Subject: Early non-covered pension lump sum payout and its windfall elimination provision impact.
Category: Non-Covered Pension - WEP / GPO

As a teacher, my wife worked in CA from '84-'91. Her non-covered CalSTRS pension vested at five years, thus after '86. A current projection of her SS covered years after that employment would be 22 years. My understanding is the windfall elimination provision will be applicable here. (And GPO if I pre-decease her.)

Upon leaving CA, a lump sum consisting of both employee and employer contributions was taken in '92 at her then age of 31.

POMS RS 00605.364 states that "Generally, the pension-paying agency will prorate the lump sum to determine a monthly amount for WEP purposes". I would expect the "Lifetime or Unspecified Period" to apply to this lump sum.

I can apply the actuarial divisor value contained in the POMS to the lump sum paid, but am concerned that the "determined" prorated value could be significantly different. This would certainly be the case if they applied the CalSTRS standard pension calculation rules based on service years, average income, etc., to arrive at a monthly pension value (as if the lump sum had never been taken).

Can you briefly explain the mechanics that SSA takes in the monthly value determination from a lump sum payout?
... and ...
For purposes of retirement planning (ten more years until FRA) is there any way to discover what the "determined" prorated amount will be in advance? The associated financial numbers should all have been fixed long ago.

Having reviewed other questioners of yours it appears that, upon WEP determination, many times people are surprised by its impact. I prefer not to be surprised.

Thanks in advance.

Hi,

That's a tall order. It's difficult to impossible to generalize when discussing the issue of lump sum payments as it applies to the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). Each case must be evaluated based on all of the factors involved in that particular pension plan and lump sum payment. It certainly sounds like you are well versed in the issues, though.

I would agree with you that it sounds like Social Security should prorate your wife's lump sum based on the method described in the POMS section you mention above (https://secure.ssa.gov/poms.nsf/lnx/0300605364), which in your wife's case would mean dividing her lump sum amount by 172.7 in order to get the countable monthly rate and the period over which WEP & GPO would potentially apply.

By the way, our maximization software is fully programmed to handle lump sum prorations in cases that involve WEP & GPO, so you and your wife may want to strongly consider using it to do your Social Security planning.

Best, Jerry