U n ite d S tates G o v e r n m e n t formg-i i5I(i -w )

MEMORANDUM RAILROAD RETIREMENT BOARD

March 30,2004

L-2004-05

: Dorothy A. Isherwood 

Director of Programs

: Steven A. Bartholow A

General Counsel

SUBJECT : Public Law 108-203

The Social Security Protection Act of 2004 

Tier I Public Pension Offset

This is in response to a request from the Labor Member’s office that I 

review the effect which receipt of a pension from public employment will 

have on the potential spouse annuity in view of the amendments to the 

Social Security Act by the Social Security Protection Act of 2004.

As you know, section 2(c) of the Railroad Retirement Act provides 

annuities for the spouses and divorced spouses of railroad employees who 

are entitled to employee annuities under section 2(a)(1) of the Act. The 

amount of spouse and divorced spouse annuities is defined as "the 

amount provided under section 4 of this Act." Section 4(a)(1) in turn 

provides that:

(a)(1) The annuity of a spouse or divorced wife of an individual 

[employee] under section 2(c) of this Act shall be in an amount 

equal to the amount (before any reduction on account of age and 

before any deductions on account of work) of the wife’s insurance 

benefit or the husband's insurance benefit to which such spouse or

FROM
divorced wife would have been entitled under the Social Security 

Act if such individual's service as an employee * * * had been 

included in the term "employment" as defined in that Act.

Entitlement to spouse and divorced spouse benefits under the Social 

Security Act is established by sections 202(b) (wives and divorced wives), 

and 202(c) (husbands and divorced husbands) of that Act. The Social 

Security Amendments of 1977 (Public Law 95-216) (91 Stat. 1509) amended 

those sections to provide that a spouse or divorced spouse benefit must 

be offset by the amount of:

"any monthly periodic benefit * ** which is based upon her [or his] 

earnings while in the service of the Federal Government or any 

State (or political subdivision thereof * * *) if, on the last day she [or 

he] was employed by such entity, such service did not constitute 

'employment' * * * [covered by the Social Security Act]. P.L. 95-216 

§334(91 Stat. at 1544)

In Legal Opinion L-79-293, the General Counsel reviewed changes made 

to those sections and concluded that new sections 202(b)(4) and 

202(c)(2) of the Social Security Act, as amended, required that the tier I 

component of spouse annuities must be reduced by any "public pension" 

which the spouse annuitant may receive. The amount of the offset 

required was later reduced from 100 percent of the public pension to twothirds of the public pension in 1983. See section 337 of Public Law 98-21, 

the Social Security Amendments of 1983 (97 Stat. 65 at 131). This is the 

public pension offset computation required by current regulations of the 

Board at 20CFR 226.31.1

Under the law as formerly in effect, both the Railroad Retirement Board 

and the Social Security Administration interpreted the "last day 

employed" in the literal sense. Thus, where a public employee worked in 

a position not covered by the Social Security Act, but transferred to a 

position in employment subject to social security coverage prior to 

retirement, if that employment used the services under both the covered 

and noncovered employment in determining last day worked for the

1 The public pension offset also applies to the tier I component of survivor

annuities, see Board regulations at 20 CFR 228.18, and any increase in the

employee annuity under the social security over-all minimum guaranty provision

(section 3(f)(2) of the Railroad Retirement Act) which is attributable to inclusion

of the railroad employee's spouse.
public pension, then both the Social Security Administration and the Board 

would not apply any public pension offset to a spouse benefit payable to 

the retired public employee. See Board Order 02-78, rendered May 21, 

2002, quoting the Social Security Program Operations Manual, section 

026080102. '

The Social Security Protection Act of 2004 has now amended the Social 

Security Act with respect to receipt of a pension based on non-social 

security covered public employment to replace the "last day" rule.

Section 418 of the 2004 Act relocates the public pension offset language 

from duplicate sub-sections in each entitlement section for spouses, 

surviving spouses and divorced spouses or surviving divorced spouses to 

new section 202(k)(5). Insofar as is relevant here, section 202(k) (5) (A) as 

amended requires the social security benefit to be offset by two-thirds of 

a public pension:

which is based upon such individual's earnings while in the service 

of the Federal Government or any State (or political subdivision 

thereof * * *) if, during anv portion of the last 60 months of such 

service ending with the last dav such individual was employed bv 

such entity—

(i) such service did not constitute ‘employment* as defined * * * [as 

covered social security employment], (emphasis added).

Where previously the benefit reduction depended upon the status of the 

spouse's employment on the “last day", the law as amended now applies 

to the social security benefit of a spouse or survivor who has a "portion of 

a month" of work covered by a public pension within the five years 

preceding his or her last day of work for a public employer. Essentially, the 

period which determines whether the offset applies has been changed 

from the last day to the last five years. This five year period is now the 

basis for determining whether the tier I annuity component as calculated 

under sections 4(a) (1) and 4(f)(1) of the Railroad Retirement Act should be 

reduced for the public pension offset as well.

Recognizing the significance of this change, Congress ameliorated the 

impact of the change in three ways, first. Congress has provided that the 

amendment takes effect with benefit applications filed after the month of 

enactment. Any social security benefit application filed prior to April 2004 

will remain subject to the former law (i.e., whether the spouse benefit is 

reduced for a public pension will be determined by reference to the
employment on the last day).2 In the near term, Congress has further 

provided that new 202(k) (5) (A) "shall not apply in connection with 

monthly periodic benefits of any individual based on earnings while in 

[dual-covered social security and public] service described in section 

202(k)(5)(A) if * * * if the last day of such service occurs before July 1,

2004." See section 418(c)(1) of P.L. 108-203. Thus, any public employee 

otherwise subject to the spouse benefit public pension offset may retire 

from public employment under the "last day" rule through June 30,2004.

For those public employees who file for social security benefits after March 

2004 and retire from public employment after June 2004, Congress has 

allowed one last exception in the form of a “transitional rule". P.L. 108-203 

§ 418(c)(2). Under the transitional rule, the 60 month period during which 

the spouse may not have worked in non-covered public employment 

may be reduced to as little as one month by the number months the 

public employee worked before the enactment date of the amendment 

(March 2,2004) in service which is covered under the Social Security Act 

and is also used to determine the last day worked under the public 

pension system. An important limitation on the transitional rule requires 

that all months of the reduced period must fall after the enactment date.

It appears the transitional rule operates as in the following example: A 

public employee who is subject to the new 60 month rule has worked in 12 

months of public employment also covered by the Social Security Act 

prior to March 2004. Ordinarily, if any of the last 60 months of public 

employment were not covered by social security, the employee would 

fail the test for exemption, and the social security benefit would be offset 

by the public pension. However, because the employee served 12 

months in a dual-covered position, the 60 month period is reduced to 48 

months (60 minus 12). To avoid the public pension offset, the employee 

must not have worked in non-covered public service in any of the last 48 

months counting forward from March 2,2004. If the employee had 

worked 30 months prior to enactment, the period would be 30 months 

forward from March 2,2004, and so forth.3

21 note that regulations of the Board allow an application to be filed up to three

months before the date an annuity can begin. 20 CFR 217.9(b). This exception

thus applies to any who may become eligible in the next three months, if an

application is filed before April 1,2004.

3 It appears that this provision may address certain State public pension systems

which transferred the employee to a social security covered position for a year

prior to retirement. See: United States General Accounting Office, GAO-02-950,
In sum, spouse, divorced spouse, and surviving spouse and surviving 

divorced spouse annuities are subject to a tier I offset for a public pension 

under new section 202(k)(5)(A) of the Social Security Act, unless the 

railroad retirement annuity application was filed prior to April 2004 or 

unless the railroad retirement beneficiary leaves public employment 

under the previous last day rule before July 2004. A railroad retirement 

annuitant who does not meet either of the foregoing must serve 60 

months in employment covered by the Social Security Act, unless the 

60 month period may be reduced as described under the transitional rule.

I hope the foregoing discussion will be of assistance to you.

bcc: Director of Policy and Systems

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S.S.A. No. 450-68-8011

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3 (cont'd)

Revision to the Government Pension Offset Exemption Should be Considered.

Report to the Chairman, Subcommittee on Social Security, Committee on Ways

and Means, House of Representatives, (August 2002), at 3 (noting that in

Georgia, teachers generally agreed to work for approximately one year in a

position covered by Social Security.)