More! on unexpected equalization provisions and public pension offsetting

On Wednesday, federal retirees who retired under the Civil Service Retirement System, current CSRS employees and a host of other state and local public employees who receive pensions from work not covered by Social Security applauded as the Senate voted on a proposal on invoking cloture.

The agreement to invoke cloture was on the motion to proceed to HR 82. (a bill to amend Title II of the Social Security Act to repeal the state’s pension equalization and windfall provisions). The proposal passed 73 yeas and 27 nays, which could mean higher Social Security benefits for CSRS retirees if passed before Congress leaves this week.

If you’ve never heard of the term cloture, don’t feel bad, neither had I until Wednesday. The The Senate’s website describes it thus: The Senate’s tradition of unlimited debate has permitted the use of the filibuster, a loosely defined term for action designed to prolong debate and delay or prevent a vote on a bill, resolution, amendment, or other debatable issue. Before 1917, Senate rules did not allow for ending debate and forcing a vote on a measure. That year, the Senate adopted a rule to allow a two-thirds majority to end a filibuster, a procedure known as “cloture”. In 1975, the Senate reduced the number of votes required for cloture from two-thirds of the senators voting to three-fifths of all duly elected and elected senators, or 60 of the 100-member Senate.

The National Active and Retired Federal Employees Association has been working continuously toward its goal of eliminating this reduced formula and restoring vested Social Security benefits to affected federal retirees. Earlier this week, John Hatton, NARFE’s staff vice president for policy and programs, told the Federal News Network that he hoped “one of these days is next week and the Senate votes on it and passes it. It’s something we’ve been working on for 40 years. It has penalized people simply because they have earned their public pension and then they earn their social security benefits separately through work. So our members who are CSRS pensioners have never understood it. They’ve always been upset about it. They see it as theft, as do we, and that goes for the firefighters, the police officers, the municipal workers around the country who are also affected by this.”

If you have never heard of the Windfall Elimination Provision and the State Pension Compensation, then they probably do not apply to you. The late Mike Causey used the term “The Evil Twins” to describe WEP and GPO. The evil twins have a negative impact on the Social Security retirement benefits earned as well as the spousal and survivor benefits earned by a spouse that would be paid to those who retired or will retire under the older CSRS. These are two provisions that have no effect on retirement benefits under the Federal Employees Retirement System (unless there is a CSRS component to the FERS retirement benefit).

The Unexpected Elimination Provision

To qualify for Social Security retirement benefits, you must earn 40 credits in coverage or the equivalent of 10 years of Social Security-covered employment. Many CSRS-covered employees had enough work or military service* outside of their federal civilian career to qualify for Social Security retirement benefits, even though their wages under CSRS were mostly exempt from FICA withholding (some temporary federal service was subject to FICA).

Employees covered by CSRS Offset pension coverage pay FICA taxes on their wages, but most CSRS Offset covered employees have prior federal employment where they were exempt from FICA tax withholding when they were under “pure” CSRS . In 1983, a law changed the formula to reduce the final Social Security pension calculation so that the benefit earned would be less than the normal calculation for people receiving a pension from work not covered by Social Security.

This effect of the WEP is explained using the following example for a person who turns 62 in 2024 and has more than 40 credits but less than 20 years of significant Social Security covered earnings. WEP can reduce their Social Security retirement benefit by as much as $587/month if they wait until age 67 to apply for their benefit.

Let’s say a CSRS retiree turning 62 this year has earned a Social Security benefit of $1,396/month, payable at age 67, which is their full retirement age. After WEP, the benefit would only be $809/month ($1,396 – $587). If they choose to start their benefit this year at age 62, which is their first year of eligibility, they will only get 70% of their benefit because they would receive the benefit for another 60 months (5 years) before reaching their FRA .

If they delay claiming their benefit until age 70, they would earn 36 months of delayed pension credit (8%/year) between ages 67 and 70, and the benefit would be 24% greater than the benefit paid at age 67. age 70 in this example would be $1,003/month ($809 x 124% = $1,003). If the WEP were not in effect, the benefit at age 70 would have been $1,731. In this example, the WEP was applied only to benefits paid to the worker and does not include future COLA increases. In addition, the WEP reduction may be greater if family members are entitled to benefits under the same item.

For less earned Social Security retirement benefits, the FRA amount benefit will not be reduced by more than ½ of your CSRS retirement benefit amount for earnings after 1956 when you did not pay Social Security taxes. To learn more about how WEP can affect your Social Security benefit, find the year you turned 62 on the “WEP” chart. If you have a record of your earnings covered by Social Security, use the online WEP calculator to see the impact of WEP on your Social Security benefit. You can use the “Review Your Full Earnings” option under the “Eligibility & Earnings” tab in your personal account to access a list of your lifetime earnings taxed by Social Security.

Additional information to help understand the WEP can be found at WEP fact sheet. The only complete exception to this reduction for CSRS retirees is if you performed 30 or more years of substantial Social Security-covered employment (a partial exemption is used for substantial earnings for more than 20 years up to age 30).

WEP applies to those who reached age 62 after 1985 or developed a qualifying disability after 1985. If the latter applies, you must first be eligible for a monthly pension based on work where you paid no Social Security taxes after 1985. The rule applies even if you still working. This was the WEP, and federal employees who have been affected have been trying to repeal this unfair provision dating back to when the law was signed into law in 1983.

The State’s Pension offset

The GPO often reduces and eliminates the benefits that Social Security pays to spouses and survivors of Social Security-covered workers who have a retirement benefit from work where they did not pay FICA taxes such as CSRS. These are considered “dependent” services.

These benefits, created in the 1930s, were intended to compensate spouses who stayed at home to raise a family and were financially dependent on the working spouse. It is now common for both spouses to work and each to earn their own Social Security pension. The law requires that a spouse’s or surviving spouse’s benefit be offset against the dollar amount of the recipient’s own retirement benefit.

Let us e.g. say someone worked and earned their own monthly Social Security benefit of $800, but also had to have a spousal benefit of $500 on their spouse’s record. Social Security could not pay this spouse’s benefit because their own benefit outweighs it. Prior to the passage of the GPO Act in 1977, if that person was a state employee who did not pay into Social Security and earned a state pension of $800, there was no offset. Social Security would pay them a full spousal benefit and their full public pension. If their government work had been subject to social security taxes, the spouse’s or surviving spouse’s benefit would be reduced because of their own social security pension. You can learn more about the GPO in this fact sheet.

I still remember one time when I was teaching an early retirement class at the National Institutes of Health, when a woman attending the class came up to me during a break to confirm that she heard me correctly when I explained that the effect of the GPO would reduce the Social Security spousal or widow’s benefit by two-thirds of the CSRS pension amount.

This woman was a widow in her mid-40s and had to work to support her family. She got a job to work for the federal government and was covered by CSRS. She planned to stay for 30 years and was in her mid-70s when she took my class. She finally felt she could afford to retire.

She received her late husband’s Social Security benefits as a widow (there is no longer an “earnings limit” once you reach your Social Security FRA) and was now planning to receive her earned CSRS retirement benefit based on 30 years of federal service. She did not know until that moment that she would exchange the widow’s benefit she had been receiving for her CSRS benefit. The GPO would reduce her Social Security widow’s benefit by 2/3 of her CSRS pension, leaving her with $0 Social Security widow’s benefit.

She left the classroom in tears knowing she could no longer afford to retreat comfortably. She said she was told when she retired from federal employment that her widow’s benefit would be subject to a “small” offset because of her CSRS benefit, she never thought it could be eliminated.

By the time you read this column, you may know the result of the poll. Regardless of the outcome, this is the furthest efforts to repeal these provisions have come, but many CSRS retirees are hoping for an early Christmas present they believe is long overdue from Congress.