GPO/WEP - Social Security Offsets

GPO/WEP Elimination

IPMA-HR supports modification of the Social Security offsets known as GPO and WEP because the negatively impact the retirement security of public employees.

Definition and Purpose of the GPO and WEP:

When Social Security was enacted it did not automatically cover all employees. While the majority of the workforce is covered by Social Security, there is still a significant minority of federal, state, and local workers whose government jobs were and are not covered by Social Security. For purposes of this discussion they are “non-covered” workers.

GPO

The Government Pension Offset (GPO) applies to a non-covered worker who becomes eligible for Social Security benefits through a spouse. The GPO acts to reduce the spousal/survivor Social Security benefits of a non-covered worker. The reduction in Social Security spousal or survivor benefits is equal to two-thirds of the government employee’s own public retirement benefit.

For example: a non-covered worker receives $900 per month from her public retirement benefit. Her husband is retired from a private sector job and is receiving a $900 per month Social Security benefit. Without GPO, the wife would be entitled to a spousal benefit of $450 per month but with GPO, she is not entitled to any Social Security benefit. This is because under the GPO formula, her spousal benefit is reduced by two-thirds of her public retirement benefit – or $600. Since $600 is more than $450, she gets nothing.

The Social Security Administration (SSA) explains the need for the offset as follows:

Social Security spouse's benefits provide income to wives and husbands who have little or no Social Security benefits of their own. From the beginning of the Social Security program, spouse's benefits were intended for women and men who were financially dependent on their husbands or wives who worked at jobs covered by Social Security.

Before the offset provisions were enacted, many government employees qualified for a pension from their agency and for a spouse's benefit from Social Security, even though they were not dependent on their husbands or wives.

This example helps clarify why there is an offset.

Bill Smith collects a Social Security benefit of $600 per month. His wife, Mary, is potentially eligible for a wife's benefit of 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. By law, Mary can receive only the higher of the two benefits she is eligible for, not both. 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, had a job with the federal government, instead of one where she paid Social Security taxes, and earned a civil service pension of $800 per month. Before the government pension 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, Nancy does not qualify for a wife's benefit from Social Security and is treated the same as Mary.

The Congressional Budget Office (CBO) estimates that the GPO negatively impacts 350,000 workers. The average retiree loses approximately $350 per month in benefits while the average widow loses about $477 per month in benefits. Clearly the amount is significant to those who are expecting to receive a benefit.

WEP

Using a complex formula, the WEP operates to reduce the Social Security benefits of a worker who is entitled to a public retirement benefit and an earned Social Security benefit by working part of a career for a non-covered employer and another part for a covered employer. A typical example is a teacher who worked summers in the private sector.

The SSA explains the need for the WEP as follows:

The modified formula prevents a windfall to people who would unfairly benefit from provisions aimed at low-income workers. Social Security benefits replace a percentage of a worker's pre-retirement earnings and the benefit computation formula includes factors that make sure lower-paid workers get a higher return than highly paid workers. For example, lower-paid workers could get a Social Security benefit that equals about 60 percent of their pre-retirement earnings. The average replacement rate for highly paid workers is about 25 percent.

Before 1983, people who worked in jobs not covered by Social Security received benefits that were computed as if they were long-term, low-wage workers. They received the advantage of higher percentage benefits in addition to their other pension. The modified formula eliminates this windfall.

More information:

http://www.retirementsecurity.org/ -- provides links to information on the GPO/WEP in the left-hand navigation column.

http://www.ssa.gov/gpo-wep/ - the Social Security Administration’s description of the GPO/WEP