[Federal Register Volume 59, Number 50 (Tuesday, March 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5848]


[[Page Unknown]]

[Federal Register: March 15, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Social Security Administration

20 CFR Parts 404 and 416

RIN 0960-AD22

 

Federal Old-Age, Survivors, and Disability Insurance and 
Supplemental Security Income for the Aged, Blind, and Disabled; 
Representative Payment Under Title II and Title XVI of the Social 
Security Act

AGENCY: Social Security Administration, HHS. 
ACTION: Proposed rules.

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SUMMARY: We propose to amend our regulations on payment of Social 
Security and supplemental security income (SSI) benefits under title II 
and title XVI of the Social Security Act (the Act). The proposed 
regulations reflect the provisions of section 5105(a) (1) and (2), and 
(c) of the Omnibus Budget Reconciliation Act of 1990 (OBRA 90). Section 
5105 amended sections 205(j) and 1631(a)(2) of the Act and made 
numerous modifications and additions to the representative payee 
provisions of the Act intended to provide additional safeguards and 
protection for beneficiaries who need representative payees. These 
modifications and additions include procedures for investigating 
representative payee applicants, identifying unsuitable representative 
payee applicants, making direct payment to some beneficiaries while we 
try to find a payee, providing advance notice of determinations to make 
representative payment and selections of representative payees, 
providing all affected beneficiaries with the opportunity to appeal our 
determination to make representative payment or to select a particular 
representative payee, and making restitution in some instances to 
beneficiaries of benefits misused by representative payees.

DATES: To be sure your comments are considered, we must receive them no 
later than May 16, 1994.

ADDRESSES: Comments should be submitted in writing to the Commissioner 
of Social Security, Department of Health and Human Services, P.O. Box 
1585, Baltimore, MD 21235, or delivered to the Office of Regulations, 
Social Security Administration, 3-B-1 Operations Building, 6401 
Security Boulevard, Baltimore, MD 21235, between 8 a.m. and 4:30 p.m. 
on regular business days. Comments received may be inspected during 
these same hours by making arrangements with the contact person shown 
below.

FOR FURTHER INFORMATION CONTACT: Philip Berge, Legal Assistant, 3-B-1 
Operations Building, 6401 Security Boulevard, Baltimore, MD 21235, 
(410) 965-1769.

SUPPLEMENTARY INFORMATION:

Background

    Subpart U of part 404 and Subpart F of part 416 of our regulations 
explain the principles and procedures that we follow in determining 
whether to make representative payment and in selecting a 
representative payee. These subparts also describe the responsibilities 
of a representative payee regarding the use of funds the payee receives 
on behalf of the beneficiary. Under the authority provided in sections 
205(j) and 1631(a)(2) of the Act and these regulations, we will select 
a representative payee for a person receiving Social Security or 
supplemental security income benefits under title II or title XVI of 
the Act if we believe that representative payment rather than direct 
payment of benefits would be in the interest of that person.
    In selecting a representative payee, we select the person, agency, 
or organization that we believe will best serve the interest of a 
beneficiary. Any person or organization chosen as a representative 
payee must use benefits and accept responsibilities as required under 
the Act and our regulations.
    Section 5105 of OBRA 90 amended sections 205(j) and 1631(a)(2) of 
the Act to:
    1. Mandate prompt revocation or termination of payment to a 
representative payee, and allow certification of payment to an 
alternative payee or directly to the beneficiary if we, or a court of 
competent jurisdiction, determine that the representative payee misused 
the beneficiary's benefits.
    2. Authorize exemptions on a case-by-case basis to the prohibition 
on payment to a payee applicant who previously served as a 
representative payee and had certification of payment of benefits 
revoked or terminated by reason of misuse, if appointing the payee 
applicant would be in the best interest of an individual.
    3. Require that any determination that payment of benefits be made 
to a particular representative payee be made on the basis of an 
investigation conducted in advance of the appointment of the payee, 
including a face-to-face interview with the payee applicant when 
practicable.
    4. Prohibit, with certain exceptions, payment to a payee applicant 
who is a creditor of the beneficiary providing the beneficiary with 
goods or services for monetary consideration. Previously, we had no 
regulations on this subject.
    5. Require a determination whether a payee applicant who would 
ordinarily be precluded from being selected as a representative payee 
because he or she is a creditor of an individual receiving benefits 
would be acceptable to serve as a representative payee.
    6. Require a finding that direct payment of monthly benefits can be 
expected to cause substantial harm to the beneficiary before we suspend 
or defer benefits to the beneficiary until a suitable representative 
payee is selected.
    In such cases delay of benefits will not exceed 1 month except if 
the individual is, as of the date of our determination, legally 
incompetent, under age 15, or an SSI beneficiary eligible for benefits 
based on disability and medically determined to be a drug addict or 
alcoholic. For beneficiaries residing in California, we will continue 
to follow the immediate direct payment requirement as explained in 
Briggs v. Sullivan, No. CV-S-89-0203 EJG (E.D. Cal. March 23, 1990). 
Under the Briggs court order, we may not refuse to pay directly or 
withhold the Social Security or SSI benefits of any California 
beneficiary, 18 years or older, who has been determined to need, but 
does not have a representative payee. The court order does not apply to 
individuals who are eligible for SSI disability payments and who have 
been medically determined to be drug addicts or alcoholics or to 
individuals who have been declared legally incompetent by a court. 
Members of the Briggs class will be paid directly and will not be 
subject to deferral or suspension of benefits based on a substantial 
harm determination. Payment of any benefits which are delayed pending 
selection of a representative payee shall be made to the individual or 
the representative payee as a single sum or over such period of time as 
we determine is in the best interest of the individual entitled to such 
benefits.
    7. Require that we provide, in advance of certification of payment, 
written notice to the beneficiary of our determination to certify 
payment of benefits to a representative payee and the right to appeal 
that determination. If, however, the beneficiary is under the age of 
15, an unemancipated minor under the age of 18, or legally incompetent, 
the notice will be provided solely to the beneficiary's legal guardian 
or legal representative.
    Present regulations (Secs. 404.2030 and 416.630) generally require 
that we notify the beneficiary, or the individual acting on his or her 
behalf, whenever we intend to make representative payment and appoint a 
payee. We must also ask an individual to contact us if he or she 
objects to either proposed action. Sections 404.902(o) and 416.1402(d) 
of the regulations currently indicate that a decision to make 
representative payment is an initial determination, which is 
appealable, unless the beneficiary is under age 18, legally incompetent 
or in the case of title XVI only, an SSI beneficiary eligible on the 
basis of disability and medically determined to be a drug addict or 
alcoholic.
    8. Provide that when our negligent failure to investigate or 
monitor a representative payee results in misuse of benefits by the 
representative payee, we shall make payment to the beneficiary or the 
beneficiary's new representative payee in an amount equal to such 
misused benefits.
    9. Provide that we shall make a good faith effort to obtain 
restitution from the representative payee who misused benefits.
    Current regulations (Secs. 404.2041 and 416.641) explain that our 
obligation to the beneficiary is completely discharged when we make a 
correct payment to a representative payee on behalf of the beneficiary 
and that the representative payee may be liable if the payee misuses 
the beneficiary's benefits.

Proposed Regulations

    We propose to make the following changes in our regulations to 
reflect the pertinent amendments to sections 205(j) and 1631(a)(2) of 
the Act made by sections 5105(a) (1) and (2), and (c) of OBRA 90.
     Amend Secs. 404.902 and 416.1402 to include a 
determination on restitution as an initial determination subject to the 
administrative review process. This change reflects our conclusion that 
our determination regarding a person's right to restitution is a 
decision covered by the provisions of section 205(b)(1) or 1631(c)(1) 
of the Act, and accordingly, an initial determination subject to the 
administrative review process.
     Amend Secs. 404.2001(b)(3) and 416.601(b)(3) to add a 
parenthetical statement at the end of each advising that Secs. 404.2011 
and 416.611, respectively, should be referenced if continued direct 
payment would cause substantial harm to the beneficiary. This proposed 
regulatory change results from the amendments to sections 
205(j)(2)(D)(i) and 1631(a)(2)(B)(vii) of the Act made by section 
5105(a)(2) of OBRA 90 which reflect the prohibition against deferring 
or suspending payment of benefits unless direct payment to the 
beneficiary would cause substantial harm to the beneficiary.
     Add new Secs. 404.2011 and 416.611 to explain the 
following:

    --We will pay monthly benefits directly to a beneficiary who we 
determine should have a representative payee until a suitable 
representative payee is selected unless we determine that direct 
payment of benefits to the beneficiary would result in substantial 
harm to the beneficiary.
    --Findings of substantial harm will be made on a case-by-case 
basis. When the direct receipt of benefits can be expected to result 
in physical or mental injury to the beneficiary (such as instances 
when the beneficiary cannot deal with the stress associated with 
handling his or her own financial affairs), substantial harm will be 
found to exist. Substantial harm will also be found to exist when 
the beneficiary is legally incompetent, or under age 15, unless 
there is evidence to the contrary regarding substantial harm, or 
when the beneficiary is an SSI recipient eligible based on a 
disability and is medically determined to be a drug addict or 
alcoholic. We believe that Congress did not intend that these 
categories of beneficiaries should receive direct payment. 
Therefore, we believe it is reasonable to consider that direct 
payment would result in substantial harm to these categories of 
beneficiaries and to delay payment of benefits to these 
beneficiaries for more than 1 month until an appropriate payee is 
selected and appointed. However, with respect only to individuals 
adjudged legally incompetent and children under age 15, we will 
allow the individual to provide evidence that substantial harm does 
not exist, and if we find upon review of this evidence that direct 
payment would not result in substantial harm, then we will make 
direct payment to the individual. Every effort will be made to 
select and appoint a payee expeditiously.
    --Findings of substantial harm will not be considered initial 
determinations subject to appeal rights. This is because a finding 
of substantial harm will not materially affect the beneficiary's 
payment since delay or suspension of direct payment may not exceed 1 
month unless the beneficiary is: legally incompetent, under age 15, 
or an SSI recipient eligible based on a disability and is medically 
determined to be a drug addict or alcoholic. Beneficiaries who have 
had their benefits temporarily suspended can also avail themselves 
of additional administrative remedies in that they can challenge the 
determination to make representative payment (Secs. 404.902(o) and 
416.1402(d)) and/or challenge the appointment of a particular person 
to be their representative payee (Secs. 404.902(p) and 416.1402(e)). 
A finding of substantial harm is closely associated with a 
determination to make representative payment or to change 
representative payee and can be raised in connection with the appeal 
of those determinations.
    --If we find that direct payment to an individual would cause 
substantial harm, we may delay or suspend benefits up to 1 month. If 
the beneficiary is legally incompetent, under age 15, or is eligible 
for SSI benefits based on a disability and is medically determined 
to be a drug addict or alcoholic, we may delay payments for more 
than 1 month.
    --Payment of any benefits which were deferred or suspended 
pending selection of a representative payee shall be made to the 
beneficiary or the representative payee as a single sum or over such 
period of time as we determine is in the best interest of the 
beneficiary.

     Add new Secs. 404.2022 and 416.622 to explain that:

    --A payee applicant who has been convicted of a violation under 
section 208 or section 1632 of the Act may never be appointed as a 
representative payee. This provision was in section 208 of the Act 
prior to enactment of section 5105(a)(2) of OBRA 90 but was never 
included in our regulations.
    --A payee applicant who receives Social Security or SSI benefits 
through a representative payee may not serve as a representative 
payee. Such individuals have already been determined to be incapable 
of handling financial affairs.
    --A payee applicant whose prior certification or appointment as 
representative payee was revoked or terminated by reason of misuse 
of title II or title XVI benefits may not be appointed as a 
representative payee. We may make an exception to this prohibition 
on a case-by-case basis if direct payment is not possible and 
payment to the payee applicant would serve the best interest of the 
beneficiary. An exception may be granted if no suitable alternative 
payee is available and the information indicates the applicant is 
now suitable to serve as payee. If the applicant is appointed, 
evaluation(s) of the applicant's performance as payee will be 
conducted as our field offices determine are necessary.
    --Payment will not be certified to a payee applicant who is a 
creditor of the beneficiary, i.e., someone who provides the 
beneficiary with goods or services for monetary consideration, 
unless the creditor is:
    (1) A relative of the beneficiary living in the same household 
as the beneficiary;
    (2) A legal guardian or legal representative of the beneficiary;
    (3) A facility that is licensed or certified as a care facility 
under State or local law, or an administrator, owner, or employee of 
such a facility, if the beneficiary resides in the facility and the 
selection of the facility or such person is made only after we have 
attempted to locate an alternative representative payee who would 
better serve the interests of the beneficiary;
    (4) An individual whom we determine, based on written findings 
and under procedures prescribed in our regulations to be acceptable 
to serve as a representative payee. The individual must establish 
that he or she poses no risk to the beneficiary, that the financial 
relationship of the applicant to the beneficiary poses no 
substantial conflict of interest, and a more suitable payee cannot 
be found; or
    (5) A qualified organization authorized to collect a monthly fee 
from the beneficiary for expenses incurred by the organization in 
providing services performed as the individual's representative 
payee. (This regulatory provision and implementing regulations 
separately published on June 1, 1992 (57 FR 23054), apply only as 
long as the payment for services provisions set out in sections 
205(j)(4) and 1631(a)(2)(D) of the Act, currently scheduled to lapse 
on July 1, 1994, are in effect.)

     Add new Secs. 404.2024 and 416.624 to explain that before 
certifying payment to a representative payee applicant, we will conduct 
an investigation of a payee applicant to determine the applicant's 
suitability. A face-to-face interview will be included as part of the 
investigation unless it is impracticable to do so. A face-to-face 
interview will be considered impracticable if it would cause the payee 
applicant undue hardship such as when the applicant cannot reasonably 
make arrangements to visit the Social Security field office.
    During the investigation we will:

    --Require the payee applicant to submit documented proof of 
identity, unless such information has been submitted with an 
application for title II or title XVI benefits;
    --Verify the payee applicant's Social Security account number or 
employer identification number;
    --Determine whether the payee applicant has been convicted of a 
violation of section 208 or section 1632 of the Act; and
    --Determine whether the payee applicant previously served as a 
representative payee and had his or her certification revoked or 
terminated by reason of misuse of title II or title XVI benefits.

     Amend existing Secs. 404.2025 and 416.625 to change the 
title of the sections to ``Information to be submitted by a 
representative payee after a representative payee has been selected,'' 
moving existing paragraph (a) of these sections with minor revisions to 
new Secs. 404.2024 and 416.624 as new paragraph (c) and keeping 
existing paragraph (b) as an undesignated paragraph under 
Secs. 404.2025 and 416.625.
     Amend existing Secs. 404.2030 and 416.630 to explain that 
whenever we intend to make representative payment or to appoint a 
payee, we will provide written notice to the beneficiary (or the legal 
guardian or the legal representative of the beneficiary) in advance of 
the certification of payment. The advance notice will:

    --Be clearly written in language that is easily understandable 
to the reader;
    --Identify the person to be designated as representative payee;
    --Explain the right of the beneficiary (or the legal guardian or 
legal representative of the beneficiary) to appeal our determination 
that a representative payee is necessary; and
    --Explain the right to appeal the designation of a particular 
person to serve as the representative payee of the beneficiary and 
to review the evidence upon which such designation is based and 
submit additional evidence.

    If the beneficiary or his or her legal guardian or legal 
representative appeals and the appeal is received before the 
effectuation of the payee appointment, the payee appointment will not 
be processed until the appeal has been resolved in accordance with 
Subpart J of part 404 or Subpart N of part 416. Current monthly 
benefits will be paid directly to the beneficiary, where appropriate, 
in accordance with proposed Secs. 404.2011 and 416.611, until we have 
selected a payee. Also, we are proposing to amend Secs. 404.902(o) and 
416.1402(d) to include as an initial determination whether 
representative payment will be made. This will afford the right to 
request review to all beneficiaries for whom we propose representative 
payment including beneficiaries who are under age 18, who are legally 
incompetent, or who receive SSI disability benefits and are medically 
determined to be drug addicts or alcoholics.
     Amend existing Secs. 404.2041 and 416.641 to explain that:

    --The representative payee is liable for misuse of the 
beneficiary's benefits and is responsible for paying back misused 
benefits to us. Restitution will always be sought from a payee who 
misused benefits;
    --We will be liable for repayment of misused benefits when our 
negligent failure to investigate or monitor a representative payee 
resulted in misuse;
    --If we determine that repayment of misused benefits is 
appropriate, we will certify for payment to the beneficiary or the 
beneficiary's new representative payee an amount equal to such 
misused benefits;
    --The term ``negligent failure'' as used in the proposed 
regulations means that we failed to investigate or monitor a 
representative payee or that we did investigate or monitor a 
representative payee but were negligent in that effort; and
    --We will make every effort to obtain the return of misused 
funds from the terminated representative payee.
    --Section 416.641 will also explain that for title XVI purposes, 
when we find that our negligent failure to investigate or monitor a 
representative payee results in misuse of SSI benefits which involve 
federally administered State supplementary payments, our repayment 
of misused funds will include any portion of misused SSI benefits 
which are State supplementary payments. We believe that Congress 
intended that beneficiaries should be made whole in cases where 
restitution is appropriate. Therefore, we have determined that State 
funds which are Federally administered and which are involved in 
restitution cases will be reissued as appropriate. The replacement 
State supplementary payment will constitute a State liability under 
existing Federal-State agreements.

     Amend Secs. 404.2050 and 416.650 to reflect the changes 
made by section 5105(a)(1) of OBRA 90 requiring that we will promptly 
stop payment to a representative payee and make payment directly to the 
beneficiary or to a new payee if we, or a court of competent 
jurisdiction, determine that the representative payee has misused the 
beneficiary's benefits.

Regulatory Procedures

Executive Order 12291

    The Secretary has determined that this is not a major rule under 
Executive Order 12291 because it will result in negligible 
administrative costs and savings. Therefore, a regulatory impact 
analysis is not required.

Regulatory Flexibility Act

    We certify that these regulations, if promulgated, will not have a 
significant economic impact on a substantial number of small entities 
because these rules will primarily affect only individuals. Therefore, 
a regulatory flexibility analysis as provided in Public Law 96-354, the 
Regulatory Flexibility Act, is not required.

Paperwork Reduction Act

    These regulations contain reporting requirements in Secs. 404.2024 
and 416.624. We would normally seek approval of these requirements 
(under the Paperwork Reduction Act) from the Office of Management and 
Budget (OMB). We are not doing so in this situation because we have 
already obtained clearance from OMB to collect this information using 
form SSA-11 BK, OMB No. 0960-0014.

(Catalog of Federal Domestic Assistance Program Nos. 93.802-93.805 
Social Security; and 93.807 Supplemental Security Income.)

List of Subjects

20 CFR Part 404

    Administrative Practice and Procedure; Aged, Blind, Death benefits; 
Disability Insurance benefits; Old-Age, Survivors, and Disability 
Insurance; Reporting and recordkeeping requirements, Social Security.

20 CFR Part 416

    Administrative Practice and Procedure; Aged, Blind, Disability 
benefits; Medicaid, Reporting and recordkeeping requirements; 
Supplemental Security Income (SSI).

    Editorial Note: This document was received at the Office of the 
Federal Register on March 9, 1994.

    Dated: May 25, 1993.
Louis D. Enoff,
Principal Deputy Commissioner of Social Security.

    Approved: August 26, 1993.
Donna E. Shalala,
Secretary of Health and Human Services.

    For the reasons set out in the preamble, subparts U and J of part 
404 and subparts F and N of part 416 of 20 CFR chapter III are amended 
as follows:

PART 404--FEDERAL OLD-AGE, SURVIVORS AND DISABILITY INSURANCE 
(1950- )

    1. The authority citation for subpart J continues to read as 
follows:

    Authority: Secs. 201(j), 205(a), (b) and (d)-(h), 221(d), and 
1102 of the Social Security Act; 31 U.S.C. 3720A; 42 U.S.C. 401(j), 
405(a), (b) and (d)-(h), 421(d), and 1302.

    2. Section 404.902 is amended by revising paragraph (o), by 
removing the ``and'' after paragraph (t), by removing the period after 
paragraph (u) and replacing it with ``; and'' and by adding new 
paragraph (v) after paragraph (u) to read as follows:


Sec. 404.902  Administrative actions that are initial determinations.

* * * * *
    (o) Whether the payment of your benefits will be made, on your 
behalf, to a representative payee;
* * * * *
    (v) Restitution of misused benefits.
    3. The authority citation for Subpart U of part 404 continues to 
read as follows:

    Authority: Secs. 205 (a), (j), and (k), and 1102 of the Social 
Security Act; 42 U.S.C. 405(a), (j), and (k), and 1302.


Sec. 404.2001  [Amended]

    4. Section 404.2001 is amended by adding the following 
parenthetical statement after the last sentence of paragraph (b)(3):


Sec. 404.200  Introduction.

* * * * *
    (b) * * *
    (3) * ** (See Sec. 404.2011 if direct payment of benefits would 
cause substantial harm to the beneficiary.)
    5. New Sec. 404.2011 is added to subpart U to read as follows:


Sec. 404.2011  When a beneficiary will be paid directly pending 
selection of a suitable representative payee.

    (a) We will pay current monthly benefits directly to the 
beneficiary until we have selected a representative payee except as 
explained in paragraphs (b), (c), (d) and (e) of this section.
    (b) We may delay (in the case of initial entitlement to benefits) 
or suspend (in the case of existing entitlement to benefits) payment to 
a beneficiary while we try to find a suitable representative payee if 
we determine that direct payment would cause substantial harm to the 
beneficiary.
    (c) We will make findings of substantial harm on a case-by-case 
basis, taking into consideration all matters that may affect the 
ability of the beneficiary to handle his or her affairs in his or her 
interest. When the direct receipt of benefits can be expected to cause 
physical or mental injury to the beneficiary, we will consider 
substantial harm to exist. We will also consider direct payment to 
cause substantial harm when the beneficiary is legally incompetent or 
under age 15, unless there is evidence to the contrary which 
establishes that substantial harm to the beneficiary will not result if 
direct payment is made.
    (d) If we find that direct payment will cause substantial harm to 
the beneficiary, we may delay payment for a period not to exceed 1 
month. If the beneficiary is legally incompetent, or under age 15, 
payments will be withheld until we appoint a representative payee.

    Example 1: Substantial Harm Does Not Exist. A claim is approved 
for a title II claimant who suffers from a combination of mental 
impairments but who is not legally incompetent. We determine that 
the beneficiary needs assistance in managing benefits; however, a 
representative payee has not been found when we are ready to pay 
benefits. Although we believe that the beneficiary may not use the 
money wisely, there is no indication that the direct receipt of 
funds would cause physical or mental injury. Benefits must be paid 
directly to the beneficiary while we locate a suitable 
representative payee.
    Example 2: Substantial Harm Exists. We are unable to find a 
representative payee for a title II beneficiary who suffers from 
alcoholism and has been determined to need assistance in managing 
funds. There is evidence that the beneficiary has had repeated and 
recent hospitalizations due to acute problems caused by excessive 
drinking. We may delay payment based on the substantial harm rule 
while we locate a suitable representative payee. If a representative 
payee is not found in 1 month, we must make direct payment while we 
continue to make every reasonable effort to locate a suitable payee.

    (e) Payment of any benefits which were deferred or suspended 
pending appointment of a representative payee shall be made to the 
beneficiary or the representative payee as a single sum or over such 
period of time as we determine is in the best interest of the 
beneficiary.
    6. New Sec. 404.2022 is added to Subpart U to read as follows:


Sec. 404.2022  Persons who may not serve as representative payees.

    (a) A payee applicant who has been convicted of a violation under 
section 208 or section 1632 of the Social Security Act may not serve as 
a representative payee.
    (b) A payee applicant who receives Social Security or SSI benefits 
through a representative payee may not serve as a representative payee.
    (c)(1) A payee applicant who previously served as a representative 
payee and was found by us, or a court of competent jurisdiction, to 
have misused title II or title XVI benefits will not be selected to be 
a representative payee. However, we may grant an exception to this 
prohibition on a case-by-case basis if direct payment of benefits to 
the beneficiary is not feasible, and selection of the payee applicant 
as representative payee would be in the interest of the beneficiary. 
Such a payee applicant may be appointed as a representative payee if--
    (i) No suitable alternative payee is available, and
    (ii) The information we have indicates the applicant is now 
suitable to serve as a representative payee.
    (2) If the payee applicant is appointed, we will evaluate the 
applicant's performance as payee at such intervals as the local field 
office determines are necessary.
    (d) A payee applicant who is a creditor, i.e., someone who provides 
the beneficiary with goods or services for monetary consideration, will 
not be selected to be a representative payee unless the creditor is--
    (1) A relative of the beneficiary living in the same household as 
the beneficiary;
    (2) A legal guardian or legal representative of the beneficiary;
    (3) A facility that is licensed or certified as a care facility 
under the law of a State or a political subdivision of a State, or a 
person who is an administrator, owner, or employee of the facility, if 
the beneficiary resides in such facility, and we are unable to locate 
an alternative representative payee;
    (4) An individual who establishes that he or she poses no risk to 
the beneficiary and that his or her financial relationship to the 
beneficiary poses no substantial conflict of interest. We will 
investigate each case to ensure that such individual poses no risk to 
the beneficiary and presents no substantial conflict of interest. Our 
determination will be based on written findings and will be made when a 
more suitable payee cannot be found under procedures set out in this 
subpart on the selection of representative payees; or
    (5) A qualified organization authorized to collect a monthly fee 
from the beneficiary for expenses incurred by the organization in 
providing services performed as the individual's representative payee, 
under Sec. 404.2040a.

Example 1

    An individual applies to be representative payee for a 
beneficiary who has been determined to need assistance in managing 
benefits. The payee applicant has been renting a room to the 
beneficiary for several years and assists the beneficiary with his 
other financial obligations, as needed. He charges the beneficiary a 
reasonable amount of rent. The beneficiary has no other family or 
friends willing to help manage his benefits or to act as 
representative payee. The payee applicant has demonstrated that his 
interest in and concern for the beneficiary goes beyond his desire 
to collect the rent each month. In this instance, the applicant may 
be selected as a representative payee because a more suitable payee 
is not available, the applicant appears to pose no risk to the 
beneficiary, and there is minimal conflict of interest.

Example 2

    In a situation similar to the one above, the beneficiary's 
landlord indicates that he is applying to be payee only to ensure 
receipt of his rent, and will give the balance of the benefit funds 
remaining after payment of the rent directly to the beneficiary. In 
this situation the applicant will not be considered suitable because 
of the apparent conflict of interest.

    7. New Sec. 404.2024 is added to Subpart U to read as follows:


Sec. 404.2024  Investigation of representative payee applicant.

    (a) We will conduct an investigation of a payee applicant before 
selecting the applicant as a payee. We will include a face-to-face 
interview with the payee applicant as part of the investigation unless 
it is impracticable to do so. As part of the investigation we will--
    (1) Require the payee applicant to submit documented proof of 
identity, unless such information has been previously submitted with an 
application for title II or title XVI benefits;
    (2) Verify the payee applicant's Social Security account number or 
employer identification number;
    (3) Determine whether the payee applicant has been convicted of a 
violation of section 208 or section 1632 of the Social Security Act;
    (4) Determine whether the payee applicant has previously served as 
a representative payee and has had a previous appointment as payee 
revoked or terminated by reason of misuse of title II or title XVI 
benefits;
    (5) Use our records to verify the payee applicant's employment and/
or direct receipt of Social Security or SSI benefits;
    (6) Corroborate the payee applicant's concern for the beneficiary 
with the beneficiary's custodian; and
    (7) Determine whether the payee applicant is a creditor of the 
beneficiary (see Sec. 404.2022(d)).
    (b) A face-to-face interview will be considered impracticable if it 
would cause the payee applicant undue hardship (e.g., the payee 
applicant cares for children or disabled individuals in the home and no 
alternative caregiver is available, or is employed and cannot arrange 
for time off from work or would have to travel a great distance to the 
field office). In this situation, we will conduct the investigation to 
determine the payee applicant's suitability to serve as a 
representative payee without a face-to-face interview.
    (c) Before we select a representative payee, the payee applicant 
also must give us adequate information showing his or her relationship 
to the beneficiary and demonstrating his or her responsibility for the 
care of the beneficiary.
    8. Section 404.2025 is revised to read as follows:


Sec. 404.2025  Information to be submitted by a representative payee 
after a representative payee has been selected.

    Anytime after we have selected a payee, we may ask the payee to 
give us information showing a continuing relationship with the 
beneficiary and a continuing responsibility for the care of the 
beneficiary. If the payee does not give us the requested information 
within a reasonable period of time, we may stop paying the payee unless 
we determine that the payee had a satisfactory reason for not complying 
with our request and we receive the information requested. We will 
consider paying the beneficiary directly in accordance with 
Sec. 404.2011 in instances when we decide to stop paying the 
representative payee.
    9. Section 404.2030 is revised to read as follows:


Sec. 404.2030  Advance notice of the determination to make 
representative payment.

    (a) We will provide written notice to the beneficiary of our 
determination to make representative payment in advance of 
certification of payment of the beneficiary's benefits to a 
representative payee. We will also advise the beneficiary that we have 
determined that representative payment would be in the interest of the 
beneficiary, and we will provide the name of the representative payee 
we expect to select. If the beneficiary is under age 15, is an 
unemancipated minor under the age of 18, or is legally incompetent, the 
written notice will be provided to the legal guardian or legal 
representative of the beneficiary. The advance notice will--
    (1) Be clearly written in language that is easily understandable by 
the reader;
    (2) Identify the person to be designated as representative payee;
    (3) Explain the right of the beneficiary (or the legal guardian or 
legal representative of the beneficiary) to appeal a determination, in 
accordance with subpart J of this part, that a representative payee is 
necessary for the beneficiary; and
    (4) Explain the right of the beneficiary, legal guardian or legal 
representative to appeal, in accordance with subpart J of this part, 
the designation of a particular person to serve as the representative 
payee of the beneficiary and to review the evidence upon which such 
designation is based and submit additional evidence.
    (b) If the beneficiary or his or her legal guardian or legal 
representative objects to representative payment or to the designated 
payee, and the objection is received before the effectuation of the 
payee appointment, we will resolve the objection in the same manner as 
we resolve other objections to initial determinations in accordance 
with subpart J of this part before the payee appointment is processed.
    10. Section 404.2041 is revised to read as follows:


Sec. 404.2041  Restitution of misused benefit payments.

    (a) We will repay benefits in cases when we determine that a 
representative payee misused benefits and the misuse resulted from our 
negligent failure to investigate or monitor a representative payee. 
When we make restitution, we will pay to the beneficiary or the 
beneficiary's alternative representative payee an amount equal to the 
misused benefits.
    (b) The representative payee who misuses the beneficiary's benefits 
is responsible for paying back misused benefits to us. Restitution of 
misused benefits will always be sought from the payee who misused the 
benefits.
    (c) The term ``negligent failure'' as used in this subpart means 
that we failed to investigate or monitor a representative payee or that 
we did investigate or monitor a representative payee but were negligent 
in our investigation or monitoring. Examples of SSA's negligent failure 
include, but are not limited, to the following. We did not--
    (1) Follow our established procedures in this subpart when 
investigating, appointing, or monitoring a representative payee;
    (2) Investigate timely a reported allegation of misuse; or
    (3) Take the steps necessary to prevent the issuance of payments to 
the payee after it was determined that the payee misused benefits.
    (d) Our repayment of misused benefits under these provisions does 
not alter the payee's liability and responsibility as described in 
paragraph (b) of this section. Therefore, we will make every reasonable 
effort to obtain the return of misused benefits from the payee who 
misused the benefits.
    11. Section 404.2050 is amended by revising the introductory 
paragraph, and paragraph (a) to read as follows:


Sec. 404.2050  When a new representative payee will be selected.

    When we learn that the interest of a beneficiary is not served by 
continuing payment to the present payee or that the present payee is no 
longer able or willing to carry out payee responsibilities, we will 
promptly stop payment to the payee and make payment directly to the 
beneficiary or to an alternative payee until we find a suitable payee. 
We will terminate payment of benefits to the payee and find a new payee 
if the present payee:
    (a) Has been determined to have misused the beneficiary's benefits 
as found by us or a court of competent jurisdiction;
* * * * *

PART 416--SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND, AND 
DISABLED

    1. The authority citation for subpart F continues to read as 
follows:

    Authority: Secs. 1102 and 1631(a)(2) and (d)(1) of the Social 
Security Act; 42 U.S.C. 1302 and 1383 (a)(2) and (d)(1).


Sec. 416.601  [Amended]

    2. Section 416.601 is amended by adding the following parenthetical 
statement after the last sentence of paragraph (b)(3):


Sec. 416.601  Introduction.

* * * * *
    (b) * * *
    (3) * * * (See Sec. 416.611 if direct payment of benefits would 
cause substantial harm to the beneficiary.)
    3. New Sec. 416.611 is added to subpart F to read as follows:


Sec. 416.611  When a beneficiary will be paid directly pending 
selection of a suitable representative payee.

    (a) We will pay current monthly benefits directly to the 
beneficiary until we have selected a representative payee except as 
explained in paragraphs (b), (c), (d) and (e) of this section.
    (b) We may delay (in the case of initial eligibility for benefits) 
or suspend (in case of existing eligibility for benefits) payment to a 
beneficiary while we try to find a suitable representative payee if we 
determine that direct payment would cause substantial harm to the 
beneficiary.
    (c) We will make findings of substantial harm on a case-by-case 
basis, taking into consideration all matters that may affect the 
ability of the beneficiary to handle his or her affairs in his or her 
interest. When the direct receipt of benefits can be expected to cause 
physical or mental injury to the beneficiary, we will consider 
substantial harm to exist. We will also consider direct payment to 
cause substantial harm when the beneficiary is legally incompetent or 
under age 15, unless there is evidence to the contrary which 
establishes that substantial harm to the beneficiary will not result if 
direct payment is made. We will always consider direct payment to cause 
substantial harm when the beneficiary is eligible for SSI benefits 
based on a disability and is medically determined to be a drug addict 
or alcoholic.
    (d) If we find that direct payment will cause substantial harm to 
the beneficiary, we may delay payment for a period not to exceed 1 
month. If the beneficiary is legally incompetent, under age 15, or is 
an SSI beneficiary eligible for payment based on a disability and is 
medically determined to be a drug addict or alcoholic, payment will be 
withheld until we appoint a representative payee.

    Example 1: Substantial Harm Does Not Exist. A claim is approved 
for a title XVI claimant who suffers from a combination of mental 
impairments but who is not legally incompetent. We determine that 
the beneficiary needs assistance in managing benefits; however, a 
representative payee has not been found when we are ready to pay 
benefits. Although we believe that the beneficiary may not use the 
money wisely, there is no indication that the direct receipt of 
funds would cause physical or mental injury. Benefits must be paid 
directly to the beneficiary while we locate a suitable 
representative payee.
    Example 2: Substantial Harm Exists. We are unable to find a 
representative payee for a title XVI beneficiary who has been 
determined to need assistance in managing funds but who is not 
legally incompetent. There is evidence that handling money in the 
past has resulted in uncontrollable stress, self-inflicted injury 
and hospitalization. We may delay payment based on the substantial 
harm rule while we locate a suitable representative payee. If a 
representative payee is not found in 1 month, we must make direct 
payment while we continue to make every reasonable effort to locate 
a suitable payee.

    (e) Payment of any benefits which were deferred or suspended 
pending appointment of a representative payee shall be made to the 
beneficiary or the representative payee as a single sum or over such 
period of time as we determine is in the best interest of the 
beneficiary.
    4. New Sec. 416.622 is added to subpart F to read as follows:


Sec. 416.622  Persons who may not serve as representative payees.

    (a) A payee applicant who has been convicted of a violation under 
section 208 or section 1632 of the Social Security Act may not serve as 
a representative payee.
    (b) A payee applicant who receives Social Security or SSI benefits 
through a representative payee may not serve as a representative payee.
    (c)(1) A payee applicant who previously served as a representative 
payee and was found by us, or a court of competent jurisdiction, to 
have misused title II or title XVI benefits will not be selected to be 
a representative payee. However, we may grant an exception to this 
prohibition on a case-by-case basis if direct payment of benefits to 
the beneficiary is not feasible, and selection of the payee applicant 
as representative payee would be in the interest of the beneficiary. 
Such a payee applicant may be appointed as a representative payee if--
    (i) No suitable alternative payee is available, and
    (ii) The information we have indicates the applicant is now 
suitable to serve as a representative payee.
    (2) If the payee applicant is appointed, we will evaluate the 
applicant's performance at such intervals as the local field office 
determines are necessary.
    (d) A payee applicant who is a creditor, i.e., someone who provides 
the beneficiary with goods or services for monetary consideration, will 
not be selected to be a representative payee unless the creditor is--
    (1) A relative of the beneficiary living in the same household as 
the beneficiary;
    (2) A legal guardian or legal representative of the beneficiary;
    (3) A facility that is licensed or certified as a care facility 
under the law of a State or a political subdivision of a State, or a 
person who is an administrator, owner, or employee of the facility, if 
the beneficiary resides in such facility, and we are unable to locate 
an alternative representative payee;
    (4) An individual who establishes that he or she poses no risk to 
the beneficiary and that his or her financial relationship to the 
beneficiary poses no substantial conflict of interest. We will 
investigate each case to ensure that such individual poses no risk to 
the beneficiary and presents no substantial conflict of interest. Our 
determination will be based on written findings and will be made when a 
more suitable payee cannot be found under procedures set out in this 
subpart on selection of representative payees; or
    (5) A qualified organization authorized to collect a monthly fee 
from the beneficiary for expenses incurred by the organization in 
providing services performed as the individual's representative payee, 
under Sec. 416.640a.

Example 1

    An individual applies to be representative payee for a 
beneficiary who has been determined to need assistance in managing 
benefits. The payee applicant has been renting a room to the 
beneficiary for several years and assists the beneficiary with his 
other financial obligations, as needed. He charges the beneficiary a 
reasonable amount of rent. The beneficiary has no other family or 
friends willing to help manage his benefits or to act as 
representative payee. The payee applicant has demonstrated that his 
interest in and concern for the beneficiary goes beyond his desire 
to collect the rent each month. In this instance, the applicant may 
be selected as a representative payee because a more suitable payee 
is not available, the applicant appears to pose no risk to the 
beneficiary, and there is minimal conflict of interest.

Example 2

    In a situation similar to the one above, the beneficiary's 
landlord indicates that he is applying to be payee only to ensure 
receipt of his rent, and will give the balance of the benefit funds 
remaining after payment of the rent directly to the beneficiary. In 
this situation the applicant will not be considered suitable because 
of the apparent conflict of interest.

    5. New Sec. 416.624 is added to subpart F to read as follows:


Sec. 416.624  Investigation of representative payee applicant.

    (a) We will conduct an investigation of a payee applicant before 
selecting the applicant as a payee. We will include a face-to-face 
interview with the payee applicant as part of the investigation unless 
it is impracticable to do so. As part of the investigation we will--
    (1) Require the payee applicant to submit documented proof of 
identity, unless such information has been previously submitted with an 
application for title II or title XVI benefits;
    (2) Verify the payee applicant's Social Security account number or 
employer identification number;
    (3) Determine whether the payee applicant has been convicted of a 
violation of section 208 or section 1632 of the Social Security Act;
    (4) Determine whether the payee applicant has previously served as 
a representative payee and has had a previous appointment as payee 
revoked or terminated by reason of misuse of title II or title XVI 
benefits;
    (5) Use our records to verify the payee applicant's employment and/
or direct receipt of social security or SSI benefits;
    (6) Corroborate the payee applicant's concern for the beneficiary 
with the beneficiary's custodian; and
    (7) Determine whether the payee applicant is a creditor of the 
beneficiary (see Sec. 416.622(d)).
    (b) A face-to-face interview will be considered impracticable if it 
would cause the payee applicant undue hardship (e.g., the payee 
applicant cares for children or disabled individuals in the home and no 
alternative caregiver is available, or is employed and cannot arrange 
for time off from work, or would have to travel a great distance to the 
field office). In this situation, we will conduct the investigation to 
determine the payee applicant's suitability to serve as a 
representative payee without a face-to-face interview.
    (c) Before we select a representative payee, the payee applicant 
must also give us adequate information showing his or her relationship 
to the beneficiary and demonstrating his or her responsibility for the 
care of the beneficiary.
    6. Section 416.625 is amended to read as follows:


Sec. 416.625  Information to be submitted by a representative payee 
after a representative payee has been selected.

    Anytime after we have selected a payee, we may ask the payee to 
give us information showing a continuing relationship with the 
beneficiary and a continuing responsibility for the care of the 
beneficiary. If the payee does not give us the requested information 
within a reasonable period of time, we may stop paying the payee unless 
we determine that the payee had a satisfactory reason for not complying 
with our request, and we receive the information requested. We will 
consider paying the beneficiary directly in accordance with 
Sec. 416.611 in instances when we decide to stop paying the 
representative payee.
    7. Section 416.630 is revised to read as follows:


Sec. 416.630  Advance notice of the determination to make 
representative payment.

    (a) We will provide written notice to the beneficiary of our 
determination to make representative payment in advance of payment of 
the beneficiary's benefits to a representative payee. We will also 
advise the beneficiary that we have determined that representative 
payment would be in the interest of the beneficiary, and we will 
provide the name of the representative payee we expect to select. If 
the beneficiary is under age 15, is an unemancipated minor under the 
age of 18, or is legally incompetent, the written notice will be 
provided to the legal guardian or legal representative of the 
beneficiary. The advance notice will--
    (1) Be clearly written in language that is easily understandable by 
the reader;
    (2) Identify the person to be designated as representative payee;
    (3) Explain the right of the beneficiary (or the legal guardian or 
legal representative of the beneficiary) to appeal a determination, in 
accordance with subpart N of this part, that a representative payee is 
necessary for the beneficiary; and
    (4) Explain the right of the beneficiary, legal guardian or legal 
representative to appeal, in accordance with subpart N of this part, 
the designation of a particular person to serve as the representative 
payee of the beneficiary and to review the evidence upon which such 
designation is based and submit additional evidence.
    (b) If the beneficiary or his or her legal guardian or legal 
representative objects to representative payment or to the designated 
payee, and the objection is received before the effectuation of the 
payee appointment, we will resolve the objection in the same manner as 
we resolve other objections to initial determinations in accordance 
with subpart N of this part before the payee appointment is processed.
    8. Section 416.641 is revised to read as follows:


Sec. 416.641  Restitution of misused benefit payments.

    (a) We will repay benefits in cases when we determine that a 
representative payee misused benefits and the misuse resulted from our 
negligent failure to investigate or monitor a representative payee. 
When we make restitution, we will pay to the beneficiary or the 
beneficiary's alternative representative payee an amount equal to the 
misused benefits, including any Federally administered State 
supplementary payments.
    (b) The representative payee who misuses the beneficiary's benefits 
is responsible for paying back misused benefits to us. Restitution of 
misused benefits will always be sought from the payee who misused the 
benefits.
    (c) The term ``negligent failure'' as used in this subpart means 
that we failed to investigate or monitor a representative payee or that 
we did investigate or monitor a representative payee but were negligent 
in our investigation or monitoring. Examples of SSA's negligent failure 
include, but are not limited to the following. We did not--
    (1) Follow our established procedures in this subpart when 
investigating, appointing, or monitoring a representative payee;
    (2) Investigate timely a reported allegation of misuse; or
    (3) Take the steps necessary to prevent the issuance of payments to 
the payee after it was determined that the payee misused benefits.
    (d) Our repayment of misused benefits under these provisions does 
not alter the payee's liability and responsibility as described in 
paragraph (b) of this section. Therefore, we will make every effort to 
obtain the return of misused benefits from the payee who misused the 
benefits.
    9. Section 416.650 is amended by revising the introductory 
paragraph, and paragraph (a) to read as follows:


Sec. 416.650  When a new representative payee will be selected.

    When we learn that the interest of a beneficiary is not served by 
continuing payment to the present payee or that the present payee is no 
longer able or willing to carry out the payee responsibilities, we will 
promptly stop payment to the payee and make payment directly to the 
beneficiary or to an alternative payee until we find a suitable payee. 
We will terminate payment of benefits to the payee and find a new payee 
if the present payee:
    (a) Has been determined to have misused the beneficiary's benefits 
as found by us or a court of competent jurisdiction;
* * * * *
    10. The authority citation for Subpart N continues to read as 
follows:

    Authority: Secs. 1102, 1631, and 1633 of the Social Security 
Act; 42 U.S.C. 1302, 1383, and 1383b, sec. 6 of Pub. L. 98-460, 98 
Stat. 1802.

    11. Section 416.1402 is amended by revising paragraph (d), by 
removing the ``and'' after paragraph (l), by removing the period after 
paragraph (m) and replacing it with ``; and'', and by adding new 
paragraph (n) after paragraph (m) to read as follows:


Sec. 416.1402   Administrative actions that are initial determinations.

* * * * *
    (d) Whether the payment of your benefits will be made, on your 
behalf, to a representative payee;
* * * * *
    (n) Restitution of misused benefits.

[FR Doc. 94-5848 Filed 3-14-94; 8:45 am]
BILLING CODE 4190-29-P