Impact of Ohio SERS Lump Sum Distribution on Social Security Benefits

We have a client that is getting some advice from Ohio SERS regarding a lump sum distribution and its impact on her SSA benefits that I am not sure that I agree with. SERS is advising that she retire early to get the lump sum out prior to her benefit eligibility date.  They are claiming if this path is followed there would not a WEP/GPO adjustment.  The client turns 62 in June but will not be turning on her benefits until a later date.

The advice from Ohio SERS that your client should retire early to take a lump sum distribution to avoid WEP (Windfall Elimination Provision) and GPO (Government Pension Offset) adjustments may not be accurate. The timing of the lump sum distribution is not the determining factor for WEP or GPO applicability.

If your client does not have 40 credits of Social Security-covered work, the GPO will apply regardless of when the lump sum is taken. The key factor in avoiding GPO or WEP is whether the withdrawal consists solely of the employee’s contributions plus interest before they are eligible for a pension. If the client withdraws only their contributions and forfeits all rights to a pension, this might avoid WEP, but if the withdrawal includes employer contributions or occurs after eligibility for a pension, it will be subject to both WEP and GPO.

According to SSA’s Program Operations Manual System (POMS) sections RS 00605.364 and GN 02608.400, any separation payment, withdrawal, or refund consisting of both employer and employee contributions from a defined benefit or contribution plan is considered a pension subject to WEP and GPO. The only way to avoid these offsets is if the withdrawal is limited to the employee’s contributions and occurs before pension eligibility, with no employer contributions included.

Your client should carefully consider this advice and possibly consult with a Social Security expert to ensure they understand the full implications of their decision.

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