In basic terms a benefit offset is a decrease in the amount of payments you receive from your retirement plan if you owe the plan money. Such an offset can result in a partial, or even complete, loss of retirement plan benefits. An offset might also be the result of receiving benefits from another source.
Many people have their retirement savings invested in a 401(k). One of the perks of such an investment is the possibility of borrowing money from said account in case of emergency. These funds can be paid back later, over a period of time. The problem is that if you don’t pay those funds back, you effectively owe the fund money.
When you reach retirement age, if you haven’t paid back your debt, the remaining balance will be deducted from the benefits owed you. Furthermore, there are cases in which penalties will be assessed for failure to repay the loan. You can end up in a situation where your retirement savings are worth much less than you expected, which may have a serious impact on your standard of living upon retiring.
The goal behind benefit offset is to prevent people from turning to their retirement savings each time they are short on funds. The policy makes people think seriously before they withdraw funds and then encourages them to pay them back in a timely manner.
Benefit offsets may also impact other benefits as well. For example, if you have a second health policy with an identical level of coverage your employer provided insurance may not kick in until after your other policy has paid out its maximum amount.