A recent column discussed how the Windfall Elimination Provision (WEP) affects the Social Security benefits of individuals who are covered by a government (federal, state or local)-sponsored guaranteed pension plan, such as federal employees who are covered by the Civil Service Retirement System (CSRS). In short, the WEP will reduce a CSRS annuitant’s own Social Security retirement benefit by as much as 50 to 60 percent.
There is another Social Security offset affecting CSRS annuitants: the Government Pension Offset (GPO), sometimes called the Public Pension Offset or PPO.
The GPO will also reduce – but more likely eliminate – the Social Security spousal benefit (or ex-spousal benefit from a former spouse) of a CSRS annuitant. Note that unlike the WEP, there is little movement in Congress to modify the GPO. This column discusses what the GPO is, Congress’ rationale in passing it into law, and how the GPO affects CSRS annuitants.
The GPO is a provision that for affected individuals, will reduce – most likely eliminate – any type of Social Security spousal benefit for a spouse, divorced spouse and survivor spouse (widow or widower) who also receives a defined benefit (guaranteed) pension from a governmental body.
The defined benefit pension was earned based on the spouse’s employment with the federal, state, or a local government in which the spouse did not pay into Social Security. An example of such an individual is a CSRS annuitant who did not pay into Social Security while in federal service and covered under CSRS. The current GPO provision became law in 1983.
A Review of Spousal Social Security Benefits
In order to fully understand the impact of the GPO and how it works, it is important to first review spousal (including ex-spousal) and surviving spousal benefits under Social Security.
An individual may receive a Social Security retirement benefit by working the minimum required number of years – 10 years – in a Social Security-covered employment and therefore become “fully insured.” Being “fully insured” entitles the individual to receive a Social Security retirement check, starting as early as age 62.
An individual may also be entitled to a Social Security spousal benefit if the individual is married (or was married to an ex-spouse for at least 10 years and has been divorced for at least two years) to someone who is also eligible for a Social Security retirement benefit. To do so, half of the spouse’s or ex-spouse’s Social Security retirement benefit must be more than the individual’s own Social Security retirement benefit.
Under what is called the “dual entitlement” law, when an individual becomes eligible for a Social Security retirement benefit based on both his own Social Security earnings and a spouse’s (or ex-spouse’s) Social Security retirement benefit, then the individual is entitled to the higher of the two benefits. In particular, the individual’s own retirement benefit is called as the “base” benefit. If the individual’s “base” benefit is lower than 50 percent of the spouse’s Social Security retirement benefit, then the individual’s benefit is “topped up” to the higher amount that is 50 percent of the spouse’s or ex-spouse’s benefit. Note that the individual’s own Social Security benefit and spousal benefit are not added together. The following two examples illustrate:
Example 1. Nancy is entitled to a Social Security retirement benefit of $600 per month at her full retirement age (FRA). Nancy’s husband, Ralph, is entitled to a Social Security retirement benefit of $2,400 per month at his FRA.
One-half of $2,400, or $1,200, is Nancy’s spousal benefit because it is more than $600, which is her benefit.
Nancy is not entitled to a benefit of $1,800 ($600 – her own benefit plus $1,200 – the spousal benefit)
Example 2. Michael is entitled to a Social Security retirement benefit of $1,500 per month at his FRA. Michael’s wife, Susan, is entitled to a Social Security retirement benefit of $2,800 at her FRA.
One-half of $2,800, or $1,400 is Michael’s spousal benefit. Because it is less than $1,500, which is Michael’s benefit, Michael keeps his benefit of $1,500 and does not receive 50 percent of Susan’s Social Security benefit which is $1,400.
What was Congress’ purpose in creating the GPO?
To understand what prompted Congress to create the GPO in 1983, consider the following examples:
Example 1. Spouse H is age 66 (FRA) and is receiving a Social Security monthly benefit of $2,400. Spouse W is also age 66 (FRA) but never worked outside the home. If both spouses applied for their Social Security retirement benefits today, Spouse H would receive $2,400 per month and spouse W would receive half of Spouse H’s benefit, or $1,200 per month, even though spouse W is not “fully insured.”
Now change the situation. Spouse W worked outside the home in a job in which Spouse W did not pay into Social Security, such as the federal government under CSRS, or a state or local government in which Spouse W earned a defined benefit pension but did not pay into Social Security. In other words, Spouse W is receiving a public-funded defined benefit plan pension. Assume spouse W’s pension is $3,000 per month, more than spouse W’s Social Security spousal benefit of $1,200 per month.
Given the latter facts and circumstances about spouse W, is it really fair that spouse W would receive the same Social Security spousal benefit as in the former situation in which spouse W did not work outside the home? If spouse W in the latter situation were to receive a full Social Security spousal benefit, does it seem to be a case of “double dipping”? This was Congress’ motivation and purpose in creating the GPO in 1983.
How does the GPO work?
The GPO reduces, and in most cases, will result in a total elimination of a spousal or ex-spousal Social Security benefit paid to an individual who receives a government pension (federal, state or local) in which the individual did not pay into Social Security. For example, the individual is a CSRS annuitant. It should be emphasized that the GPO has no effect on the individual’s own Social Security retirement benefit that he or she earned and is “fully insured.” In that case, the individual’s Social Security benefit will be reduced as a result of being subject to the Windfall Elimination Provision (WEP) discussed in a previous column.
The amount of the reduction of the Social Security spousal benefit (either from a current or from an ex-spouse) is equal to 2/3rds of the spouse’s or ex-spouse’s government pension.
The following example illustrates:
Fred is a CSRS annuitant receiving a CSRS annuity of $4,800 per month and is also receiving his Social Security retirement benefit of $500 per month. Fred’s wife Joan has worked in private industry her entire life and is currently receiving a Social Security monthly benefit of $3,000. While Fred is eligible ‘on paper” for half of Joan’s Social Security, or $1,500 per month (which is more than his $500 per month), Fred will not receive any of the $1,500 spousal benefit due to the GPO, as shown below:
2/3rds of Fred’s monthly CSRS annuity of $4,800 per month equals $3,200 per month
$1,500 – Fred’s spousal monthly Social Security benefit – less $3,200 equals $0.
Fred will receive his full $4,800 monthly CSRS annuity check and his $500 Social Security monthly check, the latter reduced due to the WEP.
The GPO reduction on spousal survivor (widow/widower) Social Security benefits are also affected. The same formula is used to calculate the reduction of these benefits.
Consider the example above with Fred and Joan:
Joan predeceases Fred. At the time of her death Joan’s monthly Social Security benefit is $3,200 per month. Fred’s CSRS annuity is $5,100 per month. While Fred is entitled “on paper” to a Social Security widower benefit of $3,200 per month (all of Joan’s Social Security), he will not receive any of the $3,200 widower benefit due to the GPO, as shown below:
2/3rds of Fred’s monthly CSRS annuity of $5,100 equals $3,400 per month
$3,200 (widower Social Security benefit) less $3,400 equals $0.
Even if the GPO reduces or eliminates an individual’s spousal Social Security benefit, the individual is still eligible for Medicare at age 65, based on the individual’s own Medicare-covered work record, or the Medicare-covered work record of a spouse. The GPO has no effect on Medicare benefits.
Who is not affected by the GPO?
The following individuals are not affected by the GPO:
· FERS-covered employees;
· “Trans” FERS employees – CSRS-covered employees who elected to switch to FERS after Dec. 31, 1987 with at least five years of CSRS-covered service;
· CSRS Offset employees;
· Individuals who received or who were eligible for a governmental defined benefit pension before December 1982 and met all the requirements for Social Security spousal benefits in effect in January 1977; and
· Individuals receiving, or who were eligible to receive. a governmental defined benefit pension before July 1, 1983 and were receiving one-half support from their spouse.
Finally, it is important to emphasize that like the WEP, the GPO applies only to annuitants and not to employees. This means that a CSRS-covered employee can collect a full Social Security spousal benefit or survivor (widow/widower) benefit and not be affected by the GPO. It is only when an employee retires and becomes an annuitant that the GPO takes effect.