Q & A
What is the purpose of WEP and GPO?
Complete Question: I am a teacher, so not surprisingly I will get a teacher’s pension. A fellow teacher in my school just retired and was very upset when she applied for Social Security. Apparently, because she’s getting a teacher’s pension, she will be affected by some sort of government offset. From what I understand, this will significantly reduce her Social Security benefits. She told us that her benefit and her spousal benefit are affected. She was so taken aback that she emailed all of us here at the school and warned us so we were not surprised when our time came to retire. Is this really going to happen to all of us because we’re teachers? If so, why does this happen?
Answer: It sounds like your retired co-worker is talking about the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). WEP could potentially reduce your own benefit while GPO could potentially reduce your spousal and/or surviving spouse benefit. It affects people, such as yourself, who have pensions that are not covered by Social Security. Unlike other workers, your paycheck does not have the 6.2% Social Security deduction. This is called “non-covered employment”. Social Security benefits are calculated by looking at a person’s highest 35 years of earnings, indexed for inflation, then averaged. This amount is then computed through a tiered formula that is meant to give people who have earned lower incomes throughout their lives a higher percentage of their average earnings, and people who had higher incomes throughout their lives a lower percentage of their average earnings. If a person like yourself had most of their earnings in non-covered employment, then when your Social Security benefit is calculated, it would be calculated as if you were a low wage earner, which is not really the case because of your other employment. In order to “fix” this situation, Social Security applies the Windfall Elimination Provision, which changes the calculation of your benefit based on how many years you worked in covered employment. If you worked 30 years or more in covered employment, your Social Security benefit will not be affected. In addition, if you have a low pension payment, there is a provision that limits how much of your Social Security can be reduced. The purpose of GPO is the same; the calculations are just much simpler and there is no guarantee if your pension amount is low. It also only applies to your spousal or surviving spouse benefit, should you apply for one. The good news is that should your spouse need a widow(er)’s benefit, he/she will receive a benefit based on your full Social Security – not the offset amount.