Social Security regulations provide that underpayments and overpayments of benefits to a social security beneficiary may be netted (or applied to offset each other) for the time period beginning with the first month in which an incorrect payment was made and ending in the month in which an initial determination was made by the agency that there had been an overpayment or underpayment.
Recipients of disability, SSI, retirement, and survivor’s benefits brought a lawsuit challenging the netting regulations on the grounds that they were contrary to the Social Security Act and deprived the beneficiaries of due process.
The U.S. Supreme Court upheld the netting regulations in the case of Sullivan v. Everhart, 494 U.S. 83 (1990) holding that they were not arbitrary or capricious.
The Court gave two examples to illustrate how the netting regulations work.
In the first example, Mr. A is entitled to $100 per month in benefits. In January, he is mistakenly paid $80, an underpayment of $20 less than the amount to which he is entitled.. In February, he is mistakenly paid $150, an overpayment of $50 more than the amount to which he is entitled. In March, the agency discovers these errors, nets the difference between the underpayment and overpayment, and seeks to recover a $30 net overpayment from Mr. A.
In the second example, Mrs. B is also entitled to $100 per month. She is mistakenly paid $50 in April, an underpayment of $50. She is mistakenly paid $110 in May, an overpayment of $10. In June, the agency determines the payment error, nets the underpayment and overpayment, and pays Mrs. B $40.
In neither case may the beneficiary seek to have the overpayment and underpayment treated separately. For example, Mr. A cannot demand $20 for January and seek a waiver of recoupment for the $50 overpayment in February. Mrs. B cannot seek $50 in April and seek a waiver of the $10 overpayment in May.
The plaintiffs in Sullivan were comprised of a group of individuals, some of whom were determined to have received net underpayments, and some of whom were determined to have received net overpayments. The plaintiffs who received net overpayments had been given opportunities for a hearing to determine whether or not recoupment of the net overpayment should be waived.
The plaintiffs argued that Social Security’s netting regulations were facially invalid because they were: 1) contrary to the Social Security Act; and 2) they violated the beneficiaries’ rights to procedural due process.
The Court enunciated the standard of review for the challenge. First, if the intent of a statute is unambiguously clear, that is the end of the matter, and the agency must give effect to the clearly articulated intent of Congress. In ascertaining the intent of Congress, the Courts must look to the plain language of the statute and the “language and design of the statute as a whole.” If the statute is ambiguous or silent on a matter, the Courts must determine if the agency’s interpretation is a permissible construction of the statute; that is, whether the interpretation is “rational and consistent with the statute.”
The plaintiffs argued that the regulations speak of determining “correct amounts” of benefits only on a monthly basis, and that therefore, each monthly underpayment and overpayment must be treated separately. However, the Court found that a more expansive reading of the statute, as urged by the agency, was rational and permissible. The fuller context of the statute did not prohibit the agency from determining underpayments and/or overpayments over a greater period of time than a monthly basis.
The Plaintiffs also urged an interpretation of the statute in which the term “adjustment” of future benefits precluded setting off (or netting) underpayments and overpayments without the benefit of a waiver hearing.
The Court conceded that this was a possible but not inevitable interpretation of the statute, and that the agency’s more limited interpretation of the term “adjustment” was not unreasonable nor did it produce absurd policy results. The agency’s interpretation of the term “adjustment” as “an increase or decrease” of future payments was supported by the term’s common usage as set forth in Webster’s dictionary. Likewise, the agency’s interpretation of the term “recovery” as signifying the act of obtaining a refund from the beneficiary was a permissible, though not inevitable, interpretation of the statute.
The Plaintiffs’ final contention was that the time period for applying the “netting” (or setoff of overpayments and underpayments) was arbitrary and capricious, and allowed for manipulation by the agency. The time period, as described above, was the period of time in beginning with the first erroneous payment (either underpayment or overpayment) up through the time the agency makes an “initial determination” of the error. This Court noted that this initial determination will not be simultaneous with the agency’s first discovery that something is amiss; that there will of necessity be some delay in making the determination, because such decisions should not be made “spur-of-the-moment.” The Plaintiffs contended that this delay was fatal to the validity of the agency’s regulations.
The Court found that the Plaintiffs’ concern about the agency manipulating the time period was not valid if the regulations were applied in good faith, which the Court had to assume would be the case. The Court further noted that deliberately prolonging the netting period was just as likely to draw in future overpayments as future underpayments, and that the agency could not seek collection of these overpayments until an initial determination was made. The Court acknowledged that it was conceivable the agency could make sure that any delay worked to the government’s advantage by underpaying the beneficiary while delaying the netting period, but that such an action was a violation of the statute. Thus, the Court could not presume such a violation would occur in a facial challenge to the netting regulations.
The upshot is that Social Security’s netting regulations are valid. This Court decision is set forth in Social Security Ruling (SSR) 92-7c.
To recap, this Social Security ruling, based on a Supreme Court decision, allows social security to net underpayments against overpayments (or in other words, offset erroneous payments against each other) beginning from the first month in which an error was made and ending in the month the agency makes an “initial determination” that there had been erroneous payments. If, after the netting process has occurred, there is still an overpayment, the agency will seek recoupment from the beneficiary. However, the beneficiary will be entitled to a waiver hearing in order to show reasons (such as hardship) why the overpayment should be waived.
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.