Originally published at Forbes.com on February 14, 2020.
Yesterday I wrote that various candidates’ promises to eliminate the Windfall Elimination Provision were, most charitably, misguided, but, more likely, simply pandering, because the WEP is an entirely appropriate provision to prevent certain teachers from “double-dipping” in their retirement benefits. And in response, some commenters (on twitter and my personal website) suggested that while the WEP reductions seemed fair, the GPO, or Government Pension Offset, was unreasonable.
In response, here’s a follow-up: yes, the GPO is also reasonable and prevents double-dipping. But to explain that, I have to address what seems like a wholly different topic first, so be patient!
Among the various promises that the Democratic presidential candidates such as Pete Buttigieg and Amy Klobuchar are making is this: they will institute a system of “caregiver credits.” Buttigieg’s white paper describes his proposal as follows:
“ Those caring full-time for children or for a disabled or elderly family member do not currently receive credit toward Social Security benefits—disproportionately affecting women. Under Pete’s plan, Social Security will finally recognize the undeniable: caregiving is work. Caregivers of a child, elderly, or disabled dependent will be awarded credit toward Social Security benefits as if they earned the median earnings of a full-time, year-round worker outside the home, with no limits on the number of years for which caregivers can claim the credit.”
Are caregiver credits a good idea? Maybe, if implemented judiciously, and I’m not sure the Buttigieg proposal hits the mark, without duration limits and with a structure that boosts benefits for women out of the workforce up to the median level, that is, above, by definition, half of the workforce. There are a variety of ways to provide benefit boosts to mothers: income-splitting credits credit to stay-at-home mothers half their husbands’ income; Canada reduces the number of years included in the averaging period; Switzerland and France increase benefits for parents regardless of their work choices; and, yes, Germany and Austria provide caregiver credits, with, in Germany for example, median-income credit given to caregivers of under-3s, a boost to part-time workers juggling work with caregiving, and partial credits for parents of under-10s.
And, as it turns out, the United States already has a form of caregiver credits; it’s just that it’s a simplistic and old-fashioned system that’s not perceived that way. In part, Social Security uses only 35 years of averaging to reflect some absences from the workforce over one’s adult years. But in addition, a woman who has been out of the workforce for a significant length of time is provided a special form of minimum benefit, in the form of 50% of the benefit earned by her husband. (Yes, the Social Security website uses confusing wording, with a subject header “Benefits For Your Spouse” to describe benefits individuals may be eligible for as a spouse, but so be it.) Of course, this doesn’t benefit out-of-the-workforce parents who aren’t married, or other sorts of caregivers, but at the time when Social Security was designed, this sort of minimum benefit made sense.
Again, with respect to benefits for surviving spouses of deceased Social Security participants, the wording of the website suggests that workers earn these benefits for their spouses, and even calls them a form of “life insurance.” But, again, once the surviving spouse reaches retirement age, the deceased spouse’s benefit serves as a minimum benefit to what she or he has earned in her own right.
The bottom line is that in an employer-benefits based system, workers earn benefits for themselves and their families. They earn health insurances for family coverage. They earn life insurance benefits that pay out to designated beneficiaries in case of their death. And if their employer provides pension benefits, those benefits provide the opportunity to select a “joint and survivor” form in which their spouse receives a specified portion of the benefit after their death — and the latter is true regardless of what income that spouse might have, because it’s a benefit earned by the deceased spouse.
But Social Security isn’t an employer benefit. It’s Social Insurance. And the rules are different. Regardless of how they may be described, the reality is that these are benefits accruing to the recipients themselves, even if they are “earned” by means of being married to an earner. A non-working mother truly receives her own Social Security benefit even if based on her husband’s income record; it is not the case that he receives an extra benefit because he has a dependent wife, and it is not the case that he has a government-provided life insurance policy to the benefit of his wife.
And that gets us, finally, to the Government Pension Offset.
This offset applies to workers in federal, state, or local government who have opted out of participating in our nationwide social insurance system, or whose employer has chosen to do so.
The fundamental calculation is this: the amount of benefit an individual would have been due as a spouse or surviving spouse minimum benefit, is reduced by two-thirds of the value of “opt-out” government pension. If an individual would have been eligible for a $500 minimum benefit as the spouse of a Social Security-covered worker, but had worked for a state pension system that opts out of Social Security and earned a $600 pension, then two-thirds, or $400, would be subtracted from the minimum-benefit as-a-spouse, for a net of $100. (The example comes directly from Social Security.)
The principle is entirely fair: the minimum-benefit-as-a-spouse should only ever be a minimum, not an add-on. To get both the minimum benefit and the full own-benefit is double dipping every bit as much as if this were the case by stacking two Social Security benefits together.
Now, at the same time, in a perfect world, the math would be different.
After all, a state or local pension benefit is a Social Security-replacement benefit and an employer supplemental benefit all wrapped into one. A more precisely-fair calculation would split the state or local pension into two numbers: the portion that replaces Social Security, and the portion that supplements it in the same way as private-sector pensions do. Then only the first of these would be compared to the benefit-as-a-spouse to identify whether Social Security should pay out a minimum benefit.
Now, whether Social Security has the data available to do the math, I can’t say. And even if so, one could make the case that an individual who has participated in an alternative pension system for their career has made a choice to opt out of Social Security in a way that’s not true of a non-earner or low-earner. And for middle/upper income full-career workers and for their employers, opting out is a win, financially, because they opt out of subsidizing the poor with a bend-point formula in favor of earning benefits at a flat rate.
And, again, the solution to this unhappiness is simple (and I cannot stress this enough): those 15 states whose employees do not participate in Social Security should be moved into the system like the rest of us. Why those states — which include notoriously-poorly funded California and Illinois — don’t do so is plain: it would increase their costs and force them to pay up-front in the form of FICA contributions.
(And, incidentally, the federal government itself made the switch back in 1984, at which point newly-hired workers as well as those who chose to make the switch, began to be covered by Social Security.)
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
Thoughtful article. Two comments: 1). Being employed by a private companies permits you to buy insurance for your family; that does not mean the company covers the cost. My husband made the choice to retire early. That meant he lost his employer provided health insurance. We put him on mine. It costs over $900 a month to place him on my insurance . The cost for families with children even more. When many workers are making just over minimum wage, who can afford this? 2) you mention that higher wage earners subsidize lower wage earners when it comes to social security benefits. As a higher wage earner, I am actually happy to do that. The societal benefits alone are worth it and I think we forget that to our own peril. Personally, I was happy to put in a bit more do that people like my great aunt who worked as a rural telephone operator had something to live on . I was also thrilled that she was able to get subsidized housing in a senior housing center during her last decade. I knew she was safe and not isolated. It wasn’t fancy but it was decent and well maintained. Most of all, it was affordable— she paid a percentage of her monthly Social Security check. All of us working and pulling together can do more than each of us on our own.
I disagree with your statements that WEP and Government Pension Offset (GPO) is entirely reasonable . You are obviously not a victim of these two discriminatory programs, or affected by their application. Imagine starting work as a nurse, private security guard, or any other non-public service employment, and work a minimum of 10 years (earning 40 quarters) or more, having had FICA, MEDICARE, withheld from your salary all that time AND expecting to receive a SSA retirement like everyone else for your FICA contributions that you have to make. Then at some point in your late work career you decide to accept work in the public sector as you approach retirement, and as you prepare to retire, you find that the social security stipend you were expecting from your FICA contributions will be substantially reduced due to something called the WEP (windfall elimination provision)—-in my opinion a misnomer, as NO ONE EVER GOT RICH WORKING FOR THE GOVERNMENT—–getting back to the point, this occurs to most people in this situation (entering public service late in their careers) to make up for the shortfalls they will experience due to the WEP, and it doesn’t end there if they have a Spouse who dies and are affected by the GPO provision. In my opinion these two provisions of federal pension law are age discriminatory, because they primarily affect older workers about to retire or retired, without any recourse of getting any portion or all of their FICA REFUNDED, to address legitimate needs such as handling Medicare A/B health insurance cost increases—–I call such a concept by the Government as stealing from the ELDERLY, A MISCARRIAGE OF JUSTICE, DISCRINMNATORY, and PREDATORY…. The attitude reflected in your article is very prejudicial, and judgemental, that it’s reasonable to take “earned value” from one person who earned it o give to another, BECAUSE YOU SAY SO,….A VERY DICTATORIAL SOCIALIST POLICY, neither just or fair……
FROM THE HOI POLLOI,…….
You are sadly misinformed about this being fair. I worked for a school district as a classroom aid and then as a school secretary in NM, that takes social security out of our paychecks. However, because of the low pay, my pay amount does not meet the government’s level required to count as a social security year. I have worked in the public and for school districts for over 30 years, but only 14 of my years qualify according to the government. My daughter works 40 hours a week and makes $9 an hour, and her pay also does not meet the criteria set to qualify as a social security year on this years chart. So tell me again how this is fair? I know a woman who worked in the school cafeteria for 30 plus years, and retired. Within two months her husband died, and because her pay didn’t meet the level, (so she could not draw any of her husband’s social security). He hadn’t claimed a dime of it yet. She had to go back to work full time. There is absolutely nothing fair about this, because it mainly affects poorer people!!!!
Hi, Sandy –
I don’t know what your full situation is, but this is not an issue of the WEP, which only applies to jobs where Social Security was not taken out of your check. If you worked without meeting the minimum requirements for coverage ($1,410 earns you a “quarter” and $5,640 a full year of “credits” in 2020, with lower amounts for earlier years) or even if your pay was high enough to qualify for Social Security benefits but your household income is still now very low, you may qualify for SSI (Supplemental Security Income). As to your daughter, working full-time at $9 per hour should be more than enough to qualify. As to your friend, if she lives in one of the 15 states where school employees aren’t a part of Social Security (Alaska, California, Colorado, Connecticut, Illinois, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, and Texas, and parts of Georgia, Kentucky, and Rhode Island), then, yes, there would be limits on her ability to receive her husband’s benefit, but only if she has a benefit of her own. If she also lives in NM, then there must be more to the story that you don’t know.
Hope this helps!
My problem is that after working in NM for 13 years, I have now worked for Texas schools for 14 years,so if I draw my Texas retirement WEP and GPO will affect me. I make a much larger salary in Texas, but since they do not take out SS, none of these years qualify as SS years. My point being, it targets the people that make less money – therefore – unfair.
Elizabeth, perhaps you could help me polish these numbers to create a more realistic representation. It’s something that has been on my mind for many years and to my knowledge never addressed in this WEP, GPO debate. I tried to obtain the best numbers I could find although they are very rough. Even so, I feel that the final calculation would be very significant to the point of possibly expanding the debate, or changing the focus on where the public retirement systems, government, and career public employees are really losing in terms of investments, contribution rates, retiree benefits and cost of living raises (which are almost nonexistent in some areas). I understand your position on WEP and GPO although I must say that I firmly believe it is wrong and that hard working career public servants should not be hurt so badly.
Again, I have little to no experience working with statistics such as this or the field of labor reporting. I was hoping your immense interest in the subject would peak your curiosity and that perhaps you could apply hard numbers to get to a better conclusion.
GOVERNMENT SECTOR 2018-19 / ANNUAL APPROXIMATE
Wages $1,010,410,238,933
Employment 18,784,721
Average Tenure 7.42 Years
Typical Required-
Vesting Period 10 Years
Separation Rate 33.3%
Separated 6,255,312
Average Salary $53,788
Contribution Rate 6% Employee
NON-VESTED PUBLIC PENSION WITHDRAWALS
My Estimate: 1/4 Minimum of 20 Billion Dollars
I know this estimate would be skewered due to variations in salary and actual years of service. Perhaps this amount whatever it really is could help eliminate the WEP and GPO since many of the terminated employees will not return to a public pension system, or will simply roll the money into an individual retirement account and not get penalized for WEP or GPO hence no public pension reported to Social Security.
I would love to hear your thoughts!
Survey says…
https://www.congress.gov/bill/118th-congress/house-bill/82/all-info
I’m a retired Atlanta firefighter. As most people know firefighters are not paid that well. During my 25 years as a firefighter I had to have part time job to make sure I could support my family and send my kids to college. During my part time jobs I paid into FICA. I have passed the 40 credit threshold to receive benefits. I’m not expecting to receive credit for my time as a firefighter because I was enrolled into a pension plan and nor do deserve to. I do think I should deserve my benefit from the time I did pay into SS. Why is it so bad I benefit for something I paid into? How hard would it be to calculate my benefits that I paid into?
Thanks…Robert
WEP and GPO can be avoided. I did claims for 24 years. I always offered WEP or GPO claimants that they could get their full, 100% RIB if they give up their pension. No one ever took the offer. That is proof that people who oppose WEP and GPO are in a secam against the govt. At SSA we were taught that Teacher union retirement seminars tech to harass Social Security reps and keep asking the same questions since 1984. Make everyone pay FICA, resist the unions.