The program's controversial WEP and GPO provisions were repealed last weekend. Here's a look at why the reductions were created in the first place, and what drove the movement for repeal.
Unfortunately, most of this discussion does not address the timing of certain changes in employment status. For example, my husband worked for 35 years as an elementary school teacher, and, as such, receives the highest pension from STRS that was available. After retirement we realized that he did not have enough quarters to qualify for Medicare, so he got a great little job pouring wine part-time. That resulted in Medicare eligibility, but his SSI does not cover the Medicare costs. Not a problem because we are savvy investors over many years and can afford to pay the difference.
On the other hand, I worked in a very lucrative job that I hated, and should be eligible for a comfortable but not amazing SSI pension. Because I chose to go into teaching in my late 30's, and for five years only as a part-timer, my STRS pension is based on only 20 years of service credit. This is true for many college instructors who wait a long time to be hired full-time. They often work several part-time teaching jobs as well as working simultaneously in the private sector. In essence they are often penalized in both systems. That is the unfairness of all this. Many public sector jobs rely on part-time workers, so even though they may be in a pension system, they do not ever receive full benefits from that system. In these instances, there is not "double-dipping," just piecing together some retirement income that does not reflect what they paid into the Social Security system.
The simple purpose of WEP and GPO was to treat everybody the same whether they are in a Social Security covered pension or non-Social Security covered pension. The author explains why WEP was created in an attempt at fairness. As for GPO, consider a couple with both people covered by Social Security pensions. Each person will receive the higher of their own SS benefit or their SS spousal benefit, but not both. Now consider a couple with one covered by a SS pension and one covered by a non-SS pension. With GPO repealed, the non-SS pension person will now receive their own non-SS pension plus 1/2 of their spouse's SS pension at full retirement age. So, yes, they will now do better than the two-SS pension couple. WEP and GPO formulas could have been tweaked for more accuracy, but this complete repeal does introduce inequities into the system.
"The logic of the WEP - and its cousin, the Government Pension Offset (GPO) - was inscrutable to all but policy analysts and actuaries."
You're definitly right on this, and that played a big role in their repeal. Public employees and Members of Congress really do feel that these rules are unfair.
However, to policy analysts and actuaries the logic of the WEP and the GPO are also obvious and clear. Literally no analyst I know of disagrees about the WEP and the GPO.
And this isn't mere rounding errors in people's benefits. Without them, windfalls for certain public employees could be huge -- like a quarter million dollars over their retirement. So, in addition to the cost, repealing the WEP and GPO really does create inequities.
Thanks, Andrew. I suspect a key problem is that most people don't understand the progressive benefit formula and bend points. Also, as noted in my column, I find the language used around this very problematic, e.g. - "double dipping." If I earn a benefit with 10+ years of covered SS employment, and then a pension in a completely different system... how is that a double-dip? Or a "windfall?" Also, I can't think of any other retirement income situation where one benefit is adjusted according to another. The idea that SS would take this holistic view of total retirement income is strange. Example: let's say I work 10 years with covered SS and then retire early (FIRE?) - and become an investor for the rest of my career. No more ordinary income, just capital gains. I filled up my first bend point and will receive my SS benefit accordingly. Should Social Security reach in and cut my benefit in that situation too?
The spousal/survivors benefit, where the Government Pension Offset applies, is a pretty clear example of double-dipping: if the two spouses both work under Social Security, the lower earning spouse gets the greater of their own earned benefit or the spousal benefit (equal to half the higher-earning spouse's benefit) but NOT both. However, if one spouse was in a non-covered public sector job, that spouse could get both their own government pension benefit AND the Social Security spousal benefit. Using an example from a Congressional Research Service brief, the public employee would get additional Social Security benefits equal to nearly a quarter-million dollars over their retirement. That's why the GPO exists, and about half of the cost of the Social Security Fairness Act is repealing the GPO. That's pretty clear cut.
The issue for employees who are entitled to both a government pension and Social Security is more confusing, because it hingeds on Social Security's progressiviy and most public employees pensions aren't progressive. So I can't expect public employees to understand the strange intereactions.
However, I would expect policymakers to understand! They've held hearings where it's all been explained to them, but they don't seem to care.
I don't understand why, if you worked a job that wasn't public sector before you became a firefighter, as an example, you wouldn't be entitled to your full social security benefit from the job you worked in the private sector, e.g. as a secretary in a law firm. The "windfalls" you describe are surely not the majority of cases, and the rightful backpay public sector workers are owed will materially improve their modest lives. This seems like an obvious boon to the struggling middle class, not a "windfall" like, for instance, CEOs receive as annual bonuses.
Here's an example: Let's say you have two workers. They each work a full career and earn $68,000 each year (that's about the national average wage, but the principle works pretty much regardles).
Worker 1 always participates in Social Security. With 35 years of earnings at $68,000, they get an annual benefit of $24,464. Dividing that by 35, they earned a benefit of $699 for each year they worked and contributed.
Now imagine that Worker 2 was in a Social Security-covered job for 10 years and for the other 25 years they worked in a non-covered public sector job. Their annual earnings were $68,000, so they had exactly the same lifetime earnings as Worker No. 1.
When Worker 2 claims Social Security, they'll get about $10,322 per year. Divide that by 10 years of contributing to Social Security -- at exactly the same rate as Worker 1 -- and they're entited to $1,032 per year they paid into Social Security.
That's 47% more benefits per year or dollar of congtributions to Social Security than a person who participated in Social Security throughout their career. That's the windfall that the Windfall Elimination Provision refers to!
WHy doe this happen? As Mark says, Social Security is progressive, which means that a person with low lifetime earnings get a higher "replacement rate" or higher payback on the amounts they paid in. That's how the system was designed, so as to help lower income people get by in retirement.
But a person with 10 years in Social Security and 25 years in a government job -- with a usually-pretty generous government pension -- isn't low income. They just look that way because Social Security doesn't see their earnings from a non-covered job. The WEP is designed so that public sector employees don't get a better deal from Social Security than people who paid in all theri lives. On average it works, though today (with SSA having better data on the earnings of public sector employees) it could be done more precisely.
But simply repealing the WEP and GPO restores the windfalls that they were created to address. It's not just fiscally irresponsible. It really is unfair to the other 95% of seniors who don't get that kind of deal.
I understand the math of what you are doing, but it doesn't ring as unfair, and frankly I don't believe in this kind of pitting working class people against each other. Many people take lower-paying, lower-respect government jobs FOR pensions and benefits, which is fine with me. Other seniors should be getting pensions and social security and benefits; we shouldn't be racing to the bottom in terms of how middle-class laborers "get" to retire. I would be extremely concerned if the answer were, as it was under Reagan and in your argument, to take things away from civil servants in pursuit of what you describe as "fairness." If a person chooses a government job and knows this system, that is an informed choice that they make: taking the lesser-paid civic job in part for the work and in part for its benefits. As Mark said, why don't we do the same math for capital gains earners? You didn't address that example, because it breaks your pretty specious argument apart very quickly. We all know government jobs are not leeches on society in the way, say, CEOs of healthcare insurers are. The modest income and modest respect government workers earn relative to, lets say, investment bankers and think tank shills is in part compensated for by the pension system, and no one else has benefits changed based on what Mark dubbed a "holistic view of total retirement income." That's what is actually unfair here. Is your answer really to keep everyone poor in retirement? And if so, who does that serve? Not the waning middle class.
Unfortunately, most of this discussion does not address the timing of certain changes in employment status. For example, my husband worked for 35 years as an elementary school teacher, and, as such, receives the highest pension from STRS that was available. After retirement we realized that he did not have enough quarters to qualify for Medicare, so he got a great little job pouring wine part-time. That resulted in Medicare eligibility, but his SSI does not cover the Medicare costs. Not a problem because we are savvy investors over many years and can afford to pay the difference.
On the other hand, I worked in a very lucrative job that I hated, and should be eligible for a comfortable but not amazing SSI pension. Because I chose to go into teaching in my late 30's, and for five years only as a part-timer, my STRS pension is based on only 20 years of service credit. This is true for many college instructors who wait a long time to be hired full-time. They often work several part-time teaching jobs as well as working simultaneously in the private sector. In essence they are often penalized in both systems. That is the unfairness of all this. Many public sector jobs rely on part-time workers, so even though they may be in a pension system, they do not ever receive full benefits from that system. In these instances, there is not "double-dipping," just piecing together some retirement income that does not reflect what they paid into the Social Security system.
The simple purpose of WEP and GPO was to treat everybody the same whether they are in a Social Security covered pension or non-Social Security covered pension. The author explains why WEP was created in an attempt at fairness. As for GPO, consider a couple with both people covered by Social Security pensions. Each person will receive the higher of their own SS benefit or their SS spousal benefit, but not both. Now consider a couple with one covered by a SS pension and one covered by a non-SS pension. With GPO repealed, the non-SS pension person will now receive their own non-SS pension plus 1/2 of their spouse's SS pension at full retirement age. So, yes, they will now do better than the two-SS pension couple. WEP and GPO formulas could have been tweaked for more accuracy, but this complete repeal does introduce inequities into the system.
Real question: what about single people? Isn't this better for single earners? Why do we always discuss couples?
"The logic of the WEP - and its cousin, the Government Pension Offset (GPO) - was inscrutable to all but policy analysts and actuaries."
You're definitly right on this, and that played a big role in their repeal. Public employees and Members of Congress really do feel that these rules are unfair.
However, to policy analysts and actuaries the logic of the WEP and the GPO are also obvious and clear. Literally no analyst I know of disagrees about the WEP and the GPO.
And this isn't mere rounding errors in people's benefits. Without them, windfalls for certain public employees could be huge -- like a quarter million dollars over their retirement. So, in addition to the cost, repealing the WEP and GPO really does create inequities.
Thanks, Andrew. I suspect a key problem is that most people don't understand the progressive benefit formula and bend points. Also, as noted in my column, I find the language used around this very problematic, e.g. - "double dipping." If I earn a benefit with 10+ years of covered SS employment, and then a pension in a completely different system... how is that a double-dip? Or a "windfall?" Also, I can't think of any other retirement income situation where one benefit is adjusted according to another. The idea that SS would take this holistic view of total retirement income is strange. Example: let's say I work 10 years with covered SS and then retire early (FIRE?) - and become an investor for the rest of my career. No more ordinary income, just capital gains. I filled up my first bend point and will receive my SS benefit accordingly. Should Social Security reach in and cut my benefit in that situation too?
The spousal/survivors benefit, where the Government Pension Offset applies, is a pretty clear example of double-dipping: if the two spouses both work under Social Security, the lower earning spouse gets the greater of their own earned benefit or the spousal benefit (equal to half the higher-earning spouse's benefit) but NOT both. However, if one spouse was in a non-covered public sector job, that spouse could get both their own government pension benefit AND the Social Security spousal benefit. Using an example from a Congressional Research Service brief, the public employee would get additional Social Security benefits equal to nearly a quarter-million dollars over their retirement. That's why the GPO exists, and about half of the cost of the Social Security Fairness Act is repealing the GPO. That's pretty clear cut.
https://littleknownfacts.substack.com/p/how-public-employees-can-double-dip
The issue for employees who are entitled to both a government pension and Social Security is more confusing, because it hingeds on Social Security's progressiviy and most public employees pensions aren't progressive. So I can't expect public employees to understand the strange intereactions.
However, I would expect policymakers to understand! They've held hearings where it's all been explained to them, but they don't seem to care.
I don't understand why, if you worked a job that wasn't public sector before you became a firefighter, as an example, you wouldn't be entitled to your full social security benefit from the job you worked in the private sector, e.g. as a secretary in a law firm. The "windfalls" you describe are surely not the majority of cases, and the rightful backpay public sector workers are owed will materially improve their modest lives. This seems like an obvious boon to the struggling middle class, not a "windfall" like, for instance, CEOs receive as annual bonuses.
Here's an example: Let's say you have two workers. They each work a full career and earn $68,000 each year (that's about the national average wage, but the principle works pretty much regardles).
Worker 1 always participates in Social Security. With 35 years of earnings at $68,000, they get an annual benefit of $24,464. Dividing that by 35, they earned a benefit of $699 for each year they worked and contributed.
Now imagine that Worker 2 was in a Social Security-covered job for 10 years and for the other 25 years they worked in a non-covered public sector job. Their annual earnings were $68,000, so they had exactly the same lifetime earnings as Worker No. 1.
When Worker 2 claims Social Security, they'll get about $10,322 per year. Divide that by 10 years of contributing to Social Security -- at exactly the same rate as Worker 1 -- and they're entited to $1,032 per year they paid into Social Security.
That's 47% more benefits per year or dollar of congtributions to Social Security than a person who participated in Social Security throughout their career. That's the windfall that the Windfall Elimination Provision refers to!
WHy doe this happen? As Mark says, Social Security is progressive, which means that a person with low lifetime earnings get a higher "replacement rate" or higher payback on the amounts they paid in. That's how the system was designed, so as to help lower income people get by in retirement.
But a person with 10 years in Social Security and 25 years in a government job -- with a usually-pretty generous government pension -- isn't low income. They just look that way because Social Security doesn't see their earnings from a non-covered job. The WEP is designed so that public sector employees don't get a better deal from Social Security than people who paid in all theri lives. On average it works, though today (with SSA having better data on the earnings of public sector employees) it could be done more precisely.
But simply repealing the WEP and GPO restores the windfalls that they were created to address. It's not just fiscally irresponsible. It really is unfair to the other 95% of seniors who don't get that kind of deal.
I understand the math of what you are doing, but it doesn't ring as unfair, and frankly I don't believe in this kind of pitting working class people against each other. Many people take lower-paying, lower-respect government jobs FOR pensions and benefits, which is fine with me. Other seniors should be getting pensions and social security and benefits; we shouldn't be racing to the bottom in terms of how middle-class laborers "get" to retire. I would be extremely concerned if the answer were, as it was under Reagan and in your argument, to take things away from civil servants in pursuit of what you describe as "fairness." If a person chooses a government job and knows this system, that is an informed choice that they make: taking the lesser-paid civic job in part for the work and in part for its benefits. As Mark said, why don't we do the same math for capital gains earners? You didn't address that example, because it breaks your pretty specious argument apart very quickly. We all know government jobs are not leeches on society in the way, say, CEOs of healthcare insurers are. The modest income and modest respect government workers earn relative to, lets say, investment bankers and think tank shills is in part compensated for by the pension system, and no one else has benefits changed based on what Mark dubbed a "holistic view of total retirement income." That's what is actually unfair here. Is your answer really to keep everyone poor in retirement? And if so, who does that serve? Not the waning middle class.