Federal, state and local workers receiving retirement or disability benefits from government employment that was not covered by Social Security often are eligible for Social Security based on their own or a spouse's employment. 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 stated intent was to establish parity between wage earners who spent their entire work lives in Social Security-covered employment and those who spent their work lives in non-covered employment or a combination of covered and uncovered employment. The argument in support of these reductions was that government annuitants frequently received higher Social Security benefits in relation to contributions than individuals who worked solely under Social Security. Instead, as shown in countless cases that we have seen, these reductions are excessive and inequitable, and unfairly penalize government workers.
Government Pension Offset
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. In fact, depending on the relative amounts of the two benefits, this provision leads either to a substantial reduction in the Social Security spousal benefit or its outright elimination. The offset affects thousands of employees who retire under the Civil Service Retirement System (CSRS) and approximately one-third of the workers in 2,300 state and local retirement plans who are not covered by Social Security. Only government employees and their families are affected. All other recipients of pensions from non-Social Security employment are exempt.
The GPO is inequitable because the two-thirds offset is an arbitrary and often inaccurate measure of comparability. In countless instances, the spouse or widow benefit offset is far greater than that which would occur had the public employee spent a full work life in Social Security employment at identical lifetime earnings. This is particularly true for spouses or widows with long work careers in non-covered employment. The offset for such a worker, even with moderate earnings, frequently exceeds the amount of the spousal benefit that the worker could receive, even if that worker's husband or wife had lifetime Social Security earnings at the maximum taxable wage base and thus qualified for the highest possible Social Security benefit. in fact, for 74 percent of those with spousal benefits reduced by the GPO, the reduction is large enough to fully offset any potential spousal benefit (either because the non-covered pension was large or the potential Social Security spousal benefit was small). Spouses and widows who divide their careers between public and Social Security covered employment face a double offset. Equally unfair is the fact that spousal benefits are reduced first by any personally earned Social Security benefit and second by two-thirds of the public annuity.
Windfall Elimination Provision
The WEP reduces the earned Social Security benefits of an individual who also receives a pension from any employment not covered by Social Security. 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.1 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. While the amount of reduction depends on the number of years of Social Security earnings the individual has accumulated, public employees can lose up to 55.5 percent of the Social Security benefits they earned in covered employment.
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.
The Government Pension Offset and Windfall Elimination Provision have an impact far beyond those states in which public employees are not covered by Social Security. Because people move from state to state, there are affected individuals everywhere. Moreover, the number of people impacted across the country is growing everyday as more and more people reach retirement age. Currently, the GPO affects 522,000 individuals, and the WEP affects 1.2 million individuals. Estimates indicate that seven out of ten public employees affected by the GPO lose their entire spousal benefit, even though their deceased spouse paid Social Security taxes for many years and that the surviving spouse would experience a much smaller reduction if she had earned the same lifetime wages in covered employment.
NATIONAL COMMITTEE POSITION
- The National Committee supports repealing the GPO or, at a minimum, modifying the offset to alleviate its severity and to establish the comparability intended by the 1977 Amendments.
- To restore equity, the WEP should be limited to a smaller proportion of the non-Social Security pension and phased down over a greater number of years.2
1For determining years of coverage after 1978 for individuals with pensions from non-covered employment, "substantial coverage" is defined as 25% of the "old law" (i.e., if the 1977 Social Security Amendments had not been enacted) Social Security maximum taxable wage base for each year in question. In 2010, the "old-law" taxable wage base is equal to $79,200, therefore to earn credit for one year of "substantial" employment under the WEP a worker would have to earn at least $19,800 in Social Security-covered employment.
2Fairness demands reconsideration of the WEP "cliff" affecting those with more than 10 but fewer than 20 to 25 years of covered earnings. One possible remedy is a more gradual phase down of the first bend point replacement rate from 30 years of covered employment to 7-1/2 to 8 years.
Government Relations and Policy Department, January 2011
The National Committee is a nonprofit, nonpartisan organization that acts in the interests of its membership through advocacy, education, services, grassroots efforts and the leadership of the board of directors and professional staff. The work of the National Committee is directed toward developing a secure retirement for all Americans.