Ask a federal employee under age 55 or so what’s the worst part of the federal retirement package and likely you’ll hear about the less-generous benefits under the Federal Employees Retirement System in comparison with the older Civil Service Retirement System.
Ask an employee older than 55 or so what’s the worst part of the federal retirement package and you’ll probably hear about the government pension offset and the windfall elimination provision under the CSRS system.
Both the GPO and WEP apply to persons with an annuity benefit from a retirement system that does not include Social Security. Because of the Social Security revisions of the early 1980s designed to get more money coming into that system, such programs now account for only about 4 percent of retirees nationwide—mainly under state and local government retirement systems and, in the federal government, those under CSRS.
Why are we still talking about CSRS?
Wasn’t CSRS replaced by the FERS program with its Social Security component? Yes and no. It is being replaced by the FERS program, first in the workplace and then among the federal retiree population. The job is nearly complete among the former but among the latter CSRS is still dominant.
While only about 5 percent of active workers were under it CSRS in 2018, above 70 percent of those drawing retirement benefits were getting them from that system. And people are still retiring under it in large numbers; as of last year, 43 percent of new retirees went out under CSRS.
With its youngest members only in their mid-50s, that system still will be paying benefits for decades. Meantime, the WEP and GPO still are the thorns in the sides—and drains on the wallets—of CSRS people that they have been for decades.
WEP & the GPO
Under the GPO, a Social Security spousal or survivors benefit is reduced by an amount equal to two-thirds of the annuity from such a retirement program. The WEP affects those under such a program who nevertheless have enough Social Security-covered earnings from elsewhere—self as self-employment or work before or after a federal career—to be eligible for a personal benefit from it. A formula reduces the Social Security benefit for those with less than 30 years of earnings in that system below a threshold—this year, $24,675. The maximum reduction currently works out to be $463 a month.
Here’s how a recent Congressional Research Service Report explains the reasoning behind the WEP, which was enacted in 1983:
“Its purpose was to remove an unintended advantage or windfall that the regular Social Security benefit formula provided to workers who also had pensions from noncovered employment. The regular formula is weighted to replace a greater share of career-average earnings for low-paid workers than for high-paid workers. However, the formula could not differentiate between those who worked in low-paid jobs throughout their careers and other workers who appeared to have been low paid because they worked in jobs not covered by Social Security for many years (these years are shown as zeros for Social Security benefit purposes). The WEP is intended to remove this unintended advantage.”
As for the GPO, enacted in 1977, it is “intended to replicate the dual entitlement rule for spouses and widow(er)s who receive pensions based on employment not covered by Social Security.” Under the “dual entitlement” policy, in turn, the benefit a person can receive based on a spouse’s work is reduced dollar-for-dollar by the amount of his or her own Social Security benefit. Because a spousal (or survivor) benefit is only half of the covered person’s own earned benefit, the effect in most cases is to eliminate the spousal benefit.
On the surface, the GPO formula with its two-thirds reduction is actually a better deal than the dual entitlement rule. However, because a CSRS benefit typically is so much larger than a spousal Social Security benefit, the impact often is the same—to eliminate the spousal benefit.
Because the GPO basically replicates a reduction applying to everyone else under Social Security, most of the focus has been on the WEP, which applies only to a specific group in a specific situation. Over the years there has been a series of proposals to either eliminate it or to soften the effect.
The latest, recently introduced in the House, offers yet another approach. For those under age 59 at enactment there would be a revised formula that in most cases would be more favorable to the individual than the current formula; at retirement, they could choose between that and the traditional formula. For those age 60 or older at enactment the current reduction would continue to apply but as a partial make-up, their own monthly Social Security benefits would be increased by $100.
Will that be enacted? Well, look at the reasoning behind its existence, the fate of similar reform proposals, and Social Security’s financial position and draw your own conclusion.
Read more about the windfall elimination provision – WEP and social security, at ask.FEDweek.com