House Ways & Means Set to Address WEP/GPO Concerns
House Committee on Ways and Means Chairman Jason Smith (MO-08) yesterday announced a field hearing scheduled for Monday, November 20 at 2:00 pm CST (3:00 EST) to receive public commentary on attitudes and viewpoints concerning the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) provisions currently in effect in Social Security law. The hearing will be conducted in Baton Rouge, Louisiana, and will address the two provisions and their effect on retirement and survivor benefits for law enforcement officers, firefighters, teachers, and public workers. Click here to read the full House press release on this hearing.
The AMAC Foundation Social Security Advisory Service frequently receives questions from the public asking for clarification of these two provisions. For background, here are segments of the historical perspective we provide on these two provisions:
Windfall Elimination Provision (WEP)
In the early 1980s, projections indicated that Social Security’s revenue from payroll taxes would soon be insufficient to pay all benefit obligations, thus prompting Congress to seek ways to restore Social Security to long-term solvency. The result was the 98th Congress’ H.R. 1900, enacted as Public Law 98-21 – April 20, 1983, which included a broad array of changes, one of which was the so-called “Windfall Elimination Provision.” WEP, essentially, closed a loophole permitting those who earned a government pension without contributing to Social Security to also earn Social Security using the same formula as for a lower-income beneficiary who had no such “uncovered” pension. Those with a non-covered government pension artificially appeared as lower-income workers to the benefit formula. The 1983 amendments posited that those with a non-covered government pension didn’t need as much help avoiding poverty as someone without a non-covered pension, so a special WEP benefit formula was created to equalize that disparity.
Social Security’s standard formula for computing benefits segments the recipient’s average indexed monthly earnings[1] into 3 portions called “bend points,” multiplying each portion by a unique percentage and totaling them to arrive at the recipient’s Primary Insurance Amount (PIA). Most of the PIA comes from the first bend point, which is normally 90% of the first $1,115 of average monthly earnings for someone applying in 2023.[2] The WEP formula adjusts the percentage used in that first “bend point” to something less than 90%, depending on the number of years of Social Security-covered employment.
If a recipient has 20 or fewer years of substantial[3] Social Security earnings, the percentage used in the first bend point will be 40%, rather than 90%. If the recipient has more than 20 years of substantial Social Security-covered earnings, the first bend point percentage increases by 5% for each year over 20. Since 90% is the normal first bend point computation, if the recipient has 30 or more years of substantial Social Security earnings, WEP doesn’t apply.
Government Pension Offset (GPO)
Dependent spouse and survivor benefits were added to Social Security law in 1939, thus providing financial protection to spouses not eligible for Social Security retirement benefits on their own. The 1939 law stipulated that a dependent spouse, at FRA, would get 50% of the primary spouse’s FRA benefit while both partners were living and 100% of the primary spouse’s benefit as a widow.[4] Dependent spouses were thus insulated from poverty by becoming entitled to some, or as a survivor all, of the primary spouse’s SS retirement benefit, which worked well provided that the spouse was fully dependent on the primary spouse. If, however, a dependent spouse was also eligible for their own SS retirement benefit, it created a situation known as “dual entitlement,” defined as when a dependent spouse is entitled to an SS retirement benefit and, also, an SS spouse (or survivor) benefit. Rather than permit a dependent spouse to fully collect both, the dual entitlement rule requires that a dependent’s spousal benefit or survivor benefit is offset by 100% of that spouse’s SS retirement benefit, eliminating over-compensation of dually entitled spouses. The Government Pension Offset (GPO) is essentially an extension of the dual-entitlement rule.
The Government Pension Offset (GPO) was first proposed in 1977 but not enacted[5] until 1983 to close what was viewed as a loophole in Social Security law. The GPO stipulates that anyone who becomes entitled to Social Security spousal or survivor benefits and who also receives a pension earned without contributing to Social Security (and enhanced to provide benefits equivalent to an SS retirement benefit) will have their Social Security benefit offset by their “non-covered” pension. As originally proposed in 1977, an affected beneficiary’s Social Security benefit was offset by 100% of the non-covered pension (as is done for those dually entitled to both SS retirement and SS dependent spouse benefits). Subsequent amendments changed (reduced) the SS offset amount and deferred GPO’s effective date to 1983. Today, the GPO reduces the Social Security spousal or survivor benefit for those with a non-covered pension[6] by 2/3rds of the amount of the non-covered pension, which can (and often does) eliminate the Social Security spousal or survivor benefit.
[1] The law was made gender-neutral in 1950.
[2] The GPO was part of broader legislation intended to improve Social Security’s declining financial outlook at the time.
[3] An exception in the law exempts those with a foreign pension from GPO. An exemption is also granted to those who contribute to both their government pension plan and Social Security under the same plan during their last 60 months of government employment. Those who receive a government annuity not based on their own earnings (e.g., a survivor annuity from a spouse’s government pension) are also exempt from GPO.
[4] “AIME” is average inflation-adjust earnings from the highest-earning 35 years of one’s working life.
[5] Bend points change annually. The first bend point for one’s Eligibility Year (62) is used for WEP.
[6] Social Security’s definition of “substantial” varies by year.