Withdraw from TRS??

[txtig]

DW and I are planning on retiring in about four years. She is currently employed by our local school district as a counselor. She pays into the Texas TRS (Teacher Retirement System) but not into Social Security. At 65 years of age (7 years from now), she should be eligible for a TRS pension of approximately $18,000 / yr. The TRS pension has no COLA.

She would also be entitled to Social Security of approximately $9,100 / yr. at 66 years of age based on her work history prior to her school job, but WEP would reduce that to about $4,200 / yr.

My Social Security will be about $32,000 when she reaches 66, so if she were to draw a spousal benefit, that would be about $16,000 / year. But, GPO will reduce this by 2/3 of her TRS pension, netting her about $4,000 / yr.


I’ve been researching the possibility of having her withdraw from TRS after she retires from her school job and not collecting any TRS pension. As I understand the rules, she can withdraw all of her contributions, along with 5% interest on those contributions. She would forfeit the TRS match on her contributions.

If she withdraws from TRS, she is no longer subject to GPO, so she could collect her full spousal benefit. Right now, I’m not sure exactly how much the withdraw amount would be, but it’s possible that this lump sum plus her full spousal SS benefit would be a better deal than the TRS pension. And her SS benefit would then be COLA-adjusted, while the TRS pension would not be.

All of this is pretty complex and confusing and I’m not 100% sure that I’m reading/interpreting the rules correctly. Has anyone out there been in a similar situation? I’d appreciate any guidance you might have to offer. Thanks.

 

[nun]

If she withdraws from TRS, she is no longer subject to GPO, so she could collect her full spousal benefit. Right now, I’m not sure exactly how much the withdraw amount would be, but it’s possible that this lump sum plus her full spousal SS benefit would be a better deal than the TRS pension. And her SS benefit would then be COLA-adjusted, while the TRS pension would not be.

I don't know anything for sure, but I find it hard to believe that simply taking out your contributions to the TRS would get around any SS reductions. That money still comes from non SS wages and I would think the TRS would tell the SSA the balance of the account so they could use their actuarial tables to calculate an equivalent income.

Have you run your numbers through the SSA WEP/GPO calculator as a 2/3 reduction sounds like a lot.

 

[txtig]

I'm no expert, so all I know is what I read on various websites. But I've seen at least a couple of websites that state that a person that withdraws from TRS (after meeting eligibility requirements) is subject to WEP, but is not subject to GPO. WEP affects social security that a person is entitled to on their own work history, and GPO affects spousal benefits.

 

[mickeyd]

As I understand the rules, she can withdraw all of her contributions, along with 5% interest on those contributions.

DW is also receiving TRS retire pay & also on with reduced SS. I seem to recall that the refund +5% deal was only if the employee left the Plan (employement) within the first five years.

Not sure tho.

 

[akck]

That sounds like a lump sum withdrawal and what they will do is determine an equivalent annuity for that amount and reduce her spousal SS 2/3 of the determined annuity amount. Some pertinent information can be found in this thread:

http://www.early-retirement.org/forums/f28/lump-sum-pension-and-gpo-59470.html

Here's the main SSA link from the thread:

https://secure.ssa.gov/apps10/poms.nsf/lnx/0202608400

See section D. for how lump sums are handled. In this case, you might be cutting off your nose to spite your face. GPO will apply because your spouse had earned income without paying SS.

 

[txtig]

akck - I think there is a distinction between a Lump Sum Distribution and a withdraw from the TRS program. A lump sum distribution would be a conversion of the pension benefit to a lump sum benefit based on actuarial data and an assumed discount rate. A withdraw from the program is simply a return of the employee's contributions, along wit accrued interest, but with forfeiture of the employer's matching contributions.

I found the following FAQ on the Texas State Teacher's Association website. This is why I'm thinking she can get full SS spousal benefit if she withdraws from TRS.


If I rescind my TRS membership and withdraw my contributions from TRS so that I will not receive a TRS pension, will I still be subject to these offsets?
If you withdraw from TRS before meeting the minimum eligibility requirements for a TRS pension, you will not be subject to the WEP. If you withdraw after meeting the minimum eligibility requirements for a TRS pension, you will be subject to the WEP. You will not be subject to the GPO if you withdraw from TRS, regardless of whether or not you meet the eligibility requirements for a TRS pension. However, you will only be able to withdraw your own contributions plus interest and not the contributions made by the state on your behalf. Furthermore, you may be subject to penalties and taxes on the contributions you withdraw, further reducing the value of the investment. It is possible to avoid these penalties and taxes by rolling your TRS contributions into a qualified investment. Contact a financial planner for details.
For those considering TRS withdrawal to avoid the GPO, it is important to remember that the overall benefits you would receive if you are eligible for full spousal Social Security benefits would not be more than those you receive by being eligible for both a TRS pension and Social Security spousal benefits reduced by the GPO.

 

[youbet]

akck - I think there is a distinction between a Lump Sum Distribution and a withdraw from the TRS program. A lump sum distribution would be a conversion of the pension benefit to a lump sum benefit based on actuarial data and an assumed discount rate. A withdraw from the program is simply a return of the employee's contributions, along wit accrued interest, but with forfeiture of the employer's matching contributions.

I found the following FAQ on the Texas State Teacher's Association website. This is why I'm thinking she can get full SS spousal benefit if she withdraws from TRS.


If I rescind my TRS membership and withdraw my contributions from TRS so that I will not receive a TRS pension, will I still be subject to these offsets?
If you withdraw from TRS before meeting the minimum eligibility requirements for a TRS pension, you will not be subject to the WEP. If you withdraw after meeting the minimum eligibility requirements for a TRS pension, you will be subject to the WEP. You will not be subject to the GPO if you withdraw from TRS, regardless of whether or not you meet the eligibility requirements for a TRS pension. However, you will only be able to withdraw your own contributions plus interest and not the contributions made by the state on your behalf. Furthermore, you may be subject to penalties and taxes on the contributions you withdraw, further reducing the value of the investment. It is possible to avoid these penalties and taxes by rolling your TRS contributions into a qualified investment. Contact a financial planner for details.
For those considering TRS withdrawal to avoid the GPO, it is important to remember that the overall benefits you would receive if you are eligible for full spousal Social Security benefits would not be more than those you receive by being eligible for both a TRS pension and Social Security spousal benefits reduced by the GPO.

Your research is right on target. The difference between a "lump sum" payment and "withdrawing" is absolutely key to your scenario.

I think the Q and A you quoted is right on. You need to do the math.

Will it be more beneficial to have (1) TRS pension + smaller SS or (2) larger SS + income derived from the withdrawn pension dollars? You'll have to make some inflation assumptions plus guess at the WR the withdrawn dollars will earn.

I'd also go to a SS office and sit with a rep and go over exactly what you're going to do. You could also call or go see a TRS rep with the same questions. Get substantiated advise. WEP and GPO are highly misunderstood by the general public and comments based on what the responder thinks will happen or that seem to pass the common sense test, etc., are seldom accurate.

Texas treats you well. Withdrawals in Illinois don't come with any interest despite the fact they have been holding your money for many years. Additionally, Illinois generally doesn't contribute to the teachers pension fund. With some small exceptions from many years ago, the fund is made up of only the contributions teachers themselves made. We get to vote multiple times however.

 

[txtig]

youbet - Thanks for the feedback. I will certainly take your advice and talk directly to the SSA and TRS folks before making any decisions. But, I was wanting to do a sanity check on this forum first. I agree with you that WEP and GPO are highly misunderstood, and even after a lot of research, I put myself in the category of "I think I understand but not really sure." Thanks again.

 

[PatMast]

Gpo/wep

I realize the post I am replying to is old. But I agree that if you withdraw employee contributions and interest on those contributions before you are eligible for the pension, then the GPO/WEP provisions of social security do not apply. My big frustration is getting someone from Social Security Admin to agree to this before applying for SS benefits!

 

[Texas Proud]

I missed this the first time around...

But I will add my 2 cents... from the numbers that I saw with my sister, the amount that you would get in a lump sum is very very small compared to the annuity...

I would not consider withdrawing....