Firms Offering Social Security Advice Scramble To Update Systems

The elimination of two popular Social Security claiming strategies has left companies that offer Social Security advice scrambling to incorporate the new rules into their systems.

Last week, Congress put an end to “file and suspend” and a restricted application for spousal benefits—Social Security strategies that together made it possible for both members of a couple who are 66 or older to delay claiming benefits based on their own earnings records while one pockets a so-called spousal benefit based on the other’s earnings.

While some people can still take advantage of the strategies—which can add tens of thousands of dollars to a couple’s lifetime retirement income—they are now generally off limits to people born after 1953.

The change took the fast-growing Social Security advisory industry by surprise. “Given the secretive nature of the budget negotiations, very few people knew that this was going to be included in the budget bill. This is not normally the way changes in Social Security are done,” said Christopher Jones, chief investment officer at Financial Engines Inc.,which in 2014 introduced a free Social Security calculator.

Added Joe Elsasser, founder of Social Security Timing, a program for advisers: “The speed with which this measure went through Congress and was signed into law was unheard of. Normally, we would have had more time” to digest the specific proposals before enactment.

That has left companies that offer the services—from mutual-fund giant Fidelity Investments to independent Los Altos, Calif., advisory firm Bedrock Capital Management—scrambling to interpret the new law to update the computer code that sifts through dozens of possible claiming strategies to determine which of thousands of possible outcomes will yield the most money over a client’s projected lifespan. The services run the gamut from free online tools intended mainly to educate users about claiming strategies to sophisticated programs that charge up to $250 and pair computer-generated recommendations with a human adviser.

Many of the firms have posted notices on their websites explaining the rule change and warning clients to rerun their numbers after the programs are updated. Some have gone a step further and temporarily suspended their services while software engineers retool the programs for the married and divorced couples who are affected by the changes.

Social Security Choices, which plans to have its program back online by the end of next week, isn’t currently issuing reports to married or divorced couples, but continues to give widows, widowers and single clients—who are unaffected by the new law—access to its $40 software.

Likewise, Fidelity took its program—available to the 4,000 customer representatives who work in its retail offices and with 401(k) plans—offline last Thursday “as soon as news broke that this was likely to pass,” said Tom McGirr, senior vice president of workplace products. The company expects to have the software up and running again by late next week, he added.

A few companies have already finished the process of revamping their programs. “We dedicated our entire team to it between last Wednesday and Monday,” said Mr. Elsasser, whose Social Security Timing was back online Monday. “We had folks working very late nights over Halloween weekend.”

In contrast, the tool sponsored by T. Rowe Price Group on Thursday was still issuing recommendations based on the old rules—under which file-and-suspend and restricted applications for spousal benefits were available to all couples—without alerting users to the impending changes.

T. Rowe Price is preparing to restrict access to its Social Security Benefits Evaluator and will use the opportunity to “assess the tool and its usefulness” before deciding whether to reprogram it with the new rules or replace it with other educational content on Social Security claiming strategies, said senior financial planner Judith Ward.

Adding to the complexity are different rules for different groups of people. Those who are 66 or older—or will turn 66 within the next six months—can still file for benefits and then suspend them, so their spouses and children under 18 can claim spousal and dependent benefits, but they have to act within six months. Also, those who are 62 or older by the end of this year will retain the ability at full retirement age to file a restricted application for only spousal benefits and not an earned benefit.

Companies working to revamp their services are contending with a flood of calls and emails from confused clients. Based on calls her company has received, Robin Brewton,vice president of client services at Social Security Solutions, said it appears that Social Security Administration employees incorrectly told some callers who are grandfathered under the old rules that they can no longer file and suspend.

Asked about possible misinformation, the Social Security Administration said in a statement: “Our legislative and policy staffs are diligently working with Congress to analyze the intent of the legislation and update our instructions.”

The advisory companies are taking steps to inform clients—both individuals and advisers—of the new rules. Like Fidelity, Financial Engines is preparing to contact thousands of clients who have used its program to alert them “that there has been a change and they should re-evaluate their claiming strategy,” said Mr. Jones. Mr. Elsasser said Social Security Timing hosted two webinars this week on the new rules, one attended by more than 400 advisers. And Ms. Brewton is preparing to send Social Security Solutions’ adviser clients FAQs on the new law, case studies that illustrate who is affected, and a PowerPoint presentation for use in presentations on Social Security.

For many companies, the immediate challenge has involved figuring out how to interpret the law in the absence of guidance from the Social Security Administration. “Everybody is scrambling,” says Ms. Brewton from Social Security Solutions. “We are all trying to read the bill and go back to the Social Security Act and make decisions on what to tell people they will and will not be allowed to do.”

Sharon Lacy, wealth planning manager at Bedrock Capital Management, said she spent 10 hours this past weekend revamping the firm’s free Social Security calculator, SSAnalyze!, only to discover that she had changed the code to conform to language that was ultimately changed slightly. Ms. Lacy said the confusion was over the treatment of people who will be 62 or older by the end of 2015—and whether they can file a restricted application for spousal benefits on a spouse’s suspended benefit when they reach full retirement age, even if full retirement age is a few years away. (The answer: yes.)

“I had to go back and change the code again,” said Ms. Lacy, who is now testing her results and plans to get the new version online Thursday.

There is always a risk, she added, that the Social Security Administration will differ in its conclusion of how the law ought to be interpreted and implemented. But because the agency has yet to offer official guidance, Mr. Jones of Financial Engines said, “we will have to make some appropriate assumptions.”

“It seems that for the most part that [major industry players] are all shaking out with the same interpretations,” said Ms. Brewton, who said SocialSecuritySolutions’s software is now updated to reflect the new law.

One area many say remains unclear involves divorced people. Starting about six months after the budget bill was signed into law on Nov. 2, Social Security will no longer allow family members to submit a new claim for spousal benefits on a suspended benefit. If that applies to divorced people—and some believe it might—that could pave the way for a vindictive individual to file and suspend to block an ex-spouse from claiming a spousal benefit during the suspension period. (Under current law, someone who is divorced can collect a benefit based on an ex’s work record even if the ex isn’t yet collecting a benefit, as long as the ex is at least 62.)

“Eventually we will need clarity on this,” said Mr. Jones.

Ms. Brewton said another point of confusion relates to language in the new law that indicates the new file-and-suspend restrictions will go into effect “beginning at least 180 days after” Nov. 2.

Does the inclusion of that “at least” language “mean the Social Security Administration can extend that six-month deadline to implement the law? I don’t know the answer,” she said.