Social Security/Texas Teacher Retirement

[2B]

Someone met with a fee-only FA last night and was told "that since his wife had taken out a lump sum from the Texas Teacher Retirement System several years ago she would not be able to collect the spousal SS benefit."

He thinks that is BS and I agree but the FA might be right. He called the SS office to get their opinion but the person he spoke with failed their ESL course and didn't seem to know what he was talking about.

Does anyone know if this FA is correct or full of it? What will happen?

[eridanus]

State and local government employment

"If you will receive a pension for work not covered by Social Security (such as government employment), any Social Security benefits you may be eligible to receive on your spouse's record may be reduced. This type of benefit reduction is called Government Pension Offset (GPO)."



Government Pension Offset

"If you take your government pension annuity in a lump sum, Social Security still will calculate the reduction as if you chose to get monthly benefit payments from your government work."


Looks to me like it'll be the same reduction she would've received if she had taken it out monthly. That is, Monthly spousal benefit - (2/3 * monthly pension).

[2B]

It turns out the planner was a CFP. So much for the value of professional certification.....

[Leonidas]

There were a lot of news stories several years ago about Texas teachers working one day in certain school districts so they could collect SS. They were all working one day stacking books or cleaning up or whatever and that was supposed to give them a SS benefit that they would otherwise have lost because of the GPO. I found this story, it's from 2003, but it seems to explain it.

Social Security: Texas Teachers Learn to Cheat

[Rustward]

eridanus is right. The distribution results in a reduction of the spousal SSA benefit but does not totaly eliminate it. www.ssa.gov covers the subject pretty well.

Although not the official source of information regarding what SSA will do or not do, you may be able to get some clarification from the TRS call center.

[FinanceDude]

Quote:

Originally Posted by 2B It turns out the planner was a CFP. So much for the value of professional certification.....

And you guys think that a CFP is a requirement for being an FA??

[Texas Proud]

Quote:

Originally Posted by Rustward eridanus is right. The distribution results is a reduction of the spousal SSA benefit but does not totaly eliminate it. www.ssa.gov covers the subject pretty well. Although not the official source of information regarding what SSA will do or not do, you may be able to get some clarification from the TRS call center.

I have not read the SSA site, but I can tell you that if my sister had not done the 'one day of work' mentioned above..... she would NOT have received ANY SS....

This was confirmed by SS and the Teacher's retirement group...

Also, the 'loophole' has been plugged.... it is no longer available... the article was from 2003...

[Texas Proud]

Quote:

Originally Posted by 2B Someone met with a fee-only FA last night and was told "that since his wife had taken out a lump sum from the Texas Teacher Retirement System several years ago she would not be able to collect the spousal SS benefit." He thinks that is BS and I agree but the FA might be right. He called the SS office to get their opinion but the person he spoke with failed their ESL course and didn't seem to know what he was talking about. Does anyone know if this FA is correct or full of it? What will happen?

Read the sites given.... but from what I know... your FA is probably right... he has more knowledge of the amount that was taken and how much offset there would be...

And remember... if she does not qualify for the spousal amount, she might not qualify for the survivor amount either.... so plan accordingly...

[BLS53]

I think the determining factor would be the amount of the lump sum. The SSA windfall provision is based upon someone receiving a monthly pension from non-SS covered employment. I don't know if they have a way of amortizing a lump sum amount, to determine a monthly lifetime equivalent. This is important because SS isn't totally eliminated because you draw a non-SS based pension. There's a formula that considers what you have paid into SS, through other employment, and then the reduction is figured based on the amount of the non-SS pension. Based on those variables, your SS check is reduced a certain proportion.

A lump sum of this sort, is usually referred to as a "refund", where someone leaves said employment before being eligible for a pension. This is common with folks who substitute teach for a few years. Generally the lump sum is in the low four figures. I doubt SSA would consider that in applying the windfall provision. If they did, the SS reduction would be miniscule.

[youbet]

Quote:

Originally Posted by Rustward eridanus is right. The distribution results in a reduction of the spousal SSA benefit but does not totaly eliminate it. www.ssa.gov covers the subject pretty well. .

With GPO, your spousal benefit is reduced by two thirds of your gov pension. So, you don't have to have much of a gov pension to totally offset the spousal benefit down to zero. But, if you had "substantial" earnings under SS covered employment (definition on the SS site), the GPO offset amount is reduced or eliminated per a schedule.

At our house, DW was employed as a public school teacher for over 30 years. She also qualified for SS through highschool and college part time employment and a few years on the adjunct faculty of a local college. This all boils down to her not receiving any spousal SS benefit (complete offset) because of GPO and her own SS being reduced by WEP.

If she had tried to avoid this by taking a lump sum withdrawal of her public pension (hypothetical - not actually an option in our state), SS would have done the calculations as though she had taken the pension as an annunity.

2B - The FA is correct and the exact outcome will depend on the exact numbers involved.

I have a Powerpoint presentation that covers GPO and WEP pretty clearly I'd be glad to email to anyone who wants a copy. Although, the current explanation on the SS site is now pretty clear as well.

[BLS53]

Quote:

Originally Posted by youbet With GPO, your spousal benefit is reduced by two thirds of your gov pension. So, you don't have to have much of a gov pension to totally offset the spousal benefit down to zero. But, if you had "substantial" earnings under SS covered employment (definition on the SS site), the GPO offset amount is reduced or eliminated per a schedule. At our house, DW was employed as a public school teacher for over 30 years. She also qualified for SS through highschool and college part time employment and a few years on the adjunct faculty of a local college. This all boils down to her not receiving any spousal SS benefit (complete offset) because of GPO and her own SS being reduced by WEP. If she had tried to avoid this by taking a lump sum withdrawal of her public pension (hypothetical - not actually an option in our state), SS would have done the calculations as though she had taken the pension as an annunity. 2B - The FA is correct and the exact outcome will depend on the exact numbers involved. I have a Powerpoint presentation that covers GPO and WEP pretty clearly I'd be glad to email to anyone who wants a copy. Although, the current explanation on the SS site is now pretty clear as well.

How does the SSA figure an annuity based on a lump sum? What if someone teaches for only a few years, and the lump sum is very small?
I've looked for info on their site, and don't find anything regarding lump sums.

[BLS53]

Quote:

Originally Posted by BLS53 How does the SSA figure an annuity based on a lump sum? What if someone teaches for only a few years, and the lump sum is very small? I've looked for info on their site, and don't find anything regarding lump sums.

Upon further review: From nea.org

Do I avoid the reduction under the WEP if I move from non-SS-covered employment to SS-covered employment?

No, you won't unless you forfeit your right to the government pension from the non-SS-covered employment. You forfeit it by withdrawing your contributions and interest before you are eligible to receive such a pension. If you withdraw your contributions and interest after you are eligible to receive such a pension, SSA treats the withdrawal as a lump-sum pension and your Social Security benefit is subject to the WEP. It makes no difference whether you are working in Social Security-covered or non-SS-covered work before you are eligible for your Social Security benefit. The rule turns on whether you are eligible for the pension from the non-SS-covered work.

[2B]

As an update, his wife received a small lump sum representing the school districts contribution to her pension plan. She did not work long enough to qualify for a real pension and the lump sum was all that was available. Reading the SS web links sent early in this thread would lead me to believe that the deduction would be almost nothing.

He plans to have her file for her social security early next year so that will possibly resolve the situation.

This payment was made over 15 years ago so he's going to "forget" to mention it to the SS people and he'll see if they have any record of it. If they don't have a record of it, she'll get the full spousal benefit.

[Finance Dave]

Quote:

Originally Posted by 2B It turns out the planner was a CFP. So much for the value of professional certification.....

What do you mean? Are you saying he/she was wrong? Or are you simply referring to the fact that he said none, and others are saying reduced?

[Rustward]

I was a little too quick to say "The distribution results in a reduction of the spousal SSA benefit but does not totaly eliminate it."

As others have pointed out, something like "The distribution results in a reduction of the spousal SSA benefit and may or may not totaly eliminate it." would be a little more accurate. Each case is different, and the only way to know for sure is to examine the specifics of each case.

[BLS53]

There is not a great liklihood that one would elect a large lump sum distribution from a DB pension plan. If the sum is large enough, there would be equivalant years of service and vesting, that allows for a lifetime annuity. Unless one is an investment wizard, it would be difficult to beat the return on a COLA adjusted pension.

Most lump sums will involve people who work a few years, then quit. In the teaching profession, a lump sum of this sort will be in the low 5 figures at most. If SSA does indeed annuitize such an amount, the resulting figure will be very small.

[youbet]

Quote:

Originally Posted by BLS53 There is not a great liklihood that one would elect a large lump sum distribution from a DB pension plan. If the sum is large enough, there would be equivalant years of service and vesting, that allows for a lifetime annuity. Unless one is an investment wizard, it would be difficult to beat the return on a COLA adjusted pension.

Again....... "it depends." If your spouse is collecting $26k in SS and your spousal benefit would therefore be $13k, it might pay to take a lump sum and therefore be able to collect the $13k. Depends on what the rules and formulas are for determining the lump sum amount. That's why SS included the rule allowing them to handle lump sum withdrawals with an annuity payout equivalent. They were smart enough to know that "creative" folks would quickly figure all the angles.

Despite the fact that both GPO and WEP negatively impacted retirement income at our house, I do feel they are fair provisions.

[2B]

Quote:

Originally Posted by Finance Dave What do you mean? Are you saying he/she was wrong? Or are you simply referring to the fact that he said none, and others are saying reduced?

At this point in time, it appears he was wrong. He was very emphatic (so I was told) that taking any lump sum payment would eliminate the spousal benefit entirely.

The SS publications only say that the spousal benefit would be reduced by an amount "equal" to the lump sum. Since she got a very small amount, it should have very little effect on the spousal benefit.

The true answer will depend on what actually happens when she applies for her spousal SS benefit after the first of next year.

[youbet]

Quote:

Originally Posted by 2B At this point in time, it appears he was wrong. He was very emphatic (so I was told) that taking any lump sum payment would eliminate the spousal benefit entirely.

If the FA actually said that, then he/she was not only misinformed but also lacked any common sense whatsoever. (For example, a $50 lump sum refunded to a sub teacher who worked a few days completely eliminating the spousal benefit is a little hard to comprehend.) Hard to believe a FA with any sort of credentials would believe that. Common sense tells me the FA probably said that taking a lump sum could eliminate the spousal benefit and in any case would reduce it. But, who knows? Anything is possible...........