Social Security’s paper checks to end soon

For the first time in the 74 years that the Social Security program has been paying benefits, new applicants will not have the option to receive their benefits by check.

Benefits will have to be deposited directly into one’s bank or credit-union account, or loaded onto a special prepaid debit card.

The new rule takes effect Sunday. It applies not only to Social Security, but also to most other types of federal benefits, including veterans, railroad retirement and Supplemental Security Income benefits, as well as annuities for retired federal employees from the U.S. Office of Personnel Management.

The new system is intended to save money, said Walt Henderson, director of a division of the U.S. Treasury’s Financial Management Service bureau. “Cost savings is driving this, really; cost savings not just for the government, but also for the taxpayers,” he said.

Nationwide, converting all paper checks to direct deposit would save the government — and taxpayers — about $120 million a year, the Treasury estimates.

The new policy does not affect those who are already receiving benefits by check, at least not for now; they will have until March 1, 2013, to switch.

But for new applicants — those applying for benefits on Sunday and thereafter — the new policy will have a far-reaching impact, affecting millions of baby boomers and others.

Millions of Americans already use electronic-fund transfers for many of the most common transactions, such as buying groceries and paying bills, said Angela Thomson, a financial planner.

As a general rule, people have grown more comfortable with electronic transactions, said Thomson, a Certified Financial Planner practitioner and principal at Coastal Financial Planning Inc., of Lincoln, R.I.

Many seniors long ago opted to have their Social Security benefits deposited directly into their bank or credit-union accounts.

For those who do not have a bank or credit-union account, the Treasury makes available a special card: the Direct Express Debit MasterCard. People can choose to have their benefits loaded onto the card, then use it for various transactions, including getting cash.

Under current practice, someone who applies for Social Security benefits may choose whether to receive those benefits by check, direct deposit or debit card, said Social Security expert Kurt Czarnowski. Starting next week, an applicant will have only two options: direct deposit or the debit card, said Czarnowski, a retired Social Security Administration official who now runs his own Social Security consulting firm in Norfolk, Mass.

Under the Debt Collection Improvement Act signed into law by President Bill Clinton in 1996, all federal non-tax payments — including wage, salary and retirement payments — must be made electronically.

At the time, “There was a lot of resistance to electronic payments,” and the Treasury had yet to develop an electronic payment method for people without bank or credit-union accounts, Henderson said. But times have changed.

For example, the Social Security Administration now first asks an applicant for direct-deposit information, assuming that the applicant will choose that option, Czarnowski said. About 88 percent of Social Security beneficiaries nationwide have direct deposit, he said.