The Case for the Repeal of Social Security’s

Government Pension Offset and Windfall Elimination Provision

Social Security Fairness—ssfairness.com

Penalties:

1. Even though you and/or your spouse have paid the required minimum or more in Social Security contributions, your benefits may be cut by thousands of dollars if:

A. You have had two jobs, one in which you paid Social Security taxes and therefore earned your own Social Security credits and a public sector job (“non-covered” employment) which was separate from the Social Security system and which did not allow for F.I.C.A. taxes to be deducted. You are penalized by the Windfall Elimination Provision (WEP) and may lose up to 55.5 percent of your earned SS benefits (or an amount equal to half of your non-covered government pension.)

B. You are entitled to spousal or survivor benefits. In retirement, if you were married a minimum of 10 years and did not work to earn your own SS retirement benefits, you are entitled to an amount equal to one half of what your spouse is being paid, based on the spouse’s earnings. If your spouse dies, you are entitled to 100% of his/her benefits.

When you are penalized by the Government Pension Offset (GPO), your Social Security benefits are cut by an amount equal to two thirds of your “non-covered” public pension.

Because of the GPO:

1. You will lose part of or, more likely, all the SS benefits due you as a spouse.

2. You may pay a higher rate Medicare premium if you lose all Social Security benefits.

3. You will be denied the $255 burial payment sent by Social Security to other bereaved families of Social Security recipients if you are a widow/er who has lost all spousal benefits.

What is unjust:

1. Both the GPO/WEP are based on faulty assumptions. The offsets were based on a decision to treat pensions from some public positions as if they were the same as additional Social Security benefits, despite the fact that these “non-covered” state and local positions have no connection to Social Security. The arbitrary reduction formulas used to reduce Social Security benefits were determined by a compromise vote of Congress. They are imprecise and often excessive .

Faulty Assumption 1. These pensions were earned separately from Social Security, yet they are used to reduce the amount of Social Security benefits that a worker receives during retirement. The pensions were built up through mandatory contributions to state and local pension funds and are not coordinated in any way with Social Security.

Faulty Assumption 2. It is wrong to treat the public and private pensions differently simply because of the employer. People who earn separate pensions, in a similar manner, through private employers, are not penalized by the offsets. Only government employees are penalized.  All other recipients of pensions from non-Social Security employment are exempt. (NCPSSM Viewpoint 1/2011)

Faulty Assumption 3. Social Security and public agency pension benefits are treated differently by federal tax law. While federal income tax is collected on public agency pensions, Social Security benefits are sheltered, often completely, from this tax. Tax law recognizes them as different, and therefore, these public pensions should not be used to reduce the amount of Social Security benefits paid.

Unintended/undesirable consequences:

1. The loss of earned benefits is severe, often resulting in poverty for formerly productive working citizens in lower and middle income groups.

 A. GPO: 74% percent of those affected by GPO lose their entire spousal benefits. According to the 2010 Congressional Research Service Report, the average yearly public pension for those affected by the GPO is $23,244. For a person with this average pension, the GPO can result in an annual loss of more than $15,480 in earned Social Security benefits. Few people can sustain a loss of that much money in retirement. Older workers often have pensions that pay half that amount, and they still lose the same percentage of their deserved Social Security retirement benefits. It is possible for one’s spouse to pay Social Security taxes of as much as $90,000 and yet their survivor may receive nothing from what was a contribution of joint marital income.

B. WEP: The WEP was not intended to affect the middle or low wage earners that it can deeply penalize. WEP cuts to earned benefits are substantial, and often regressive. The can cause serious lifestyle reductions. Someone with a pension of only $900 a month from a “non-covered” government job can have earned monthly Social Security benefits cut from $600 to $300.

2. The GPO, particularly, represents discrimination against women.

The GPO currently penalizes more than one half million retirees; 79% of them are women. Of those affected by the GPO, the average non-covered government pension for men was $961 more per month than the pension paid to women. The women affected often have lower pensions to start with, and then the Government Pension Offset reduces their Social Security benefits by even more, an average of $6,900 a year for women, as opposed to $4,000 a year for men. (Congressional Research Service 2/12/10, using SSA Table DE01)

Penalties not well publicized:

Until recently no law existed to inform employees about the GPO/WEP penalties.

Large numbers of current public employees have never been told that public service employment is jeopardizing their already-earned Social Security benefits. Neither the SSA nor affected agencies have sufficiently publicized these penalties, resulting in financially devastating decisions for many. Careers were chosen, retirement contracts entered into and divorce settlements made without knowledge of the WEP/GPO penalties. The law to require notification of new employees about the WEP/GPO did not go into effect until 2005. Even with notification, the WEP and GPO are so complex that many employees still do not understand their long-term financial effects.

Who is affected?

Teachers: One third of all America’s educators teach in positions affected by the WEP/GPO, negatively affecting teacher recruitment. With retirements and other attrition every year, our country always needs more high-quality new teachers. To provide a competitive educational system, we should be attracting those looking for a meaningful second career as well as bright young people.  Discouraging them with penalties is bad public policy.

State and local workers: Americans working in 29% of state and local government positions and 18% of Federal positions can be affected by the offsets. These include first responders–fire and police personnel– who may have come from the military, as well as librarians, air traffic controllers, secretaries and others who will lose fully-earned Social Security benefits from previous jobs when they retire.

Solution:

The cost to those Americans affected by the GPO/WEP adds up to $8-10 billion in lost retirement income every year. The price tag for repeal, however, is less than 2% of the annual Social Security benefits paid currently. (Est.Trust Fund Info at www.ssa.gov.) The 2011 “payroll tax holiday” income would have paid for more than ten years of repeal of the GPO/WEP.

The cost of not repealing these laws is to continue a gross governmental inequity!

The Committee for Social Security Fairness–Join us at ssfairness.com