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Wednesday, December 7, 2016

The ‘Temporary’ Social Security Benefit That is Still Around 76 Years Later

Q: My friends and I have a Social Security round-table discussion once a month at a local coffee shop. At our last get-together, the subject of the Social Security $255 death benefit came up. I was surprised to learn that it is only paid when the deceased was married.

So, why does Social Security discriminate against single people? Don’t they realize that we have also burial costs after we die?

A: The so-called “death benefit” has an interesting history. It didn’t start out as a death benefit, per se — at least not in the context it is thought of today. It certainly was never meant to be a “burial benefit” as many people call it.

As part of the thinking that went into the original Social Security Act passed in 1935, Congress realized that many of the new Social Security taxpayers would die before they ever had a chance to collect benefits. Or they would die without having earned enough “quarters of coverage” to be insured for survivor benefits for any dependents.

Therefore, they decided to compensate the families of the deceased with some form of reimbursement for the Social Security taxes that they had paid into the system. They set up a one-time benefit they called the “lump sum death payment,” and it was originally intended to reimburse the family with an amount equal to 3.5 percent of the money the deceased had paid into the system.

It was supposed to be a temporary benefit, because Congress knew that as time passed, most workers would be paying a sufficient amount of money into Social Security and they would be insured for survivor benefits. In other words, when a taxpayer died, the widow or widower (and any minor children) would get monthly benefits — so this lump sum payout would no longer be needed.

But as often happens with government programs, once you start paying a benefit, it’s hard to take it away. Over the years, there have been any number of proposals to eliminate the lump sum death payment. But as miserly as the benefit is, it’s a popular feature of the Social Security program. And politicians soon learned that to tamper with it meant an automatic loss in the next election. So the “temporary benefit” never went away.

But over the years, there have been some relatively minor adjustments to the original law. In 1954, they capped the benefit at $255 — and it’s remained at that level ever since. And in 1983, when Congress was looking for ways to save money in the Social Security system, they restricted the payment of the one-time death payment only to a “spouse who was living with the deceased at the time of death.”

And that’s where we are today. We have an essentially meaningless “death benefit” paid only to a widow or widower. Perhaps 50 years ago, $255 paid the cost of a funeral. Of course today, it barely covers the price of the flowers. Personally, I think the benefit should simply be eliminated. But your own email suggests why it’s so hard to get rid of a Social Security benefit. In fact, you call for an expansion of the benefit. You feel it is “discriminatory” and should be paid in all cases.

But maybe after reading my little history lesson, you and your round-table pals will have a different view? Let me know.

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