Over the course of the years that our Association has been fighting to repeal Social Security’s WEP (Windfall Elimination Provision) and GPO (Government Pension Offset), we have received countless numbers communications from our members and other interested parties. Here are some of the most frequent questions and our answers to them.
What is the Windfall Elimination Provision (WEP)?
Massachusetts public employees are not covered by Social Security, meaning they do not participate or contribute to Social Security as a government worker. However, many public employees earn the minimum 40-quarters (10 years) required to become eligible for a Social Security benefit through military service, private sector work, or public sector work covered by Social Security outside of Massachusetts (or with the federal government).
Across the country, some 2/3rds of all firefighters, police officers and teachers are not covered by Social Security. All told, over 2 million retirees spread across all 50 states are subjected to the WEP.
Social Security is a work-based, federal insurance program that provides cash benefits to workers and their eligible family members in the event of the worker’s retirement, disability, or death. A worker’s employment or self-employment is considered covered by Social Security if the services performed in that job result in earnings that are taxable and creditable for program purposes. Although participation in Social Security is compulsory for most workers, about 6% of all workers in paid employment or self-employment are not covered by Social Security.
The windfall elimination provision (WEP) is a modified benefit formula that reduces the Social Security benefits of certain retired or disabled workers who are also entitled to pension benefits based on earnings from jobs that were not covered by Social Security and thus not subject to the Social Security payroll tax. Its purpose is to remove an unintended advantage or “windfall” that these workers would otherwise receive as a result of the interaction between the regular Social Security benefit formula and the workers’ relatively short careers in Social Security–covered employment.
In December 2022, about 2.0 million people (or about 3% of all Social Security beneficiaries) were affected by the WEP. Those workers mainly include state and local government employees covered by alternative staff-retirement systems as well as most permanent civilian federal employees hired before January 1, 1984, who are covered by the Civil Service Retirement System (CSRS).
WEP’s supporters argue that the formula is a reasonable means to prevent overgenerous payments and unintended benefits to people who have earnings not covered by Social Security and receive pensions from noncovered work. Opponents argue that the provision substantially reduces a benefit that workers may have included in their retirement plans, and it reduces benefits disproportionately for lower-earning households. Others criticize the current WEP formula as an imprecise way to determine the actual windfall when applied to individual cases.
Recent legislation has generally proposed either to eliminate the provision for all or some affected beneficiaries, or replace the current-law provision with a new proportional formula based on past earnings from both covered and noncovered employment.
The WEP affects retirees who apply for their own (not spousal) SS benefits and fail to satisfy certain exceptions. A major exception is that members, who were eligible for their public pension before January 1, 1986 (i.e., 20/more years of service under age 55, or 10/more years over 55) or have at least 30 years of substantial coverage under Social Security, are exempt from the WEP. (There is some relief for those with 20-30 years of SS coverage.)
When did the WEP become law?
The WEP was enacted as part of the 1983 Social Security Refinancing Act, designed to shore up the financing of the Social Security Trust Fund. That Act was signed into law by President Ronald Reagan, after being adopted by the Democratic-controlled House where Rep. Dan Rostenkowski (D-IL) chaired the House Ways and Means Committee and the Republican-controlled Senate, where Sen. Robert Dole (R-KS) chaired the Senate Finance Committee.
What is the Government Pension Offset (GPO)?
Social Security spousal benefits were established in the 1930s to help support wives who are financially dependent on their husbands. It has since become more common for both spouses in a couple to work, leading to more cases in which both members of a couple are entitled to Social Security or other government pensions based on their own work records. Social Security does not provide both a full retired-worker and a full spousal benefit to the same individual.
Two provisions are designed to reduce the Social Security spousal benefits of individuals who are not financially dependent on their spouses because they receive benefits based on their own work records. These are
- the dual entitlement rule, which applies to spouses who qualify for both
(1) Social Security spousal benefits based on their spouses’ work histories in Social Security–covered employment and (2) their own Social Security retired- or disabled-worker benefits, based on their own work histories in Social Security–covered employment; and
- the Government Pension Offset (GPO), which applies to spouses who qualify for both (1) Social Security spousal benefits based on their spouses’ work histories in Social Security–covered employment and (2) their own retirement or disability government pensions, based on their own work in government employment that was not covered by Social Security.
The dual entitlement rule requires that 100% of a Social Security retirement or disability benefit as a covered worker is subtracted from any Social Security spousal or widow(er)’s benefit an individual is eligible to receive. The GPO reduces Social Security spousal or widow(er)’s benefits by two-thirds of the retirement or disability pension from noncovered government employment. The GPO does not reduce the benefits of the spouse who was covered by Social Security. In December 2022, 734,601 Social Security beneficiaries (about 1% of all beneficiaries) had spousal or widow(er)’s benefits reduced by the GPO.
Opponents contend that the GPO is imprecise and can be unfair. Defenders argue it is the best method currently available for preserving the spousal benefit’s original intent of supporting financially dependent spouses and for eliminating an unfair advantage for spouses working in non–Social Security–covered employment compared with spouses working in Social Security– covered jobs (who are subject to the dual entitlement rule).
The Government Pension Offset or “GPO” affects members who apply for SS spousal benefits, based upon their husband or wife’s work record under the program, and fail to satisfy two exceptions. Members must either be eligible for their public pension before December 1, 1982 and meet all requirements for SS spousal benefits in effect in January 1977 (i.e., husband received one-half support from his wife), or be eligible for their pension before July 1, 1983 and receiving one-half support from his or her spouse.
Unless a member satisfies one of these two exceptions, then the amount of their SS spousal benefits will be reduced by two-thirds of their public pension. For example, if your pension is $9,000 and you’re eligible for $6,000 in SS spousal benefits, two-thirds of your pension ($6,000) would unfortunately reduce your SS benefits to zero. Note: Even if you do not receive actual benefits, you can still be covered by Medicare.
When did the GPO become law?
The GPO was a provision in the 1977 Social Security Amendments signed into law by President Jimmy Carter, at a time when the Democrats controlled both the House and Senate. The provision originated in the Senate Finance Committee, then chaired by Sen. Russell Long (D-LA). House Ways and Means Committee Chairman Al Ullman (D-OR) pushed through an amendment in the House to provide a five-year transition period so that the GPO was not effective until 1982. Subsequent amendments changed the effective date to 1983, and applied the $1-for-$1 offset against two-thirds of the pension, instead of the entire pension used as the offset in the original provision.
Who created these laws?
Both the WEP and GPO are federal laws, created by the US Congress and signed into law by President Ronald Reagan in 1983 as part of the historic Social Security Reform Act. State and local governments played no role in accepting or approving these laws, not were they able to opt in or out.
Why did Congress create the WEP?
Beginning in the 1970s, federal policy makers became concerned that some public retirees and others receiving pensions from employment that was not covered by Social Security were receiving an unfair advantage in terms of the calculation of their Social Security benefit. Due to the intentional progressive nature of the Social Security formula, added weight is provided within the calculation to increase retirement benefits for those considered career “low wage” workers. For who have noncovered employment mistakenly appear to be low wage workers, thus receiving an artificial increase in the Social Security benefit.
Again, from the CRS:
The regular Social Security benefit formula is progressive, replacing a greater share of career-average earnings for low-paid workers than for high-paid workers. Career- average earnings in Social Security are calculated as average indexed monthly earnings (AIME), which is the monthly average of the highest 35 years of covered earnings after indexing for wage growth. If a person has earnings not covered by Social Security, those noncovered earnings are shown as zeros in their Social Security earnings records. As a result, the regular formula cannot distinguish workers who have low career-average earnings because they worked for many years at low earnings in covered employment from workers who appear to have low career-average earnings because they worked for many years in jobs not covered by Social Security. Therefore, based on the regular formula, a worker who worked in both covered and noncovered employment might receive a higher replacement rate of career-average earnings than a worker with the same earnings who spent an entire career in covered employment. The windfall elimination provision (WEP) is designed to remove such an unintended advantage, or windfall, for certain beneficiaries with earnings not covered by Social Security.
The Proportional Formula.
Shortly before the WEP was enacted in 1983 (P.L. 98-21), the bipartisan National Commission on Social Security Reform (the Greenspan Commission) described two different methods of eliminating the windfall benefits: (1) the current-law method of adjusting the first replacement factor (90%) as discussed above; and (2) a proportional formula. The proportional formula for WEP purposes would apply the regular Social Security benefit formula to all past earnings from both covered and noncovered employment. The resulting benefit would then be multiplied by the ratio of career-average earnings (AIME) from covered employment only to career-average earnings (AIME) from both covered and noncovered employment.
The proportional formula better reflects the Greenspan Commission’s recommendation for people with some earnings from noncovered employment to receive the same replacement rate as those workers who spent their entire careers in covered employment (see Table 1, column ), whereas the current-law WEP can only approximately achieve that goal (see Table 1, column ). However, in 1983, the Social Security Administration (SSA) lacked the data on noncovered earnings needed to make the benefit adjustment under the proportional formula, so Congress adopted the current WEP formula instead. As of 2017, SSA has 35 years of data on earnings from both covered and noncovered employment. This data’s availability means that the proportional formula is now an option for Congress to consider.
What states have retirees hurt by the GPO and WEP?
In addition to Massachusetts, there are 26 states that have public retirees and employees who could be hurt by either the GPO/WEP. Like the Commonwealth, the first 6 states, listed below, have almost all or a large majority of their employees not contributing to Social Security, and, therefore, potentially affected by these laws as retirees. The remaining 20 states are ranked in terms of the percent of employees who may be impacted (66-16%). They are: California, Colorado, Illinois, Louisiana, Ohio, Texas, Florida, New York, Nevada, Connecticut, Kentucky, Minnesota, Georgia, Missouri, Michigan, Tennessee, Wisconsin, Washington, Indiana, Pennsylvania, Alaska, Maine, Hawaii, Montana, New Mexico and New Hampshire. All told, more than 2 million retirees are now harmed by the WEP, with another 750,000 impacted by the GPO law.
What is happening to change the WEP and GPO laws?
Since the creation of WEP and GPO in 1083, there has been a nation-wide effort underway to repeal or reform the two laws. Public retiree advocates, such as the Mass Retirees Association, argue that the laws are unfair and place undue financial hardship on retirees. Others support the laws, either entirely or in part, based on the policy philosophy behind the laws’ creation in 1983.
Over the past decade, two legislative approaches have developed on Capitol Hill. One is a continuation of the 40-year effort to fully repeal both laws and restore the benefits of current retirees to what they would have been absent WEP & GPO. Over the past four decades, full repeal has never carried the needed national support to pass both branches of Congress.
The second approach, in which Mass Retirees has helped spearhead in recent years, seeks to pass a legislative reform of both the WEP and GPO laws. This approach would restore part of the Social Security benefit for current retirees, while ending the WEP entirely for future retirees. In its place, a new proportional Social Security formula would accurately calculate Social Security benefits based on the proportion of time covered by Social Security vs. a noncovered job. Our Association believes that WEP and GPO reform has a more viable path for passage into law than does full repeal.
What can I do to help?
As with any issue – be it at the federal or state level, it’s vital to keep informed. And as we do with all issues of utmost interest, our Association strives to provide our members with the most up-to-date information through a variety of outlets including the Voice, our 24-hour hotline (1-800-368-8778) or the web site (www.massretirees.com). Please take advantage of these resources and remember you can call the office or your Association officers at the telephone numbers listed on your membership card.
Second, timing is critical. Over the years, we have called upon members, in specific parts of the country (i.e., Florida, Maine, Vermont, etc.), to contact their congressmen and senators on the GPO/WEP. While we do not discourage individual initiative on these issues, please act if and when we contact you – that’s when we believe you can have the greatest impact.