Image: larry1235/Shutterstock.com
By: Reg JonesAs I wrote last week, if you are covered by the Civil Service Retirement System, you’re a member of a dwindling population and you’re probably either already eligible to retire or are close to it. That’s why I want to remind you of two provisions of Social Security law that might reduce your retirement income.
While they won’t affect your CSRS annuity, they may cut into – or even eliminate – any Social Security benefit you may otherwise be entitled to. They are the Windfall Elimination Provision and the Government Pension Offset.
The Windfall Elimination Provision
The WEP reduces the Social Security benefit of employees who will receive an annuity from a retirement system where they didn’t pay Social Security taxes, such as CSRS. Under that law, a modified formula will be used to compute your Social Security benefit. If you have 30 or more years of “substantial earnings” under Social Security, you’ll receive a full Social Security benefit. If you don’t, you won’t.
To show you how it works, I’ll start with the formula used to compute the benefit of employees who aren’t affected by the WEP. For example, a private sector employee who will turn 62 in 2023:
• Their first $1,115 of average indexed monthly earnings (AIME) would be multiplied by 90 percent;
• Everything from $1,115 to $6,721 of the AIME would be multiplied by 32 percent;
• AIME above $6,721 would be multiplied by15 percent.
The total of these three multiplications – when adjusted by your total years of Social Security coverage – would be your monthly annuity from the Social Security Administration.
Now let’s see what happens if you are a CSRS employee who is entitled to a Social Security benefit. The WEP will reduce that 90 percent factor by 5 percent for each year of “substantial earnings” fewer than 30. The reduction ends at 40 percent if you have 20 or fewer years of substantial earnings.
To meet the substantial earnings criterion, you must have earned much more per year than the amount needed to earn Social Security credits. For example, in 2023 you’d only have to earn $6,560 to get a full year’s credit from Social Security. However, for your earnings to be considered substantial, you’d have to make $29,700.
The Government Pension Offset
The GPO is a different animal. It only affects those who will get an annuity from CSRS and have a spouse who will get one from Social Security. If you are a CSRS employee – not CSRS Offset or FERS – the GPO will reduce your Social Security spousal benefit by $2 for every $3 you receive in your CSRS annuity.
For example, if you are eligible for a monthly CSRS annuity of $3,600, two-thirds of that – $2,400 – would be used to offset your monthly Social Security spousal benefit. If that benefit was $2,500, you would receive only $100 a month from Social Security. That’s because $2,400 subtracted from $2,500 leaves a positive balance of only $100.
The larger your CSRS annuity is, the less you’ll receive from your spousal benefit, until you reach a point where you’ll get nothing. Because CSRS annuities are often much greater than Social Security spousal annuity benefits, the GPO usually wipes out the latter.
The Future
For decades, there have been moves in Congress to eliminate or modify the WEP and the GPO, but so far without success. While there is always a chance that the tide will turn, it’s unlikely now because of the negative vibes emanating from the Hill.
Former head of retirement and insurance policy at the Office of Personnel Management, and longtime FEDweek contributor, Reg Jones is known throughout the federal workforce community as an authority on pay and benefits.
Shutdown Meter Ticking Up a Bit
Judge Backs Suit against Firings of Probationers, but Won’t Order Reinstatements
Focus Turns to Senate on Effort to Block Trump Order against Unions
TSP Adds Detail to Upcoming Roth Conversion Feature
White House to Issue Rules on RIF, Disciplinary Policy Changes
Hill Dems Question OPM on PSHB Program After IG Slams Readiness
See also,
Legal: How to Challenge a Federal Reduction in Force (RIF) in 2025
The Best Ages for Federal Employees to Retire
Alternative Federal Retirement Options; With Chart
Primer: Early out, buyout, reduction in force (RIF)
Retention Standing, ‘Bump and Retreat’ and More: Report Outlines RIF Process
