Last week, I listed the five bills before Congress that deal with the Windfall Elimination Provision and the Government Pension Offset. I then showed you what the WEP does and what the likelihood of its being eliminated or modified is. This time I’ll do the same for the GPO.
The Government Pension Offset (GPO) applies to the spousal benefit due to those who are (or will be) receiving a pension from a job where they didn’t pay Social Security taxes, for example, the Civil Service Retirement System. It reduces the amount of the benefit she or he will receive from Social Security as the spouse of someone eligible for a Social Security benefit in their own right.
From the beginning, the purpose of Social Security spousal benefits has been to provide a measure of security for those who did not work or had little working income of their own. In other words, those who were financially dependent. It wasn’t designed to put extra income into the pockets of couples where both parties have worked and are entitled to benefits.
Generally in a two-worker family, both marriage partners pay Social Security taxes. Then, if someone is eligible for two Social Security benefits (their own and a spousal), he or she gets the higher of the two, but not both.
That rule didn’t work if one of the couple was a federal worker who wasn’t paying Social Security taxes. If that worker wasn’t entitled to a Social Security benefit but was married to someone who was, the federal employee would be eligible for a spousal benefit. However, because there wasn’t any Social Security benefit to offset, he or she would get both a CSRS annuity and a full Social Security spousal benefit.
As a result, Congress decided that the non-Social Security-tax paying federal employee enjoyed an unfair advantage. That’s why the law was changed.
Fortunately, the folks at Social Security Administration have developed a pair of explanations that make it easier to understand this change in the law. Here they are:
How much will my Social Security benefits be reduced?
We’ll reduce your Social Security benefits by two-thirds of your government pension. In other words, if you get a monthly civil service pension of $600, two-thirds of that, or $400, must be deducted from your Social Security benefits. For example, if you’re eligible for a $500 spouses, widows or widowers benefit from Social Security, you’ll get $100 a month from Social Security ($500 – $400 = $100). If two-thirds of your government pension is more than your Social Security benefit, your benefit could be reduced to zero.
Why will my Social Security benefits be reduced?
The law requires a person’s spouse, widow, or widower benefit to be offset by the dollar amount of their own retirement benefit.
For example, if a woman worked and earned her own $800 monthly Social Security benefit, but was also due a $500 spouses benefit on her husband’s record, we couldn’t pay that spouse’s benefit because her won benefit offsets it. Before enactment of the Government Pension Offset law, if that same woman was a government employee who didn’t pay into Social Security and earned an $800 government pension, there was no offset. We had to pay her a full spouse’s benefit and her full government pension.
If this person’s government work had been subject to Social Security taxes, we would reduce any spouse, widow or widower benefit because of their own Social Security retirement benefit. The Government Pension Offset ensures that we calculate the benefits of government employees who don’t pay Social Security taxes the same as workers in the private sector who pay Social Security taxes.
Whether you are convinced of the reasonableness of this change or not, the important thing to understand is that the GPO can have a significant impact on some employees’ post-retirement income. If you are still employed, you may want to reconsider when you plan to retire. If you are retired, knowing that several hundred dollars a month won’t be coming your way may cause you to rethink your life style and your investment strategy, among other things.
In closing, let me call your attention to a few of the exceptions to the GPO. It doesn’t apply to any CSRS employee who switched to the Federal Employee Retirement System (FERS) before 1988. Nor does it apply to anyone who the Office of Personnel Management allowed to make a belated election up through June 30, 1988. It also doesn’t apply to those who chose to switch after that date, as long as they have put in five years under FERS.
SSA synopsis of the GPO: