PR 07235.026 Minnesota
A. PR 06-095 Retroactive Social Security Benefits Paid to a Former Representative Payee
DATE: March 14, 2006
The Social Security Administration has an affirmative duty under Agency policy to determine whether a prior representative payee conserved funds on behalf of a beneficiary and whether those funds should be returned to SSA for transfer to the new payee or to the beneficiary (if direct pay is indicated) or whether, in rare cases, the prior payee can continue to manage those funds in the best interest of the beneficiary.
You requested an opinion on whether the Agency has an obligation to take any action when a current representative payee (Scott S~) files a pleading, asking a State court to order a former payee (Karla A~) to reimburse Mr. S~ for any dependents' benefits certified and paid to Ms. A~ (see attached Response and Return of Motion at 2).
We recommend you write a letter to the Minnesota state court, explaining the following.
(1) Pursuant to federal law, only the Agency is authorized to approve or replace a representative payee or to seek the restitution of misused benefits to the beneficiary or his new payee.
(2) Ms. A~ was the payee when the funds at issue were disbursed and, therefore, was entitled to use the funds in the best interest of the beneficiaries.
(3) The Agency will determine whether Ms. A~ conserved any of the funds, and if so, the Agency will decide whether exceptional circumstances exist to permit Ms. A~ to continue administering the conserved funds or whether she must return the funds to the Agency for recertification and payment to Mr. S~.
On February 12, 2005, OHA approved Mr. S~'s application for disability insurance benefits. The field office determined that since Ms. A~ was the primary custodian of the children, naming her as the representative payee would be in the best interest of the children. Subsequently, the children's back benefits and current benefits were certified and paid to Ms. A~ as the representative payee.
In August 2005, Mr. S~ filed an application to be named representative payee. Apparently, because he was able to prove he shared 50 percent custody of the children, the field office approved his application and appointed him as payee. All subsequent benefits for the children were sent to him. The Agency took no action with respect to benefits that were paid to Ms. A~ as representative payee.
In January 2006, Mr. S~ filed suit in Minnesota state court to recover the payments made to Ms. A~ while she was the representative payee.
Under Federal law, only the Agency is authorized to approve or replace a representative payee or to seek the restitution of misused benefits to the beneficiary or his new payee. See 42 U.S.C. § 405(j); 20 C.F.R. § 404.2001. Ms. A~ was the payee when the funds at issue were disbursed. Therefore, she was entitled to use the funds in the best interest of the beneficiaries. See 20 C.F.R. §§ 404.2035, 404.2040.
The Agency's general policy is that a former representative should return conserved funds not needed for the current maintenance of the beneficiary to the Agency for recertification to the current representative payee. See POMS GN 00603.055. Therefore, we believe the Agency has an affirmative duty under Agency policy to determine whether Ms. A~ conserved any of the funds. Only if exceptional circumstances exist can the Agency permit Ms. A~ to continue administering the conserved funds; otherwise, she must return the funds to the Agency for recertification and payment to Mr. S~.
Accordingly, we advise that you write a letter to the court, informing it of the federal law and Agency policy discussed above. We would be glad to review a draft of letter. Additionally, we advise that you further develop the issues of whether Ms. A~ conserved any of the funds, and if so, whether she may be permitted to continue administering these funds.
Deana R. E~
Regional Chief Counsel, Region VIII
Allan D. B~
Assistant Regional Counsel
B. PR 01-224 RESPONSE — RSI—Minnesota—Determination of Prudent Man Investor Rule (Ricki P~ for children, SSN ~) (your reference number CL-22)
DATE: November 5, 2001
Minnesota State law indicates that a Representative Payee must use reasonable care, skill and caution with the interest of the beneficiary as the key element when investing in certain mutual funds and other investment vehicles.
Ricki P~ is the representative payee for the conserved funds of Jeffrey M. P~, Katelyn M. P~, and Kelli M. P~. Mr. P~ has asked about investing the assets of these children in three index funds of the Aid Association For Lutherans (AAL) Mutual Funds: the AAL Small Cap Index Fund II; the AAL Mid Cap Index Fund II; and the Large Company Index Fund II. The notes in the file suggest that Mr. P~ believes that such investments would be preferable to insured accounts that limit him to checking or passbook savings on a monthly basis that result in his purchasing a lot of certificates of deposit worth $200.00 each. He has supplied a prospective of these AAL Mutual Funds. The file indicates that he has apparently also considered investment in "blue chip stocks" and the placing of short-term money in a money market fund.
Federal regulations provide that, after a representative payee has used Social Security benefit payments for the current maintenance of the beneficiary, any remaining amounts are to be conserved or invested on the beneficiary's behalf. See 20 C.F.R. § 404.2045. Any such "[c]onserved funds should be invested in accordance with the rules followed by trustees." Id. We look to state law to determine how trustees should invest funds. See POMS GN 00603.040(A). Generally, states tend to follow a "prudent investor" rule, and that rule is applied in Minnesota. See M.S.A. § 501B.151(8)(d); Six State Survey, Investment of Conserved Funds, 2001-08 SSA 01-P-06 (Gumm, Region V).
The prudent investor rule is found at Minnesota Statutes Annotated (M.S.A.) § 501B.151. No specific types of investments are required or restricted. No specific investment or course of action is, taken alone, prudent or imprudent. The trustee may invest in every kind of property and type of investment, subject to the prudent investor rule. M.S.A. § 501B.151(8)(d). Minnesota case law does not provide much guidance in this area. In re Gerschcow's Will, 261 N.W.2d 335 (Minn. 1977), suggests that certificates of deposit are not per se invalid trust investments.
In Trusteeship of James T. W~, N.W.2d §§, 2001 WL 800003 (Minn. App. July 9, 2001), the Minnesota Court of Appeals, in an unpublished case, discussed the responsibility of the trustees to diversify holdings.
In addition, a trustee in Minnesota has a duty to use reasonable care, skill and caution in the investment of trust funds. A trustee should diversify investments, unless it is in the best interest of the beneficiary not to diversify. M.S.A. § 501B.151(3). A trustee may delegate investment decisions, provided that the trustee used reasonable care, skill, and caution in selecting the agent. M.S.A. § 501B.152(a). Thus, it would be appropriate to invest in a managed fund, such as a mutual fund, if otherwise reasonable.
The investment in any of the kinds of vehicles proposed by Mr. P~ appears appropriate, so long as the investments are selected with "reasonable care, skill, and caution," and the assets are reasonably diversified. M.S.A. § 501B.152(a). The use of mutual funds appears reasonable, and, since Mr. P~ has suggested the use of three index funds, which are themselves diversified to a degree, such investment seems appropriate, so long as the funds are chosen with reasonable care. There is nothing in the record to indicate that the AAL Mutual Funds suggested do not meet this standard. So long as Mr. P~ has exercised reasonable care, skill, and caution in selecting these funds, and there is no conflict of interest on his part in selecting them, use of these investment vehicles appears appropriate. Similarly, if he exercised such care in the absence of a conflict of interest in selecting blue chip stocks or money market funds, such choices would also be appropriate.
Minnesota has incorporated the Prudent Investor Act within its laws. Under Minnesota law, the types of investments Mr. P~ has proposed appear to meet this stand. So long as the particular funds are reputable, the investments should be considered reputable. You can assume that the funds for which he has submitted a prospectus are reasonably reputable.