Does a Refund from Texas Teachers Retirement Avoid GPO and WEP?

We have a client in Texas that is an educator, paying into the Texas State Teachers Retirement fund. She is planning to retire in 2025 and is being told by an advisor in Texas that if she takes a refund of her retirement account and makes a planned move to Arizona after retirement, this severs her service credit and that she will then be able to file for Social Security under her late husband’s benefit avoiding GPO.  It looks like the Texas form would make the client’s account look like a traditional 401(a) employer retirement plan to avoid it looking like a pension for Social Security purposes.  If the client doesn’t take the pension and does the refund of her contributions and earnings, would the SSA take the same view?  Would she be GPO reduced since she was “eligible” for a pension?

Your client's situation involves the intricacies of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) as they relate to her Texas State Teachers Retirement Fund (TRS) and Social Security benefits. The key question is whether taking a refund of her TRS contributions and moving to Arizona will allow her to avoid the GPO and WEP when filing for Social Security benefits, specifically under her late husband's work record.

When a person receives a pension from work not covered by Social Security, WEP and GPO can reduce the amount of Social Security benefits they are eligible to receive. However, the treatment of TRS benefits and how the SSA views them in relation to GPO and WEP depends on several factors.

1. Withdrawal of Contributions: According to POMS (Program Operations Manual System) RS 00605.364A2, if an employee withdraws their own contributions and interest before becoming eligible for a pension, and if this withdrawal forfeits all rights to a future pension, then the withdrawal is not treated as a pension for WEP and GPO purposes. This means that in such cases, GPO and WEP would not apply.

2. Eligibility for Pension: If the employee withdraws their contributions after becoming eligible for a pension, the SSA treats this withdrawal as a lump-sum pension, and both WEP and GPO would apply.

3. Employer Contributions: If the withdrawal includes both employee and employer contributions, it is considered a pension regardless of when the withdrawal occurs. Thus, WEP and GPO would apply.

If your client plans to take a refund of her TRS contributions and earnings before becoming eligible for a pension and if this refund results in the forfeiture of all rights to a pension, the SSA may not consider this as a pension, allowing her to avoid GPO when claiming Social Security benefits under her late husband's record.

However, if she is already eligible for a pension at the time of the withdrawal, or if the refund includes employer contributions, the SSA will likely treat this as a pension, and GPO (as well as WEP, if applicable) would apply.

It’s crucial for your client to carefully consider the timing and nature of her TRS withdrawal. She should also consult directly with the SSA to ensure they will treat her withdrawal as she intends. Understanding and meeting the specific conditions outlined in the POMS is vital to potentially avoiding the impact of WEP and GPO on her Social Security benefits.

The content on this blog is for informational purposes only and is not legal, financial, or professional advice. Social Security rules change periodically, so some information may become outdated. For the most accurate advice, consult a certified National Social Security Advisor (NSSA®). Social Security Professionals, LLC, and NSSA® are not responsible for any errors, omissions, or actions taken based on this blog's content. Use of this blog does not create a client relationship, and all information is provided "as is" without guarantees. By using this blog, you agree to hold Social Security Professionals, LLC, and NSSA® harmless from any claims or liabilities arising from its content. For personalized guidance, contact an NSSA® professional.