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RCrosby

457(B) Deferred Comp Plan & Social Security Benefits

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I have just retired from a public school district that forced me into a 457(b) deferred compensation plan eight years ago because it was a way for the district to avoid paying its half of the Social Security tax. My employer never paid anything into my 457(b) account - it was only my money going in - at a rate of 7.5% of gross income

 

I just today received a phone call from the local Social Security office telling me they were going to apply the Windfall Elimination Provision to my Social Security benefits based upon the amount that had accumulated in the 457(b) plan account prior to my retirement. They are claiming that the 457(b) plan is a pension plan. I am trying to make them see that it is a just a deferred compensation plan.

 

I had previously called the plan administrator (ING) who told me not to worry, that any withdrawals would be treated as ordinary income and that I would receive a 1099 form. I took $5000 out about a month ago (my first withdrawal) and, in fact, ING withheld a mandatory 20% for federal and state taxes.

 

How can I convince Social Security (whose own publications refer to the Windfall Elimination Provision as applying to pensions from non-covered work) that my 457(b) plan is/was nothing more than a mandatory, tax-deferred savings account? If they have their way it is going to reduce my SSN benefit by hundreds of dollars per month, money I had been counting on when I budgeted for retirement.

 

 

I have spent hours searching the internet and have only found statements saying that 457(b) monies would not affect SSN benefits. Is it possible the local office has it wrong?

 

FYI, I was never informed, when they placed me in the 457(b) plan, of any possible effects upon my SSN benefits.

 

 

Thanks

R. Crosby

 

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I have just retired from a public school district that forced me into a 457(b) deferred compensation plan eight years ago because it was a way for the district to avoid paying its half of the Social Security tax. My employer never paid anything into my 457(b) account - it was only my money going in - at a rate of 7.5% of gross income

 

I just today received a phone call from the local Social Security office telling me they were going to apply the Windfall Elimination Provision to my Social Security benefits based upon the amount that had accumulated in the 457(b) plan account prior to my retirement. They are claiming that the 457(b) plan is a pension plan. I am trying to make them see that it is a just a deferred compensation plan.

 

I had previously called the plan administrator (ING) who told me not to worry, that any withdrawals would be treated as ordinary income and that I would receive a 1099 form. I took $5000 out about a month ago (my first withdrawal) and, in fact, ING withheld a mandatory 20% for federal and state taxes.

 

How can I convince Social Security (whose own publications refer to the Windfall Elimination Provision as applying to pensions from non-covered work) that my 457(b) plan is/was nothing more than a mandatory, tax-deferred savings account? If they have their way it is going to reduce my SSN benefit by hundreds of dollars per month, money I had been counting on when I budgeted for retirement.

 

 

I have spent hours searching the internet and have only found statements saying that 457(b) monies would not affect SSN benefits. Is it possible the local office has it wrong?

 

FYI, I was never informed, when they placed me in the 457(b) plan, of any possible effects upon my SSN benefits.

 

 

Thanks

R. Crosby

 

 

 

Hi R,

You are right, 457b is a deferred compensation plan, unless something more is involved with your employer who treated it as a pension plan. You used the word "forced" which is a hint to me that something else might be going on. Nobody is "forced" to use a 401k, 403b and a 457b plan. Do you have a regular pension plan? I would go in person to your local SS office and talk to them. It sounds like to me that somebody is trying to scare you with a problem that doesn't exist. This happens all the time with retired people.

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I have just retired from a public school district that forced me into a 457(b) deferred compensation plan eight years ago because it was a way for the district to avoid paying its half of the Social Security tax. My employer never paid anything into my 457(b) account - it was only my money going in - at a rate of 7.5% of gross income

 

I just today received a phone call from the local Social Security office telling me they were going to apply the Windfall Elimination Provision to my Social Security benefits based upon the amount that had accumulated in the 457(b) plan account prior to my retirement. They are claiming that the 457(b) plan is a pension plan. I am trying to make them see that it is a just a deferred compensation plan.

 

I had previously called the plan administrator (ING) who told me not to worry, that any withdrawals would be treated as ordinary income and that I would receive a 1099 form. I took $5000 out about a month ago (my first withdrawal) and, in fact, ING withheld a mandatory 20% for federal and state taxes.

 

How can I convince Social Security (whose own publications refer to the Windfall Elimination Provision as applying to pensions from non-covered work) that my 457(b) plan is/was nothing more than a mandatory, tax-deferred savings account? If they have their way it is going to reduce my SSN benefit by hundreds of dollars per month, money I had been counting on when I budgeted for retirement.

 

 

I have spent hours searching the internet and have only found statements saying that 457(b) monies would not affect SSN benefits. Is it possible the local office has it wrong?

 

FYI, I was never informed, when they placed me in the 457(b) plan, of any possible effects upon my SSN benefits.

 

 

Thanks

R. Crosby

 

 

 

Hi R,

You are right, 457b is a deferred compensation plan, unless something more is involved with your employer who treated it as a pension plan. You used the word "forced" which is a hint to me that something else might be going on. Nobody is "forced" to use a 401k, 403b and a 457b plan. Do you have a regular pension plan? I would go in person to your local SS office and talk to them. It sounds like to me that somebody is trying to scare you with a problem that doesn't exist. This happens all the time with retired people.

 

 

Thanks! Your comment is reassuring. I said forced because I had previously been covered by Social Security (two years) and was then suddenly told that I was to be switched to the 457(b) plan. I was not given a choice, though I did protest mightily. There was a true pension plan I could have joined, but I had already decided not to because I did not believe I would be with the employer long enough to be vested.

 

In later years when I again questioned the 457(b) plan I was told it was "mandatory", but no one in the Business Office would provide me with any documentation to that effect. Needless to say, I did not want to lose what was otherwise a good job, so I acquiesced. In retrospect I probably should have joined the pension plan.

 

It is interesting that you suggest I go to the local SSA office because they are the ones who called me with the Windfall Elimination news. I am trying to find someone higher up, at either the IRS or the SSA, for perhaps the actual policy.

 

Thanks again

R. Crosby

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I have just retired from a public school district that forced me into a 457(b) deferred compensation plan eight years ago because it was a way for the district to avoid paying its half of the Social Security tax. My employer never paid anything into my 457(b) account - it was only my money going in - at a rate of 7.5% of gross income

 

I just today received a phone call from the local Social Security office telling me they were going to apply the Windfall Elimination Provision to my Social Security benefits based upon the amount that had accumulated in the 457(b) plan account prior to my retirement. They are claiming that the 457(b) plan is a pension plan. I am trying to make them see that it is a just a deferred compensation plan.

 

I had previously called the plan administrator (ING) who told me not to worry, that any withdrawals would be treated as ordinary income and that I would receive a 1099 form. I took $5000 out about a month ago (my first withdrawal) and, in fact, ING withheld a mandatory 20% for federal and state taxes.

 

How can I convince Social Security (whose own publications refer to the Windfall Elimination Provision as applying to pensions from non-covered work) that my 457(b) plan is/was nothing more than a mandatory, tax-deferred savings account? If they have their way it is going to reduce my SSN benefit by hundreds of dollars per month, money I had been counting on when I budgeted for retirement.

 

 

I have spent hours searching the internet and have only found statements saying that 457(b) monies would not affect SSN benefits. Is it possible the local office has it wrong?

 

FYI, I was never informed, when they placed me in the 457(b) plan, of any possible effects upon my SSN benefits.

 

 

Thanks

R. Crosby

 

 

 

Hi R,

You are right, 457b is a deferred compensation plan, unless something more is involved with your employer who treated it as a pension plan. You used the word "forced" which is a hint to me that something else might be going on. Nobody is "forced" to use a 401k, 403b and a 457b plan. Do you have a regular pension plan? I would go in person to your local SS office and talk to them. It sounds like to me that somebody is trying to scare you with a problem that doesn't exist. This happens all the time with retired people.

 

 

Thanks! Your comment is reassuring. I said forced because I had previously been covered by Social Security (two years) and was then suddenly told that I was to be switched to the 457(b) plan. I was not given a choice, though I did protest mightily. There was a true pension plan I could have joined, but I had already decided not to because I did not believe I would be with the employer long enough to be vested.

 

In later years when I again questioned the 457(b) plan I was told it was "mandatory", but no one in the Business Office would provide me with any documentation to that effect. Needless to say, I did not want to lose what was otherwise a good job, so I acquiesced. In retrospect I probably should have joined the pension plan.

 

It is interesting that you suggest I go to the local SSA office because they are the ones who called me with the Windfall Elimination news. I am trying to find someone higher up, at either the IRS or the SSA, for perhaps the actual policy.

 

Thanks again

R. Crosby

 

 

It's interesting that the SS office would call you on the phone to tell you bad news out of the blue! I don't think so. To avoid liability for somebody saying something wrong they usually correspond by mail unless you asked a question.

 

Once again, nobody is forced to participate in a true 457b plan and "threaten" you with job termination if you did not participate. We want to help. But what you have provided so far is strange.

 

Go to your SSA office in person and take what they give you to your former employer to find out what the heck is going on.

 

Steve

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What I found out is that the Windfall Elimination Provision does apply to 457(b) accounts in certain circumstances. Unfortunately, my circumstances matched the criteria clearly set out in the SSA regulations:https://secure.ssa.gov/apps10/poms.nsf/lnx/0300605364#c4 .

 

The primary criteria was that the 457(b) plan represented the only provision my employer made for my post employment life (read retirement, in my case). SSA sees the proceeds of the 457(b) as a pension plan, even though I entirely control how the funds will be disbursed (timing and amounts). And also despite the facts that my employer did not contribute any funds to the account and, when the funds are completely withdrawn, they are gone.

 

SSA can use the WEP in this case because I was not paying into Social Security for those years (and neither was my employer).

 

The sort of good news is that because I did not have that much in the 457(b) (about $25,000) the offset will probably be less than $100 per month (or that is what I last heard from SSA). I think SSA's formula assumes a lump sum withdrawal in my case and then spreads the entire amount out over 128 or 134 months (there is a table on the page I cited above). And even then they do not take dollar for dollar (or so I was told).

 

I guess the lesson learned here is that 457(b) plans are great for those who use them as a supplement to Social Security. But when they are a replacement for Social Security, the employee takes a double hit: the employer does not have have to contribute (a 6.2% loss of benefit credit) and the employee takes an additional hit in their monthly benefit when they retire and apply for Social Security.

 

Unfortunately, I was not informed of all the possible ramifications of being put in a 457(b). I think I might have resisted more strenuously if I had. Consequently, I am starting to wonder if the plan, as established, was entirely by the book. I have found a legal section at the IRS that specializes in pension plans (including 457s) and plan to call them and ask some questions.

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