SSR 68-52: SECTIONS 228(c)(1), 228(h)(2) and (3). -- SPECIAL AGE 72 PAYMENTS FOR UNINSURED INDIVIDUAL -- REDUCTION DUE TO COMMUTATION OF PERIODIC PENSION

SSR 68-52

Where the widow of a deceased State employee elected to receive a lump-sum settlement from the State retirement fund in commutation of a life-time monthly annuity based on the services of her deceased husband, held, the widow is eligible for a "periodic benefit under a governmental pension system" which requires a reduction of the special age 72 payment to which she is entitled under section 228 of the Social Security Act.

W, the widow of a deceased retired State employee, applied for and became entitled to special age 72 payments under section 228 of the Act. This section provides for monthly payments of $40 to certain persons who are not insured under the regular or transitional insured status provisions of the Act and who reach age 72 before 1968, or who 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. On her application W stated that she had previously received a lump-sum settlement from the State Employees Retirement Board following her husband's death in December 1961, in lieu of payment of a monthly annuity. She further explained that several distinct options had been available to her under the State retirement plan from which to elect monthly annuities varying in amounts and duration. One such option was that of a life-time annuity of $41.10 monthly. The annuity would have been payable beginning December 1961, the month of her husband's death. W had, however, voluntarily chosen the cash settlement in lieu of a monthly annuity.

Section 228(c)(1) of the Act provides that:

The benefit amount of any individual under this section for any month shall be reduced (but not below zero) by the amount of any periodic benefit under a governmental pension system for which he is eligible for such month.

The question presented here is whether W, who elected to receive a lump-sum payment in commutation of a monthly annuity based on the services of her deceased husband, is in receipt of a "periodic benefit under a governmental pension system" requiring a reduction in the amount of the special age 72 payment to which she is entitled under section 228 of the Social Security Act.

The term "governmental pension system" is defined in section 228(h)(2), in pertinent part as:

* * * the insurance system established by this title or any other system or fund established by the United States, [or] 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 * * *.

Subsection (3) of section 228(h) provides further that:

The term "periodic benefit" includes a benefit payable in a lump sum if it is a commutation of, or a substitute for, periodic payments.

It is apparent from the provisions above that the retirement plan administered by the State Employees Retirement Board is a "governmental pension system" within the meaning of section 228(h)(2) of the Act and that the lump sum received by W was a "commutation of, or a substitute for, periodic payments" payable thereunder. Section 228(h)(2) does not, in defining the term "governmental pension system," limit it to systems under which payments are based on the services of the individual receiving the payment. Rather, section 228(h)(2)(C) specifically includes systems providing payments "payable on account of personal services performed by any individual." (Underscoring supplied.)

When the only alternative to, or one of the alternatives to, the lump-sum payment is a life annuity payable monthly, the Social Security Administration uses the amount of such annuity (in this case $41.10 monthly) to determine the amount of reduction of the special age 72 payment. This reduction continues for the life of the beneficiary.

Accordingly, it is held that the lump-sum payment received by W was a commutation of a substitute for periodic payments under a governmental pension system, and therefore her special age 72 payment must be reduced by the amount of the life annuity that would otherwise have been payable to her. In effect, since W's annuity of $41.00 exceeds the $40 special age 72 payment to which she is otherwise entitled, the $40 must be reduced to zero and W would receive no payment under this provision.


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