Using Fostering Independence Accounts to Protect Children’s Social Security Benefits

Youth aging out of foster care face many challenges to make a successful transition to independence in adulthood. But growing evidence shows that state child welfare agencies are making many foster children’s lives harder by collecting their Social Security benefits and using these federal dollars to pay for their time in care.

Under federal law, many foster children are eligible to receive either Social Security survivor benefits (after a parent’s death) or Supplemental Security Income due to a disability. In April, National Public Radio and the Marshall Project reported:

“….in at least 36 states and Washington, D.C., state foster care agencies comb through their case files to find kids entitled to these benefits, then apply to Social Security to become each child’s financial representative, a process permitted by federal regulations. Once approved, the agencies take the money, almost always without notifying the children, their loved ones or lawyers.”

How much do state child welfare agencies collecting on these Social Security beneficiaries’ behalf? NPR cited data from Child Trends showing that “agencies collected more than $165 million from these children in 2018 alone.”

In June, the Government Accountability Office issued a report examining state data exchanges for tracking foster children’s Social Security benefits. GAO found that state child welfare agencies were the “representative payee” for 81 percent of foster children receiving Social Security benefits.

The Social Security Administration and the Supreme Court has ruled that children’s benefits can be directed to a “representative payee” when the Social Security recipient is not able to receive and manage their Social Security benefits. However, the apparent widespread practice of child welfare agencies taking these funds and using them to pay for foster children’s time in care raises serious questions. For starters, is it fair for some foster children to essentially be paying for their own foster care from survivor benefits earned by their deceased parent or due to their disability? Could foster children instead use these benefits to help navigate the difficult transition to independence as adults?

“It’s really messed up to steal money from kids who grew up in foster care,” explained former foster youth Tristan Hunter to National Public Radio. The state child welfare agency collected his $700 per-month survivor benefit earned by his mother after her death when he was a child. These funds would help him pay for schooling and other living costs as he tries to make it on his own. “We get out and we don’t have anybody or anything. This is exactly what survivor benefits are for.”

Bipartisan concern about states taking foster children’s Social Security benefits

National policymakers recognize that this is an injustice that needs to be corrected. After GAO released its June 2021 report, House Ways and Means Committee Worker and Family Support Subcommittee Chairman Danny K. Davis and Ranking Member Jackie Walorski and Social Security Subcommittee Chairman John B. Larson and Ranking Member Tom Reed issued the following bipartisan statement:

“GAO’s report makes it evident we have work to do to make sure all foster youth receive and benefit from all SSA benefits for which they qualify and that benefits follow the child. Increasing the use of regular data exchanges between SSA and state foster care agencies is clearly necessary to ensure that benefits for youth in foster care are paid correctly, based on the large number of incorrect representative payees SSA identified in the small subset of states currently complying with SSA’s request to share data. The data we have suggests that the SSA benefits are not always being used as intended, in the youth’s best interest, although there appears to be wide variation among states. We are specifically concerned about the possibility that benefits are being paid to a parent or entity that no longer has custody of the child, and about reports that benefits are being used to help state budgets instead of children.”

In 2016, Representative Davis introduced legislation, the “Protecting Foster Youth Resources to Promote Self-Sufficiency Act,” which would have prohibited state or local government agencies using Social Security survivor or disability benefits to “reimburse the state for foster care maintenance payments, or other payments made by the state or political subdivision of the state to cover any cost or expense for such an individual.” Given the new national attention on this practice and GAO’s alarming findings, Congress should quickly act to protect foster children’s Social Security benefits.

How “Fostering Independence Accounts” can be used to protect Social Security benefits

In a recent Gen Justice and FREOPP report, we argued that policymakers should establish cash accounts, or “Fostering Independence Accounts,” to help youth aging out of foster care pay for living expenses and to avoid the bad life outcomes that are all too common for former foster youth. These accounts could provide unrestricted financial income, similar to a universal basic income, while maintaining state oversight to help former foster youth stay on the radar of state child welfare agencies. Tim and I explained that this would provide a number of positive benefits and complement the existing indirect government benefits provided to former foster youth, such as education and job training vouchers, housing assistance, and access to Medicaid.

But Fostering Independence Accounts could also be enacted to provide a vehicle for foster children to directly receive Social Security survivor or disability benefits while maintaining oversight by state agencies or their foster guardians. Social Security funds could be deposited into a child’s account and used for current needs or saved for when they reach adulthood, similar to how a trust is commonly used for child beneficiaries. In this way, children’s Social Security benefits could be used as they were intended to address their immediate needs, such as in the case of a disabled child eligible for SSI, or to establish a nest-egg of savings and ongoing financial support for the survivor of deceased parents.

Policy considerations

As federal and state lawmakers work to address the problem of state child welfare agencies taking children’s Social Security benefits, policymakers should establish Fostering Independence Accounts to serve as a vehicle to manage foster children’s funds. But policymakers should consider the following questions, some of which have come up in FREOPP and Gen Justice’s recent conversations with Congressional staff about this issue.

1. Will protecting foster children’s Social Security benefits make state child welfare agencies less likely to apply for Social Security disability benefits or render children ineligible for SSI benefits?

For foster children who may be eligible for Supplemental Security Income under the Social Security disability program, eliminating the financial incentive for state child welfare agencies to apply on their behalf may result in fewer children being awarded such benefits. The Congressional Research Service (CRS) discussed this potential problem in a 2012 report:

“…child welfare agencies and advocates argue that if states were not able to use benefits to pay for a child’s foster care, they would stop screening children to determine their eligibility for these Social Security programs. They further raise the concern that if a foster child’s SSI benefits were allowed to accumulate in a savings account, the child would soon surpass the “means test” for SSI and would lose eligibility for the benefits.”

But federal and state policymakers could address this concern in federal or state legislation designed to protect foster children’s Social Security benefits. For example, Rep. Davis’s 2016 bill included a provision to require state agencies to “develop and implement procedures to ensure that such a child is screened to determine potential eligibility for [Social Security disability] benefits.” Moreover, Congress could reform the federal Social Security disability program to eliminate the “means test” for eligible foster children to allow them to accrue Social Security benefits in an account. Congress could similarly allow former foster children who are eligible for Social Security benefits to receive funds in an account, potentially for a period of years, to not discourage adoptions.

2. Could policymakers use ABLE Accounts as a vehicle for saving foster children’s disability benefits?

Policymakers could use existing federal and state savings programs to serve as a vehicle for providing “Fostering Independence Accounts.” For example, the Achieving a Better Life Experience (ABLE) Act of 2014 allows states to establish tax-free savings options for people who become disabled before age 26. Under federal law, funds used in an ABLE Account can be used to “pay for disability-related expenses,” such as “housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services,” according to the Internal Revenue Service. For foster children eligible for Supplemental Security Income under the Social Security disability program, ABLE Accounts would serve as a preexisting vehicle that states are already administering.

However, ABLE accounts would not currently serve as an appropriate vehicle for foster children who are eligible to receive Social Security survivor benefits. Congress could consider expanding the scope of ABLE Accounts to include foster children or establish a new savings account vehicle, such as a Fostering Independence Account, that would allow for tax-free saving and qualified expenditures with state oversight for foster children.

3. How will protecting foster children’s Social Security benefits affect state child welfare agencies’ budgets?

Child welfare agencies and those advocating on their behalf may express concerns that protecting foster children’s Social Security benefits would negatively impact state child welfare agencies’ budgets. However, the Congressional Research Service reports that state child welfare agencies spent approximately $33 billion in FY2018. Based on the Child Trends data from that year cited by NPR, the $180 million collected in Social Security benefits amounts to about .05 percent of overall spending.

CRS shows that the federal government was projected to provide more than $12 billion in federal support to state child welfare agencies in FY2021, including $5.8 billion for foster care. In addition, the Treasury Department reports that the 2021 American Rescue Plan will provide $350 billion in funding assistance to state, local, tribal and territorial governments. This unprecedented funding assistance offers broad discretion about how funds can be used, including to “strengthen support for vital public services.” Providing economic support to child welfare agencies to offset any financial loss from states forgoing taking foster children’s Social Security benefits would seem to be an appropriate way to use federal funds for vital public services.

Conclusion

Children aging out of foster care enter adulthood with few of the safety nets typical teenagers may take for granted. Too often, foster children succumb to poor life outcomes, such as living on the streets, being trafficked, incarcerated, or even seeing their own children enter the child welfare system. Current and former foster youth are among the most at-risk children in our society. It is wrong for state child welfare agencies to be taking their Social Security survivor or disability benefits.

Members of Congress are right to express outrage at this practice and to propose policy reforms to prevent state children welfare agencies from taking precious resources from the most disadvantaged children in the United States. As Members of Congress and state lawmakers address this problem, they should implement reforms to provide foster children with Fostering Independence Accounts to allow these resources to be used or saved with proper state oversight.