A Thrift by Any Other Name Is Much the Same

Q: I don’t understand all the name changing going on with savings and loans. One week these branches are savings and loans, and the next week they claim to be banks. Are they really banks? What’s a poor depositor to think? --V. N.

A: Depositors should think “public relations” when confronted with the dizzying name changes among savings and loan associations. The goal among many of the remaining savings and loan associations is to distance between themselves from the ongoing S&L; scandal that is expected to cost U.S. taxpayers as much as $500 billion over the next 30 or 40 years. The name changes--many savings and loan associations call themselves “savings banks” now--are one way for the associations to avoid the negative, and sometimes hostile, fallout from what is expected to be the nation’s worst financial crisis since the Depression.

Savings banks are just savings and loans by another name. They are not the same as commercial banks, such as Bank of America or Security Pacific National Bank.

To find out what a particular institution is--bank or savings and loan--you can ask who regulates it. In California, there are two types of banks and two types of savings and loans: one type is state chartered and the other federally chartered. Typically, when savings associations change their names to savings banks, they do not change the agency licensing them.

State chartered banks are licensed by the California Superintendent of Banks; national banks are chartered by the Office of the Comptroller of the Currency. State chartered savings associations are licensed by the state Department of Saving and Loans; federally chartered associations are chartered by the Office of Thrift Supervision, the successor to the Federal Home Loan Bank Board.

Does the name-changing mean anything to depositors? Very little. As a result of the savings and loan mess, the Federal Savings and Loan Insurance Corp., the agency that insured S&L; deposits, was disbanded. Now the Federal Deposit Insurance Corp., which previously covered just bank deposits, insures S&L; deposits as well. Deposit insurance is not affected by an institution’s change of name.

Using IRA for a Home Doesn’t Preclude Tax

Q: I will be 59 1/2 years old in May and understand that I may begin withdrawing from my individual retirement account then without penalties. I realize that I am still liable for taxes on any money I withdraw. However, if I use the money as a down payment on a house--I would be a first-time buyer--would withdrawal still be taxable? -- B. D.

A: Yes, even if you use the withdrawal for a new-home down payment, it is still subject to taxation. Congress has repeatedly talked about a tax exemption for IRA withdrawals used for down payments by first-time home buyers. But Congress has not gone beyond the talking stage. Given the current tax-raising mood among some members of Congress and the Bush Administration, the likelihood is not great that this exemption will be coming soon.

When Social Security Is Hard to Collect

Q: I will be retiring within a few years with a state teachers’ retirement pension. I do not have Social Security coverage on my own. Am I eligible to claim benefits on my ex-spouse’s account? I was married for more than 35 years. I have been told by friends that I am not eligible. Is that correct? -- J. W.

A: The operative word here is “eligible.” Yes, you are eligible to claim Social Security benefits on your ex-spouse’s account, just as a currently married spouse is able to claim benefits. However, in all practicality, you are not likely to receive any monthly benefits. Why can you be eligible and still receive no payments? Because you are a retired public agency employee who did not contribute to Social Security.

Under Social Security regulations, recipients of a government pension are subject to what is called the “government pension offset.” In the case of teachers, any spousal Social Security benefits you might receive will be reduced by up to two-thirds the amount of your teacher’s pension.

How would that work? Let’s say your teacher retirement benefits are $1,000 per month. And let’s say that your ex-spouse is receiving the maximum Social Security payment currently payable to a 65-year-old retired wage earner, $975 per month. As a spouse, the most you would be able to receive in Social Security benefits is half the wage earner’s benefits, or $487 per month. But as a retired public employee, that benefit is subject to a reduction of up to $666. If you make the required calculation, you see you are left with nothing.

Although you receive no benefits, remember that you are still eligible for them. This means you can receive Medicare benefits on your ex-spouse’s account.

By the way, the offset is applied to all spousal Social Security benefits, whether the applicant is divorced or still married. Further, the offset applies to widows’ and widowers’ benefits. However, because the benefits of widows and widowers who apply at age 65 are 100% of those of the wage earner, it is possible that even with the offset, the applicant can receive a monthly benefit payment.

For more information, call (800) 234-5772 and ask for the pamphlet titled “Government Pension Offset.”