TN 5 (01-18)
PR 09905.044 Rhode Island
A. PR 17-126 Government Pension Offset (GPO) for Stipend Received in Connection with Rhode Island Pension Lawsuit
Date: August 2, 2017
This opinion explains that GPO does not apply to social security benefits based on receipt of a $500 stipend payment, which resulted from a class action in Rhode Island Public Employees’ Retiree Coalition, et al., vs. Gina Raimando, et al. The lawsuit was filed to prevent implementation of the Rhode Island Retirement Security Act of 2011. A settlement agreement provides two types of incentives payments, including the stipend payment, in exchange for voluntary dismissal of the lawsuit. The stipend does not meet the regulatory definition of a government pension because it was not a based on Federal, State, or local government employment. The stipends are awarded without regard to the length of service, nature of the job, or any other job-based factor.
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.
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 at http://mwww.ba.ssa.gov/pubs/10007.html.
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.
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.
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