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By: Reg JonesLast week I wrote about the Windfall Elimination Provision and pointed out that the argument for keeping it on the books has outweighed the argument for eliminating it. I know that was a big disappointment for those of you who are (or will be) affected by the WEP. Now I’m going to disappoint you even more by writing about the Government Pension Offset and why it shouldn’t be eliminated.
The GPO reduces or eliminates the Social Security benefit for a spouse who is receiving an annuity from a job where he or she didn’t pay Social Security taxes, for example CSRS. If it applies to you, your Social Security spousal benefit will be reduced by $2 for every $3 you receive in your CSRS annuity. So, for example, if you are eligible for a monthly annuity of $1,200, two-thirds of that amount – $800 – would be used to offset your spousal benefit. As a result, your Social Security benefit would only be $400.
The bigger your CSRS annuity is, the greater the impact the GPO will be. For example, if you had a monthly CSRS annuity of $1,500 and a Social Security spousal benefit of $900, you wouldn’t receive anything from Social Security. That’s because two-thirds of $1,500 is $1,000. Subtracting that from $900 would leave you with nothing.
Why would the government do that to you? Let me explain. The Social Security System was designed to provide a modest level of financial security for those who either didn’t work or who had earned very little during their lifetime. It wasn’t designed to enhance the benefits of working couples who were both entitled to a Social Security benefit. When one of them is eligible for an earned Social Security benefit and a spousal benefit, he or she only gets the higher of the two, not both.
Before the law was changed, if you were covered by CSRS and married to someone covered by Social Security, you would receive both a full CSRS annuity and a full Social Security spousal benefit. However, in 1982 the Congress decided that an employee who was in a retirement system where he wasn’t paying Social Security taxes was enjoying an unfair advantage. So, it changed the law.
The best explanation for the reason behind the change comes from the Social Security Administration, which has developed a pair of clarifying examples:
Bill Smith collects a Social Security benefit of $600 per month. His wife, Mary, is potentially eligible for a wife’s benefit up to 50 percent of Bill’s, or $300.
However, Mary also worked and paid into Social Security, qualifying for her own retirement benefit of $400. She will not receive any wife’s benefits because her $400 retirement benefit, in effect, offsets her $300 wife’s benefit.
Bill’s neighbor, Tom, also gets a Social Security benefit of $600 per month. But his wife, Nancy, worked for the federal government, instead of a job where she paid Social Security taxes, and earned a civil service pension of $800 per month.
Before the government annuity offset provisions were in place, Nancy would have been eligible for both her $800 civil service pension and a $300 wife’s benefit on Tom’s Social Security record.
With the offset provision in place, Nancy does not qualify for a wife’s benefits from Social Security, so now she is treated the same as Mary.
If the GPO will affect you, don’t hold out hope that it will be repealed. Instead, plan ahead. Make sure that the combination of your CSRS annuity and your Social Security benefit will be sufficient to meet your retirement needs.
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