6 Things You Need to Know about Social Securitys Government Pension Offset

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6 Things You Need to Know about Social Security's Government Pension Offset

If you are a public pension plan trustee, administrator or staff member, you could have members whose retirements will be seriously affected by Social Security's government pension offset (GPO). Here are six things you need to know about it.

For many public retirees, the worst part about GPO is that it comes as a surprise, taking away a large amount of money that they had been counting on for their retirement.

1. What is the government pension offset? GPO is a federal law that reduces the spousal and survivor's benefits that can be received by most retirees who collect pensions from jobs that were not covered by Social Security.

2. Will my members be affected? That depends. Do the members and employers in your pension fund pay Social Security taxes? If they do, they do not have to worry about GPO. About 5 million state and local workers in the United States are not covered by Social Security, though, and, if your members are among them, they most likely will be affected.

3. How much of an impact can GPO have? A pretty big one. The spousal or survivor's benefit is reduced by an amount equal to two-thirds of the pension from the non-covered job. Say, for example, a retired teacher who was not covered by Social Security during her career receives a pension of $1,200 a month and her husband collects a Social Security benefit of $1,500 a month based on his work in the private sector. Spouses typically can collect either their own Social Security benefit or half of their spouse’s benefit, whichever is higher. Since this woman receives no Social Security retirement benefit, she might expect to collect a spousal benefit of $750 a month – half of her husband's benefit – just as a woman who never worked outside the home would do. With GPO, however, the spousal benefit is reduced by two-thirds of the woman's $1,200 pension - or $800 - which eliminates it altogether.

4. I've heard about a loophole. Is there a way to avoid GPO? There is a loophole but it closes July 1. The law (until then) exempts from GPO anybody who spends the last day of his or her career in a job that is covered by both Social Security and the retirement system that will pay his or her pension. In Texas, for example, thousands of teachers have been able to switch jobs for a single day to avoid GPO because, while most districts in the state retirement system are entirely outside of Social Security, a few have non-teaching positions that are covered by the program. After July 1, though, this threshold begins to increase, reaching five years for retirements after March 2, 2009. The only other way to avoid GPO is to spend 30 years in a job that is covered by Social Security (no matter if they were the last 30 years or if the job was also covered by a worker's retirement system).

5. What are the chances of Congress changing the law? Probably not very good. Several bills have been introduced that would reduce or eliminate the offset and one, H.R. 594 from Rep. Buck McKeon, R-Calif., has a majority of the House as cosponsors. Legislative leaders, though, tend to be scared off by the price tag - repealing GPO would cost $32.2 billion over 10 years - and have refused to allow McKeon's bill to move. A "discharge petition" on H.R. 594 is circulating, however, and if 218 members - a majority of the House - sign it, House leaders will be forced to allow a vote on the bill. As of June 21, the petition had 189 signatures.

6. What should I tell my members about GPO? If your members will be affected by GPO, you can provide them with a valuable service by educating them about the offset. For many public retirees, the worst part about GPO is that it comes as a surprise, taking away a large amount of money that they had been counting on for their retirement. As for legal requirements, public employers will be required to notify each new employee starting work on or after Jan. 1, 2005, about GPO and the windfall elimination provision (WEP) (which will be the subject of another column). The employers must obtain each new hire's signature on a document attesting to having been notified and forward a copy of the document to the public pension that will cover the worker.