Expert's View

‘Tis the season to retire for many employees. If you are one of them and are covered by CSRS, you need a wake-up call. There are two provisions of law that can reduce your retirement income. While they won’t affect your CSRS annuity, they may reduce – or even eliminate – certain Social Security benefits to which you may otherwise be entitled. The “bad news bears” are the Windfall Elimination Provision and the Government Pension Offset.


The Windfall Elimination Provision

Under the WEP, most CSRS retirees who have accumulated enough credits to be eligible for a Social Security benefit will have that benefit reduced. That’s because they’ll be receiving an annuity from CSRS, a retirement system where they didn’t pay Social Security taxes. Under the law, they’ll have a modified formula used to compute their Social Security benefit. Only those with 30 or more years of “substantial earnings” under Social Security will receive a full Social Security benefit. Everyone else will get less, often much less.

To meet the substantial earnings criterion, you have to earn much more per year than the amount need to qualify for Social Security credits. For example, in 2005 you’d only have to make $3,680 to get a full year’s credit from Social Security. However, for your earnings to be considered substantial, you’d have to earn $16,725!

Under the WEP, the first multiplier in the Social Security benefit formula – 90 percent – is reduced by 5 percent for every year of Social Security-covered employment that is less than 30. Fortunately, the reduction bottoms out at 40 percent for those who have 20 or fewer years of substantial earnings. As a result, even those who only have the 40-credit minimum needed to be eligible for a Social Security benefit will still get something.


The Government Pension Offset

The GPO only affects those CSRS retirees who would be eligible for a Social Security spousal benefit based on their spouse’s earned Social Security benefit. In most cases, that benefit will be reduced or eliminated. 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 were eligible for a monthly CSRS annuity of $2,100, two-thirds of that – $1,400 – would be used to offset your monthly Social Security spousal benefit. If that benefit was $1,500, you would receive only $100 a month from Social Security ($1,500 – $1,400 = $100).

Obviously, the more money you receive in your CSRS annuity, the less you’ll get from your spousal benefit, until you reach a point where you’ll get nothing. For example, if you had a monthly CSRS annuity of $2,400 and a monthly spousal benefit of $1,200, you wouldn’t get anything from Social Security ($1,200 – $1,600 = 0). Because CSRS annuities are usually much greater than Social Security spousal annuity benefits, the GPO usually eliminates the latter benefit.


The Future

Over the years there have been efforts by some members of Congress to eliminate or modify the WEP and the GPO, but nothing has happened to date. While there is always a chance that it will, don’t plan on it.