample of the challenges facing employers today. Consult with an experienced attorney to help protect your company from current and future risks.
What to Do When Asked About Former Employees?
Here are some steps for employers to consider in dealing with requests for information about former employees:
Get professional input. Confer with an attorney familiar with employment law in your state about how to respond to reference inquiries for former employees.
Check state law. Know if your state law shields employers from civil liability when providing factual, work-related information about former employees.
Obtain permission from former employees. Before releasing information about former employees, require the prospective new employer to provide a reference permission form, signed by an individual, giving your company and supervisors the person's permission to release work-related information about him or her. This form also releases former employers and supervisors from liability for providing factual work-related information to prospective new employers.
Ask departing employees for help. When employees leave employment, ask them to help write their job references. Have an exit interview with each departing employee. Show them a written summary of their performance. Inform employees that the summary serves as a job reference if two conditions are met: the employee gives written approval for the summary; and in the future, the employee mails the employer a signed statement releasing the summary to a prospective employer.
Stick to the facts. Don't share personal feelings and opinions about former employees. Provide prospective employers with only objective, factual work-related information such as: the individual's period of employment, including start and separation dates; positions and duties employed; hourly rates or salary at time of separation; and whether the individual would be re-employed in the future.
Avoid giving information over the phone. It's best is to ask prospective employers to request information in writing with specific questions. Respond in writing. Review responses with an attorney or a human resources professional. This way, your company and its managers take time to carefully consider the information, and there is a written document to support a defense in case of related future litigation.
To help reduce your organization's liability, do an audit of all the documents your employees get in writing. This includes your employee handbook, job applications, notes, memos, messages, etc. There are bound to be inconsistencies ... and those can be trouble spots. Make sure your employment policies are clear and don't conflict with one another.