GN DAL02608.100 General Rules for Government Pension Offset (GPO) (RTN 07, 10/2013)
See GN 02608.100
A. Background – Texas Teacher’s Retirement System and the Texas Optional Retirement Program (ORP)
The Texas Teachers Retirement System (TRS) provides two types of retirement plans. Receipt of benefits from either of these plans may require the application of GPO. Follow instructions in GN 02608.400 to determine applicability of GPO to the TRS defined benefit (DB) plan and follow the instructions below to determine applicability of GPO to the defined contribution (DC) plan.
1. Defined Benefit Plan
The traditional TRS plan provides a benefit amount paid under a DB plan. TRS bases the retirement benefit on length of employment, amount earned, and the worker’s age at retirement. Under this plan, the retiring worker usually receives a monthly annuity. If a retiring worker takes a lump sum payment in lieu of a monthly annuity, the retiree may withdraw only the employee contributions plus five percent interest. All employer contributions remain in the TRS state fund. For instructions on processing this type of withdrawal, see GN 02608.400A.
2. Defined Contribution Plan
In 1967, TRS established the Texas Optional Retirement Program (ORP) as an alternate retirement plan for public higher education institutions’ full time faculty, librarians, and certain professional administrators. All Texas public higher education institutions, except some Community College Districts, cover their employees under Social Security through a Section 218 Agreement.
The ORP is a 403 (b) DC plan under the Internal Revenue Code. Benefits received from the ORP are a function of the contribution rate, total salary earned during a participant’s career in Texas public higher education, and the rate of return on investment. Tax-deferred contributions, made by both the employer and the employee, fund the ORP. Employees direct the allocation of the contributions among each employer’s list of authorized insurance companies, financial institutions, and/or investment companies, which offer tax-deferred annuities or custodial accounts.
NOTE: The Texas ORP is not an "optional savings plan." Optional savings plans are separate from the employer’s mandatory retirement plan and are comprised solely of optional contributions.
3. ORP Eligibility
ORP participants become eligible to receive a distribution of funds only upon termination of participation or attainment of age 70½, whichever comes first. Termination of participation occurs upon the individual’s death, retirement, or termination of employment in all public institutions of higher education in Texas. A transfer from one Texas ORP employer to another is not a termination of participation; therefore, employees who transfer are not eligible to receive a distribution from any of their ORP accounts.
Simply having access to funds in the ORP does not equate to being eligible for an immediate retirement distribution. While vesting in a retirement plan confers ownership and, therefore, access to the funds in a retirement plan, it does not give the individual the right to a retirement distribution at the time of vesting. Vesting in the ORP occurs after 12 cumulative (but not necessarily consecutive) months of actual participation. Vesting before 1986 alone does not constitute pension eligibility or entitlement.
B. Policy — Applying GPO to the Texas ORP
1. When to apply GPO
GPO applies to the spouse’s Social Security benefit when the spouse receives the first ORP distribution based upon his or her own non-covered government employment, unless an exemption specified in GN 02608.101 through GN 02608.107 exists.
For GPO purposes, consider any of the following to be a distribution:
A periodic payment (e.g., monthly, bi-weekly, etc.);
A lump-sum payment;
A rollover into a personal pension plan (e.g., an IRA, Annuity, etc.); or
A rollover into a private or government employer’s pension plan based on covered employment.
For GPO purposes, do not consider any of the following dispositions of the ORP funds to be a distribution:
Funds left on deposit with the authorized company;
A rollover into another government pension plan that is based on non-covered employment. (This later plan will be subject to GPO and the total value will include the rolled over amount.);
Withdrawals made before age 59½ that incur the IRS 10% penalty for early distribution.
The first ORP distribution may occur:
no earlier than upon termination of participation (i.e., upon the individual’s death, retirement, or termination of employment in all public institutions of higher education in Texas); but
no later than April 1 of the year following the year the participant attains 70½, if the ORP participant retired at age 70½ or earlier; or
no later than April 1 of the year following the year the participant ultimately retires, if the ORP participant retired after age 70½.
2. Determining ORP pension amount
For defined contribution (DC) plans, use the value of the plan at the time of the first distribution (as defined in GN DAL02608.100B.1.b) to derive a prorated monthly amount for offset purposes. Therefore, at the first ORP distribution, treat the value of the entire plan as a lump sum distribution for the purposes of imposing GPO, and derive a “lifetime” equivalent monthly amount using the actuarial value tables available in GN 02608.400D.4. Use the derived monthly pension amount to apply GPO, regardless of the amount actually received by the beneficiary.
If the pension eligibility date is July 1983 or later, the GPO amount is two-thirds of the amount of the monthly pension rounded up to the nearest dime for all months for which spouse's benefits are payable.
If the pension eligibility date is June 1983 or earlier, the GPO amount is 100 percent of the monthly pension for spouse's benefits payable for November 1984 and earlier and two-thirds the amount of the pension rounded up to the nearest dime beginning with benefits for December 1984.
Deferred Distribution - Example One:
Jane Doe, born 04/10/1944, files for Social Security spouse’s benefits in August 2010. She retired from a community college in July 2010 and participated in the Texas ORP based on her former non-covered employment with the community college. During the interview, she informs the CR that, although she retired from the community college, she has never received a distribution from the ORP plan. Jane’s Investment Plan confirms her statements with a written response to the FO. Jane plans to start receiving distributions from the ORP in the future. GPO will apply to the future distributions unless Jane meets an exemption as specified in GN 02608.101 through GN 02608.107.
Jane will attain age 70½ in 2014. She can defer taking a minimum distribution from the plan. However, she is required to follow the required beginning date (RBD) by April 1, 2015, the calendar year following the year in which the NH attains age 70½. The CR must diary the claim for GPO development of the future distributions from the ORP plan. The NH can take a distribution at any time or wait until the RBD on April 1, 2015. If she waits until the RBD, GPO will apply April 1, 2015 if she does not meet an exemption. The diary will alert the PSC to follow up on GPO development with the SSA-3885, Government Pension Questionnaire. Development will ascertain whether Jane has taken any distribution from the plan prior to the RBD.
Deferred Distribution - Example Two:
John Doe, born 11/05/1938, filed for Social Security widower’s benefits and participates in the Texas ORP. The CR did not impose GPO during the initial filing of the spouse claim. Mr. Doe visited his local FO for help in completing the SSA-3885, Government Pension Questionnaire. Mr. Doe informed the CR that he has not retired and has not begun receiving a monthly pension or annuity. Although he attained age 70½ in May 2009, he did not begin ORP plan distributions until June 1, 2011. John provides a letter from the Investment Plan confirming his current employment at a local school. Additionally, he provided a copy of the ORP plan statement displaying the Opening Balance as of June 1, 2011 as $95,528.48 and ending Balance as of August 1, 2011 of $80,528.48.
John attained age 70½ in 2009 and would have been required by IRS to take a minimum distribution no later than April 1, 2010 if he had retired. Since he is still working and has not retired, GPO applies beginning June 1, 2011, the date John received his initial distribution from the plan. For DC plans, we use the value of the fund immediately before the initial distribution to derive the equivalent monthly amount for offset purposes. We use $95,528.48, the Opening Balance as of June 1, 2011 as a lump sum payment. According to GN 02608.400D, when a pension is paid in a lump sum, we convert the amount of the pension as if it was paid monthly and derive a “life-time” equivalent monthly amount using the actuarial value tables available in GN 02608.400D.4.