Social Security: The Government Pension Offset (GPO)

Table 4 shows how the spousal benefit of the same individual, Mary, would vary under three scenarios: Note that the reduction to Social Security spousal benefits is smaller under the GPO than it is under the dual entitlement rule: For those under dual entitlement, the Social Security spousal benefit is reduced by one dollar for every dollar of Social Security retirement benefits based on their own work histories in Social Security-covered employment.

For those under the GPO, however, the Social Security spousal benefit is reduced by approximately 67 cents for every dollar of a pension from non-covered government employment. Social Security retire d-worker monthly benefit based on own earnings record. Reduction in spousal monthly benefit due to dual entitlement rule equal to worker's Social Security retired-worker benefit.

Total monthly retirement benefits paid to Mary Social Security spousal benefit plus either a Social Security retired-worker benefit or b non-covered pension. Dashes are used to represent scenarios in which either the dual entitlement rule or the GPO are not applicable.

For example, in the dual entitlement scenario, Mary does not receive a non-covered government pension and, thus, the GPO does not apply. The GPO was originally established in P. One section of the House version of this law proposed that the amount used in calculating the offset be one-third of the government pension. The conferees adopted the House bill except that the offset was fixed at two-thirds of the non-covered government pension.

In , approximately 6. Individual received no Social Security spousal or widow er 's benefit because the reduction in the Social Security spousal benefit a reduction equal to two-thirds of the pension from non-covered government employment was greater than the Social Security benefit itself. Either the non-covered pension was large, or the potential Social Security benefit was small.

Individual received partial Social Security spousal or widow er 's benefits because the reduction in the Social Security benefit a reduction equal to two-thirds of the pension from non-covered government employment was less than the Social Security benefit itself. In comparison, in , the dual entitlement rule affected approximately 7. Opponents argue that the GPO is not well understood and that it harms lower-income workers.

Defenders of the GPO maintain that it helps ensure that only financially dependent spouses receive the Social Security spousal benefit, while curtailing what otherwise would be an unfair advantage for government workers who are not covered by Social Security. Critics of the GPO say that it is not well understood and that many affected by it are unprepared for a smaller Social Security benefit than they had assumed in making retirement plans.

Supporters of the provision say it has been law for more than 40 years it was enacted in ; therefore, people have had ample time to adjust their retirement plans. Though SSA suspended the universal mailing of annual statements in due to budget constraints, an online version that has retained the GPO and WEP educational material can be created for those who establish an online account.

The reduction to Social Security spousal benefits is smaller under the GPO than it is under the dual entitlement rule. The majority of state and local government workers, and federal employees hired since , are covered by Social Security. Some argue that eliminating the GPO would be unfair to government employees in Social Security-covered positions, who would continue to be subject to the dual entitlement provision.

As discussed above, for those under dual entitlement, the Social Security spousal benefit is reduced by one dollar for every dollar of Social Security retirement benefits based on their own work history in Social Security-covered employment.

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There is disagreement about the original intention of the GPO, which was enacted in Some argue that the original purpose was to prevent higher-paid workers from reaping over-generous spousal benefits. Others contest this, saying that the GPO was never targeted to a particular income group. Opponents of the GPO argue that the provision hurts lower- and middle-income workers such as teachers and in some circumstances is sufficient to throw these workers into poverty. Opponents also say that the GPO is especially disadvantageous for surviving spouses.

Regarding concerns about pushing those affected by the GPO into poverty, in the poverty rate among those affected by the GPO was approximately 6. For comparison purposes, the poverty rate for the general population at that time was approximately Opponents point out that whatever the rationale for the GPO, reducing everyone's spousal or widow er 's benefit by two-thirds of their government pension is an imprecise way to estimate what the spousal benefit would have been if the government job had been covered by Social Security.

If two-thirds of the government pension were in fact a good proxy for Social Security retirement benefits, there would be no significant difference in outcomes between the dual entitlement rule and the GPO. As noted above see the previous section, " Impact on Low-Income Workers " , however, there is great variation in outcomes. The GPO may lead to a smaller offset relative to the dual entitlement rule for low earners than for high earners.

Ideally, opponents argue, the way to compute the offset to replicate the dual entitlement rule would be to apply the Social Security benefit formula to a spouse's total earnings, including the non-covered portion, and reduce the resulting Social Security spousal benefit by the proportion of total earnings attributable to non-covered earnings.

Currently, however, the SSA does not have complete records of non-covered earnings histories. Although SSA started collecting W-2s in the early s, the initial records were sometimes incomplete. The Social Security benefit formula requires earnings data for a worker's entire lifetime. Some question why the GPO does not apply to the spousal benefits received by the spouses of private sector workers, who may receive private, employer-sponsored pensions defined benefit or defined contribution in addition to Social Security benefits.

Generally, the private sector employment on which the private pension is based would be covered by Social Security.

Therefore, the dual entitlement rule which the GPO is meant to replicate would instead take effect to reduce any Social Security spousal benefits for which a beneficiary might be eligible. As noted earlier, in many cases the dual entitlement rule would produce a higher reduction in spousal benefits than does the GPO. Some argue that weakening or eliminating the GPO would be costly at a time when neither Social Security nor the federal budget is in sound financial condition. A burgeoning controversy arose in the th Congress with the revelation that a growing number of state and local government workers had been making use of a little-known provision of the law that allowed them to escape the application of the GPO if they switched jobs at the very end of their government careers.

That provision granted an exception to the GPO if, on the last day of one's government service, he or she worked in a Social Security-covered position. Any current Social Security beneficiary who is receiving spousal benefits and is exempt from the GPO because they retired from their non-covered position in government under the last-day rule would continue to be exempt from the GPO.

Individuals may still be exempt from the GPO if. All other individuals receiving government pensions based on non-covered employment would be subject to reductions in Social Security spousal benefits under the GPO.

The GPO is often confused with the Windfall Elimination Provision WEP , which reduces Social Security benefits that a person receives as a worker if he or she also has a government pension based on work that was not covered by Social Security. A worker may earn up to four earnings credits per calendar year.

Earnings credits are also called quarters of coverage. The disparity in coverage among states occurs because, while Social Security originally did not cover any state and local government workers, over time the law has changed. Beginning in July , state and local employees who were not members of a public retirement system or covered by a Section agreement were mandatorily covered by Social Security. The term dually entitled applies only to those who receive spousal benefits. If an individual's own worker benefit is greater than his or her spousal benefit, that person receives the higher worker benefit and is not considered dually entitled.

Administrative data do not provide the number of people in this latter category.

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In this example, John is not eligible for a Social Security spousal benefit because Mary's employment was not covered by Social Security. Effectively, the GPO offset formula assumes that two-thirds of the government pension is roughly equivalent to the Social Security retirement or disability benefit the spouse would have earned as a worker if his or her job had been covered by Social Security. Amounts may not add due to rounding.

G2, available at https: The WEP reduces Social Security benefits that a person receives as a worker if he or she also has a government pension based on work that was not covered by Social Security. Social Security Administration at http: Social Security Administration plan to increase the number of individuals receiving Social Security Statements , March , http: Relief may soon be on the way for more than 2 million Americans who face big cuts in their Social Security benefits simply because they worked in government jobs that come with a pension.

Both are designed to prevent double-dipping from Social Security and public-sector pensions. The cuts in benefits can be very sharp. The GPO can result in even sharper cuts to spousal and survivor benefits. Legislation has been introduced in both chambers of Congress that would repeal both WEP and GPO, but the plan that seems to have traction takes an incremental approach and focuses on WEP only.

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If applied in , the proposal would help about 1. And the group is pushing back on the revisions. Why would government workers be treated differently from everyone else?

The answer begins with the way that Social Security benefits are distributed across wage-earners with varying incomes. The formula does not distinguish between workers who had low wages and those who worked for part of their careers in jobs not covered by Social Security. Many federal and state jobs are outside the system because they are covered by government pension plans.