How Can Vesting In A Pension Affect Your Ability To Receive Federal Disability Payments?

Posted on: 2 March 2016

Whether you've been a government or public service employee for decades or worked enough years to vest in a private pension ago, you may be eagerly anticipating the thought of a guaranteed income stream in retirement. Unfortunately, a disabling injury or illness can sideline your retirement plans, and you may worry about being able to stay afloat until you turn 62 and can begin drawing Social Security retirement payments. Read on to learn more about the federal disability benefits that may be available to you, as well as how these benefits can impact your receipt of pension income (and vice versa).

Do you quality for federal disability benefits?

The federal government has designed two separate programs to help provide financial and healthcare support for working Americans who find that an injury or illness prevents them from holding down full-time employment. Although these programs are often deemed "Social Security Disability" as a catch-all term, their eligibility requirements and benefits structures are very different.

The Social Security Disability (SSD) program is similar to Social Security retirement in that the benefits are calculated based on your reported earnings and number of quarters of service. If you haven't yet hit age 62 but your Social Security statement indicates you qualify for Social Security retirement, it's likely you'll qualify for SSD if you become disabled. The amount of SSD income you'll receive depends upon your years of service and annual earnings during that time -- the longer you've worked and the more you've earned, the more you're likely to receive through SSD.

For those who don't have enough working credits or reported income to qualify for SSD (like those who were disabled at an early age or have spent a career in an industry like construction, where obtaining full-time work year-round is challenging), Supplemental Security Income (SSI) may be an option. Unlike SSD, SSI is not based on your earnings record, but is instead designed to provide a subsistence living for those who are disabled but don't qualify for SSD. The average monthly benefits received by SSI claimants is generally lower than the average amount received by SSD, and if you receive SSI you'll periodically be subjected to an asset test to ensure you're sufficiently indigent to qualify for these benefits.

Will the receipt of these benefits prevent you from drawing your pension when you hit retirement age?

If you've already fully vested in your pension, taking an early disability retirement shouldn't affect this -- you'll still qualify for the same amount and frequency of payments you did before your injury, as long as these payments weren't contingent upon you continuing to work for this employer. And because SSD benefits are drawn from a pool of money funded by FICA taxes, rather than from insurance paid by your employer (like worker's compensation), your former employer won't be financially harmed by your collecting disability.

However, the receipt of pension income could affect your SSI benefits. Because these benefits are need-based, your other household income and assets will be taken into account whenever calculating your eligibility or the amount you should receive. If your monthly pension income pushes you above the asset threshold, your SSI payments may stop.

In addition, those previously employed by governmental agencies that don't withhold Social Security taxes could be subject to the Windfall Elimination Provision once a pension begins being paid. This provision essentially attempts to "claw back" any unpaid FICA taxes during your career by garnishing a portion of your pension. This is a relatively complicated area of Social Security law, and it's a good idea to seek legal advice before filing for SSD or SSI to ensure you've adequately anticipated everything that will be asked of you.

For more information about social security, consider a social security lawyer like Todd East Attorney at Law.