TN 8 (02-17)

PR 09005.011 Florida

A. PR 14-069 Effect of Number Holder’s Participation in Florida’s Deferred Retirement Option Program for Purposes of the “Last Day” Exemption to the Government Pension Offset Treatment of the Deferred Retirement Option Plan for Members of the Florida Retirement System

DATE: March 26, 2014

1. SYLLABUS

When a Deferred Retirement Option Plan (DROP) is determined to be part of the regular retirement plan and not a separate plan, payments from each plan are considered one pension for WEP and GPO purposes. This opinion provides a determination that SSA should treat Florida Retirement System’s (FRS) DROP as part of the FRS Pension Plan and not as a separate system or plan.

2. OPINION

QUESTION

For determining the applicability of the Government Pension Offset (GPO) provision of the Social Security Act (Act) to widow’s insurance benefits (WIB) for the number holder, you have asked whether Florida’s Deferred Retirement Option Program (DROP) is separate from Florida’s defined benefit plan, the Florida Retirement System Pension Plan.

OPINION

Florida’s DROP is a part of Florida’s defined benefit plan.

BACKGROUND

According to the information provided, Sheila, the number holder (NH), applied for WIB in June 2000. The Social Security Administration (SSA) awarded NH WIB beginning July 2000. In her application, NH had stated she was eligible for a pension from earnings not covered by Social Security. SSA requested information about her pension plan. After NH did not respond to the SSA’s requests for information, SSA suspended her WIB in September 2005. NH also had become eligible for Medicare Part B benefits beginning July 2002, but after SSA suspended NH’s WIB, she was billed quarterly for her Medicare Part B benefits.

In June 2013, NH’s Medicare Part B benefits were terminated because her premium was unpaid. She then visited her local Social Security office requesting reinstatement, and SSA asked her to provide documentation regarding her pension plan. NH provided information showing she participated in a DROP through the State of Florida. SSA determined NH had earnings covered by Social Security in her last month of employment.

DISCUSSION

The widow of an individual who died fully insured is entitled to WIB based on the deceased individual’s primary insurance amount, provided the widow meets certain criteria. See Act § 202(e)(1)-(2); 20 C.F.R. §§ 404.335, 404.338(a). [1] However, a widow’s benefit may be reduced if her benefit is subject to the GPO in section 202(k)(5) of the Act. See Act § 202(e)(2)(A); 20 C.F.R. §§ 404.304(e), 404.408a; Program Operations Manual System (POMS) GN 02608.100. The GPO generally applies to a widow’s benefit who receives a government pension based on her state or local government service in a position not covered by Social Security. See Act § 202(k)(5); 20 C.F.R. § 404.408a(a); POMS GN 02608.100A.1. If applicable, the GPO reduces the widow’s benefit in any month for which she receives a pension based on her earnings from government service in a position not covered under Social Security. See Act § 202(k)(5)(A); 20 C.F.R. § 404.408a(a); POMS GN 02608.100A.1.

Under certain circumstances, a widow’s benefit may be exempt from the application of the GPO. See Act § 202(k)(5)(A)-(B); 20 C.F.R. § 404.408a(a), (b); POMS GN 02608.100A.1. One exemption is the “Last Day of Employment Covered Under Social Security and State or Local Periodic Government Benefits” (“last day” exemption). See POMS GN 02608.102. Currently, the Act’s GPO provision requires that state and local government workers’ employment be covered by Social Security throughout their last sixty months of employment to be exempt from the GPO. See Act § 202(k)(5)(A). However, this provision took effect through a legislative amendment that Congress enacted in 2004. See Social Security Protection Act of 2004, 108 Pub. L. No. 108-203, 118 Stat. 493 (amending Section 202 of the Act). Before that amendment, state and local government workers’ pensions were exempt from the GPO if their “last day” of employment was in a position covered by Social Security. See POMS GN 02608.102A.1. Thus, the GPO does not apply if, on the widow’s last day of state or local government service, she was: (1) in a position covered under Social Security and by the state or local government pension plan; and (2) either performed her last day of covered government employment prior to July 1, 2004, or filed for WIB before April 1, 2004, and was entitled to WIB based on that filing. See POMS GN 02608.102B.1.

In this case, the information provided shows that NH participated in Florida’s DROP. A DROP is a retirement plan offered to employees who are eligible to retire and receive benefits under the employer’s defined benefit retirement plan [2] but continue to work while the state employer places their retirement distributions into a DROP account. See POMS GN 02608.102B.3.a. Continued work does not increase the years of service and compensation used in the defined benefit formula. Id. DROPs can take many forms and can be either a separate plan or part of the defined benefit plan. See POMS GN 02608.102B.3.a. If the DROP is part of the defined benefit retirement plan, the “last day” exemption from GPO applies to the payments from both the DROP and the defined benefit retirement plan. See POMS GN 02608.102B.3.b. If the DROP is a separate pension plan, the “last day” exemption applies only to the pension plan that the individual was participating in on the last day of government service that qualifies for the “last day” exemption. See id.

SSA determined that NH had earnings from a position covered by Social Security during the last month of her employment in the DROP program. Her last day of employment with the state was before July 1, 2004, and she applied for benefits prior to April 1, 2004. Thus, it appears the GPO does not apply to NH’s DROP benefits due to the “last day” exemption. See POMS GN 02608.102B.1. However, you have asked us whether Florida’s DROP is separate from the state’s defined benefit plan. The answer to this question can determine whether NH’s benefits from the defined benefit plan also qualify for the “last day” exemption to GPO. See POMS GN 02608.102B.3.b. [3]

Florida statutes designate the Florida Retirement System (FRS) Pension Plan as the state’s defined benefit plan. See Fla. Stat. Ann. § 121.021(3) (2014). Florida’s DROP is a “program under which an eligible member of [FRS] may elect to participate.” See Fla. Stat. Ann. § 121.091(13) (2014). Under Florida’s DROP, a participating member’s monthly FRS benefits are deferred and accrue in the FRS on behalf of the member. See id. A member who participates in DROP “is a retiree under [FRS] for all purposes,” with limited exceptions not relevant to this opinion. See Fla. Stat. Ann. § 121.091(13)(b)3. This statute defines participation in DROP equal to participation in the defined benefit plan. Therefore, the DROP is part of the defined benefit plan.

The FRS website also indicates that Florida’s DROP is part of the defined benefit plan. The website explains that an eligible member of FRS may elect to participate in DROP, during which time the member’s retirement benefits are deferred until the employee stops working. See http://www.myfrs.com/portal/server.pt/community/pension_plan/233/drop (last visited Mar. 10, 2014). The website links to a brochure published by FRS that states DROP allows employees to “effectively retire” under FRS while delaying their termination. See https://www.rol.frs.state.fl.us/forms/drop-guide.pdf (last visited Mar. 10, 2014). Therefore, Florida’s DROP is part of the FRS pension plan for the purposes of determining the applicability of the GPO “last day” exemption.

CONCLUSION

Florida’s DROP is part of Florida’s defined benefit program.

Sincerely,

Mary Ann Sloan

Regional Chief Counsel

By _____________

Jeffrey S. Wilson

Assistant Regional Counsel


Footnotes:

[1]

. . . All regulatory citations are to the 2013 Code of Federal Regulations.

[2]

. . . A defined benefit plan is a “plan funded by employer (or employer and employees) providing a specific benefit formula to determine benefits payable to employees at retirement age.” POMS RM 03201.003.

[3]

. . . Even if a defined benefit plan were separate from a DROP, the defined benefit plan may independently meet some exemption to the GPO, including the “last day” exemption. In this matter, however, we received no indication that SSA has determined NH’s defined benefit plan independently qualifies for an exemption to the GPO.


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http://policy.ssa.gov/poms.nsf/lnx/1509005011
PR 09005.011 - Florida - 02/12/2016
Batch run: 02/02/2017
Rev:02/12/2016