Certain school districts in State Y gave their employees the option of having a portion of their wages deducted and used to purchase an annuity from an insurance company to supplement their retirement. The employees could terminate this wage deduction plan upon written notice to the superintendent of the school district. If their employment terminated they did not forfeit their annuity.

A question was raised as to whether the amounts deducted from employees’ wages to purchase annuities were creditable as wages for social security purposes. The concern arose because of provisions in the Social Security Act and corresponding provisions in the Internal Revenue Code that that excluded from wages retirement pay, or payments towards the purchase of an annuity.

However, these provisions applied to the situation where an employer used his own funds, not employee’s wages, to purchase annuities or provide retirement benefits. But the employees of the school districts of state Y had their wages reduced in order that purchase the annuities. The amounts of these defenses were therefore creditable as social security wages.

See Social Security Ruling (SSR) 64-59.

This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.