Wednesday, November 14, 2007

Questions on social security offset (from pension payments) continue

I get emails about the social security offset on pensions, which I discussed on July 1. Many people approaching retirement are shocked to learn about this concept. It seems to be especially an issue in airlines. Unions will normally become concerned about this issue in collective bargaining.

Since employers match the social security taxes of their employees, many employers believe that it is proper to recover this contribution from the person's pension. So they subtract an amount from the pension based on the person's expected social security benefit at the same age the pension starts. The offset is based on the number of years of service, just as the pension itself is, and is less if retirement is started early. It will be less if the pension was frozen. In some companies the offset, as a percentage, is much less than in others. Some companies offer a "social security bridge" until age 62 for early retirement.

The picture gets more complicated when there have been acquisitions, and the pension calculation is the sum of many separate components.

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