People who are disabled are
America’s undiscovered poor. In fact,
some 32 percent of disabled adults live in poverty. Despite this extraordinary
rate, those who are seriously disabled, as well as those whose disabilities are
not as challenging, have been excluded from the poverty conversation.
According to a 2009 paper by the Center
for Economic and Policy Research, the Census Bureau reports on income trends,
poverty and insurance coverage “include estimates of income poverty by race and
Hispanic origin, age, family status, nativity, work experience, and various
other factors, but no information on income poverty by disability status.”
The poverty that affects people who are
seriously disabled is, in part, a consequence of inadequate government
benefits. The main source of government income support, the Supplemental
Security Income (SSI) program, provides benefits to its approximately 4.3
million seriously disabled adult recipients that are at just 73.5 percent of
the poverty level.
In the four decades that the SSI program
has existed, the system has implicitly relied on the expectation – or hope – that
contributions of private financial support from their families and others will lift
seriously disabled people out of poverty.
But despite a reliance on outside private
support, the government has never provided a financial tool to help build and deliver
it. While special needs trusts serve as a way to hold and provide private
financial resources so that their disabled beneficiaries can maintain
eligibility for means-tested programs, they don’t serve as a savings vehicle.
In fact, income earned and retained in these trusts may be taxed at steeply
graduated tax rates.
Now, however, proposed legislation could
give a dramatic boost to efforts to build and deliver private financial support
to benefit seriously disabled people. The ABLE Act of 2009 (S. 493 and H.R.
1205) will create a brand new tax-advantaged savings vehicle, the ABLE
accounts, that could ultimately help lift a significant number of disabled
persons out of the poverty they would live in if forced to rely exclusively on
SSI benefits.
The bills enjoy broad, bipartisan support,
with 173 co-sponsors in the House and 17 in the Senate.
For people who are seriously disabled, ABLE
accounts will play the kind of role that tax-advantaged 529 plans play for
those attending college and that tax-advantaged retirement vehicles like
401(k)s play for retirees, but with an even greater impact. The reality is that
seriously disabled people may be dependent their entire lives, with financial
needs that persist over decades.
Because ABLE accounts will be utilized to
help meet such deep and long-lasting financial need, the ABLE law should
incorporate the best features of 529 plans and retirement vehicles like
401(k)s.
Specifically, the ABLE law should share
three vital features with 529 college savings plans:
- First, the ABLE law, like the 529 statute, should explicitly provide that any person is permitted to make a contribution to an ABLE account
- Second,
the draft ABLE bill should be revised so that a seriously disabled person isn’t
restricted to a single account and can benefit from multiple accounts, just
like a college student
- And
third, the ABLE law should provide that any person can establish an ABLE
account for an eligible disabled person. As the bills are now drafted, it’s not
clear who has the authority to open an ABLE account—they seem to say that only
a parent or guardian has this authority. Revised language should provide that,
like with the 529 law, any person can establish an ABLE account, not just a
parent or guardian. (The issue of who can serve as a trustee of an ABLE account
is separate)
The ABLE law should also share two vital
features with the 401(k) law and related statutes:
- It should extend appropriate creditor protections to ABLE funds
- It
should include up-front tax advantages for contributions by parents and others.
In addition to any standard tax deduction or credit the law might offer,
serious consideration should be given to allowing parents and others to direct
some portion of pre-tax contributions into a disabled person’s ABLE account,
instead of into their 401(k)s or other retirement vehicles
For too long, Americans who are seriously
disabled have been left to rely on government benefits that, as a sole source
of income, consign them to poverty. Several revisions will strengthen the ABLE
account legislation to deliver a robust financial tool that can help lift
Americans who are seriously disabled out of poverty and towards greater
financial security.
Seth
Weisbord is Executive Director of Economic Security for Disabled Americans. He
can be reached at seth@securedisabled.com.