Home Personal Finance The Government Pension Offset Revisited

The Government Pension Offset Revisited

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Last week, I wrote about the windfall repeal clause, pointing out that the argument for keeping it on the books outweighs the argument for repealing it. For anyone affected by (or to be affected by) WEP, this was a huge disappointment. Here I am going to disappoint you further by writing about government pension offsetting and why it should not be abolished.

GPO reduces or eliminates social security benefits for spouses receiving pensions from jobs that do not pay social security taxes, such as CSRS. If this applies to you, every $3 she receives in a CSRS pension will reduce her $2 in social security spousal benefits. So, for example, if you are eligible for a $1,200 monthly pension, her two-thirds of that amount, or $800, would be used to offset spousal benefits. As a result, Social Security benefits will be only $400.

The larger the CSRS pension, the greater the impact of the GPO. For example, if your CSRS pension was $1,500 a month and your Social Security spousal benefit was $900, you would receive nothing from Social Security. That’s because two-thirds of $1,500 is $1,000. Subtract that from $900 and you’re left with nothing.

Why would the government do that to you? Let me explain. The social security system is designed to provide a modest level of financial security to those who do not work or have little lifetime income. It was not designed to enhance benefits for dual-income couples who are both eligible for Social Security benefits. If one of them is eligible for Social Security benefits and her spousal benefits, that person can only receive the higher of her two, not both.

Before the law change, if you were covered by CSRS and married to a Social Security recipient, you could receive both the full CSRS pension and Social Security spousal benefits. . However, in 1982 Congress ruled that employees participating in retirement plans who did not pay social security taxes were receiving an unfair advantage. So the law changed.

The best explanation for the reasoning behind this change comes from the Social Security Administration making two clear examples:

Bill Smith collects social security benefits of $600 per month. His wife, Mary, could be eligible to receive 50 percent of Bill’s wife benefit, or up to her $300.

But Mary was also working and on Social Security and was eligible for a $400 retirement benefit. She will not receive her wife’s allowance because her $400 retirement allowance effectively offsets her $300 wife’s allowance.

Bill’s next-door neighbor, Tom, also receives social security benefits of $600 a month. But his wife, Nancy, was working for the federal government and earning an $800 a month civil service pension rather than a social security tax job.

Before the government’s pension offset provisions were introduced, Tom’s Social Security records indicated that Nancy was eligible for both an $800 civil service pension and a $300 wife’s allowance.

With the introduction of the set-off clause, Nancy is now ineligible for wife benefits from Social Security and is now to be treated like Mary.

If a GPO affects you, don’t expect it to be obsolete. Instead, plan ahead. Make sure your CSRS pension and social security benefits in combination are sufficient to meet your post-retirement needs.

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