Individuals who receive a pension based on work for 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. That’s why the National Committee believes the time has come to repeal the GPO and WEP.
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 2020, almost 720,000 Social Security beneficiaries or about 12 percent of all Social Security spouse’s, widow’s or widower’s beneficiaries had their benefits reduced because of the GPO. Of these, 53 percent were spouses, 47 percent were widows or widowers, and 81 percent were women. For approximately 71 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 survivor 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 2020, approximately 1.9 million Social Security beneficiaries were affected by the WEP, representing about 3 percent of all Social Security beneficiaries. Ninety-three percent of those affected were retired workers, 60 percent of whom were men. In state and local government, approximately 25 percent of employees and retirees (including teachers, police and fire employees, and general employees) are in non-Social Security jurisdictions, while 75 percent 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. 1302 and H.R. 82, the “Social Security Fairness Act of 2021,” which will repeal both the Windfall Elimination Provision and the Government Pension Offset provisions of the Social Security Act. Sponsored by Senator Sherrod Brown (D-OH) and Representative Rodney Davis (R-IL), this legislation would repeal provisions which, since their enactment nearly 40 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
Source: Congressional Research Service