Individuals who receive a pension based on work for a federal, state or local government where Social Security taxes were not withheld may find their Social Security benefits reduced. This is because in 1977 and 1983, Congress enacted legislation reducing Social Security benefits to such individuals through the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP). The GPO applies to those eligible for Social Security spouse’s or widow’s or widower’s benefits. The WEP applies to those eligible for their own Social Security benefit.
In enacting the GPO, Congress intended to address a perceived inequity between those who spent a lifetime working and paying into Social Security and government employees who did not pay into the system. The GPO was intended to place spouses, widows and widowers whose government employment was not covered by Social Security in approximately the same position as those whose employment was covered by Social Security. Similarly, the WEP was enacted to ensure that government employees who had not paid into Social Security received a Social Security benefit equivalent, with the government pension taken into account, to that of an individual who had paid into Social Security.
But unfortunately, these provisions in practice have proved to be both unfair and unworkable. Millions of individuals lose benefits due to the WEP and GPO each year, and regrettably they usually find out about the loss in benefits only when they apply—at which time it is too late to effectively plan for the resulting cuts in benefits. That’s why the National Committee believes the time has come to repeal these two provisions.
Government Pension Offset – How Does It Work?
The GPO applies to spouses who qualify for both a government pension based on their own non-Social Security-covered employment and a Social Security spousal benefit. The GPO reduces Social Security spousal benefits by two-thirds of the pension from non-covered government employment. For example, a monthly civil service pension of $600 will result in a $400 reduction of the Social Security spousal benefit (2/3 of 600=400). Therefore, an individual eligible for a monthly $500 spouse’s, widow’s or widower’s benefit would receive $100 per month (500-400=100).
In December, 2013 almost 615,000 Social Security beneficiaries or about one percent of all Social Security beneficiaries had spouse’s, widow’s or widower’s benefits reduced because of the GPO. Of these, 56 percent were spouses, 44 percent were widows or widowers, and 81 percent were women. For approximately 74 percent of those with benefits reduced by the GPO, the offset was large enough to bring the Social Security benefit to zero.
The GPO is an imprecise way to achieve the Congressional intent of establishing parity between the benefits of those who spent a lifetime working in Social Security covered employment and those who did not. Reducing the spouse, widow’s or widower’s benefit by two-thirds of the government pension does not equate to the amount of the spousal benefit had the government work been covered by Social Security. The purpose of Social Security dependent and survivors benefits is to provide additional income to help the financially dependent spouse once the breadwinner retires, becomes disabled or dies. By reducing this benefit, the GPO harms the financially dependent spouse, and, as noted above, those most likely to be harmed are women.
Windfall Elimination Provision – What is it?
The WEP reduces the earned Social Security benefits of an individual who also receives a pension from any employment not covered by Social Security, such as a government agency. The reduction is achieved by modifying the formula used to figure the benefit amount, giving the beneficiary a lower Social Security benefit. The WEP exempts workers who have 30 or more years of "substantial" employment covered under Social Security, with lesser reductions for workers with 21 through 29 years of substantial covered employment. The WEP primarily affects people who earned a pension from working for a government agency in non-covered employment and also worked at other jobs where they paid Social Security taxes long enough to qualify for retirement or disability benefits. It reduces the replacement rate for benefits from 90 percent to as low as 40 percent for roughly the first $10,000 in average annual earnings. However, the reduction cannot exceed more than one half of the government pension based on the worker’s non-covered work.
As of December 2014, approximately 1.6 million Social Security beneficiaries were affected by the WEP, representing about 2.7 percent of all Social Security beneficiaries. Ninety- three percent of those affected were retired workers, 61 percent of whom were men. In state and local government, approximately 25% of employees and retirees (including teachers, police and fire employees, and general employees) are in non-Social Security jurisdictions, while 75% fully participate in the Social Security program (they contribute to the system and their public employer matches their contributions) and, therefore, are not affected by the WEP.
The regular Social Security benefit computation formula is intended to help workers who spend their lifetimes in low-paying jobs by providing them with a benefit that replaces a higher proportion of their earnings than the benefit that is provided to workers with high earnings. The regular formula, however, cannot differentiate between those who work in low-paid jobs throughout their careers and other workers who appear to have been low paid because they worked many years in jobs not covered by Social Security. The WEP was created to remove that unintended advantage, or "windfall," thereby preserving the progressive nature of the benefit formula. The WEP formula, however, is an imprecise method of determining the actual "windfall" when applied to individual cases. In many instances, the WEP can be regressive, causing a proportionally larger reduction in benefits for workers with lower life-time earnings. The reduction is especially harsh on retirees with work careers divided roughly equally between covered and non-covered employment.
NATIONAL COMMITTEE POSITION
The National Committee endorses S. 1651, the “Social Security Fairness Act of 2015,” which will repeal both the Windfall Elimination Provision and the Government Pension Offset provisions of the Social Security Act. Sponsored by Senator Sherrod Brown and Representative Rodney Davis, this legislation would repeal provisions which, since their enactment over 30 years ago, have unfairly prevented millions of Americans including teachers, firefighters, and police officers from receiving the Social Security benefits that they have earned.
Government Relations and Policy Department, April 2016
Government Pension Offset - http://www.socialsecurity.gov/pubs/EN-05-10007.pdf
Windfall Elimination Provision - http://www.socialsecurity.gov/pubs/EN-05-10045.pdf
Social Security: The Government Pension Offset, Congressional Research Service - https://www.fas.org/sgp/crs/misc/RL32453.pdf
Social Security: The Windfall Elimination Provision, Congressional Research Service - https://www.fas.org/sgp/crs/misc/98-35.pdf
PERSPECTIVES: The Social Security Windfall Elimination and Government Pension Offset Provision for Public Employees in the Health and Retirement Study , Social Security Administration -http://www.ssa.gov/policy/docs/ssb/v74n3/v74n3p55.html
What You Need to Know About the Windfall Elimination Provision, AARP - http://www.aarp.org/work/social-security/info-07-2013/social-security-windfall-elimination-provision.html
Q&A: Social Security’s Government Pension Offset (for members in jobs not covered by Social Security) AFSCME - http://www.afscme.org/union/retirees/resources/retiree-tools-and-information/q-a-social-securitys-government-pension-offset-for-members-in-jobs-not-covered-by-social-security
Q&A: Social Security’s Windfall Elimination Provision (for members in jobs not covered by Social Security), AFSCME - http://www.afscme.org/union/retirees/resources/retiree-tools-and-information/q-a-social-securitys-windfall-elimination-provision-for-members-in-jobs-not-covered-by-social-security
FAQs about Government Pension Offset, National Education Association, http://www.nea.org/home/17739.htm
FAQs about the Windfall Elimination Provision, National Education Association, https://www.nea.org/home/17745.htm