SSR 68-37: SECTION 228(c) and (h). -- SPECIAL AGE 72 PAYMENT -- ELIGIBILITY FOR TEACHER'S ANNUITY PURCHASED FROM PERSONAL FUNDS NOT CAUSE FOR OFFSET

20 CFR 404.377(a) and (i)

SSR 68-37

Payments to a retired school teacher based solely on personal funds he voluntarily deposited in Ohio teachers' retirement system to purchase separable annuity income in addition to amounts he was entitled to receive on account of his public service held, not a periodic benefit under a "governmental pension system" for purposes of offset against special age 72 payment under section 228(c) of the Social Security Act.

K, a retired Ohio school teacher applied for and became entitled to special age 72 payments under section 228 of the Act. At the time he was receiving $51.70 in monthly payments from the State Teachers' Retirement System of Ohio. Of this amount, $28.01 is based upon a voluntary deposit of $5,700 he made to the retirement system from his personal funds when he retired. The balance, $23.69, is based upon shared contributions by the claimant and the State during his public service.

Section 228 of he Social Security Act provides monthly payments of $40 to certain persons who are not insured under the regular or transitional insured status provisions of the Act and who reached age 72 before 1968, or have at least 3 quarters of coverage, earned at any time, for each calendar year after 1966 and before the year in which age 72 is attained. That payment for any month shall be reduced (but not below zero) by the amount of any periodic benefit under a governmental pension system for which the individual is eligible for such month. The term "governmental pension system" is defined in section 228(h)(2), in pertinent part, as follows:

The term "governmental pension system" means * * * any * * * system or fund established by * * * a State * * * which provides for payment of (A) pensions, (B ) retirement or retired pay, or (C) annuities or similar amounts payable on account of personal services performed by any individual * * *.

The issue raised here is whether the $28.01 sum must be offset against the special age 72 payment to which K is entitled as a payment made pursuant to a "governmental pension system."

Section 3307.51 of the Ohio Revised Code governing the Ohio teachers' retirement system, provides for certain contributions by the teacher but also provides, in pertinent part, that:

Additional deposits may be made to a member's account subject to the rules and regulations of the retirement board. At retirement, the amount deposited with interest may be used to provide additional annuity income.

It was pursuant to a provision of this type that K deposited personal funds in the amount of $5,700 into the Ohio teachers' retirement system. Such personal funds, including the teacher's compulsory contribution, are deposited to the member's account (Ohio Revised Code, section 3307.19) in the "teacher's savings fund." Ohio Revised Code, section 3307.65.

In the light of the provisions of the Ohio teachers' retirement system, under which K purchased the additional annuity, it does not appear that the monthly payment of $28.01 is either a pension, retirement or retired pay, or an annuity payable on account of personal services, within the meaning of section 228 of the Social Security Act. A "pension" as generally defined and as applied in section 228 is a periodic allowance of money granted by the government in consideration or recognition of meritorious past services or of loss or injury sustained in the public service. The subject payment purchased entirely with K's personal funds, is clearly not a "pension."

Further, it could not be considered "retirement or retired pay" within the meaning of section 228(h)(2), supra. Section 3307.51 of the Ohio Revised Code, supra, indicates that the subject amount is in addition to, and different from, the basic retirement payment made to the claimant by the State of Ohio; a voluntary deposit made by a teacher is used to provide "additional annuity income" i.e., income different from the amounts which are based upon the contributions of the employer (as provided in Ohio Revised Code, section 3307.53), and in addition to the amounts based upon the contributions of the teacher (as provided for in Ohio Revised Code, section 3307.51, supra). In other words, the "additional annuity income" is neither based on the claimant's compulsory contributions to the "teachers' savings fund" nor is it based on an appropriation made by the employer. Rather, it is derived entirely from the claimant's initial personal investment of $5,700. The $28.01 derived from the $5,700 is thus investment income in the form of an annuity, and not "retirement or retired pay."

Finally, although the $28.01 per month is an annuity, it clearly is not paid "on account of personal services," as contemplated by section 228(h)(2), above. It is based entirely on a voluntary investment made by K. Thus, it is wholly different from the remainder of his annuity which (1) is based on compulsory contributions deducted from his salary or compensation, (2) is derived from, and payable on account of, personal services for his employer, and (3) is in effect a deferred payment (with interest) for such services payable after retirement.

It is accordingly held that the monthly payment made to K solely on the basis of his additional deposit into the Ohio State teachers' retirement system is not a periodic benefit under a "governmental pension system" within the meaning of section 228 of the Social Security Act, and may not therefore be offset against the special age 72 payment to which he is entitled under that section.


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