Social Security Offsets
Definition: A
Social Security Offset is a reduction in the value of pension benefits subject to equitable distribution
due to an adjustment based upon hypothetical or actual Social Security benefits.
General Discussion: Numerous courts are struggling with the question of how Social Security
benefits should be treated in equitable distribution. By Federal statute,
Social Security benefits are not subject to equitable distribution in
divorce proceedings. However, employees who participate in many of our
governmental plans do not contribute towards Social Security, and instead
make contributions towards their government pension plans. For these employees,
a portion of their pensions constitutes replacement for Social Security.
Therefore, in theory, the retirement benefits payable under these governmental
plans could be described as being made up of two parts; (i) actual pension,
and (ii) "hypothetical" social security.
Considering the federal statute which exempts social security benefits
from equitable distribution in divorce, an argument can be made as to
whether or not a portion of these types of government pensions should
be sheltered from equitable distribution to the extent that such portion
represents a replacement for social security. Conversely, there is some
controversy as to whether or not actual social security benefits should
be considered and/or divided in equitable distribution.
There are essentially two viewpoints on the issue.
- One argument advocates the consideration or reduction of either spouses'
pension benefits based upon hypothetical or actual Social Security in
determining the equitable distribution of the parties' property. This
argument appears to work best in equitable distribution states. Unlike
community property states, equitable distribution states do not require
an equal split of all property acquired during the marriage, but instead
give the court discretion to consider all of the parties' property
in order to arrive at a just and reasonable division.
- Alternatively, the opposition argues that consideration or a reduction
based upon hypothetical or actual Social Security is not appropriate.
Several courts have concluded that a pension which is a substitute for
Social Security may nonetheless be treated as marital property subject
to division.
Classification: According to Federal statute, Social Security benefits are not divisible
in divorce proceedings, and therefore cannot be considered a marital asset.
However, Federal Law does not prohibit the division of pension benefits
that are received in lieu of Social Security; thus allowing these plan
to be divided.
Valuation: If it has been determined that one or both spouses' hypothetical or
actual Social Security benefits will be considered in determining the
equitable distribution of the parties' property, then the method of
valuation of the benefit(s) will depend upon the parties' intent to
do an immediate offset or deferred distribution of their other property.
Social Security is the Federal Government's version of a defined benefit
plan. A defined benefit pension plan is a plan that promises to pay a
specified benefit at retirement. When a spouse's rights under a defined
benefit plan are valued for equitable distribution in divorce, it is necessary
to reduce the benefits to present value. This present value is used in
determining an appropriate credit under an immediate offset division of assets.
Distribution: Actual Social Security benefits are not divisible in divorce proceedings,
and therefore, cannot be distributed as a marital asset. However, a pension
which is a substitute for social security may, nonetheless, be treated
as marital property and distributed upon divorce. The present value of
such benefit may be determined for use in calculating an appropriate credit
under an immediate offset. In addition, such benefits could be distributed
under the deferred distribution method.
Social Security Offsets: Frequently Asked Questions
Non-SS-covered employment: Work for a state or local government that is not covered by Social Security.
States in Which Public Employees Are Not Covered by Social Security
- Alaska
- California
- Colorado
- Connecticut
- Georgia (certain local governments)
- Illinois
- Kentucky (certain local governments)
- Louisiana
- Maine
- Massachusetts
- Missouri
- Nevada
- Ohio
- Rhode Island (certain local governments)
- Texas
SS-covered employment: Work that is covered by Social Security.
Government pension: A retirement benefit from non-SS-covered employment for a state or local
government. Does not include a Social Security retirement or disability
benefit; payment from an optional savings plan such as a 403(b) or 457
plan; early incentive retirement payment; or survivor annuity from a spouse's
government pension.
General Impact
What is the Government Pension Offset (GPO)?
The GPO reduces a Social Security survivor benefit. A survivor benefit
is paid to the spouse and minor children of a Social Security-eligible
worker who has died.
What is the Windfall Elimination Provision (WEP)?
The WEP reduces the Social Security benefit for retired and disabled workers
receiving pensions from non-SS-covered employment.
Whom does the GPO affect?
The GPO affects persons who:
1. Work(ed) for a state or local government in non-SS-covered employment;
2. Are entitled to a government pension from that employment. (The Social
Security Administration [SSA] deems you to be "entitled to a pension"
when you file an application for the pension and a benefit is payable); and
3. Are entitled to a Social Security survivor/dependent benefit.
Whom does the WEP affect?
The WEP affects persons who:
1. Work(ed) for a state or local government in non-SS-covered employment;
2. Are entitled to a government pension from that employment; and
3. Are also entitled to a Social Security retirement or disability benefit
from SS-covered work.
How does the GPO work?
The GPO reduces Social Security survivor/dependent benefits by two-thirds
of the person's public pension. It can cause a total loss of Social
Security benefits.
How does the WEP work?
The WEP reduces the factor by which average earnings are multiplied to
determine Social Security benefits. The amount of reduction depends on
when the person retires and how many years of earnings he or she has accumulated.
The reduction may be no more than one-half of the government pension to
which the person is entitled in the initial month of entitlement to the
pension. For 2006, the maximum reduction is $328 a month.
Avoiding the Offsets
What are the exceptions to the GPO?
The GPO does not apply for persons who:
- Work the last five years of a state or local government job in a position
covered both by Social Security and the same government pension as the
non-SS-covered position;
- Receive a government pension from state or local government employment
that is not based on their own earnings (such as a survivor's annuity
from a deceased spouse);
- Were eligible for a dependent/survivor benefit before December 1, 1977;
- Were eligible to receive a government pension from non-SS-covered employment
before December 1, 1982, and met the requirements for a dependent/survivor
benefit in effect in January 1977; or
- Receive a government pension from non-SS-covered military reserve service.
What are the exceptions to WEP?
The WEP does not apply for persons who:
- Have 30 or more years of coverage under Social Security. Those with 21
to 29 years of coverage are eligible for a partial exemption; or
- Have a government pension from non-SS-covered military reserve service.
Do the offsets apply if one retires from non-SS-covered employment, draws
the government pension, and then works in SS-covered employment?
Yes. The trigger is receipt of the pension from non-SS-covered employment.
Do the offsets apply if a government pension from non-SS-covered employment
is taken as a lump sum?
Yes. For purposes of the GPO, SSA will determine how much the government
pension would be if paid monthly and then reduce the monthly survivor/dependent
benefit accordingly. For purposes of the WEP, the pension-paying agency
will usually prorate the lump sum to determine a monthly amount. If it
does not, SSA has a method for determining the amount.
Does the WEP apply if one moves from non-SS-covered employment to SS-covered
employment?
Yes, unless one forfeits the right to the government pension from the
non-SS-covered employment (by withdrawing contributions and interest before
becoming eligible to receive such a pension). The trigger is whether the
person is eligible for the pension from the non-SS-covered work.
Impact on Other Benefits
Does the WEP affect the Social Security survivor benefit to which a spouse
and minor children are entitled if a wage earner dies?
No. If an individual subject to the WEP dies and has one or more survivors
entitled to a benefit, the SSA recomputes the amount in a manner that
eliminates the WEP and results in a higher benefit.
Do the offsets impact Medicare?
No. Those affected by the offsets are still eligible for Medicare.
Policy Questions
Why did Congress enact the GPO?
In 1977, Congress revisited the Social Security Act and looked at many
issues, including the dual entitlement rule, which forbids an individual
from receiving both a Social Security benefit from his/her own work and
a Social Security dependent/survivor benefit. Congress decided that someone
with both a government pension and a survivor/dependent benefit violates
the dual entitlement rule. It reached that conclusion by equating the
government pension with a Social Security retirement benefit. Congress
could have just as easily determined that the government pension is analogous
to a pension from a private sector employment or SS-covered work for a
state or local government, in which case no dual entitlement would arise.
It chose not to do so, however.
Why is the GPO an unfair policy?
When it enacted the GPO, Congress forgot that the original purpose of
the dependent/survivor benefit was to provide additional income to help
a financially dependent husband or wife once the breadwinner retires,
is disabled or dies. By reducing the dependent/survivor benefit, the GPO
harms the financially dependent spouse. Those most likely affected by
the GPO are women who spend most of their lives raising their families
and who work outside the home for only a short period of time. The GPO
has a harsh effect and undermines the original purpose of the Social Security
dependent/survivor benefit.
Why did Congress enact the WEP?
SSA uses a formula for computing Social Security benefits that provides
individuals with low average lifetime wages a proportionally higher rate
of return on their contributions to Social Security than individuals with
relatively high average lifetime wages. Those who have spent most of their
careers in non-SS-covered employment with a state or local government
and a minimal amount of time in SS-covered employment will appear to SSA
as lower-paid workers. Congress enacted the WEP in the belief that one
should not receive a Social Security benefit as a low-paid worker, plus
receive a government pension from non-SS-covered employment.
Why is the WEP an unfair policy?
The WEP causes public employees outside the Social Security system, such
as educators, to lose a significant share of their Social Security benefit.
It fails to account for the severe effect of the WEP on low-wage state
or local government employees. The WEP also affects the teaching profession
as a whole. Some individuals in SS-covered employment may wish to make
a career change and go into teaching. If the teachers in their state are
impacted by the WEP, those individuals will be less likely to make the change.
Why do the offsets only affect educators in 15 states?
In the 1960s, state and local employees were given the opportunity to
elect to participate in the Social Security system. Public sector employees
in 36 states opted to enroll in Social Security in the 1960s and 1970s.
The remaining states (or local governments in some states) chose instead
to maintain and enhance their existing retirement systems. Since public
employees in these states don't pay into Social Security, they are
affected by the offsets.
Why should educators in other states care?
Although the offsets only affect educators who have worked in one of the
impacted states, the mobile population assures that there are impacted
individuals everywhere. The offsets limit choices for educators who might
be unable or unwilling to relocate to an impacted state. Most importantly,
the offsets represent unfair public policy that is harming education colleagues
and the entire profession.
What can be done to address the offsets?
Addressing the offsets requires congressional action. NEA seeks total
repeal of both the GPO and WEP and supports legislation to this end. The
Social Security Fairness Act would completely repeal the GPO and WEP.
Would repeal of the offsets threaten existing retirement systems?
NEA strongly opposes any proposal to mandate Social Security coverage
for currently non-covered employees. It is possible that Congress could
consider both repeal of the offsets and other Social Security reform issues,
including mandatory coverage or privatization, at the same time.
What are the arguments on the other side?
Some of those who oppose repeal of the GPO and WEP cite cost as a factor.
Others believe that allowing a person to receive both a full government
pension and Social Security survivor/dependent or earned benefits would
constitute "double dipping." NEA believes such a scenario should
be treated no differently than receipt of a private pension and Social
Security benefit. NEA also believes that "double dipping" is
not an appropriate characterization when an individual has worked two
jobs and earned two benefits.