[Federal Register Volume 69, Number 194 (Thursday, October 7, 2004)]
[Rules and Regulations]
[Pages 60224-60240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-22331]



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Part II





Social Security Administration





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20 CFR Parts 404, 408 and 416



Representative Payment Under Titles II, VIII and XVI of the Social 
Security Act; Final Rule

  Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / 
Rules and Regulations  

[[Page 60224]]


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SOCIAL SECURITY ADMINISTRATION

20 CFR Parts 404, 408 and 416

[Regulation Nos. 4, 8, and 16]
RIN 0960-AF83


Representative Payment Under Titles II, VIII and XVI of the 
Social Security Act

AGENCY: Social Security Administration (SSA).

ACTION: Final rules.

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SUMMARY: We are revising our regulations that explain the procedures we 
follow in determining the need for a representative payee, the 
procedures we follow in selecting a representative payee, the 
responsibilities of a representative payee, and restitution of misused 
benefits under titles II, VIII and XVI of the Social Security Act (the 
Act). This regulation codifies SSA's representative payee policy based 
on statutory changes made during 1990-1999 and includes one provision 
enacted in 2004. Part 408 sets forth our rules applicable to claims for 
special veteran's benefits (SVB) under title VIII of the Act. We began 
making payments under the SVB program in May 2000. We are adding a new 
subpart F (Representative Payment) to part 408.
    The changes to the representative payee provisions of the 
regulations reflect several statutory changes that provide protection 
for beneficiaries who need representative payees. These changes include 
representative payment procedures for investigating payee applicants, 
identifying unsuitable applicants, making direct payment in some 
circumstances, providing advance notice of our determination to make 
representative payment, and providing affected beneficiaries with the 
opportunity to appeal our determinations. Also included are procedures 
for making restitution of benefits where a payee has misused a 
beneficiary's payments and representative payee policies and procedures 
for the title VIII program.

DATES: These rules are effective November 8, 2004.

FOR FURTHER INFORMATION CONTACT: Regarding this Federal Register 
document--Robert Augustine, Social Insurance Specialist, Office of 
Regulations, Social Security Administration, 6401 Security Boulevard, 
Baltimore, MD 21235-6401, (410) 965-0020 or TTY (410) 966-5609; 
regarding eligibility or filing for benefits--our national toll-free 
number, 1-800-772-1213 or TTY 1-800-325-0778 or visit our Internet Web 
site, Social Security Online at http://www.socialsecurity.gov.

Electronic Version

    The electronic file of this document is available on the date of 
publication in the Federal Register on the Internet site for the 
Government Printing Office, http://www.gpoaccess.gov/fr/index.html. It 
is also available on the Internet site for SSA (i.e., Social Security 
Online) at http://policy.ssa.gov/pnpublic.nsf/LawRegs.

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 under the title II and title XVI programs. These 
subparts also describe the responsibilities of a representative payee 
regarding the use of benefits 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 select a representative 
payee for a person receiving Social Security benefits under title II or 
supplemental security income (SSI) benefits under title XVI of the Act 
if we believe that representative payment rather than direct payment of 
benefits is in the best interest of that person.
    In selecting a representative payee, we choose 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 all payee responsibilities as 
required under the Act and our regulations.

A. Changes Required by Public Law 101-508

    Sections 5105(a)(1) and (2), and (c) of Public Law 101-508, the 
Omnibus Budget Reconciliation Act of 1990 (OBRA 90) enacted November 5, 
1990, amended sections 205(j) and 1631(a)(2) of the Act. These sections 
of OBRA 90 made numerous modifications and additions to the 
representative payee provisions of the Act and were intended to provide 
additional safeguards and protection for beneficiaries who need 
representative payees. These modifications and additions include:
     Investigating representative payee applicants;
     Identifying unsuitable representative payee applicants;
     Making direct payment to some beneficiaries while we try 
to find a representative payee;
     Allowing a delay or suspension of direct payment for one 
month (or longer under certain exceptions) when searching for a 
representative payee where direct payment would cause substantial harm 
to the beneficiary;
     Providing advance notice to the beneficiary of 
determinations to make representative payment and selections of 
representative payees;
     Providing beneficiaries with the opportunity to appeal our 
determination to make representative payment or to select a particular 
representative payee;
     Making restitution (in some instances) to beneficiaries of 
benefits misused by representative payees; and
     Making a good faith effort in those instances to obtain 
restitution from terminated representative payees who have misused 
benefits.
    The restitution provision of section 5105(c) of OBRA 90, amending 
sections 205(j) and 1631(a)(2) of the Act, was effective November 5, 
1990--the date OBRA 90 was enacted. These restitution provisions were 
later amended by Public Law 108-203, which was enacted March 2, 2004. 
That amendment is effective for determinations of misuse made on or 
after January 1, 1995. The provision in Public Law 108-203 regarding 
misuse is discussed below. The other OBRA 90 representative payee 
provisions addressed by these rules were effective with respect to 
determinations regarding payment of benefits to representative payees 
made on or after July 1, 1991.
    As noted above, Public Law 108-203 was enacted March 2, 2004, 
several months after we published the proposed rules for representative 
payment under title II, VIII, and XVI of the Act. The misuse provision 
in Public Law 108-203 is effective immediately and requires SSA to 
provide restitution of misused benefits when the representative payee 
is an organization or an individual payee serving 15 or more 
beneficiaries. Prior to the enactment of Public Law 108-203, SSA would 
repay benefits only when we determined SSA was negligent in 
investigating or monitoring the payee and that negligence contributed 
to or failed to prevent the misuse. SSA does not have discretion in 
implementing the new restitution requirement, as the statutory 
obligation is very specific. Accordingly, we are including this 
restitution provision in these final rules, rather than including it in 
a NPRM with other Pub. L. 108-203 provisions that are subject to 
comment and a delayed effective date.

[[Page 60225]]

B. Changes Required by Public Law 103-296

    Section 201 of Public Law 103-296, the Social Security Independence 
and Program Improvements Act of 1994 (SSIPIA 94), enacted August 15, 
1994:
     Extends the authority for qualified organizations to 
collect fees for representative payee services beyond the July 1, 1994, 
sunset date;
     Included State or local government agencies as qualified 
organizations for purposes of collecting fees; and
     Required an annual adjustment (beginning with December 
1996) to the limit on the fee collected by qualified organizations for 
providing payee services.

C. Changes Required by Public Law 104-121

    Section 105 of Public Law 104-121, the Contract With America 
Advancement Act of 1996, enacted March 29, 1996, eliminated disability 
benefits based on drug addiction and/or alcoholism (DAA). However, 
individuals are considered to have a DAA condition when there is 
medical evidence of DAA, but the DAA is not material to the disability 
determination. Under Public Law 104-121, individuals with a DAA 
condition (as determined by the Commissioner), who are eligible for 
Social Security or SSI benefits based on a disability other than DAA 
and who are also found to be incapable of managing their own benefits, 
must have a representative payee if the Commissioner determines that 
representative payment would serve the interests of the individual. The 
statute also provided an exception to the one-month limit on suspension 
of benefit payment while we are looking for a representative payee for 
an individual with a DAA condition. Appointment of organizational 
representative payees for incapable individuals with a DAA condition is 
preferred; however, in certain cases we may select a family member.

D. Changes Required by Public Law 105-33 and Public Law 106-170

    Section 5525(b) of Public Law 105-33, the Balanced Budget Act of 
1997, enacted August 5, 1997, provided technical amendments to the 
title XVI portions of Public Law 104-121 relating to the effective date 
of provisions concerning representative payees. Effective July 1, 1996, 
or later, certain individuals with a DAA condition who were found to be 
incapable of managing their benefits would be paid through a 
representative payee. In addition, section 401 of Public Law 106-170, 
the Ticket to Work and Work Incentives Improvement Act of 1999, 
provided technical amendments to Public Law 104-121 to change the 
effective date of the title II representative payee and referral 
provisions applicable to individuals with a DAA condition.

E. Changes Required by Public Law 106-169

    Section 251 of Public Law 106-169, the Foster Care Independence Act 
of 1999, enacted on December 14, 1999, added a new title VIII program 
to the Act--Special Benefits for Certain World War II Veterans. Title 
VIII requires SSA to pay SVB to certain World War II Veterans. Section 
807 of the Act authorizes SSA to pay SVB to a representative payee when 
we determine that would be in the beneficiary's interest. We are adding 
a new subpart F--Representative Payment to part 408 of our regulations 
to set forth the representative payment rules applicable to the SVB 
program.

F. Changes Required by Section 101 of Public Law 108-203

    Section 101 of Public Law 108-203, the Social Security Protection 
Act of 2004, enacted March 2, 2004, eliminated the requirement in cases 
of certain representative payees that SSA must be negligent in fully 
following agency procedures before it is required to repay the amount 
of misused benefits to beneficiaries. Effective for determinations of 
misuse made on or after January 1, 1995, SSA must re-issue benefits 
under Titles II, VIII, or XVI whenever an individual representative 
payee serving 15 or more beneficiaries or an organizational 
representative payee is found to have misused a beneficiary's benefits. 
If an individual payee serving fewer than 15 beneficiaries misuses a 
beneficiary's benefits, we will be liable for repayment of the misused 
benefits only when our negligent failure to investigate or monitor the 
representative payee results in misuse by the payee.
    As discussed above, we are including the restitution provision of 
Public Law 108-203 in these final rules because it is effective 
immediately, and the requirement is very specific and does not allow 
SSA discretion in how to implement it.
    Public Law 108-203 makes a number of additional changes to 
provisions related to representative payees under Titles II, VIII, XI, 
and XVI of the Act. We will promulgate regulations to implement these 
changes at a later date.

Explanation of Regulatory Changes

    We are making the following changes in our regulations to reflect 
the amendments to the Act made by sections 5105(a)(1) and (2), and (c) 
of Public Law 101-508; section 201 of Public Law 103-296; section 105 
of Public Law 104-121; section 5525(b) of Public Law 105-33; section 
251 of Public 106-169; section 401 of Public Law 106-170 and section 
101 of Public Law 108-203.

A. Restitution

    We are amending existing Sec. Sec.  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 view that 
our determination regarding a person's right to restitution is a 
decision covered by sections 205(b)(1) and 1631(c)(1) of the Act and is 
an initial determination subject to the administrative review process.

B. Substantial Harm

    We are adding new Sec. Sec.  404.2011 and 416.611 to explain that 
when we have determined a beneficiary needs to be paid through a 
representative payee and a representative payee is not immediately 
available:
    1. 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 these benefits will result in substantial harm to the 
beneficiary.
    2. Findings of substantial harm will be made on a case-by-case 
basis. We will find substantial harm in cases where direct payment of 
benefits is expected to result in serious physical or mental injury to 
the beneficiary. We also will find substantial harm to exist when the 
beneficiary is legally incompetent, under age 15, or is receiving 
disability payments and we have determined that he or she has a DAA 
condition. However, we will allow these individuals to provide evidence 
that direct payment would not cause substantial harm. If we find upon 
review of this evidence that direct payment will not result in 
substantial harm, then we will make direct payment to the individual.
    3. Findings of substantial harm are not considered initial 
determinations subject to appeal rights. A finding of substantial harm 
will not materially affect the beneficiary because delay or suspension 
of direct payment is temporary. Beneficiaries who have their benefits 
temporarily suspended can

[[Page 60226]]

appeal the determination to make representative payment (Sec. Sec.  
404.902(o) and 416.1402(d)).
    4. 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 who needs a representative payee is legally 
incompetent, under age 15, or receiving disability payments and 
determined by us to have a DAA condition and is incapable, we may delay 
payments for more than 1 month.
    5. Payment of any benefits that were deferred or suspended pending 
selection of a representative payee will be made to the beneficiary or 
the representative payee as a single sum, or in installments when we 
determine that installments are in the best interest of the 
beneficiary.

C. Unsuitable Representative Payees

    We are adding new Sec. Sec.  404.2022 and 416.622 to explain that:
    1. A representative payee applicant convicted of a violation under 
section 208, 811 or 1632 of the Act may never serve as a representative 
payee. This prohibition was in sections 208 and 1632 of the Act prior 
to enactment of section 5105(a)(2) of OBRA 90 but was never included in 
our regulations. We added section 811 violations because of the 
enactment of the new SVB program (section 807 of the Act).
    2. A representative payee applicant receiving Social Security, SVB 
or SSI benefits through a representative payee may not serve as a 
representative payee. These individuals have already been determined to 
be incapable of managing their own benefits.
    3. A representative payee applicant whose prior certification or 
appointment as representative payee was revoked or terminated for 
misusing title II, VIII or XVI benefits generally 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,
     No suitable alternative payee is available,
     Payment to the payee applicant would serve the best 
interest of the beneficiary,
     The information we have indicates the applicant is now 
suitable to serve as payee, and
     The applicant has repaid the misused benefits or has a 
plan to repay them.
    If such an applicant is appointed, evaluation(s) of the applicant's 
performance as representative payee will be conducted periodically at 
intervals not to exceed 3 months until we are satisfied that the payee 
poses no risk to the beneficiary and is likely to perform in the 
beneficiary's best interest.
    4. Payment will not be certified to a representative payee 
applicant who is a creditor of the beneficiary (i.e., provides goods or 
services for consideration), unless the creditor is:
     A relative of the beneficiary living in the same household 
as the beneficiary;
     A legal guardian or legal representative of the 
beneficiary;
     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 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;
     An individual we determine to be acceptable to serve as a 
representative payee because we have determined that the individual 
poses no risk to the beneficiary, the financial relationship of the 
applicant to the beneficiary poses no substantial conflict of interest, 
and a more suitable representative payee cannot be found; or
     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.

D. Investigation of Representative Payee Applicants

    We are adding new Sec. Sec.  404.2024 and 416.624 to explain that 
before certifying payment to a representative payee applicant, we will 
conduct an investigation of the 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 may be considered impracticable if it would cause the 
representative payee applicant undue hardship. Undue hardship exists 
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 titles II, VIII or 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 under section 208, 811, or 1632 of the Act;
     Determine whether the payee applicant previously served as 
a representative payee and had his or her certification revoked or 
terminated because of misuse of title II, VIII or XVI benefits.

E. Notice of Appointment of Representative Payee

    We are amending existing Sec. Sec.  404.2030 and 416.630 to explain 
that whenever we intend to make representative payment or to appoint a 
particular representative payee, we will provide written notice to the 
beneficiary (or the legal guardian or the legal representative of the 
beneficiary) in advance of actually appointing the payee and certifying 
payment. This will allow the beneficiary the opportunity to appeal the 
proposed representative payee appointment. 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;
     Explain the right to appeal the designation of a 
particular person to serve as the representative payee of the 
beneficiary; and
     Explain the right to review the evidence upon which the 
payee designation is based, and to submit additional evidence.
    If the beneficiary, or his or her legal guardian or legal 
representative, appeals and the appeal is received before the 
appointment of the representative payee is effective, the 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. We will pay 
current monthly benefits directly to the beneficiary, where 
appropriate, in accordance with Sec. Sec.  404.2011 and 416.611, until 
we select a payee.

F. Organizational Representative Payees

    We are amending existing Sec. Sec.  404.2040a and 416.640a to 
remove the requirement that the organization must have been in 
existence prior to October 1, 1988. We are including State or local 
government agencies as qualified organizations for purposes of 
collecting fees. We are also revising paragraph (g), Limitation on 
fees, to reflect that the limit on fees collected by such organizations 
increases annually by the same percentage as the cost of living 
adjustment. Our NPRM

[[Page 60227]]

inadvertently omitted the phrase ``which is tax exempt under section 
501(c) of the Internal Revenue Code'' from Sec. Sec.  404.2040a and 
416.640a(a)(2); we have included it in this final rule. We also deleted 
the language at the end of proposed Sec.  404.2040a(b)(1) because it 
was redundant.

G. Liability for Misused Benefits

    We are amending existing Sec. Sec.  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. We will always make every reasonable effort to obtain 
restitution of misused benefits and repay them to the beneficiary;
     In addition, we will be liable for repayment of misused 
benefits whenever an individual representative payee serving 15 or more 
beneficiaries or an organizational representative payee is found to 
have misused a beneficiary's benefits.
     In all other cases of misuse, we will be liable for 
repayment of the misused benefits when our negligent failure to 
investigate or monitor the representative payee results in misuse by 
the payee. The term ``negligent failure'' as used in the regulation 
means that we failed to investigate or monitor a representative payee 
or that we did investigate or monitor the payee but were negligent in 
that effort;
     For title XVI purposes, our repayment of misused funds 
will include any portion of misused SSI benefits which are State 
supplementary payments.
     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.

H. When a New Representative Payee Will Be Selected

    We are amending existing Sec. Sec.  404.2050 and 416.650 to reflect 
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. We may make exceptions to this rule 
on a case-by-case basis if the requirements discussed in C.3. above are 
met.

I. Annual Accounting of Benefits

    We are amending existing Sec. Sec.  404.2065 and 416.665 to show 
that an annual accounting of benefits is required from all 
representative payees except for certain State institutions, and to 
clarify the types of questions included in the accounting report. We 
also clarify that payees must keep records and make them available to 
us upon request.

J. Other Changes

    We are amending existing Sec. Sec.  404.2025 and 416.625 to change 
the title of the sections to ``What information must a representative 
payee report to us?'', move existing paragraph (a) of these sections 
with minor revisions to new Sec. Sec.  404.2024 and 416.624 as new 
paragraph (a)(8) and keep existing paragraph (b) as an undesignated 
paragraph under Sec. Sec.  404.2025 and 416.625.
    We are also amending existing Sec. Sec.  404.902(o) and 416.1402(d) 
to give any individual who is dissatisfied with the determination that 
he or she needs a payee the right to a hearing on the matter.
    We added a new paragraph Sec. Sec.  404.902(x) and 416.1402(o) to 
include the determination whether SSA was negligent in investigating or 
monitoring or failing to investigate or monitor the representative 
payee which resulted in misuse of benefits by a representative payee as 
an initial determination subject to judicial review.

K. Representative Payment of SVB

    Section 807 of the Act authorizes SSA to pay SVB benefits to a 
representative payee when we determine that would be in the best 
interest of the beneficiary. The title VIII provisions on 
representative payment closely parallel the representative payment 
provisions in titles II and XVI of the Act (although not all title II/
XVI provisions apply to the title VIII program). We are therefore 
adding a new subpart F to part 408 which includes an introductory 
section on representative payment in the title VIII program followed by 
sections (with the exception of Sec.  408.630) that refer users to the 
sections in part 404 that deal with the appropriate topics. Subpart F 
consists of the following sections:
     Section 408.601 introduces subpart F.
     Section 408.610 provides a cross-reference to Sec.  
404.2010(a), which explains the circumstances under which we will make 
representative payment.
     Section 408.611 provides a cross-reference to Sec.  
404.2011, which explains what happens to your monthly benefits while we 
are finding a suitable representative payee.
     Section 408.615 provides a cross-reference to Sec.  
404.2015, which explains the kinds of information we consider in 
determining whether to make representative payment.
     Section 408.620 provides a cross-reference to Sec.  
404.2020, which explains the information we consider in determining an 
appropriate representative payee for you.
     Section 408.621 provides a cross-reference to Sec.  
404.2021(a), which provides a list of the payees that we prefer to 
serve your interests.
     Section 408.622 provides a cross-reference to Sec.  
404.2022, which contains a list of individuals whom we generally will 
not select as your representative payee.
     Section 408.624 provides a cross-reference to Sec.  
404.2024, which explains how we investigate whether an individual is 
suitable to serve as a representative payee, including the requirement 
that we conduct a face-to-face interview with the payee applicant 
unless it is impracticable to do so.
     Section 408.625 provides a cross-reference to Sec.  
404.2025, which explains the information a representative payee or 
payee applicant must give us.
     Section 408.630 explains how we will notify you when we 
decide you need a representative payee.
     Section 408.635 provides a cross-reference to Sec.  
404.2035, which explains the responsibilities of a representative 
payee.
     Section 408.640 provides a cross-reference to Sec.  
404.2040, which explains how a representative payee must use the SVB 
payments he or she receives on your behalf.
     Section 408.641 provides a cross-reference to Sec.  
404.2041, which explains who is liable when a representative payee 
misuses the benefits he or she receives on your behalf.
     Section 408.645 provides a cross-reference to Sec.  
404.2045, which explains the rules your representative payee must 
follow to conserve or invest excess benefits, contains a list of 
preferred investments, and explains that any interest and dividends 
that result from an investment is your property, not the property of 
your payee.
     Section 408.650 provides a cross-reference to Sec.  
404.2050, which explains when we will select a new representative payee 
for you.
     Section 408.655 provides a cross-reference to Sec.  
404.2055, which explains when we will stop representative payment and 
begin making payment directly to you.
     Section 408.660 provides a cross-reference to Sec.  
404.2060, which explains what happens to accumulated funds when your 
representative payee changes.

[[Page 60228]]

     Section 408.665 provides a cross-reference to Sec.  
404.2065, which explains how we require your representative payee to 
verify that he or she used your benefits on your behalf.
     Section 408.655 provides a cross-reference to Sec.  
404.2055, which explains when we will stop representative payment and 
begin making payment directly to you.

Public Comments

    On September 25, 2003, we published proposed rules in the Federal 
Register at 68 FR 55323 and provided a 60-day period for interested 
parties to comment. We received comments from 6 organizations and 20 
individuals. Because some of the comments received were quite detailed, 
we have condensed, summarized or paraphrased them in the discussion 
below. We address all of the issues raised by the commenters that are 
within the scope of the proposed rules.
    Comment: Three commenters felt that the explanation we provided in 
the NPRM on ``substantial harm'' was inconsistent with the proposed 
regulations language, which specified that substantial harm will be 
found where direct payment is expected to result in serious physical or 
mental injury. The commenters also felt the example in the preamble was 
vague and overly broad.
    Response: We agree with the commenters and have revised the 
explanation accordingly.
    Comment: One commenter suggests the regulations do not sufficiently 
explain what would constitute ``substantial harm'' which would justify 
an interruption in direct payment of benefits. The commenter noted for 
example, the ``stress associated with handling his * * * own affairs'' 
may arise even for many non-disabled individuals and certainly should 
not result in a capable beneficiary requiring a representative payee, 
unless of course they freely request such an arrangement. The commenter 
recognizes that there are certain categories of beneficiaries where a 
payee would be expected, but recommends that we always favor direct 
payment.
    Response: The parenthetical language objected to by the commenter 
in the ``Explanation of Regulatory Changes'' section has been removed 
as stated in the response shown above. Our policy is that every 
beneficiary has the right to manage his or her own benefits unless he 
or she is unable to do so due to a mental or physical condition or due 
to youth. When we determine a payee is necessary, we will generally pay 
the beneficiary directly, while finding a suitable representative 
payee. Substantial harm must be determined before we may delay a 
payment. Sections 404.2011 and 416.611 clearly describe how we 
determine substantial harm. We will not appoint a representative payee 
for a ``capable'' beneficiary. SSA selects a representative payee only 
when someone is not able to manage or direct the management of their 
finances because of their age, or a mental or physical impairment. SSA 
does not appoint a representative payee solely for a beneficiary's 
convenience or personal preference.
    Comment: Eighteen commenters suggested that SSA ensure that 
substantial harm in fact exists and that benefits are not routinely 
withheld for one month pending appointment of an appropriate payee.
    Response: We believe that under the proposed regulations, benefits 
will not routinely be held for a month pending appointment of an 
appropriate payee. Direct payment will be made pending appointment of a 
payee unless substantial harm is found. Sections 404.2011 and 416.611 
clearly specify that withholding payment for one month pending 
appointment of an appropriate payee is appropriate only in cases when 
we find that direct payment will cause substantial harm to the 
beneficiary. Those sections also clearly explain how we determine 
whether substantial harm exists.
    Comment: One commenter suggested that individuals whose benefits 
are deferred or suspended for more than one month based on a finding of 
substantial harm should have the ability to appeal the substantial harm 
finding. The commenter stated that SSA can make a mistake in its 
finding that ``substantial harm'' would result from direct payment to 
the individual and that the ability to appeal would ensure that cases 
do not get lost in the SSA workload and unnecessarily delayed for 
months.
    Response: Benefits should not be suspended for more than 1 month. 
Benefits can only be suspended for a maximum of 1 month while a payee 
is being developed if direct payment to the incapable beneficiary would 
cause the beneficiary ``substantial harm''. Beneficiaries who have 
their benefits temporarily suspended can appeal the determination to 
make representative payment (Sec. Sec.  404.902(o) and 416.1402(d)). 
Further, sections 404.2011 and 416.611 clearly specify that, in cases 
when we withhold payment for one month, we will allow a beneficiary to 
rebut the substantial harm decision and present evidence that direct 
payment will not cause him or her substantial harm. Therefore, we 
believe the proposed rules already provide sufficient safeguards.
    Comment: A commenter said we did not explain in the NPRM that 
paragraph (b) in Sec. Sec.  404.2021 and 416.621 is redesignated as 
paragraph (c).
    Response: The redesignation of subsection (b) to subsection (c) in 
Sec. Sec.  404.2021 and 416.621 was noted in number 5 of the proposed 
amendments to Part 404 and number 17 of the proposed amendments to Part 
416.
    Comment: Two commenters expressed concern that the investigation 
procedures for representative payee applicants set forth in proposed 
Sec. Sec.  404.2024 and 416.624 were not stringent enough to protect 
the recipients who will lose all rights to control their benefits. 
Specifically, they expressed the view that difficulty finding child 
care is simply not severe enough to warrant exempting a prospective 
payee from a personal interview.
    Response: We agree and have revised Sec. Sec.  404.2024(b) and 
416.624(b) by deleting the examples of not being able to find child 
care and not being able to arrange for time off from work.
    Comment: Twenty-two commenters recommended that SSA make home 
visits to payee applicants unable to visit an SSA office for a face-to-
face interview. They also suggested that this procedure could be 
included in a Program Operating Manual System (POMS) provision on payee 
applicant interviewing procedures.
    Response: This is an operational issue and not appropriate to 
include in regulations. However, we will review current operating 
instructions and determine whether guidance on when to conduct home 
visits to payee applicants should be considered. We have made no 
changes to the regulations based on this comment.
    Comment: A commenter suggested that SSA should be required to keep 
records that it has properly investigated payee applicants before their 
appointment.
    Response: Representative payee applications are taken and stored in 
the Representative Payee System (RPS) which is a database that houses 
information about representative payees and beneficiaries who have 
payees. The RPS was designed to keep an electronic record of our 
appointment process and the information it contains documents that the 
payee applicant was properly investigated before being appointed.
    Comment: Three commenters stated that the statute requires that 
prior to appointment of a ``high risk'' payee, the Commissioner 
establish that ``such individual poses no risk to the

[[Page 60229]]

beneficiary.'' The commenters recommended that statutory language be 
included at the outset of these regulations to clarify that the 
Commissioner's duty to make this finding applies to all ``high risk'' 
payee applicants.
    Response: The requirement that the Commissioner must establish that 
an individual poses no risk to the beneficiary applies only to the 
appointment of creditor payees and not to the other categories of 
payees in Sec. Sec.  404.2022 and 416.622. The statute imposes 
different standards and restrictions for different situations. These 
rules set out steps that are required to ensure the payee is acting in 
the beneficiary's best interest depending upon the specific situation. 
Therefore, we have made no changes based on this comment.
    Comment: A commenter was concerned that direct providers of 
services have potential conflict of interest as payees. The commenter 
listed as an example residential boarding homes, which the commenter 
felt had a high potential for fraud or abuse. The commenter recommended 
that SSA develop some new classes of non-profit payees and ban payees 
where there is an inherent conflict of interest and a potential for 
abuse exists.
    Response: Banning certain classes of potential payees would be 
inconsistent with sections 205(j)(2)(c)(iii) and 1631(a)(2)(B)(v) of 
the Act. We use guidelines setting out categories of potential 
representative payees for selecting the best payee for a beneficiary. 
These guidelines suggest a preferred order for considering those 
potential representative payees but they are flexible. Our regulations 
do generally prohibit the appointment of creditors as payees, and they 
are only appointed when specific conditions exist, including a 
determination that there is no substantial conflict of interest 
(Sec. Sec.  404.2022(d), 416.622(d)). We do currently appoint non-
profit payees, and we are always seeking to develop new or additional 
sources of representative payees. Our primary concern is to select a 
representative payee who will best serve the interest of the 
beneficiary. Banning a specific class of payee based on ``potential 
abuse'' would not take individual circumstances into account. We do not 
believe such an approach would be in the best interest of the 
beneficiary and therefore, have made no changes based on this comment.
    Comment: Twenty-one commenters stated that Sec. Sec.  
404.2022(d)(3) and 416.622(d)(3) would permit an institution to act as 
payee with virtually no safeguards. The commenters believe there is a 
strong need for closer oversight of governmental agencies and 
institutions that serve as payees and recommend that SSA take the 
following steps to ensure that a creditor institution, acting as payee, 
fulfills its fiduciary duties on the beneficiary's behalf: (1) Notify 
the beneficiary in writing before the institution is appointed as payee 
that the institution will be appointed and make clear that the person's 
benefits will be available to the person upon release from the 
institution; (2) include in the regulations a requirement that 
institutional payees develop procedures for conducting annual 
individualized assessments of the current and foreseeable needs of the 
beneficiary, considering more than just the financial needs of the 
institution as a creditor; and (3) ensure that, where there is a family 
member or friend available to be the payee, they be given preference 
over the institution as payee.
    Response: We have made no changes based on this comment for the 
following reasons:
    (1) The advance notice, sent before effectuation of any payee 
appointment, contains language regarding the identity of the proposed 
representative payee. However, we do not require institutions to set 
aside funds for the beneficiary's use after release from the 
institution. As explained in Sec. Sec.  404.2040(b) and 416.640(b), we 
consider funds to have been used for the use and benefit of the 
beneficiary if they are used for the beneficiary's current care and 
maintenance. Any remaining funds should be conserved or invested for 
the beneficiary pursuant to Sec.  404.2045.
    (2) SSA requires that all representative payees remain informed of 
beneficiaries' needs (i.e., make ongoing assessments of beneficiaries' 
current and reasonably foreseeable needs) so they can decide how best 
to use benefits for beneficiaries' personal care and well being. 
Institutional payees, as care facilities, generally assess current and 
future needs for the purpose of providing care as well as deciding how 
best to use benefits received on behalf of a beneficiary. We believe 
that ongoing assessments better serve the beneficiaries than would 
annual assessments.
    (3) If we are aware of family interest in being a representative 
payee, we will solicit an application from family members. However, 
SSA's responsibility is to appoint the person, agency, organization or 
institution who can best serve the interest of the beneficiary. Thus 
family members will be evaluated under this standard along with any 
other applicants.
    Comment: Twenty-two commenters suggested strengthening the language 
in Sec. Sec.  404.2022(c)(5) and 416.622(c)(5) regarding when a misuser 
can be appointed. They note, for example, it is difficult to imagine 
any circumstances where SSA would approve a payee who not only has 
misused others' benefits in the past but also has failed to repay 
completely those misused benefits. The commenters said that SSA needed 
to set a very high standard for re-appointing a person who has 
previously misused benefits.
    Response: Representative payees with a history of misuse are 
generally banned from serving as representative payees. As noted in the 
proposed rules at Sec. Sec.  404.2022 and 416.622, we will only 
consider appointing a person who has misused funds in the past when 
five specific requirements are met, including the requirement that no 
suitable alternative payee is available. We believe the standard for 
appointing a payee who has previously misused funds is sufficiently 
strong to protect the beneficiaries, while at the same time is flexible 
enough to address situations where no other payee is available.
    Comment: A commenter suggested that Sec. Sec.  404.902(x) and 
416.1402(o) be revised to clarify that both the determination of 
negligence and the determination regarding restitution are initial 
determinations subject to appeal.
    Response: In all cases where SSA determines that it was negligent 
in investigating or monitoring a representative payee and misuse of 
benefits resulted, SSA is liable for restitution of the misused funds. 
Where the Agency finds itself negligent, restitution is due and there 
is no need to appeal the restitution decision separately.
    Comment: Twenty-two commenters suggested that the regulations 
should be amended to indicate that SSA's determinations of misuse (or 
no misuse) are initial determinations subject to the appeals process.
    Response: Findings of misuse or no misuse are administrative 
decisions, and are not initial determinations subject to the appeals 
process. Nothing actionable results from a misuse determination. 
However, in every case where SSA makes a finding of misuse, it also 
makes a decision on restitution. SSA's findings of whether or not we 
will make restitution are initial determinations, and thus subject to 
appeal. Effectively, a beneficiary may appeal the misuse finding in 
these circumstances as part of any appeal on the decision to make 
restitution. Finally,

[[Page 60230]]

recently enacted statutory guidelines now require SSA to make 
restitution without a finding of negligence in misuse cases where the 
payee is an organization or an individual payee serving 15 or more 
beneficiaries. For these reasons, we have made no changes based on this 
comment.
    Comment: One commenter suggested that we revise proposed Sec. Sec.  
404.2022(c) and 416.622(c) to provide that we will evaluate a payee's 
performance at least once every three months for at least the first two 
years when that payee has previously been found to have misused 
benefits.
    Response: We believe the language in the proposed rules is 
preferable because it provides more flexibility to take into account 
the different facts of each case while still safeguarding the 
beneficiary's interest. It says we must evaluate the payee's 
performance at least every 3 months until we are satisfied that the 
payee poses no risk to the beneficiary's best interest. This period 
could be less than or greater than two years depending on the specific 
circumstances.
    Comment: One commenter stated that misuse of funds by a 
representative payee should not negatively impact the payment of 
benefits to child beneficiaries, who should be presumed to be without 
fault under Sec. Sec.  404.2041 and 416.641. The commenter stated that 
holding the child beneficiary liable for misuse of dedicated funds is 
unfair to the child and clearly violates the spirit and purpose of the 
Act. This should be made explicit in the regulations.
    Response: Sections 404.2041 and 416.641 explain that the 
representative payee is liable for repaying misused funds. We do not 
hold the beneficiary liable, and these rules do not suggest otherwise. 
Therefore, we do not find it necessary to change the proposed 
regulations.
    Comment: A commenter said Sec.  404.2030(a) does not clearly 
indicate that both the decision as to the need for a payee and the 
decision as to whom to appoint are appealable issues.
    Response: The proposed regulations at Sec. Sec.  404.2030(a)(3) and 
416.630(a)(3) indicate that the determination that you need a 
representative payee may be appealed, and Sec. Sec.  404.2030(a)(4) and 
416.630(a)(4) indicate that the designation of a particular person or 
organization as your representative payee may be appealed. We made no 
changes to the regulation based on this comment.
    Comment: Twenty-one commenters suggested that we allow 15 days from 
time of receipt of our notice to protest our decision as to the need 
for a payee and the decision as to who we appoint as payee instead of 
10 days as provided in Sec. Sec.  404.2030(a) and 416.630(a).
    Response: We feel the protest and appeal time we allow adequately 
protects the beneficiary's rights. We have revised the language in the 
regulation to clarify that there are two ways to give advance notice--
by mail or in the field office. Appropriate language is included in 
each notice outlining how claimants must proceed if they disagree with 
our decision and the timeframes they must meet.
    Comment: One commenter recommended that we revise Sec. Sec.  
404.2065 and 416.665 to include an exception to the annual accounting 
requirements for parents of child beneficiaries. The commenter stated 
there should be a presumption that parents are allocating the benefits 
in a responsible manner.
    Response: The statute requires that all representative payees 
report not less often than annually. The only exception granted by 
Congress in the statute is for certain State institutions which 
participate in a separate onsite review program. We cannot change a 
statutory requirement by regulation.
    Comment: One commenter suggested that we periodically send a 
questionnaire to recipients (except minor children and some others who 
may have difficulty replying) to help identify situations where payees 
need further education about their responsibilities or need to be 
replaced. The commenter stated that SSA should have in place a 
mechanism for regular contact with the recipients as well as the 
payees.
    Response: We do not think mailing a questionnaire to beneficiaries 
would help identify situations where payees need further education 
about their responsibilities or need to be replaced. As part of the 
representative payee annual report process, SSA includes as a reminder 
a section on representative payee responsibilities. Questions on the 
accounting form are designed to solicit meaningful information about 
how payees use the benefits sent to them. We also have operating 
procedures in place to evaluate responses as indicators of how well the 
payee manages benefits. Our new publication no. 05-10097, ``What you 
should know when a representative payee manages your money * * *'' was 
designed to help explain representative payment to adult beneficiaries 
and is sent to the beneficiary with the advance notice that a 
representative payee has been appointed. Beneficiaries may contact SSA 
at any time to discuss their payee or payee situations. In addition, 
our new monitoring program (described in our response to the following 
comment) provides for beneficiary interviews when feasible.
    Comment: Twenty-one commenters suggested SSA should increase 
oversight of governmental agencies and institutions and include all 
payees in the annual reporting requirement and not exempt certain State 
institutions.
    Response: Four years ago, we strengthened our oversight process by 
establishing a new expanded monitoring program. Recently enacted new 
statutory guidelines expand that program even further. The new program 
now requires site visits for fee-for-service payees, volume payees 
(those organizational payees serving 50 or more beneficiaries) and 
individual payees serving 15 or more beneficiaries. These site reviews 
monitor payee compliance through a face-to-face meeting and an 
examination of a sample of beneficiary records. All representative 
payees must account for use of benefits by completing a written report, 
but Congress specifically exempted certain State institutions. These 
State institutions participate in an alternate periodic monitoring 
program as allowed by statute. See section 205(j)(3)(B) of the Act. We 
have made no changes to the regulatory language based on this comment.
    Comment: Four commenters suggested that in their experiences 
dealing with SSA on claims of misuse, there are often no records 
showing what SSA did to determine whether the payee was properly 
investigated, or whether SSA monitored the payee's performance, or 
responded to the beneficiaries' complaints of misuse. The commenters 
feel there is a need for explicit standards, procedures, and a paper 
trail on these issues.
    Response: We do maintain records to document our efforts in these 
areas. Procedures require that all payees are monitored and that we 
retain the annual representative payee reports for two years. The RPS 
contains information regarding beneficiaries' complaints and the actual 
findings of misuse. Current procedures require all allegations of 
misuse to be investigated and documented in the RPS.
    Comment: Three commenters made suggestions regarding fee-for-
service payees. They suggested that charges for such services should be 
limited to $25 a month. In addition, the commenters suggested that the 
current proposal to allow certain State agencies to charge a fee and 
that the fee be ``indexed'' should not be finalized without extensive 
study into the workings of these agencies and their current histories 
as representative

[[Page 60231]]

payees. The commenters stated if ``indexing'' of fees is allowed, it 
should not occur automatically. Any increase in fees for organizational 
representative payees should be the result of a request for an increase 
by the payee and a complete investigation of that payee's activities 
and performance as payee before any increased fee is allowed.
    Response: Fee-for-service organizations may collect from the 
individual a monthly fee for providing payee services. The fee amount 
and the yearly adjustments are set by statute. See section 
205(j)(4)(A)(i) of the Act.
    Comment: Five commenters recommended that SSA incorporate a 
requirement in the regulations that beneficiary complaints are treated 
seriously and investigated promptly by the local District Office staff. 
The commenters recommended SSA offer a specific procedure for filing 
complaints about payees and to tell beneficiaries how they can file a 
complaint if needed.
    Response: We take all beneficiary complaints seriously, regardless 
of how the complaint is reported. It is unnecessary to establish a 
formal process to receive such complaints. Sections 404.2050 and 
416.650 explain when we will make a representative payee change and 
provide the criteria for looking into such complaints. We have made no 
changes based on this comment.
    Comment: One commenter suggests SSA should be required to review a 
significant sampling of individual and institutional payees each year. 
Such reviews should include a requirement for the payee to visit the 
local SSA office for an interview and a close inspection of accounts 
and bookkeeping methods used by the payee.
    Response: Our current procedures require an annual accounting from 
all payees and we also have a monitoring program that requires site 
visits for all fee-for-service payees, volume payees (organizations 
serving 50 or more beneficiaries) and individual payees serving 15 or 
more beneficiaries. These site reviews ensure payee compliance through 
a face-to-face meeting and an examination of a sample of beneficiary 
records. The reviews include an assessment of the payee's record 
keeping and a certification that institutional payees continue to meet 
requirements for a fee-for-service payee. Whenever feasible, we include 
beneficiary interviews.

Regulatory Procedures

Executive Order 12866

    We have consulted with the Office of Management and Budget (OMB) 
and determined that these final rules meet the criteria for a 
significant regulatory action under Executive Order 12866, as amended 
by Executive Order 13258. Thus, they were reviewed by OMB. However, the 
estimated amounts of the savings or costs involved do not cross the 
threshold for an economically significant regulation as defined in 
Executive Order 12866, as amended by Executive Order 13258.
    We have also determined that these final rules meet the plain 
language requirement of Executive Order 12866, as amended by Executive 
Order 13258.

Administrative Procedure Act

    Pursuant to section 702(a)(5) of the Social Security Act, 42 U.S.C. 
902(a)(5), the Social Security Administration follows the 
Administrative Procedure Act (APA) rulemaking procedures specified in 5 
U.S.C. 553 in the development of its regulations. The APA provides 
exceptions to its Notice of Proposed Rulemaking (NPRM) procedures when 
an agency finds that there is good cause for dispensing with such 
procedures on the basis that they are impracticable, unnecessary, or 
contrary to the public interest. As indicated above, we are including 
in these final rules a provision on restitution of misused benefits 
that was enacted March 2, 2004, as part of Public Law 108-203 and, 
therefore, was not included in the NPRM we published on September 25, 
2003. Since this provision was effective on enactment and the statutory 
requirement is very specific and does not allow SSA discretion in how 
to implement, we have determined that under 5 U.S.C. 553(b)(B), good 
cause exists for waiving the NPRM procedures for the restitution 
provision of Public Law 108-203 included in these rules.

Executive Order 13132 (Federalism) and the Unfunded Mandates Reform Act 
of 1995

    We have reviewed these final rules for compliance with Executive 
Order 13132 and the Unfunded Mandates Reform Act of 1995 (UMRA of 
1995). We have determined that the final rules are not significant 
within the meaning of the UMRA of 1995 nor will they have any 
substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government within the 
meaning of Executive Order 13132.
    The provision regarding restitution of misused benefit payments 
will not significantly impact the States. Even though the States will 
be responsible for the supplementary payments portion of the 
restitution, there should only be a small number of cases involved. 
There are a very small number of representative payees who are found to 
misuse benefit payments and of that number, misuse involving SSI 
payments is even smaller. In addition, SSA will seek restitution of 
misused funds from the terminated representative payee and, if the 
restitution is obtained, the State will be reimbursed for any State 
supplementary payment involved.

Regulatory Flexibility Act

    We certify that these final regulations will not have a significant 
economic impact on a substantial number of small entities. Therefore, a 
regulatory flexibility analysis as provided in the Regulatory 
Flexibility Act, as amended, is not required.

Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) of 1995 says that no persons are 
required to respond to a collection of information unless it displays a 
valid OMB control number. In accordance with the PRA, SSA is providing 
notice that OMB has approved the information collection requirements 
contained in part 404--subpart U, part 408--subpart F, and part 416--
subpart F. The OMB Control Number for these collections is 0960-0679, 
expiring November 30, 2006.

(Catalog of Federal Domestic Assistance Program Nos. 96.001, Social 
Security-Disability Insurance; 96.002, Social Security-Retirement 
Insurance; 96.004, Social-Security Survivors Insurance; 96.006, 
Supplemental Security Income; 96-020, Special Benefits for Certain 
World War II Veterans.)

List of Subjects

20 CFR Part 404

    Administrative practice and procedure, Blind, Disability benefits, 
Old-Age, Survivors and Disability Insurance, Reporting and 
recordkeeping requirements, Social Security.

20 CFR Part 408

    Administrative practice and procedure, Aged, Reporting and 
recordkeeping requirements, Social Security, Special Veterans benefits, 
Veterans.

20 CFR Part 416

    Administrative practice and procedure, Aged, Blind, Disability 
benefits, Public assistance programs, Reporting and recordkeeping 
requirements, supplemental security income (SSI).


[[Page 60232]]


    Dated: July 12, 2004.
Jo Anne B. Barnhart,
Commissioner of Social Security.

0
For the reasons set out in the preamble, we are amending subparts J and 
U of part 404, adding subpart F to part 408, and amending subparts F 
and N of part 416 of Title 20 of the Code of Federal Regulations as 
follows:

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

Subpart J--Determinations, Administrative Review Process, and 
Reopening of Determinations and Decisions

0
1. The authority citation for subpart J continues to read as follows:

    Authority: Secs. 201(j), 204(f), 205(a)-(b), (d)-(h), and (j), 
221, 225, and 702(a)(5) of the Social Security Act (42 U.S.C. 
401(j), 404(f), 405(a)-(b), (d)-(h), and (j), 421, 425, and 
902(a)(5)); 31 U.S.C. 3720A; sec. 5, Pub. L. 97-455, 96 Stat. 2500 
(42 U.S.C. 405 note); secs. 5, 6(c)-(e), and 15, Pub. L. 98-460, 98 
Stat. 1802 (42 U.S.C. 421 note).

0
2. Amend Sec.  404.902 by revising paragraph (o), removing the word 
``and'' at the end of paragraph (v), removing the period at the end of 
paragraph (w) and adding ``; and'' in its place, and adding paragraph 
(x) 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;
* * * * *
    (x) Whether we were negligent in investigating or monitoring or 
failing to investigate or monitor your representative payee, which 
resulted in the misuse of benefits by your representative payee.

Subpart U--Representative Payment

0
3. The authority citation for subpart U of part 404 continues to read 
as follows:

    Authority: Secs. 205(a), (j), and (k), and 702(a)(5) of the 
Social Security Act (42 U.S.C. 405(a), (j), and (k), and 902(a)(5)).


0
4. Add Sec.  404.2011 to read as follows:


Sec.  404.2011  What happens to your monthly benefits while we are 
finding a suitable representative payee for you?

    (a) We may pay you directly. We will pay current monthly benefits 
directly to you while finding a suitable representative payee unless we 
determine that paying you directly would cause substantial harm to you. 
We determine substantial harm as follows:
    (1) If you are receiving disability payments and we have determined 
that you have a drug addiction or alcoholism condition, or you are 
legally incompetent, or you are under age 15, we will presume that 
substantial harm exists. However, we will allow you to rebut this 
presumption by presenting evidence that direct payment would not cause 
you substantial harm.
    (2) If you do not fit any of these categories, we make findings of 
substantial harm on a case-by-case basis. We consider all matters that 
may affect your ability to manage your benefits in your own best 
interest. We decide that substantial harm exists if both of the 
following conditions exist:
    (i) Directly receiving benefits can be expected to cause you 
serious physical or mental injury.
    (ii) The possible effect of the injury would outweigh the effect of 
having no income to meet your basic needs.
    (b) We may delay or suspend your payments. If we find that direct 
payment will cause substantial harm to you, we may delay (in the case 
of initial entitlement to benefits) or suspend (in the case of existing 
entitlement to benefits) payments for as long as one month while we try 
to find a suitable representative payee for you. If we do not find a 
payee within one month, we will pay you directly. If you are receiving 
disability payments and we have determined that you have a drug 
addiction and alcoholism condition, or you are legally incompetent, or 
you are under age 15, we will withhold payment until a representative 
payee is appointed even if it takes longer than one month. We will, 
however, as noted in paragraph (a)(1) of this section, allow you to 
present evidence to rebut the presumption that direct payment would 
cause you substantial harm. See Sec.  404.2001(b)(3) for our policy on 
suspending benefits if you are currently receiving benefits directly.
    Example 1: Substantial Harm Exists. We are unable to find a 
representative payee for Mr. X, a 67 year old retirement beneficiary 
who is an alcoholic. Based on contacts with the doctor and beneficiary, 
we determine that Mr. X was hospitalized recently for his drinking. 
Paying him directly will cause serious injury, so we may delay payment 
for as long as one month based on substantial harm while we locate a 
suitable representative payee.
    Example 2: Substantial Harm Does Not Exist. We approve a claim for 
Mr. Y, a title II claimant who suffers from a combination of mental 
impairments but who is not legally incompetent. We determine that Mr. Y 
needs assistance in managing his benefits, but we have not found a 
representative payee. Although we believe that Mr. Y may not use the 
money wisely, there is no indication that receiving funds directly 
would cause him substantial harm (i.e., serious physical or mental 
injury). We must pay current benefits directly to Mr. Y while we locate 
a suitable representative payee.
    (c) How we pay delayed or suspended benefits. Payment of benefits, 
which were delayed or suspended pending appointment of a representative 
payee, can be made to you or your representative payee as a single sum 
or in installments when we determine that installments are in your best 
interest.

0
5. Amend Sec.  404.2021 by revising the section heading and paragraph 
(a) introductory text, redesignating paragraph (b) as paragraph (c) and 
adding new paragraph (b) to read as follows:


Sec.  404.2021  What is our order of preference in selecting a 
representative payee for you?

* * * * *
    (a) For beneficiaries 18 years old or older (except those described 
in paragraph (b) of this section), our preference is--
* * * * *
    (b) For individuals who are disabled and who have a drug addiction 
or alcoholism condition our preference is--
    (1) A community-based nonprofit social service agency which is 
licensed by the State, or bonded;
    (2) A Federal, State, or local government agency whose mission is 
to carry out income maintenance, social service, or health care-related 
activities;
    (3) A State or local government agency with fiduciary 
responsibilities;
    (4) A designee of an agency (other than a Federal agency) referred 
to in paragraphs (b)(1), (2), and (3) of this section, if appropriate; 
or
    (5) A family member.
* * * * *
0
6. Add Sec.  404.2022 to read as follows:


Sec.  404.2022  Who may not serve as a representative payee?

    A representative payee applicant may not serve if he/she:
    (a) Has been convicted of a violation under section 208, 811 or 
1632 of the Social Security Act.
    (b) Receives title II, VIII, or XVI benefits through a 
representative payee.
    (c) Previously served as a representative payee and was found by 
us, or a court of competent jurisdiction, to have misused title II, 
VIII or XVI benefits. However, if we decide to make an exception to 
this prohibition, we must evaluate the payee's performance

[[Page 60233]]

at least every 3 months until we are satisfied that the payee poses no 
risk to the beneficiary's best interest. Exceptions are made on a case-
by-case basis if all of the following are true:
    (1) Direct payment of benefits to the beneficiary is not in the 
beneficiary's best interest.
    (2) No suitable alternative payee is available.
    (3) Selecting the payee applicant as representative payee would be 
in the best interest of the beneficiary.
    (4) The information we have indicates the applicant is now suitable 
to serve as a representative payee.
    (5) The payee applicant has repaid the misused benefits or has a 
plan to repay them.
    (d) Is a creditor. A creditor is someone who provides you with 
goods or services for consideration. This restriction does not apply to 
the creditor who poses no risk to you and whose financial relationship 
with you presents no substantial conflict of interest, and who is any 
of the following:
    (1) A relative living in the same household as you do.
    (2) Your legal guardian or legal representative.
    (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.
    (4) A qualified organization authorized to collect a monthly fee 
from you for expenses incurred in providing representative payee 
services for you, under Sec.  404.2040a.
    (5) An administrator, owner, or employee of the facility in which 
you live, and we are unable to locate an alternative representative 
payee.
    (6) Any other individual we deem appropriate based on a written 
determination.
    Example 1: Sharon applies to be representative payee for Ron who we 
have determined cannot manage his benefits. Sharon has been renting a 
room to Ron for several years and assists Ron in handling his other 
financial obligations, as needed. She charges Ron a reasonable amount 
of rent. Ron has no other family or friends willing to help manage his 
benefits or to act as representative payee. Sharon has demonstrated 
that her interest in and concern for Ron goes beyond her desire to 
collect the rent each month. In this instance, we may select Sharon as 
Ron's representative payee because a more suitable payee is not 
available, she appears to pose no risk to Ron and there is minimal 
conflict of interest. We will document this decision.
    Example 2: In a situation similar to the one above, Ron's landlord 
indicates that she is applying to be payee only to ensure receipt of 
her rent. If there is money left after payment of the rent, she will 
give it directly to Ron to manage on his own. In this situation, we 
would not select the landlord as Ron's representative payee because of 
the substantial conflict of interest and lack of interest in his well 
being.

0
7. Add Sec.  404.2024 to read as follows:


Sec.  404.2024  How do we investigate a representative payee applicant?

    Before selecting an individual or organization to act as your 
representative payee, we will perform an investigation.
    (a) Nature of the investigation. As part of the investigation, we 
do the following:
    (1) Conduct a face-to-face interview with the payee applicant 
unless it is impracticable as explained in paragraph (b) of this 
section.
    (2) Require the payee applicant to submit documented proof of 
identity, unless information establishing identity has recently been 
submitted with an application for title II, VIII or XVI benefits.
    (3) Verify the payee applicant's Social Security account number or 
employer identification number.
    (4) Determine whether the payee applicant has been convicted of a 
violation of section 208, 811 or 1632 of the Social Security Act.
    (5) Determine whether the payee applicant has previously served as 
a representative payee and if any previous appointment as payee was 
revoked or terminated for misusing title II, VIII or XVI benefits.
    (6) Use our records to verify the payee applicant's employment and/
or direct receipt of title II, VIII, or XVI benefits.
    (7) Verify the payee applicant's concern for the beneficiary with 
the beneficiary's custodian or other interested person.
    (8) Require the payee applicant to provide adequate information 
showing his or her relationship to the beneficiary and to describe his 
or her responsibility for the care of the beneficiary.
    (9) Determine whether the payee applicant is a creditor of the 
beneficiary (see Sec.  404.2022(d)).
    (b) A face-to-face interview. We may consider a face-to-face 
interview impracticable if it would cause the payee applicant undue 
hardship. For example, the payee applicant would have to travel a great 
distance to the field office. In this situation, we may conduct the 
investigation to determine the payee applicant's suitability to serve 
as a representative payee without a face-to-face interview. We may 
decide subsequent face-to-face interviews are impracticable for an 
organizational representative payee applicant when the organization is 
known by the field office as a suitable payee. We base this decision on 
the organization's past performance, recent contacts, and its knowledge 
of and compliance with reporting requirements.

0
8. Revise Sec.  404.2025 to read as follows:


Sec.  404.2025  What information must a representative payee report to 
us?

    Anytime after we select a representative payee for you, we may ask 
your payee to give us information showing a continuing relationship 
with you, a continuing responsibility for your care, and how he/she 
used the payments on your behalf. If your representative payee does not 
give us the requested information within a reasonable period of time, 
we may stop sending your benefit payment to him/her--unless we 
determine that he/she had a satisfactory reason for not meeting our 
request and we subsequently receive the requested information. If we 
decide to stop sending your payment to your representative payee, we 
will consider paying you directly (in accordance with Sec.  404.2011) 
while we look for a new payee.

0
9. Revise Sec.  404.2030 to read as follows:


Sec.  404.2030  How will we notify you when we decide you need a 
representative payee?

    (a) We notify you in writing of our determination to make 
representative payment. This advance notice explains that we have 
determined that representative payment is in your interest, and it 
provides the name of the representative payee we have selected. We 
provide this notice before we actually appoint the payee. If you are 
under age 15, an unemancipated minor under the age of 18, or legally 
incompetent, our written notice goes to your legal guardian or legal 
representative. The advance notice:
    (1) Contains language that is easily understandable to the reader.
    (2) Identifies the person designated as your representative payee.
    (3) Explains that you, your legal guardian, or your legal 
representative can appeal our determination that you need a 
representative payee.
    (4) Explains that you, your legal guardian, or your legal 
representative can appeal our designation of a particular person or 
organization to serve as your representative payee.
    (5) Explains that you, your legal guardian, or your legal 
representative can review the evidence upon which our designation of a 
particular

[[Page 60234]]

representative payee is based and submit additional evidence.
    (b) If you, your legal guardian, or your legal representative 
objects to representative payment or to the designated payee, we will 
handle the objection as follows:
    (1) If you disagree with the decision and wish to file an appeal, 
we will process it under subpart J of this part.
    (2) If you received your advance notice by mail and you protest or 
file your appeal within 10 days after you receive this notice, we will 
delay the action until we make a decision on your protest or appeal. 
(If you received and signed your notice while you were in the local 
field office, our decision will be effective immediately.)

0
10. Revise Sec.  404.2040a to read as follows:


Sec.  404.2040a  Compensation for qualified organizations serving as 
representative payees.

    (a) Organizations that can request compensation. A qualified 
organization can request us to authorize it to collect a monthly fee 
from your benefit payment. A qualified organization is:
    (1) Any State or local government agency with fiduciary 
responsibilities or whose mission is to carry out income maintenance, 
social service, or health care-related activities; or
    (2) Any community-based nonprofit social service organization 
founded for religious, charitable or social welfare purposes, that is 
tax exempt under section 501(c) of the Internal Revenue Code and that 
is licensed in the State in which it serves as representative payee or 
bonded.
    (b) Requirements qualified organizations must meet. Organizations 
that are qualified under paragraphs (a)(1) or (a)(2) of this section 
must also meet the following requirements before we can authorize them 
to collect a monthly fee.
    (1) A qualified organization must regularly provide representative 
payee services concurrently to at least five beneficiaries. An 
organization which has received our authorization to collect a fee for 
representative payee services, but is temporarily (not more than 6 
months) not a payee for at least five beneficiaries, may request our 
approval to continue to collect fees.
    (2) A qualified organization must demonstrate that it is not a 
creditor of the beneficiary. See paragraph (c) of this section for 
exceptions to the requirement regarding creditors.
    (c) Creditor relationship. On a case-by-case basis, we may 
authorize an organization to collect a fee for payee services despite 
the creditor relationship. (For example, the creditor is the 
beneficiary's landlord.) To provide this authorization, we will review 
all of the evidence submitted by the organization and authorize 
collection of a fee when:
    (1) The creditor services (e.g., providing housing) provided by the 
organization help to meet the current needs of the beneficiary; and
    (2) The amount the organization charges the beneficiary for these 
services is commensurate with the beneficiary's ability to pay.
    (d) Authorization process. (1) An organization must request in 
writing and receive an authorization from us before it may collect a 
fee.
    (2) An organization seeking authorization to collect a fee must 
also give us evidence to show that it is qualified, pursuant to 
paragraphs (a), (b), and (c) of this section, to collect a fee.
    (3) If the evidence provided to us by the organization shows that 
it meets the requirements of this section, and additional investigation 
by us proves it suitable to serve, we will notify the organization in 
writing that it is authorized to collect a fee. If we need more 
evidence, or if we are not able to authorize the collection of a fee, 
we will also notify the organization in writing that we have not 
authorized the collection of a fee.
    (e) Revocation and cancellation of the authorization. (1) We will 
revoke an authorization to collect a fee if we have evidence which 
establishes that an organization no longer meets the requirements of 
this section. We will issue a written notice to the organization 
explaining the reason(s) for the revocation.
    (2) An organization may cancel its authorization at any time upon 
written notice to us.
    (f) Notices. The written notice we will send to an organization 
authorizing the collection of a fee will contain an effective date for 
the collection of a fee pursuant to paragraphs (a), (b) and (c) of this 
section. The effective date will be no earlier than the month in which 
the organization asked for authorization to collect a fee. The notice 
will be applicable to all beneficiaries for whom the organization was 
payee at the time of our authorization and all beneficiaries for whom 
the organization becomes payee while the authorization is in effect.
    (g) Limitation on fees. (1) An organization authorized to collect a 
fee under this section may collect from a beneficiary a monthly fee for 
expenses (including overhead) it has incurred in providing payee 
services to a beneficiary. The limit on the fee a qualified 
organization may collect for providing payee services increases by the 
same percentage as the annual cost of living adjustment (COLA). The 
increased fee amount (rounded to the nearest dollar) is taken beginning 
with the benefit for December (received in January).
    (2) Any agreement providing for a fee in excess of the amount 
permitted shall be void and treated as misuse of your benefits by the 
organization under Sec.  404.2041.
    (3) A fee may be collected for any month during which the 
organization--
    (i) Provides representative payee services;
    (ii) Receives a benefit payment for the beneficiary; and
    (iii) Is authorized to receive a fee for representative payee 
services.
    (4) Fees for services may not be taken from any funds conserved for 
the beneficiary by a payee in accordance with Sec.  404.2045.
    (5) Generally, an organization may not collect a fee for months in 
which it does not receive a benefit payment. However, an organization 
will be allowed to collect a fee for months in which it did not receive 
a payment if we later issue payment for these months and the 
organization:
    (i) Received our approval to collect a fee for the months for which 
payment is made;
    (ii) Provided payee services in the months for which payment is 
made; and
    (iii) Was the payee when the retroactive payment was paid by us.
    (6) An authorized organization can collect a fee for providing 
representative payee services from another source if the total amount 
of the fee collected from both the beneficiary and the other source 
does not exceed the amount authorized by us.

0
11. Revise Sec.  404.2041 to read as follows:


Sec.  404.2041  Who is liable if your representative payee misuses your 
benefits?

    (a) A representative payee who misuses your benefits is responsible 
for paying back misused benefits. We will make every reasonable effort 
to obtain restitution of misused benefits so that we can repay these 
benefits to you.
    (b) Whether or not we have obtained restitution from the misuser, 
we will repay benefits in cases when we determine that a representative 
payee misused benefits and the representative payee is an organization 
or an individual payee serving 15 or more beneficiaries. When we make 
restitution, we will pay you or your

[[Page 60235]]

alternative representative payee an amount equal to the misused 
benefits less any amount we collected from the misuser and repaid to 
you.
    (c) Whether or not we have obtained restitution from the misuser, 
we will repay benefits in cases when we determine that an individual 
representative payee serving 14 or fewer beneficiaries misused benefits 
and our negligent failure in the investigation or monitoring of that 
representative payee results in the misuse. When we make restitution, 
we will pay you or your alternative representative payee an amount 
equal to the misused benefits less any amount we collected from the 
misuser and repaid to you.
    (d) The term ``negligent failure'' 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 did not follow 
established procedures in our investigation or monitoring. Examples of 
our negligent failure include, but are not limited to, the following:
    (1) We did not follow our established procedures in this subpart 
when investigating, appointing, or monitoring a representative payee;
    (2) We did not timely investigate a reported allegation of misuse; 
or
    (3) We did not take the necessary steps to prevent the issuance of 
payments to the representative payee after it was determined that the 
payee misused benefits.
    (e) Our repayment of misused benefits under these provisions does 
not alter the representative payee's liability and responsibility as 
described in paragraph (a) of this section.

0
12. Revise Sec.  404.2050 to read as follows:


Sec.  404.2050  When will we select a new representative payee for you?

    When we learn that your interest is not served by sending your 
benefit payment to your present representative payee or that your 
present payee is no longer able or willing to carry out payee 
responsibilities, we will promptly stop sending your payment to the 
payee. We will then send your benefit payment to an alternative payee 
or directly to you, until we find a suitable payee. We may suspend 
payment as explained in Sec.  404.2011(c) if we find that paying you 
directly would cause substantial harm and we cannot find a suitable 
alternative representative payee before your next payment is due. We 
will terminate payment of benefits to your representative payee and 
find a new payee or pay you directly if the present payee:
    (a) Has been found by us or a court of competent jurisdiction to 
have misused your benefits;
    (b) Has not used the benefit payments on your behalf in accordance 
with the guidelines in this subpart;
    (c) Has not carried out the other responsibilities described in 
this subpart;
    (d) Dies;
    (e) No longer wishes to be your payee;
    (f) Is unable to manage your benefit payments; or
    (g) Fails to cooperate, within a reasonable time, in providing 
evidence, accounting, or other information we request.

0
13. Revise Sec.  404.2065 to read as follows:


Sec.  404.2065  How does your representative payee account for the use 
of benefits?

    A representative payee must account for the use of benefits. We 
require written reports from your representative payee no less than 
annually (except for certain State institutions which participate in a 
separate onsite review program). We may verify how your representative 
payee used the funds. Your representative payee should keep records of 
how benefits were used in order to make accounting reports and make 
those records available upon our request. We may ask your 
representative payee to give us the following information:
    (a) Where you lived during the accounting period;
    (b) Who made the decisions on how your benefits were spent or 
saved;
    (c) How your benefit payments were used; and
    (d) How much of your benefit payments were saved and how the 
savings were invested.

PART 408--SPECIAL BENEFITS FOR CERTAIN WORLD WAR II VETERANS (SVB)

0
14. Add new Subpart F to Part 408 to read as follows:
Subpart F--Representative Payment
Sec.
408.601 What is this subpart about?
408.610 When will we send your SVB payments to a representative 
payee?
408.611 What happens to your monthly benefits while we are finding a 
suitable representative payee for you?
408.615 What information do we consider in determining whether we 
will pay your benefits to a representative payee?
408.620 What information do we consider in selecting the proper 
representative payee for you?
408.621 What is our order of preference in selecting a 
representative payee for you?
408.622 Who may not serve as a representative payee?
408.624 How do we investigate a representative payee applicant?
408.625 What information must a representative payee report to us?
408.630 How will we notify you when we decide you need a 
representative payee?
408.635 What are the responsibilities of your representative payee?
408.640 How must your representative payee use your benefits?
408.641 Who is liable if your representative payee misuses your 
benefits?
408.645 What must your representative payee do with unused benefits?
408.650 When will we select a new representative payee for you?
408.655 When will we stop making your payments to a representative 
payee?
408.660 What happens to your accumulated funds when your 
representative payee changes?
408.665 How does your representative payee account for the use of 
your SVB payments?

Subpart F--Representative Payment

    Authority: Secs. 702(a)(5), 807, and 810 of the Social Security 
Act (42 U.S.C. 902(a)(5), 1007, and 1010).


Sec.  408.601  What is this subpart about?

    (a) Explanation of representative payment. This subpart explains 
the policies and procedures we follow to determine whether to pay your 
benefits to a representative payee and to select a representative payee 
for you. It also explains the responsibilities your representative 
payee has for using the funds he or she receives on your behalf. A 
representative payee may be either an individual or an organization. We 
will select a representative payee to receive your benefits if we 
believe your interests will be better served by paying a representative 
payee than by paying you directly. Generally, we appoint a 
representative payee if we determine you are unable to manage or direct 
the management of your own benefit payments. Because the representative 
payment policies and procedures we use for the title VIII program 
closely parallel our title II policies and procedures, we provide 
cross-references to the appropriate material in our title II 
representative payment rules in subpart U of part 404 of this chapter.
    (b) Policy we use to determine whether to make representative 
payment. For an explanation of the policy we use to determine whether 
to pay your SVB to a representative payee, see Sec.  404.2001(b) of 
this chapter.


Sec.  408.610  When will we send your SVB payments to a representative 
payee?

    In determining when we will pay your benefits to a representative 
payee, we follow the rules in Sec.  404.2010(a) of this chapter.

[[Page 60236]]

Sec.  408.611  What happens to your monthly benefits while we are 
finding a suitable representative payee for you?

    For an explanation of the policy we use to determine what happens 
to your monthly benefits while we are finding a suitable representative 
payee for you, see Sec.  404.2011 of this chapter.


Sec.  408.615  What information do we consider in determining whether 
we will pay your benefits to a representative payee?

    We determine whether to pay your benefits to a representative payee 
after considering the information listed in Sec.  404.2015 of this 
chapter.


Sec.  408.620  What information do we consider in selecting the proper 
representative payee for you?

    To select a proper representative payee for you, we consider the 
information listed in Sec.  404.2020 of this chapter.


Sec.  408.621  What is our order of preference in selecting a 
representative payee for you?

    We use the preference list in Sec.  404.2021(a) of this chapter as 
a guide in selecting the proper representative payee for you.


Sec.  408.622  Who may not serve as a representative payee?

    For a list of individuals who may not serve as a representative 
payee, see Sec.  404.2022 of this chapter.


Sec.  408.624  How do we investigate a representative payee applicant?

    Before selecting an individual or organization as your 
representative payee, we investigate him or her following the rules in 
Sec.  404.2024 of this chapter.


Sec.  408.625  What information must a representative payee report to 
us?

    Your representative payee must report to us information as 
described in Sec.  404.2025 of this chapter.


Sec.  408.630  How will we notify you when we decide you need a 
representative payee?

    (a) We notify you in writing of our determination to make 
representative payment. If you are legally incompetent, our written 
notice is sent to your legal guardian or legal representative. The 
notice explains that we have determined that representative payment is 
in your interest, and it provides the name of the representative payee 
we have selected. The notice:
    (1) Contains language that is easily understandable to the reader.
    (2) Identifies the person designated as your representative payee.
    (3) Explains that you, your legal guardian, or your legal 
representative can appeal our determination that you need a 
representative payee.
    (4) Explains that you, your legal guardian, or your legal 
representative can appeal our designation of a particular person to 
serve as representative payee.
    (b) If you, your legal guardian, or your legal representative 
objects to representative payment or to the designated payee, you can 
file a formal appeal.


Sec.  408.635  What are the responsibilities of your representative 
payee?

    For a list of your representative payee's responsibilities, see 
Sec.  404.2035 of this chapter.


Sec.  408.640  How must your representative payee use your benefits?

    Your representative payee must use your benefits in accordance with 
the rules in Sec.  404.2040 of this chapter.


Sec.  408.641  Who is liable if your representative payee misuses your 
benefits?

    For the rules we follow to determine who is liable for repayment of 
misused benefits, see Sec.  404.2041 of this chapter.


Sec.  408.645  What must your representative payee do with unused 
benefits?

    If your representative payee has accumulated benefits for you, he 
or she must conserve or invest them as provided in Sec.  404.2045 of 
this chapter.


Sec.  408.650  When will we select a new representative payee for you?

    We follow the rules in Sec.  404.2050 of this chapter to determine 
when we will select a new representative payee for you.


Sec.  408.655  When will we stop making your payments to a 
representative payee?

    To determine when we will stop representative payment for you, we 
follow the rules in Sec.  404.2055 of this chapter.


Sec.  408.660  What happens to your accumulated funds when your 
representative payee changes?

    For a description of what happens to your accumulated funds 
(including the interest earned on the funds) when we change your 
representative payee or when you begin receiving benefits directly, see 
Sec.  404.2060 of this chapter.


Sec.  408.665  How does your representative payee account for the use 
of your SVB payments?

    Your representative payee must account for the use of your benefits 
as specified in Sec.  404.2065 of this chapter.

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

Subpart F--Representative Payment

0
15. The authority citation for subpart F continues to read as follows:

    Authority: Secs. 702(a)(5), 1631(a)(2) and (d)(1) of the Social 
Security Act (42 U.S.C. 902(a)(5) and 1383(a)(2) and (d)(1)).


0
16. Add Sec.  416.611 to read as follows:


Sec.  416.611  What happens to your monthly benefits while we are 
finding a suitable representative payee for you?

    (a) We may pay you directly. We will pay current monthly benefits 
directly to you while finding a suitable representative payee unless we 
determine that paying you directly would cause substantial harm to you. 
We determine substantial harm as follows:
    (1) If you are receiving disability payments and we have determined 
that you have a drug addiction or alcoholism condition, or you are 
legally incompetent, or you are under age 15, we will presume that 
substantial harm exists. However, we will allow you to rebut this 
presumption by presenting evidence that direct payment would not cause 
you substantial harm.
    (2) If you do not fit any of these categories, we make findings of 
substantial harm on a case-by-case basis. We consider all matters that 
may affect your ability to manage your benefits in your own best 
interest. We decide that substantial harm exists if both of the 
following conditions exist:
    (i) Directly receiving benefits can be expected to cause you 
serious physical or mental injury.
    (ii) The possible effect of the injury would outweigh the effect of 
having no income to meet your basic needs.
    (b) We may delay or suspend your payments. If we find that direct 
payment will cause substantial harm to you, we may delay (in the case 
of initial eligibility for benefits) or suspend (in the case of 
existing eligibility for benefits) payments for as long as one month 
while we try to find a suitable representative payee. If we do not find 
a payee within one month, we will pay you directly. If you are 
receiving disability payments and we have determined that you have a 
drug addiction or alcoholism condition, or you are legally incompetent, 
or you are under age 15, we will withhold payment until a 
representative payee is appointed even if it takes longer than one 
month. We will, however, as noted in paragraph (a)(1) of this section, 
allow you to present evidence to rebut the

[[Page 60237]]

presumption that direct payment would cause you substantial harm. See 
Sec.  416.601(b)(3) for our policy on suspending the benefits if you 
are currently receiving benefits directly.
    Example 1: Substantial Harm Exists. We are unable to find a 
representative payee for Mr. X, a 67 year old claimant receiving title 
XVI benefits based on age who is an alcoholic. Based on contacts with 
the doctor and beneficiary, we determine that Mr. X was hospitalized 
recently for his drinking. Paying him directly will cause serious 
injury, so we may delay payment for as long as one month based on 
substantial harm while we locate a suitable representative payee.
    Example 2: Substantial Harm Does Not Exist. We approve a claim for 
Mr. Y, a title XVI claimant who suffers from a combination of mental 
impairments but who is not legally incompetent. We determine that Mr. Y 
needs assistance in managing benefits, but we have not found a 
representative payee. Although we believe that Mr. Y may not use the 
money wisely, there is no indication that receiving funds directly 
would cause him substantial harm (i.e., serious physical or mental 
injury). We must pay current benefits directly to Mr. Y while we locate 
a suitable representative payee.
    (c) How we pay delayed or suspended benefits. Payment of benefits, 
which were delayed or suspended pending appointment of a representative 
payee, can be made to you or your representative payee as a single sum 
or in installments when we determine that installments are in your best 
interest.

0
17. Amend Sec.  416.621 by revising the section heading and paragraph 
(a) introductory text, redesignating paragraph (b) as paragraph (c) and 
adding new paragraph (b) to read as follows:


Sec.  416.621  What is our order of preference in selecting a 
representative payee for you?

* * * * *
    (a) For beneficiaries 18 years old or older (except those described 
in paragraph (b) of this section), our preference is--
* * * * *
    (b) For individuals who are disabled and who have a drug addiction 
or alcoholism condition our preference is--
    (1) A community-based nonprofit social service agency licensed by 
the State, or bonded;
    (2) A Federal, State or local government agency whose mission is to 
carry out income maintenance, social service, or health care-related 
activities;
    (3) A State or local government agency with fiduciary 
responsibilities;
    (4) A designee of an agency (other than a Federal agency) referred 
to in paragraphs (b)(1), (2), and (3) of this section, if appropriate; 
or
    (5) A family member.
* * * * *

0
18. Add Sec.  416.622 to read as follows:


Sec.  416.622  Who may not serve as a representative payee?

    A representative payee applicant may not serve if he/she:
    (a) Has been convicted of a violation under section 208, 811 or 
1632 of the Social Security Act.
    (b) Receives title II, VIII, or XVI benefits through a 
representative payee.
    (c) Previously served as a representative payee and was found by 
us, or a court of competent jurisdiction, to have misused title II, 
VIII or XVI benefits. However, if we decide to make an exception to the 
prohibition, we must evaluate the payee's performance at least every 3 
months until we are satisfied that the payee poses no risk to the 
beneficiary's best interest. Exceptions are made on a case-by-case 
basis if all of the following are true:
    (1) Direct payment of benefits to the beneficiary is not in the 
beneficiary's best interest.
    (2) No suitable alternative payee is available.
    (3) Selecting the payee applicant as representative payee would be 
in the best interest of the beneficiary.
    (4) The information we have indicates the applicant is now suitable 
to serve as a representative payee.
    (5) The payee applicant has repaid the misused benefits or has a 
plan to repay them.
    (d) Is a creditor. A creditor is someone who provides you with 
goods or services for consideration. This restriction does not apply to 
the creditor who poses no risk to you and whose financial relationship 
with you presents no substantial conflict of interest, and is any of 
the following:
    (1) A relative living in the same household as you do.
    (2) Your legal guardian or legal representative.
    (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.
    (4) A qualified organization authorized to collect a monthly fee 
from you for expenses incurred in providing representative payee 
services for you, under Sec.  416.640a.
    (5) An administrator, owner, or employee of the facility in which 
you live and we are unable to locate an alternative representative 
payee.
    (6) Any other individual we deem appropriate based on a written 
determination.
    Example 1: Sharon applies to be representative payee for Ron who we 
have determined needs assistance in managing his benefits. Sharon has 
been renting a room to Ron for several years and assists Ron in 
handling his other financial obligations, as needed. She charges Ron a 
reasonable amount of rent. Ron has no other family or friends willing 
to help manage his benefits or to act as representative payee. Sharon 
has demonstrated that her interest in and concern for Ron goes beyond 
her desire to collect the rent each month. In this instance, we may 
select Sharon as Ron's representative payee because a more suitable 
payee is not available, she appears to pose no risk to Ron and there is 
minimal conflict of interest. We will document this decision.
    Example 2: In a situation similar to the one above, Ron's landlord 
indicates that she is applying to be payee only to ensure receipt of 
her rent. If there is money left after payment of the rent, she will 
give it directly to Ron to manage on his own. In this situation, we 
would not select the landlord as Ron's representative payee because of 
the substantial conflict of interest and lack of interest in his well 
being.

0
19. Add Sec.  416.624 to read as follows:


Sec.  416.624  How do we investigate a representative payee applicant?

    Before selecting an individual or organization to act as your 
representative payee, we will perform an investigation.
    (a) Nature of the investigation. As part of the investigation, we 
do the following:
    (1) Conduct a face-to-face interview with the payee applicant 
unless it is impracticable as explained in paragraph (b) of this 
section.
    (2) Require the payee applicant to submit documented proof of 
identity, unless information establishing identity has recently been 
submitted with an application for title II, VIII or XVI benefits.
    (3) Verify the payee applicant's Social Security account number or 
employer identification number.
    (4) Determine whether the payee applicant has been convicted of a 
violation of section 208, 811 or 1632 of the Social Security Act.
    (5) Determine whether the payee applicant has previously served as 
a representative payee and if any previous appointment as payee was 
revoked or terminated for misusing title II, VIII or XVI benefits.

[[Page 60238]]

    (6) Use our records to verify the payee applicant's employment and/
or direct receipt of title II, VIII, or XVI benefits.
    (7) Verify the payee applicant's concern for the beneficiary with 
the beneficiary's custodian or other interested person.
    (8) Require the payee applicant to provide adequate information 
showing his or her relationship to the beneficiary and to describe his 
or her responsibility for the care of the beneficiary.
    (9) Determine whether the payee applicant is a creditor of the 
beneficiary (see Sec.  416.622(d)).
    (b) A face-to-face interview. We may consider a face-to-face 
interview impracticable if it would cause the payee applicant undue 
hardship. For example, the payee applicant would have to travel a great 
distance to the field office. In this situation, we may conduct the 
investigation to determine the payee applicant's suitability to serve 
as a representative payee without a face-to-face interview. We may 
decide subsequent face-to-face interviews are impracticable for an 
organizational representative payee applicant when the organization is 
known by the field office as a suitable payee. We base this decision on 
the organization's past performance, recent contacts, and its knowledge 
of and compliance with reporting requirements.

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20. Revise Sec.  416.625 to read as follows:


Sec.  416.625  What information must a representative payee report to 
us?

    Anytime after we select a representative payee for you, we may ask 
your payee to give us information showing a continuing relationship 
with you, a continuing responsibility for your care, and how he/she 
used the payments on your behalf. If your representative payee does not 
give us the requested information within a reasonable period of time, 
we may stop sending your benefit payment to him/her--unless we 
determine that he/she had a satisfactory reason for not meeting our 
request and we subsequently receive the requested information. If we 
decide to stop sending your benefit payment to your representative 
payee, we will consider paying you directly (in accordance with Sec.  
416.611) while we look for a new payee.

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21. Revise Sec.  416.630 to read as follows:


Sec.  416.630  How will we notify you when we decide you need a 
representative payee?

    (a) We notify you in writing of our determination to make 
representative payment. This advance notice explains that we have 
determined that representative payment is in your interest, and it 
provides the name of the representative payee we have selected. We 
provide this notice before we actually appoint the payee. If you are 
under age 15, an unemancipated minor under the age of 18, or legally 
incompetent, our written notice goes to your legal guardian or legal 
representative. The advance notice:
    (1) Contains language that is easily understandable to the reader.
    (2) Identifies the person designated as your representative payee.
    (3) Explains that you, your legal guardian, or your legal 
representative can appeal our determination that you need a 
representative payee.
    (4) Explains that you, your legal guardian, or your legal 
representative can appeal our designation of a particular person to 
serve as your representative payee.
    (5) Explains that you, your legal guardian, or your legal 
representative can review the evidence upon which our designation of a 
particular representative payee is based and submit additional 
evidence.
    (b) If you, your legal guardian, or your legal representative 
objects to representative payment or to the designated payee, we will 
handle the objection as follows:
    (1) If you disagree with the decision and wish to file an appeal, 
we will process it under subpart N of this part.
    (2) If you received your advance notice by mail and you protest or 
file your appeal within 10 days after you receive the notice, we will 
delay the action until we make a decision on your protest or appeal. 
(If you received and signed your notice while you were in the local 
field office, our decision will be effective immediately.)

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22. Revise Sec.  416.640a to read as follows:


Sec.  416.640a  Compensation for qualified organizations serving as 
representative payees.

    (a) Organizations that can request compensation. A qualified 
organization can request us to authorize it to collect a monthly fee 
from your benefit payment. A qualified organization is:
    (1) Any State or local government agency with fiduciary 
responsibilities or whose mission is to carry out income maintenance, 
social service, or health care-related activities; or
    (2) Any community-based nonprofit social service organization 
founded for religious, charitable or social welfare purposes, that is 
tax exempt under section 50l(c) of the Internal Revenue Code and that 
is licensed in the State in which it serves as representative payee or 
bonded.
    (b) Requirements qualified organizations must meet. Organizations 
that are qualified under paragraphs (a)(1) or (a)(2) of this section 
must also meet the following requirements before we can authorize them 
to collect a monthly fee.
    (1) A qualified organization must regularly provide representative 
payee services concurrently to at least five beneficiaries. An 
organization which has received our authorization to collect a fee for 
representative payee services, but is temporarily (not more than 6 
months) not a payee for at least five beneficiaries, may request our 
approval to continue to collect fees.
    (2) A qualified organization must demonstrate that it is not a 
creditor of the beneficiary. See paragraph (c) of this section for 
exceptions to the requirement regarding creditors.
    (c) Creditor relationship. On a case-by-case basis, we may 
authorize an organization to collect a fee for payee services despite 
the creditor relationship. (For example, the creditor is the 
beneficiary's landlord.) To provide this authorization, we will review 
all of the evidence submitted by the organization and authorize 
collection of a fee when:
    (1) The creditor services (e.g., providing housing) provided by the 
organization help to meet the current needs of the beneficiary; and
    (2) The amount the organization charges the beneficiary for these 
services is commensurate with the beneficiary's ability to pay.
    (d) Authorization process. (1) An organization must request in 
writing and receive an authorization from us before it may collect a 
fee.
    (2) An organization seeking authorization to collect a fee must 
also give us evidence to show that it is qualified, pursuant to 
paragraphs (a), (b), and (c) of this section, to collect a fee.
    (3) If the evidence provided to us by the organization shows that 
it meets the requirements of this section, and additional investigation 
by us proves it suitable to serve, we will notify the organization in 
writing that it is authorized to collect a fee. If we need more 
evidence, or if we are not able to authorize the collection of a fee, 
we will also notify the organization in writing that we have not 
authorized the collection of a fee.
    (e) Revocation and cancellation of the authorization. (1) We will 
revoke an authorization to collect a fee if we have evidence which 
establishes that an organization no longer meets the requirements of 
this section. We will issue a written notice to the organization 
explaining the reason(s) for the revocation.

[[Page 60239]]

    (2) An organization may cancel its authorization at any time upon 
written notice to us.
    (f) Notices. The written notice we will send to an organization 
authorizing the collection of a fee will contain an effective date for 
the collection of a fee pursuant to paragraphs (a), (b) and (c) of this 
section. The effective date will be no earlier than the month in which 
the organization asked for authorization to collect a fee. The notice 
will be applicable to all beneficiaries for whom the organization was 
payee at the time of our authorization and all beneficiaries for whom 
the organization becomes payee while the authorization is in effect.
    (g) Limitation on fees. (1) An organization authorized to collect a 
fee under this section may collect from a beneficiary a monthly fee for 
expenses (including overhead) it has incurred in providing payee 
services to a beneficiary. The limit on the fee a qualified 
organization may collect for providing payee services increases by the 
same percentage as the annual cost of living adjustment (COLA). The 
increased fee amount (rounded to the nearest dollar) is taken beginning 
with the payment for January.
    (2) Any agreement providing for a fee in excess of the amount 
permitted shall be void and treated as misuse of your benefits by the 
organization under Sec.  416.641.
    (3) A fee may be collected for any month during which the 
organization--
    (i) Provides representative payee services;
    (ii) Receives a benefit payment for the beneficiary; and
    (iii) Is authorized to receive a fee for representative payee 
services.
    (4) Fees for services may not be taken from any funds conserved for 
the beneficiary by a payee in accordance with Sec.  416.645.
    (5) Generally, an organization may not collect a fee for months in 
which it does not receive a benefit payment. However, an organization 
will be allowed to collect a fee for months in which it did not receive 
a payment if we later issue payment for these months and the 
organization:
    (i) Received our approval to collect a fee for the months for which 
payment is made;
    (ii) Provided payee services in the months for which payment is 
made; and
    (iii) Was the payee when the retroactive payment was paid by us.
    (6) An authorized organization can collect a fee for providing 
representative payee services from another source if the total amount 
of the fee collected from both the beneficiary and the other source 
does not exceed the amount authorized by us.

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23. Revise Sec.  416.641 to read as follows:


Sec.  416.641  Who is liable if your representative payee misuses your 
benefits?

    (a) A representative payee who misuses your benefits is responsible 
for paying back misused benefits. We will make every reasonable effort 
to obtain restitution of misused benefits so that we can repay these 
benefits to you.
    (b) Whether or not we have obtained restitution from the misuser, 
we will repay benefits in cases when we determine that a representative 
payee misused benefits and the representative payee is an organization 
or an individual payee serving 15 or more beneficiaries. When we make 
restitution, we will pay you or your alternative representative payee 
an amount equal to the misused benefits less any amount we collected 
from the misuser and repaid to you.
    (c) Whether or not we have obtained restitution form the misuser, 
we will repay benefits in cases when we determine that an individual 
representative payee serving 14 or fewer beneficiaries misused benefits 
and our negligent failure in the investigation or monitoring of that 
representative payee results in the misuse. When we make restitution, 
we will pay you or your alternative representative payee an amount 
equal to the misused benefits less any amount we collected from the 
misuser and repaid to you.
    (d) The term ``negligent failure'' 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 did not follow 
established procedures in our investigation or monitoring. Examples of 
our negligent failure include, but are not limited to, the following:
    (1) We did not follow our established procedures in this subpart 
when investigating, appointing, or monitoring a representative payee;
    (2) We did not investigate timely a reported allegation of misuse; 
or
    (3) We did not take the steps necessary to prevent the issuance of 
payments to the representative payee after it was determined that the 
payee misused benefits.
    (e) Our repayment of misused benefits under these provisions does 
not alter the representative payee's liability and responsibility as 
described in paragraph (a) of this section.

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24. Revise Sec.  416.650 to read as follows:


Sec.  416.650  When will we select a new representative payee for you?

    When we learn that your interest is not served by sending your 
benefit payment to your present representative payee or that your 
present payee is no longer able or willing to carry out payee 
responsibilities, we will promptly stop sending your payment to the 
payee. We will then send your benefit payment to an alternative payee 
or directly to you, until we find a suitable payee. We may suspend 
payment as explained in Sec.  416.611(c) if we find that paying you 
directly would cause substantial harm and we cannot find a suitable 
alternative representative payee before your next payment is due. We 
will terminate payment of benefits to your representative payee and 
find a new payee or pay you directly if the present payee:
    (a) Has been found by us or a court of competent jurisdiction to 
have misused your benefits;
    (b) Has not used the benefit payments on your behalf in accordance 
with the guidelines in this subpart;
    (c) Has not carried out the other responsibilities described in 
this subpart;
    (d) Dies;
    (e) No longer wishes to be your payee;
    (f) Is unable to manage your benefit payments; or
    (g) Fails to cooperate, within a reasonable time, in providing 
evidence, accounting, or other information we request.

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25. Revise Sec.  416.665 to read as follows:


Sec.  416.665  How does your representative payee account for the use 
of benefits?

    A representative payee must account for the use of benefits. We 
require written reports from your representative payee no less than 
annually (except for certain State institutions which participate in a 
separate onsite review program). We may verify how your representative 
payee used the funds. Your representative payee should keep records of 
how benefits were used in order to make accounting reports and make 
those records available upon our request. We may ask your 
representative payee to give us the following information:
    (a) Where you lived during the accounting period;
    (b) Who made the decisions on how your benefits were spent or 
saved;
    (c) How your benefit payments were used; and
    (d) How much of your benefit payments were saved and how the 
savings were invested.

[[Page 60240]]

Subpart N--Determinations, Administrative Review Process, and 
Reopening of Determinations and Decisions

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26. The authority citation for subpart N continues to read as follows:

    Authority: Secs. 702(a)(5), 1631, and 1633 of the Social 
Security Act (42 U.S.C. 902(a)(5), 1383, and 1383(b)); 31 U.S.C. 
3720A.


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27. Amend Sec.  416.1402 by revising paragraph (d), removing the word 
``and'' at the end of paragraph (m), removing the period at the end of 
paragraph (n) and adding ``; and,'' in its place, and adding paragraph 
(o) 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;
* * * * *
    (o) Whether we were negligent in investigating or monitoring or 
failing to investigate or monitor your representative payee, which 
resulted in the misuse of benefits by your representative payee.

[FR Doc. 04-22331 Filed 10-6-04; 8:45 am]
BILLING CODE 4191-02-P