TN 24 (08-10)
GN 02608.102 Exemption for the Last Day of Employment Covered Under Social Security and State or Local Periodic Government Benefits
1. Change in the “Last Day” exemption
The Social Security Protection Act of 2004 (P.L. 108-203) amended the Government Pension Offset (GPO) provisions to require that State and local government employees be covered by Social Security throughout their last 60 months of employment to be exempt from GPO. Prior to this legislation, GPO did not apply if an individual’s last day of employment was in a position that was covered by both Social Security (under a section 218 agreement) and a State or local government pension system. The “last day” exemption may still apply if the last day of employment was before July 1, 2004, or if the person filed for a Social Security spouse’s benefits before April 1, 2004, and was entitled to those benefits based on that filing.
2. Programs designed to help employees meet the “Last Day” GPO exemption
To help some teachers meet the “last day” GPO exemption, a number of school districts in Texas and perhaps other States set up programs in which they hired teachers who had worked in non-covered employment to work for as little as 1 day prior to July 1, 2004. The school districts informed the teachers that they would be covered by both the State retirement system and Social Security during this brief period of employment. Most of these programs met all of the requirements for the “last day” exemption.
For employment in these programs to qualify a worker for the “last day” exemption, the employer must be a governmental entity that is included in a section 218 agreement with SSA. SSA does not cover work under that program if the employer is not included in a section 218 agreement.
3. State and Local government employment and Social Security coverage
State and local government entities must be included in a section 218 agreement with SSA before we can cover their employees under Social Security.
a. Covered and excluded positions
When a State elects to extend Section 218 coverage to a group of employees, it has the option of either excluding or covering certain services and positions. The State may choose to exclude different groups and it may exercise the exclusions on a statewide basis or selectively by entities. If the exclusion is a position exclusion for a group (e.g., part-time employees) it may be limited to any class or classes of positions, such as a person elected to serve in a particular position, e.g., school board member.
b. Defining a part-time excluded position
If the individual takes the part-time position exclusion and it was not previously established with the section 218 Agreement, the State should define the part-time position in the modification. A definition may apply on a statewide basis or different definitions may apply for different coverage groups. Some acceptable definitions of part-time positions are:
any position which normally requires less than 20 hours of work each week, or
any position which does not normally require over 50 hours of service per month in any calendar year.
If the modification fails to define part-time employment, and absent supplemental evidence, SSA generally looks to the employer to determine whether the position is classified as full- or part-time, which is shown by whether the government entity reported the wages as covered on a form W-2. Therefore, if the governmental entity reported the wages as covered, that action demonstrates that the governmental entity determined the position was full-time and covered under the Section 218 Agreement.
B. Policy for meeting the “Last Day” exemption
1. When GPO does not apply
GPO does not apply if, on an individual’s last day of State or local government service, he or she was in a position that was covered:
under Social Security, and
by the State or local government pension plan; and either
performed his or her last day of covered government service (whether on account of retirement, resignation, or termination) prior to July 1, 2004; or
filed for Social Security spouse’s benefits before April 1, 2004, and was entitled to benefits based on that filing. For the definition of spouses see GN 02608.100B.4. If an individual files for spouse’s benefits before April 1, 2004, and was entitled based on that filing; he or she may work his or her last day in Social Security covered government employment at anytime.
If an individual files for spouse’s benefits after March 31, 2004, and the last day of covered service is after June 30, 2004, refer to GN 02608.107.
2. “Last Day” exemption and subsequent spouse’s benefits
If an individual files for a spouse’s benefit before April 1, 2004, and was entitled to benefits based on that filing, the “last day” exemption will also apply to any subsequent benefit to which the spouse’s benefit may convert, or for which the individual may file and be entitled to. For the definition of spouses see GN 02608.100B.4. For example:
A spouse’s benefit converts to a widow(er)’s benefit, or
An individual filed for spouse's benefits on one record before April 1, 2004, and was entitled based on that filing and later files for widow(er)’s benefits on another record.
3. Deferred Retirement Option Plan (DROP)
a. What is a DROP
A DROP is a retirement plan option offered to employees who are eligible to retire and receive benefits under the employer’s regular defined benefit retirement plan. Retirement distributions are credited to the DROP account. Continued work does not increase the years of service and compensation used in the defined benefit formula. The DROP account earns interest either at a rate stated in the plan or based on the earnings of the trust underlying the retirement plan. The funds in the DROP account are paid to the employee, in addition to whatever benefit the employee has acquired under the defined benefit plan based on earlier years of service, when the employee eventually retires.
b. DROP and the “Last Day” exemption
The DROP may or may not be a pension plan separate from the government employer’s defined benefit plan. Although we are not aware of any DROPs that are separate plans, nevertheless, if an individual receives a DROP, check the legal precedent opinions in POMS Part 15 (PR) to determine how to treat that particular DROP. If a legal opinion has not been rendered on the DROP in question, request a regional Office of the General Counsel determination on whether the DROP is a separate pension or is part of the defined benefit retirement plan. Forward your request and copies of the pertinent material to the Assistant Regional Commissioner (ARC), Management and Operations Support (MOS) that has jurisdiction of the state that provides the DROP in question. Apply the “last day” exemption to the DROP as follows:
If the DROP is a separate pension plan, the "last day" exemption will apply only to the pension plan that the individual was participating in on the last day of government service if all the requirements in GN 02608.102B.1. (in this section) are met.
If the DROP is a part of the defined benefit retirement plan, payments from both plans are considered one pension for GPO purposes and the "last day" exemption will apply to the combined payments if all the requirements in GN 02608.102B.1. (in this section) are met. To determine the combined pension amount see GN 02608.400.
c. Reopening prior DROP determinations
If GPO has been applied based on the prior policy that all DROPs were pension plans separate from the defined benefit plan and the DROP is determined to be part of the defined benefit plan, the determination to apply GPO may be reopened following the rules of administrative finality in GN 04001.000.
C. Examples of applying the “Last Day” exemption
1. Employment terminated but the employee returns to work for the same or a different employer
A person, who is receiving a periodic State or local government pension based on work not covered by Social Security, returns to work in a position that is covered by Social Security but is not covered under the government pension plan. Offset will apply to the government pension unless another exception applies because the subsequent covered work was not considered in determining the pension amount.
2. An individual who filed for Social Security spousal benefits before April 1, 2004, and was entitled to benefits based on that filing, continues to work in a noncovered government position and later works her last day of employment in a Social Security covered position.
Ms. Brooks worked as a teacher in the ABC school district. Her position was in noncovered employment. Her husband died in February 2004. She filed in February 2004 and became entitled to a widow's benefit that month. Ms. Brooks retired from teaching in 2006, and worked in a position covered by Social Security and the pension plan on her last day of employment. Ms. Brooks meets the GPO “last day” exemption because she had filed for widow's benefits before April 1, 2004.
3. A woman who began receiving mother's benefits before April 1, 2004, begins receiving a government pension.
A woman began receiving mother’s benefits in January 1989. She worked her last day of employment in a position covered by Social Security and the pension plan and retired July 2, 2004. She began receiving a government pension in August 2004. Since she filed for mother's benefits before April 1, 2004, she meets the “last day” exemption while receiving mother's benefits and will continue to meet the exemption for any subsequent spousal benefit for which she may be entitled in the future.
4. A woman who received mother's benefits before April 1, 2004, begins receiving a government pension after the mother's benefit terminates.
A woman received mother’s benefits from January 1970 to March 1980. She went to work in 1981 in noncovered government employment. She worked her last day of government employment in a position covered by Social Security and the pension plan and retired July 20, 2008. She began receiving spouse's benefits and a government pension in August 2008 at age 62. The government pension meets the “last day” exemption because she had filed for and had been entitled to a spousal (mother's) benefit before April 1, 2004.
5. Individual who had filed for benefits before April 1, 2004, returns to her previous noncovered government position, but does not lose the “last day” exemption.
Ms. Smith began receiving Social Security spousal benefits and a government pension in March 2004 and met the “last day” exemption. Ms. Smith returns to work for her previous government employer in a noncovered position on August 1, 2004. She does not contribute to the pension plan and the additional work will not affect her pension amount when she later stops working. Therefore, Ms. Smith will continue to meet the “last day” exemption and receive her full spousal benefit.
6. An individual files for a spousal benefit after April 1, 2004, but works the last day of employment before July 1, 2004.
A wife will be eligible to file for divorced spouse's benefits on her ex-husband's record in June 2011. She worked her last day in covered employment on June 30, 2004, and began receiving a government pension in July 2004. Her spousal benefit will not be subject to GPO since she worked her last day in covered employment before July 1, 2004.
7. An individual files for spousal benefits before April 1, 2004, but loses entitlement to that benefit and later files for spousal benefits on another record.
Ms. Barksdale began receiving benefits on her first husband's record before April 1, 2004. She worked her last day of employment in a Social Security covered position and began to receive a government pension in August 2004. She met the “last day” test and is exempt from GPO. In January 2005, Ms. Barksdale divorced Mr. Barksdale, married Mr. Clark, and her spouse's benefit on Mr. Barksdale's record terminated. Ms. Clark filed for a spousal benefit on Mr. Clark's record in August 2005. Since Mrs. Clark had previously met the GPO exemption, she also meets the exemption on the new spousal benefit.
8. An individual elects to participate in a DROP that is a separate retirement plan from the employer’s regular retirement plan
Ms. Smith was employed in a non-covered position and participated in the employer’s defined benefit retirement plan. In January 2003, Ms. Smith filed for spousal benefits and elected to participate in a DROP. The regional OGC determined that this DROP is a pension plan separate from the employer’s defined benefit retirement plan. In July 2006, Ms. Smith worked her last day of government employment in a position covered under both Social Security and the DROP. Accordingly, payments from the DROP meet the “last day” exemption requirements and GPO does not apply to these payments. Since the DROP is a pension plan separate from the defined benefit plan, payments from the defined benefit plan do not meet the “last day” exemption requirements and GPO does apply to those payments.
9. An individual elects to participate in a DROP that is a part of the regular retirement plan.
In February 2004, Ms. Jones filed for spousal benefits while she participated in a DROP. The regional OGC determined that this DROP is a part of the employer’s defined benefit retirement plan. In March 2007, Ms. Jones worked her last day of employment in a position covered under Social Security and the DROP. Since the DROP is part of the defined benefit plan, payments from both plans meet the “last day” exemption.
D. Procedure for determining Social Security coverage
1. Evidence of Social Security coverage
To determine that a person was in covered employment on the last day of service:
Verify that the employing entity is included in a section 218 agreement and determine whether the person’s position was covered or excluded by a section 218 Agreement Modification. If uncertain about the section 218 and position status, contact the regional program staff for the State in question see GN 02608.102D.2. (in this section). PC employees should contact their OAS staff.
Also verify that Social Security taxes were withheld by reviewing a:
Detailed Earnings Query (DEQY); or
Statement from the employer; or
W-2 or pay stub showing Social Security covered wages were paid for the period of time in question.
2. SSA regional offices
Use the following phone numbers to contact regional program staffs to determine if an entity is included in and/or a position is covered by a State’s section 218 agreement:
Atlanta Regional Office
Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee
Boston Regional Office
Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont
Chicago Regional Office
Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin
Dallas Regional Office
Arkansas, Louisiana, New Mexico, Oklahoma, Texas
Denver Regional Office
Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming
Kansas City Regional Office
Iowa, Kansas, Missouri, Nebraska
New York Regional Office
New Jersey, New York, Puerto Rico, Virgin Islands
Philadelphia Regional Office
Delaware, DC, Maryland, Pennsylvania, Virginia, West Virginia
San Francisco Regional Office
American Samoa, Arizona, California, Guam, Hawaii, Nevada, Saipan
(888) 829–0749 or
Seattle Regional Office
Alaska, Idaho, Oregon, Washington
3. Evidence of government pension coverage
Verify that the last day of employment was covered by the pension plan by obtaining a statement from the pension paying agency clarifying whether the last day was included in the pension computation.
4. Discrepancies between allegation of “Last Day” and the DEQY
When there is a discrepancy between the allegation of the “Last Day” and the DEQY, the CR should:
Resolve discrepancies between the DEQY and the allegation of “coverage on the last day” before allowing an exemption.
Obtain a statement from the employer if Social Security coverage is questionable or from the pension-paying agency if there is a discrepancy about coverage in the retirement system and the claimant cannot explain the discrepancy satisfactorily.
Complete the RPOC screen in the Modernized Claims System (MCS) or prepare a report of contact (SSA-5002) to explain and resolve any discrepancies or to document the claimant's comments. Also, code this information in Shared Processes see GN 00301.286.
MSOM QUERIES 003.005, Detail Earnings Query (DEQY)
SL 30001.301, Section 218 Agreements
SM 00344.001, Detail Earnings Query (DEQY) Overview