TN 6 (06-18)

A. PR 18-066 Whether Illinois State Universities Retirement System’s Defined Benefit Payment Triggers Application of the GPO

Date: March 8, 2018

1. Syllabus

This opinion explains that the Government Pension Offset (GPO) applies to Social Security benefits based on receipt of a pension from a defined benefit plan provided by the State Universities Retirement System (SURS) of Illinois. Furthermore, the opinion concludes that the pension the beneficiary receives from the SURS Traditional Benefit Plan is a government pension based on noncovered employment and, therefore, triggers the application of the GPO to any spousal benefits to which he may be entitled. See Discussion paragraph in opinion for specific details about assertions the beneficiary makes for why GPO should not apply.

2. Opinion

QUESTION PRESENTED

You requested a legal opinion regarding whether E~’s receipt of benefits from a defined benefit plan provided by the State Universities Retirement System (SURS) of Illinois triggers the application of the Government Pension Offset (GPO) to any spousal benefits to which he may be entitled.

SHORT ANSWER

The annuity benefit that E~ receives from SURS is a government pension that triggers the application of the GPO.

FACTUAL BACKGROUND

SURS is an administrator of retirement and other benefits for employees of Illinois public higher education including state universities, community colleges, and state agencies. See SURS, All About SURS 1 (2018) [hereinafter All About SURS], available at:

http://www.surs.com/sites/default/files/pdfsx/SURS_Facts.pdf;

About SURS (last visited Mar. 5, 2018), http://www.surs.com/about-surs. The letter E~ submitted from SURS indicates that he began employment with a SURS employer in July 1984, and that he continued his employment there until June 2005. (E~ reported that he worked for the University of Illinois – Urbana-Champaign.) E~’s pension rights vested in March 1992. He began receiving pension benefits in June 2006, and as of August 2017 he was receiving a pension payment of $8,253.79 per month. SURS described E~’s pension payment as a “defined benefit based on money purchase calculation.”

According to SURS, the “money purchase calculation” is one method of calculating the benefit paid under its Traditional pension plan.¹ See SURS, Traditional Plan Member Guide 15 (rev. 2018) [hereinafter Traditional Plan], available at http://www.surs.com/sites/default/files/pdfsx/Guide-TRD.pdf; Retirement FAQs, SURS (last visited Mar. 5, 2018), http://www.surs.com/retirement-faqs#ttopp.

Employees are required to make contributions from their earnings, and an employer contribution is also attributed to the employees’ plan. See Traditional Plan, supra, at 2. Upon retirement, employees begin receiving retirement annuity payments under the plan. The amount of benefit paid is determined by applying four available formulas (one of which is the money purchase calculation); whichever formula results in the highest payment will be used to set the defined benefit retirement payment received by the employee. See id. at 15.

The Traditional Plan publication describes the “money purchase calculation” as follows:

Money Purchase Calculation*

*This calculation is not available to participants who began SURS-covered employment on or after July 1, 2005.

The Money Purchase Formula is based on your accumulated normal retirement contributions and interest, an imputed employer (State of Illinois) contribution, and your age at retirement.

Traditional Plan, supra, at 18.

Moreover, the All About SURS publication explains that:

…SURS is the sole source of retirement income for its participants. The state/employer does not contribute to Social Security on the employee’s behalf, and there is no coordinated benefit for SURS-covered employment from Social Security upon retirement.

In addition, retirees who may qualify for Social Security benefits from other, non-SURS covered employment, may be affected by the Windfall Elimination Provision or the Government Pension Offset, resulting in an offset of their Social Security benefit.

All About SURS, supra, at 1. Thus, SURS participants are not eligible for Social Security coverage based on their employment, and Social Security taxes are not withheld from their SURS earnings. See Traditional Plan, supra, at 2; General FAQs, SURS (last visited Mar. 5, 2018), http://www.surs.com/general-faqs#wiiis.

LEGAL BACKGROUND

Government employers that provide their employees with retirement benefits are not required to participate in Social Security. 42 U.S.C. § 410(a)(5), (7). If a government entity provides retirement benefits to its employees and does not participate in Social Security, its employees are “noncovered”; they pay no Social Security taxes on their earnings and are not entitled to Social Security benefits based on those earnings. Id.

Congress enacted the GPO in 1977, which provides for a reduction in Social Security spousal and certain other benefits if a person in noncovered public employment receives a monthly periodic benefit that is based upon such individual’s earnings while in the service of the Federal Government or any State (or political subdivision thereof). See 42 U.S.C. § 402(k)(5)(A); 20 C.F.R. § 404.408a(a)(2). The Supreme Court summarized the motivation behind the GPO in Heckler v. Mathews:

[A]s part of a general reform of the Social Security system, Congress repealed the dependency requirement for widowers and husbands. It concluded, however, that elimination of the dependency test, by increasing the number of individuals entitled to spousal benefits, could create a serious fiscal problem for the Social Security trust fund. This problem was particularly acute with respect to the large number of retired federal and state employees who would now become eligible for spousal benefits. Unlike most applicants, who must offset any dual Social Security benefits against each other, 42 U.S.C. § 402(k)(3)(A), retired civil servants could, at the time of the 1977 Amendments, receive the full amount of both the spousal benefits and the government pensions to which they were entitled. Congress estimated that payment of unreduced spousal benefits to such individuals could cost the system an estimated $190 million in 1979.

To avoid this fiscal drain, Congress included as part of the 1977 Amendments a “pension offset” provision that generally requires the reduction of spousal benefits by the amount of certain federal or state government pensions received by the Social Security applicant.

465 U.S. 728, 732 (1984) (citations and footnote omitted).

Because an individual who was receiving a Social Security retirement benefit based entirely on covered employment would have his spousal benefit calculation reduced based on his own Social Security retirement benefit, Congress concluded that it was appropriate to ensure that the individual receiving a government pension based on noncovered employment should also have his spousal benefit adjusted. See SSA, Pub. No. 05-10007, Government Pension Offset (2017), available at: http://www.ssa.gov/pubs/EN-05-10007.pdf; Heckler, 465 U.S. at 750. As relevant here, the GPO decreases an individual’s spousal benefit by two-thirds of his government pension. 42 U.S.C. § 402(k)(5)(A); 20 C.F.R. § 404.408a(a)(1)(iii), (d)(1).

While there are exceptions that preclude the application of the GPO in certain circumstances, they are primarily related to military personnel and government employment that also became subject to the payment of Social Security taxes. 20 C.F.R. § 404.408a(b).

DISCUSSION

Our review of this case shows that E~ is receiving a government pension based on noncovered employment, which triggers the application of the GPO to any spousal benefits to which he may be entitled. 20 C.F.R. § 404.408a(a)(2). Specifically, the defined benefit monthly payment E~ receives from SURS is based on his employment with an Illinois public university, which is considered a state government employer. Thus, his is a government pension. 20 C.F.R. § 404.408a(a)(1)(i). In addition, as noted above, SURS employers do not participate in Social Security. As such, SURS participants are not eligible for Social Security coverage based on their employment, and Social Security taxes are not withheld from their SURS earnings. Thus, E~’s defined benefit payment is related to noncovered employment for which he did not pay Social Security taxes. 20 C.F.R. § 404.408a(a)(1)(ii). None of the exceptions to the application of the GPO apply here. 20 C.F.R. § 404.408a(b).

In his Dec. 1, 2017 letter, E~ asserts that the GPO should not apply for two reasons. First, he asserts that his pension payment is not based on earnings because the amount of the pension payment is not calculated based on his earnings. He relies on SSA Publication No. 05-10007, which states “we won’t reduce your Social Security benefits as a spouse, widow, or widower if you: Receive a government pension that’s not based on your earnings.” SSA, supra, at 2. His assertion is incorrect. As discussed above, the “money purchase calculation” used to determine the amount of E’s pension payment is based on his and his employer’s retirement contributions. And his contributions were a percentage of his earnings. See Traditional Plan, supra, at 2 (“Your contributions are equal to 8% of your gross earnings….”). As such, they are directly related to his earnings.

Second, E~, relying on POMS GN 02608.400(A)(2)(a), asserts that the GPO does not apply because his pension is not his employer’s primary retirement plan nor is it a supplemental plan. This assertion is also incorrect. First, the POMS refers to the employee’s primary retirement plan, not the employer’s. POMS GN 02608.400(A)(2)(a). So, whether his employer offered a different “primary” plan, as E~ asserts, is not relevant. Under the POMS, if the pension E~ receives from SURS is his primary retirement plan, and it is based on earnings from noncovered government employment (which it is, as discussed above), the GPO applies. Id. Further, even if this pension were not E~’s primary retirement plan, and instead were a supplemental plan (which is somewhat unlikely given that it pays over $8,000 per month), it would nonetheless trigger the application of the GPO because both E~ and his employer made contributions on E~’s behalf. Id. (“If the plan is a supplemental plan, the payments are subject to GPO when the plan payments contain employer or both employer and employee contributions.”).

CONCLUSION

For the reasons discussed above, we conclude that the pension E~ receives from SURS is a government pension based on noncovered employment and, therefore, triggers the application of the GPO to any spousal benefits to which he may be entitled.

Footnotes:

[1]

^. Although the SURS letter does not use the phrase Traditional Plan, as is used on the SURS website, it appears that the only SURS plan available at the time that E~ began employment within the state university system was the Traditional Plan. See Traditional Plan, supra, at 1. Since the Member Guide indicates that employees must elect their pension plan within six months of beginning employment, and the election cannot be changed, it seems that E~would be limited to the Traditional Plan, as it is currently described on the SURS website.