Benefit Offset
Benefit offset is a reduction in the amount of benefit payments received by a participant in a retirement plan that may result when the participant owes money to the plan. The U.S. Social Security Act provides for the withholding of up to 10% of a plan participant's benefits to compensate for funds owed to the plan. The type of benefits paid from retirement plans are based on the distribution options available under each plan and elections made by participants and their beneficiaries. **Defined contribution plans:** 401(k), profit-sharing, and other defined contribution plans generally pay retirement benefits in a lump sum or installments. Benefit offset is a reduction in the amount of benefit payments received by a participant in a retirement plan that may result when the participant owes money to the plan. If the participant is married prior to the first day of the period for which benefits are paid as an annuity, a plan must pay benefits in the form of a qualified joint and survivor annuity (QJSA). Benefit offset is intended to adjust the retirement benefits the plan participant receives, given the overdue contributions the participant should have paid in the past.
What Is Benefit Offset?
Benefit offset is a reduction in the amount of benefit payments received by a participant in a retirement plan that may result when the participant owes money to the plan.
Understanding Benefit Offset
Benefit offset is intended to adjust the retirement benefits the plan participant receives, given the overdue contributions the participant should have paid in the past. Essentially, the overdue contributions owed by the participant are deducted from their retirement payments to ensure they are paid to the plan.
This type of offset can also occur if the participant is receiving retirement benefits from sources other than the plan. The U.S. Social Security Act provides for the withholding of up to 10% of a plan participant's benefits to compensate for funds owed to the plan.
An Overview of Retirement Plan Benefits
The type of benefits paid from retirement plans are based on the distribution options available under each plan and elections made by participants and their beneficiaries.
For a married, vested participant who dies before the annuity starting date, the plan must pay a qualified pre-retirement survivor annuity (QPSA) to the surviving spouse. The participant may, with spousal consent, waive the QPSA and choose an alternate form of distribution provided under the terms of the plan. Unmarried participants must receive a single-life annuity unless waived.
Related terms:
401(k) Plan : How It Works & Limits
A 401(k) plan is a tax-advantaged retirement account offered by many employers. There are two basic types—traditional and Roth. read more
Annuities: Insurance for Retirement
An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees. read more
Beneficiary
A beneficiary is any person who gains an advantage or profits from something typically left to them by another individual. read more
Court Order Acceptable for Processing (COAP)
A court order acceptable for processing (COAP) grants an ex-spouse or dependent of a federal employee rights to federal benefits they enjoyed. read more
Defined-Benefit Plan
A defined-benefit plan is an employer-sponsored retirement plan where benefits are calculated on factors such as salary history and duration of employment. read more
Defined-Contribution Plan
A defined-contribution plan is a retirement plan in which employees contribute part of their paychecks to an account intended to fund their retirements. read more
Distribution
Distributions are payments that derive from a designated account, such as income generated from a pension, retirement account, or trust fund. read more
Domestic Relations Order – DRO
A domestic relations order gives a former spouse or dependent the right to a portion of the benefits of an employee’s qualified retirement plan. read more
IRS Publication 575
IRS Publication 575 is the document that provides the details on how to report income from pensions and annuities on a tax return. read more
Lump-Sum Payment
A lump-sum payment is a large sum that is paid in one single payment instead of installments. read more