Social Security is a complicated program, with a lot of rules that go toward defining how much in retirement benefits various workers are entitled to receive. Although lawmakers have worked hard over the years to try to make the program as fair as possible, some aspects of Social Security still make certain groups of workers angry about how they're treated.
Two related provisions of Social Security that have seen particularly harsh criticism in recent years are the Windfall Elimination Provision and the Government Pension Offset. Although policymakers defend the two provisions as playing a useful role in keeping Social Security from paying what they would call extra benefits to certain workers, the government employees who are targeted by the provisions want them repealed -- and they have a number of lawmakers on their side working toward making the WEP and the GPO history.
What are the Windfall Elimination Provision and the Government Pension Offset?
The WEP and the GPO are related provisions that reduce the benefits that people receive if they've worked in a job that offers a public pension. Many workers who work in the public sector, whether it be for state and local governments or at schools, don't pay Social Security payroll taxes on their wages and salaries. Instead, they typically make payments toward a similar public pension program in which their public employer participates. In exchange, these public employees receive pension payments after they retire.
The WEP and GPO were designed to reflect the fact that these public pension benefits were obtained without these employees paying into the Social Security system. The idea, therefore, is that they shouldn't get what policymakers would call an unfair windfall from Social Security.
The two provisions target different situations. The WEP affects those who worked part of their careers in jobs in which they did pay Social Security taxes, potentially reducing the worker's retirement benefit from Social Security by up to half of the amount of the public pension payment. The exact amount depends on your years of employment in the private sectors, with this Social Security Administration chart providing figures on the maximum that your Social Security benefit can get reduced.
The GPO, on the other hand, affects what public employees get as a result of spousal or survivor benefits based on their spouse's work history. The rule is both simpler and more draconian in its effect: It reduces your Social Security benefit by two-thirds of your pension amount. In some cases, that can wipe out every penny that you'd otherwise be entitled to receive from Social Security.
Why people are mad about these provisions
Many public employee groups have fought the WEP and GPO for years, arguing that they're unfair. For instance, they point to nonworking spouses who also have never contributed to the Social Security program but who are able to claim spousal or survivor benefits in full. Moreover, those who've worked in private sector jobs that also pay private pensions to their workers are able to keep both payments.
However, there are some good counterarguments. In two-worker couples, it's often the case that one person's spousal benefits end up effectively being reduced or eliminated, because Social Security only pays the greater of one's retirement or spousal benefit, not the total. Eliminating the GPO would effectively give public employees both their own retirement benefit and full spousal benefits. Opponents would call that situation equally unfair in favor of public employees.
Going to Washington
Proponents of eliminating the WEP and GPO have gone to their lawmakers for help, and multiple proposals are under consideration in Congress now. Sen. Sherrod Brown (D-Ohio) has obtained 25 cosponsors for his Social Security Fairness Act of 2017, while a similar measure in the House of Representatives introduced early last year by Rep. Rodney Davis (R-Ill.) has 188 cosponsors. Despite having more Democrats than Republicans on the sponsorship lists, the idea still enjoys considerable bipartisan support, especially on the House side.
The interplay between pensions and Social Security is complicated, and it's hard to come up with a law that treats everyone fairly when both pension payments and Social Security benefits are involved. It's easy to understand why some public employees find the Government Pension Offset and the Windfall Elimination Provision to be unfair, but simply getting rid of them could swing the pendulum of unfairness too far in the other direction.
The $16,728 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.