A claimant stopped working in May, 1981 and began receiving retirement benefits in June, 1981. He had earned more than $45,000 that year in the five months before he retired. He worked as a self-employed consultant after his retirement in December, 1981, for which he was paid $4,200 in February, 1982.

Social Security determined that claimant had rendered substantial self-employment services in December, 1981, and further determined that he was not entitled to benefits for that month. The fact that his yearly earnings for that year exceeded the exempt amount, coupled with the fact that he performed substantial services in December, precluded use of the monthly earnings test for that month.

Based in part on his receipt of $4,200 in February, 1982 for work done the prior year in December, Social Security imposed work deductions against his benefits that year. That regulation provided that for purposes of determining social security work reductions, the same accounting method the claimant used for filing his taxes with the IRS will apply. The claimant was a cash basis (as opposed to accrual method) taxpayer, meaning he realized his income in the year it was actually received.

The net result of these regulations was that the taxpayer, in effect, had his social security retirement benefits reduced twice for the same work activity; once based on the “substantial activity” regulation, and the next year based on the accounting regulation.

He appealed.

In his appeal, claimant did not contest the decision that he was not entitled to benefits in December, 1981. Rather, he took issue with the work deductions in 1982 which resulted in large part from the work he had done the year before, for which his benefits had already been reduced.

The claimant made three statutory arguments: 1) that the regulation imposing work deductions for work done in a prior year for which benefits were already reduced was inconsistent with legislative intent in 1972 amendments to the Social Security Act; 2) that the regulation was contrary to Congressional intent in its 1977 amendments to the Act to achieve broad-based equity; 3) that the Congress, with its 1980 amendments to the Act would not have intended the result in his particular case.

With respect to the first argument, the Court found a prior case whose holding was instructive. The 1972 amendments had evinced a legislative intent to encourage (or at least not actively discourage) post-retirement work activity. Prior to the 1972 amendments, Social Security benefits were reduced dollar for dollar for all amounts earned above a certain threshold exempt amount. The 1972 amendments reduced this reduction to fifty cents on the dollar, thus incentivizing post-retirement work activity.

The claimant argued that the regulations allowed a “double whammy “ in his case, which discouraged him from working after his retirement in contravention of Congressional intent.

However, the Court found that his situation was anomalous and temporary. It pointed to a case in which a retired railroad worker was entitled to both Railroad Retirement benefits and Social Security benefits. Both retirement systems reduced her benefits by fifty percent for all earnings she made over the exempt amount. This resulted in a dollar for dollar loss of benefits for all of her earnings above the exempt amount, contrary to Congress’s articulated intent that there be only a fifty percent reduction in benefits for earnings over the exempt amount. The court had ordered the Railroad Administration and Social Security Administration to coordinate their benefits so that the worker would not lose more than 50% of her benefits for her earnings above the exempt amount.

The Court found, however, that the facts of this case were different. The railroad worker was subject to a potentially permanent disincentive to work after her retirement. In the instant case, claimant’s situation was more of a one-off instance, because he was only subject to the double loss of benefits because of special rules that applied during his grace year (first year of retirement). The temporary situation would not occur again, and therefore, he was not permanently discouraged from work activity as the railroad worker had been.

With respect to claimant’s second argument, the Court briefly reviewed the purpose of the 1977 amendments. Prior to those amendments, the monthly earnings exception to the annual earnings test applied to all years of retirement. This had allowed some benefit recipients (typically self-employed retirees) to concentrate all or most of their earnings into just a few months of the year, thus taking advantage of the monthly earnings exception, whereas other retirees who could not concentrate their earnings in this manner were treated differently. The 1977 amendments sought to eliminate this inequity by eliminating the monthly earnings exception except in the first year of retirement (the grace year), where it was necessary to prevent a new retiree’s pre-retirement earnings from reducing her benefits for months when she did not work.

The Court found that the amendments had no particular application to claimant’s case. It found that the fact Congress had sought to eliminate a particular inequity did not imbue the Court with a roving commission to do equity in other cases that Congress did not specify.

With respect to the claimant’s third argument, the Court briefly reviewed the 1980 amendments. These amendments provided that earnings attributable to pre-retirement work but received after the grace year would not reduce a beneficiary’s retirement benefits. This helped to fix problems caused by the 1977 amendments’ elimination of the monthly earnings exception after the grace year.

The Court found that these amendments were not literally applicable to claimant’s case because his earnings were post-retirement. Again, the fact that Congress had once enacted amendments to correct inequities in unrelated situations did not authorize the Court to impose its broad views of equity in any particular, unrelated situation.

The claimant also made a Fifth Amendment due process argument. The Court noted that social welfare laws respecting government benefits will not be held invalid unless they manifest a “patently arbitrary classification, utterly lacking in rational justification.” The court found that this was not the case.

I feel badly for the claimant (retroactively, or course, since this was many years ago). He was whipsawed with an unusual and probably unforeseen application of otherwise reasonable regulations. But I think the Court reached the correct result. And, luckily, it was an unusual situation that probably doesn’t happen too often.

See Carlson v. Bowen, 831 F.2d 814 (8th Cir. 1987). See also Social Security Ruling (SSR) 88-8c.

This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.