Government Pension Offset and Windfall Elimination Provision

February 5, 2008

Introduction

The Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP) are amendments to the Social Security law that lower the retirement income of federal employees by altering the Social Security benefit formula for certain groups. The reduction of retirement income for those now affected by the GPO or the WEP can escalate to a loss of their entire Social Security benefits. Civil Service Retirement System (CSRS) annuitants in particular can be subject to both the GPO and WEP. While Members of Congress have introduced a number of bills in the House and Senate to either correct or mitigate the harmful effects of the GPO and WEP, and held a hearing before the Social Security, Pensions and Family Policy Subcommittee of the Senate Finance Committee, the large projected cost of addressing the issue continues to be an obstacle.

Government Pension Offset

The GPO affects federal retirees who were covered solely by the CSRS and causes a reduction or sometimes an outright elimination of Social Security survivors’ and/or spouses’ benefits. The GPO, in effect, prohibits federal retirees from collecting both a full CSRS annuity based upon their own government employment and full Social Security benefits they would otherwise be entitled to as a surviving spouse.

With a few very limited exceptions, the GPO formula cuts a Social Security spousal benefit by two-thirds for retired federal workers who would receive Social Security benefits as a surviving spouse. This reduction in retirement income is substantial: 75% of retired federal workers entitled to these benefits receive no Social Security spousal or survivor benefits at all. The victims of GPO are largely elderly women who retired as federal employees entitled to CSRS benefits and who are also the widows of private sector employees. Had these women spent their careers anywhere but in civil service they would be entitled to full, unreduced Social Security spousal or survivor benefits, but because they earned their pensions under CSRS, their Social Security benefit is offset by their own earned retirement benefits.

Windfall Elimination Provision

While the GPO affects Social Security benefits received by federal retirees but earned by a spouse, the WEP affects Social Security benefits of the federal retiree him or herself. The Social Security retiree benefit formula provides a greater percentage of pre-retirement earnings to low-wage workers than it does to higher-wage workers. The lower the wages, the higher the index number used to adjust for earnings. Some federal retirees earned low wages during the period of their careers they spent in Social Security-covered employment and later earned much higher salaries during their federal careers. Had the wages from both employments been covered by Social Security, they would have produced lower benefits as a percentage of both those early and later years.

In 1983, Congress decided that the Social Security benefits of individuals who fit the above-described profile should be lower because the assumption of low lifetime earnings was false and concocted the WEP as a solution that has proven to have unforeseen consequences. The WEP lowers the indexing factor used to adjust wages depending on the number of years spent in Social Security-covered employment. The more years a worker spent in Social Security-covered employment, the less the effect of the WEP. For instance, those with 30 years or more of Social Security-covered employment are not affected by WEP, while those with between 21 and 29 covered years lose varying amounts. However, those with 20 or fewer years of Social Security-covered employment are affected more dramatically and they may face having their Social Security benefit reduced by as much as 60%. The WEP is confusing and mislabeled. Many CSRS retirees do not consider their time spent in Social Security-covered employment insubstantial and some of these workers paid the same payroll contribution on their Social Security-covered employment as did other workers.

Legislation

AFGE supports stopping the unnecessary reduction of income to our vulnerable and valuable federal retirees. These provisions target federal retirees specifically, and deprive them of the full government pension and Social Security benefits they worked for and believed would be available to them in their golden years. AFGE supports the Social Security Fairness Act of 2007, (S. 206) introduced in the Senate by Senators Dianne Feinstein (D-CA), Susan Collins (R-ME), Frank Lautenberg (D-NJ) and Olympia Snowe (R-ME). The companion bill (H.R. 82) was introduced in the House by Representatives Howard McKeon (R-CA) and Howard Berman (D-CA). The legislation would repeal both the GPO and the WEP. As in the past, the bill enjoys strong bipartisan support. However, Congress remains concerned about the price of addressing the problem.

The Government Pension Reform Act, S. 1254 as introduced by Senator Barbara Mikulksi and H.R. 2988 introduced by Rep. Al Wynn (D-MD) would exempt annuitants whose combined monthly income from pension and Social Security is less than $1,200. H.R 1090 introduced by Representative Ron Lewis (R-KY) would reduced the two-third offset formula to a one-third. H.R. 726 introduced by Representative Barney Frank (D-MA) would exempt individuals whose pension and Social Security income is less than $2,500 from the WEP and apply a graduated WEP for annuitants whose monthly income ranges from $2500 to $3,334. H.R. 2772, the Public Servant Retirement Act, introduced by Kevin Brady (R-TX) repeals the WEP formula and replaces it with a formula that uses complete earnings information from both covered and non-covered employment to calculate average monthly earnings over a worker’s life.

Conclusion

AFGE supports the Social Security Fairness Act, and is working in coalition with other federal retiree advocates to enact legislation to restore to federal workers and their spouses pensions they have earned that were wrongfully taken from them. AFGE also calls upon the Social Security Administration to work with the Internal Revenue Service and utilize advances in technology to address the current arbitrary results of the GPO and WEP.

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