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.

BREAKING DOWN '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 percent of a plan participant's benefits to compensate for funds owed to the plan.

Retirement plan benefits

The type of benefits paid from a retirement plan is based on the distribution options available under the plan and elections made by participants and their beneficiaries.

Defined contribution plans: 401k, profit-sharing, and other defined-contribution plans generally pay retirement benefits in a lump sum or installments.

Defined-benefit plans: The normal method of distribution is an annuity paid over the employee’s life or the joint lives of the employee and their spouse unless they elect otherwise.

Lump-sum payment: A plan can make a lump-sum distribution of a participant’s or beneficiary’s entire accrued vested benefit without consent if the benefit is $5,000 or less. If the benefit is more than $5,000, a lump-sum distribution can only be made with the participant’s and spouse’s, if applicable, written consent.

Installment payments: These are made at regular intervals for a definite period such as five or 10 years, or in a specified amount, for example, $2,000 a month, to continue until the account is depleted.

Annuity payments: These are made from a defined benefit plan or under a contract purchased by a defined-contribution plan. Payments are made at regular intervals over a period of more than one year, depending on the type of annuity.

Spousal annuities: 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. If the participant dies before the spouse, the plan pays the spouse a life annuity. A participant may, with proper spousal consent, waive the QJSA and chose another payment option. 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.

  1. Target-Benefit Plan

    A target-benefit plan is one wherein retirement benefits are ...
  2. Plan Participant

    A plan participant either contributes into a pension plan or ...
  3. Member Month

    The member month refers to the number of individuals participating ...
  4. Teacher Retirement System - TRS

    Teacher Retirement System - TRS is an organization that is specifically ...
  5. Defined-Benefit Plan

    A defined-benefit plan is an employer-sponsored retirement plan ...
  6. Retirement Contribution

    A retirement contribution is a payment into to a retirement plan, ...
Related Articles
  1. Retirement

    5 Lesser-Known Retirement And Benefit Plans

    These plans aren't widely used, but they fill a specific niche for employees in certain situations.
  2. Retirement

    Florida's Surprisingly Flexible State Retirement System

    Retired Florida employees can choose a 401(k)-style investment plan or a traditional pension.
  3. Retirement

    Is a Deferred Retirement Option Plan Right for You?

    Deferred retirement option plans are a lesser-known type of employer-sponsored retirement plan that may prove beneficial to certain types of workers.
  4. Retirement

    The 401(k) and Other Qualified Plans Tutorial

    Learn about eligibility requirements, contributions and distribution rules for these retirement plans.
  5. Financial Advisor

    Preparing Finances For Deployment: A Guide For Service Members

    Those who follow the instruction in this article can look forward to a homecoming of financial prosperity.
  6. Retirement

    Retirement Tips for Government Workers

    Discover retirement tips for government workers such as what types of funds to choose, different types of plans, and at what age to retire.
  7. Retirement

    6 Benefits Of Retiring Later

    Early retirement is a pipe dream for most Americans. But the reality is, there are some perks to stretching out the lifespan of your career.
  8. Retirement

    How We Can Help Close the Retirement Savings Gap

    The majority of Americans are not very confident about having enough for retirement.
  9. Retirement

    Planning for Retirement Doesn’t End When You Retire

    Why it's important to maintain your retirement plan even after you retire.
Hot Definitions
  1. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  2. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  3. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  4. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  5. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
  6. Hedge Fund

    A hedge fund is an aggressively managed portfolio of investments that uses leveraged, long, short and derivative positions.
Trading Center