The Government Pension Offset

The Government Pension Offset

by Richard Cohee

In the previous issue of the “REAL SCOOP” we alerted you to the financial penalties that government workers suffer as a result of the “Windfall Elimination Provision” (WEP).  As you may recall from the example previously offered, the application of this provision would reduce the Social Security benefits otherwise allocable to retirees of the City Retirement System by approximately $355 per month.  The WEP affects those City retirees who have enough credits to qualify for Social Security benefits on their own account.

We would like to extend the discussion on Social Security reductions to cover the related subject known as the “Government Pension Offset” (GPO) which was enacted by the Social Security Amendments of 1977 and became law in 1983.  While the previous discussion on the WEP related to a reduction in Social Security benefits for an individual (such as a City retiree) who earned Social Security benefits under their own record and who also earned a government pension from a job not covered by Social Security, the GPO relates to a reduction in Social Security benefits for the spouse or widow(er).  The GPO affects City retirees when they file for Social Security benefits on their spouse’s Social Security record.  Thus, the type of Social Security benefit you receive determines the formula used to calculate the reduction.  The WEP formula is used against an “earned (Social Security) benefit” paid to a worker who worked enough Social Security-covered employment to “earn” a benefit. In contrast, the GPO formula is used against a “spouse’s or widow’s (Social Security) benefit” paid to spouses or surviving spouses of Social Security pensioners who did not work enough time under Social Security to have their own earned benefit or their earned benefit is less than the spouse’s benefit that is available to them.  The Social Security spousal benefit is generally one-half of the benefit paid to the Social Security pensioner who earned the benefit.

The GPO formula acts to reduce the “spouse’s or widow’s (Social Security) benefit” by two-thirds of the amount of the public pension plan retirement benefit to be distributed to the surviving spouse of a City retiree.  As we assess the impact of the GPO let us consider the following examples for purposes of illustrating the mechanics of the formula:

Example 1:      Worker A is eligible to receive a City pension of $600 per month based upon his own work.  His spouse has earned a Social Security benefit of $1,000 for both husband and wife (with $500 allocable to each).

  • Two-thirds of his $600 government pension equals $400 – the offset amount.
  • One-half of $1,000 is $500 – the Social Security spousal benefit amount.
  • The $500 Social Security spousal benefit amount minus the $400 offset equals $100 in net Social Security benefits to be paid for Worker A.
  • Thus, the $100 Social Security spousal benefit plus the $600 government pension equals a total monthly benefit of $700 to Worker A.

Example 2:      Worker B has a government pension of $1,200 per month.  Her spouse has earned a Social Security benefit, based on his own work record, of $800 for both husband and wife (with $400 allocable to each).

·                     Two-thirds of her $1,200 government pension is $800 – the offset amount.

  • The Social Security spousal benefit is $400 – one-half of the $800 benefit her spouse earned.
  • The $400 Social Security spousal benefit is less than the $800 offset amount.
  • Thus, worker B receives no Social Security benefit based on her spouse’s record and her benefit from the government pension remains at $1,200.

As in the case of the WEP, the GPO may come as a shock to individuals who first apply for Social Security benefits.  The discovery of the impact of the GPO often comes at a particularly difficult period for the Social Security applicant.  The GPO is particularly unfair to widows, who often lose all of the Social Security protection their husbands had provided for them. Individuals who have been affected by the offset feel that they have been unfairly singled out for penalty because they happen to have been in public service in a state or locality where employers are not covered by Social Security.  If they had worked in the private sector, say for IBM, they could receive a company pension and an employer supported 401-k and still get the full amount of their Social Security.  Many members of Congress have recognized these inequities and have filed legislation to reduce or eliminate the impacts of the GPO.  However, to date there has been no action on those bills.

It is important to remember that the GPO applies to government employees only.  The fact that you are a City retiree has no affect on your spouse’s own Social Security benefit.  Also the GPO only applies to a government employee who has earned his or her own pension.  If the City retiree first becomes deceased, the 75% pension that will be distributed to the surviving spouse is not used for purposes of offset by Social Security because the City pension is not based on your spouse’s earnings – it is based on your’s (the City retiree).

Lastly, even though you may not receive a Social Security benefit based upon your spouse’s work record due to the GPO, you can still qualify for Medicare at age 65 on your spouse’s record if you are not eligible for it on your own record.

You may learn more about the Government Pension Offset by reviewing SSA Publication 05-10007, “Government Pension Offset: A Law that Affects Spouse’s or Widow(er)’s Benefits.

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