I. Question Presented
               You asked us whether the Social Security Administration (SSA) should apply a Government
                  Pension Offset (GPO) to a one-time, $500.00 stipend received by the claimant, E~,
                  in exchange for her agreement (as a member of a class) to voluntarily dismiss her
                  lawsuit against the Employees’ Retirement System of Rhode Island. In considering this
                  question, you also asked us to review the terms of the lawsuit’s Settlement Agreement.
               
               II. Short Answer
               SSA should not apply a GPO to the $500.00 stipend.
               III. Background
               In 2015, the Employees’ Retirement System of the State of Rhode Island was sued by
                  205 plaintiffs who sought to prevent the implementation of the Rhode Island Retirement
                  Security Act of 2011. A class action Settlement Agreement was approved in June of
                  2015. In exchange for their voluntary dismissal of the lawsuit, the agreement provided
                  small increases in benefits for some retirees and workers, as well as two $500.00
                  stipend payments for those who retired by the effective date of the agreement, July
                  1, 2015.
               
               The claimant, a retired State of Rhode Island employee, applied for spouse’s benefits,
                  which are subject to a GPO because she is already receiving a pension from the State
                  of Rhode Island. At issue here, however, is a single stipend payment that the claimant
                  received as part of the class action settlement.
               
               Plaintiff received a check, dated August 31, 2016, that included four line items in
                  an attached itemization:
               
               (1) taxable benefit ($2,873.34);
               (2) nontaxable benefit ($2.86);
               (3) COLA ($216.77); and
               (4) “Settlement Stipend” ($500.00). A claims authorizer in the New York Payment Center
                  asked whether the stipend should be subject to the pension offset. Your office originally
                  contacted the Office of Income Security Programs (OISP) for guidance; in turn, OISP
                  directed you to contact us to “review the legal implications set forth in the settlement
                  agreement.”
               
               With respect to the $500.00 stipend, the Settlement Agreement provides that “participants
                  and/or beneficiaries of participants who have retired on or before July 1, 2015” (the
                  effective date of the agreement) shall receive:
               
               (i) a one-time five hundred dollar ($500.00) stipend (not added to COLA base) . .
                  . payable within sixty (60) days of July 1, 2015; and
               
               (ii) a second one-time five hundred dollar ($500.00) stipend (not added to COLA base)
                  . . . payable in the same month of the following year to all retired participants
                  and beneficiaries receiving a benefit as of the payment date.
               
               Settlement Agreement, Exh. B, Outline of Terms for Settlement Agreement (Settlement
                  Agreement) at 2.
               
               IV. Applicable Law
               The GPO reduces a spouse’s Social Security benefit if that spouse also receives a
                  government pension from noncovered work (i.e., work where Social Security taxes were
                  not deducted from the employee’s pay). See section 202(k)(5) of the Act, 42 U.S.C. § 402(k)(5). The purpose of the GPO is explained
                  on SSA’s website as follows:
               
               If this person’s government work had been subject to Social Security taxes, we would
                  reduce any spouse, widow, or widower benefit because of their own Social Security
                  benefit. The Government Pension Offset ensures that we calculate the benefits of government
                  employees who don’t pay Social Security taxes the same as workers in the private sector
                  who pay Social Security taxes
               
               See Government Pension
                     Offset.
               
               A government pension is “any monthly periodic benefit (or equivalent) [a person] receive[s]
                  that is based on [his or her] Federal, State, or local government employment.” 20
                  C.F.R. § 404.408a(a)(1)(i). Noncovered work is any “Federal, State, or local government
                  employment that Social Security did not cover and for which [an individual] did not
                  pay Social Security taxes.” 20 C.F.R. § 404.408a(a)(1)(ii).
               
               SSA will reduce a spouse’s benefit for each month that he or she receives a government
                  pension based on noncovered employment, unless one of the exceptions [in § 404.408a(b)]
                  applies. 20 C.F.R. § 404.408a(a)(2). Those exceptions include, inter alia, pensions
                  based on interstate employment, some pensions connected to members who served in a
                  uniformed branch, and situations where the last 60 months of an individual’s government
                  employment were covered by both Social Security and the pension plan that provides
                  the government pension. 20 C.F.R. § 404.408a(b).
               
               SSA’s Program Operations Manual System (POMS) instructions provide additional guidance.
                  For example, SSA will generally consider payments to be a pension in the following
                  circumstances:
               
               
                  - 
                     
                        • 
                           the employer and employee contributions are used to determine the payment; 
 
 
- 
                     
                        • 
                           the contributions are included in a withdrawal from a pension plan (unless none of
                              the employer contributions are included in the withdrawal and the employee forfeits
                              all rights to the pension);
                            
 
 
- 
                     
                        • 
                           only employee contributions are involved, the payment amount is based on employee
                              contributions plus interest (e.g., a savings plan), and it is the employee’s primary
                              retirement plan;
                            
 
 
- 
                     
                        • 
                           the payments are from a defined benefit plan or defined contribution plan based on
                              earnings from non-covered government employment, and the plan is the employee’s primary
                              retirement plan;
                            
 
 
- 
                     
                        • 
                           the payments are lifetime annuities paid to retired federal judges; or 
 
 
- 
                     
                        • 
                           the payments are based on permanent disability and continue despite an individual’s
                              unexpected return to employment.
                            
 
 
See POMS GN 02608.400.A.
               
               SSA has also identified numerous types of payments that are not considered pensions
                  for GPO purposes. See POMS GN 02608.400.B. Those exceptions include payments from foreign pensions, Social Security benefits,
                  Veterans Administration benefits, Black Lung benefits, Railroad Retirement Board annuities,
                  survivor annuities, Worker’s Compensation benefits, State supplemental disability
                  payments, and early incentive retirement payments (e.g., a bonus paid as an incentive
                  for the person to retire early). Id.
               
               V. Discussion
               We believe that the $500.00 stipend should not be subject to a GPO because it does
                  not meet the regulatory definition of a government pension and is not included in
                  the POMS examples of payments that are considered pensions. We also note that the
                  stipend payment is similar to a type of payment that is excluded from GPO under the
                  POMS.
               
               First, the stipend does not meet the regulatory definition of a government pension
                  because it was not a “benefit . . . receive[d] that is based on [the claimant’s] Federal,
                  State, or local government employment.” 20 C.F.R. § 404.408a(a)(1)(i). Instead, it
                  was a cash incentive paid to a class of plaintiffs (including the claimant) in exchange
                  for voluntarily dismissing a lawsuit.
               
               The Settlement Agreement provides two types of incentives: (1) new pension benefits
                  that are tied directly to the length and nature of the recipient’s employment and
                  (2) general stipends that apply equally to all class members who retired by July 1,
                  2015 (the effective date of the Settlement Agreement). The former category includes
                  benefits based on the length and nature of the noncovered employment: cost of living
                  adjustments (COLAs) tied to type of employment and funding levels; benefit accrual
                  periods by job category; retirement age based on age and years of service; and employer
                  contributions by years of service. See Outline of Terms for Settlement Agreement at 2-3. In contrast, the stipends are awarded
                  without regard to the length of service, nature of the job, or any other job-based
                  factor. See id. at 2. Instead, the stipends are solely conditioned on a class member’s retirement
                  on or before the effective date of the Settlement Agreement. Id.
               Additionally, unlike the pension benefit itself, no COLA is associated with the stipend.
                  A COLA is an increase in monthly retirement benefits to account for increasing consumer
                  prices. The Settlement Agreement expressly states that the stipends are “not added
                  to [the] COLA base.” This suggests that the stipend is not part of the claimant’s
                  defined pension benefit. For that reason and for the reason discussed above, we do
                  not view the stipend as a “benefit . . . receive[d] that is based on [the claimant’s]
                  Federal, State, or local government employment.” 20 C.F.R. § 404.408a(a)(1)(i) (emphasis
                  supplied).
               
               Second, the claimant’s stipend is not included among the types of pensions subject
                  to the offset in POMS GN 02608.400.A. Of those examples, only two might have conceivably related to the stipend:
               
               (1) those where the employer and employee contributions are used to determine the
                  payment; and
               
               (2) those where the payments are from a defined benefit plan or defined contribution
                  plan based on earnings from non-covered government employment, and the plan is the
                  employee’s primary retirement plan.
               
               See POMS GN 02608.400.A. But neither category applies to the stipend at issue. It was not determined by
                  the employer and employee contributions. Instead, each member of the class who retired
                  on or before the effective date of the Settlement Agreement was entitled to the same
                  stipend amount. Similarly, the stipend is not based on the claimant’s earnings from
                  non-covered government employment; it is a monetary incentive paid in the same amount
                  to all class members.
               
               Third, the stipend payment is similar to one of the types of payments that is expressly
                  exempt from GPO: an early incentive retirement payment (e.g., a bonus paid as an incentive
                  for the person to retire early). See POMS GN 02608.400.B. Although the stipend in this case was not an incentive for early retirement, it
                  was still a bonus paid to the claimant as an incentive for an action—her voluntary
                  dismissal of a lawsuit. As discussed above, the same stipend was paid to each member
                  of the class who retired by the effective date of the Settlement Agreement and was
                  expressly excluded from COLA adjustments.
               
               VI. Conclusion
               SSA should not apply a GPO to the claimant’s $500.00 stipend, which was received as
                  part of a Settlement Agreement that was reached in class action lawsuit against the
                  Employees’ Retirement System of Rhode Island. The stipend does not satisfy the regulatory
                  definition of a government pension and is not included among the examples of payments
                  that are considered pensions in the POMS instructions. Additionally, the stipend is
                  similar in nature to a type of payment that is excluded from GPO under the POMS.
               
               Michael J. Pelgro
               Regional Chief Counsel
               By: Candace H. Lawrence
               Assistant Regional Counsel