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51–475—PDF 2007

S. HRG. 110–903

GOVERNMENT PENSION OFFSET (GPO) AND

WINDFALL ELIMINATION PROVISION (WEP):

POLICIES AFFECTING PENSIONS FROM

WORK NOT COVERED BY SOCIAL SECURITY

HEARING

BEFORE THE

SUBCOMMITTEE ON SOCIAL SECURITY,

PENSIONS, AND FAMILY POLICY

OF THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

NOVEMBER 6, 2007

(

Printed for the use of the Committee on Finance
COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

SUBCOMMITTEE ON SOCIAL SECURITY, PENSIONS, AND FAMILY POLICY

JOHN F. KERRY, Massachusetts, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

CHARLES E. SCHUMER, New York

JOHN ENSIGN, Nevada

TRENT LOTT, Mississippi

JON KYL, Arizona

(II)
(III)

C O N T E N T S

OPENING STATEMENTS

Page

Kerry, Hon. John F., a U.S. Senator from Massachusetts, chairman, Subcommittee on Social Security, Pensions, and Family Policy, Committee on

Finance .................................................................................................................. 1

CONGRESSIONAL WITNESS

Collins, Hon. Susan, a U.S. Senator from Maine .................................................. 3

WITNESSES

Kane, Margaret, retired teacher, Medford, MA .................................................... 6

Bovbjerg, Barbara D., Director, Education, Workforce, and Income Security

Issues, Government Accountabilty Office, Washington, DC ............................. 8

Mathur, Priya, Board of Administration, CalPERS, and member, AFSCME

Local 3993, Sacramento, CA ............................................................................... 10

Thompson, Lawrence, senior fellow, Urban Institute, Washington, DC ............. 12

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Bovbjerg, Barbara D.:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 25

Responses to questions from subcommittee members ................................... 38

Collins, Hon. Susan:

Testimony .......................................................................................................... 3

Feinstein, Hon. Dianne:

Prepared statement .......................................................................................... 42

Grassley, Hon. Chuck:

Prepared statement .......................................................................................... 44

Kane, Margaret:

Testimony .......................................................................................................... 6

Prepared statement of the Massachusetts Teachers Association ................. 45

Kerry, Hon. John F.:

Opening statement ........................................................................................... 1

Prepared statement .......................................................................................... 52

Mathur, Priya:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 54

Snowe, Hon. Olympia J.:

Prepared statement .......................................................................................... 61

Thompson, Lawrence:

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 63

Responses to questions from subcommittee members ................................... 70

COMMUNICATIONS

Communications from organizations

Association of Retired Teachers of Connecticut, Inc. (ARTC) ....................... 73

Association of Texas Professional Educators (ATPE) .................................... 74

California Retired Teachers Association ......................................................... 78

California State Teachers’ Retirement System .............................................. 86

California Teachers Association ...................................................................... 93
Page

IV

Communications from organizations —Continued

Coalition to Preserve Retirement Security ..................................................... 95

Federally Employed Women (FEW) ................................................................ 100

Grand Lodge, Fraternal Order of Police ......................................................... 110

Illinois Association of Chiefs of Police ............................................................ 116

Kentucky Retired Teachers Association (KRTA) ........................................... 117

Louisiana Retired Teachers Association (LRTA) ........................................... 118

Massachusetts Community College Council (MCCC) .................................... 119

Massachusetts Retirees United (MRU) .......................................................... 130

Missouri Retired Teachers Association (MRTA) ............................................ 131

National Active and Retired Federal Employees Association ....................... 138

National Association of Police Organizations ................................................. 142

National Association of Postmasters of the United States (NAPUS) ........... 158

National Committee to Preserve Social Security and Medicare ................... 161

National Education Association (NEA) ........................................................... 163

National Treasury Employees Union (NTEU) ............................................... 169

Ohio Retired Teachers Association (ORTA) ................................................... 172

Peace Officers Research Association of California ......................................... 173

Public Employee Retirees, Inc. ........................................................................ 174

Puerto Rico’s Teachers Association ................................................................. 175

Retired State, County, and Municipal Employees Association of Massachusetts .......................................................................................................... 178

Service Employees International Union (SEIU) ............................................ 181

State Universities Annuitants Association (SUAA) ....................................... 186

Teacher Retirement System of Texas (TRS) .................................................. 187

Texas Classroom Teachers Association (TCTA) ............................................. 191

Wayne County Detectives Association ............................................................ 193

Communications from individuals

The committee received thousands of submissions from private citizens—

too many to include in the hearing record. All statements received

expressed support for repealing GPO and WEP.
(1)

GOVERNMENT PENSION OFFSET (GPO) AND

WINDFALL ELIMINATION PROVISION (WEP):

POLICIES AFFECTING PENSIONS FROM

WORK NOT COVERED BY SOCIAL SECURITY

TUESDAY, NOVEMBER 6, 2007

U.S. SENATE,

SUBCOMMITTEE ON SOCIAL SECURITY,

PENSIONS, AND FAMILY POLICY,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 2:30 p.m., in

room SD–215, Dirksen Senate Office Building, Hon. John F. Kerry

(chairman of the subcommittee) presiding.

OPENING STATEMENT OF HON. JOHN F. KERRY, A U.S. SENATOR FROM MASSACHUSETTS, CHAIRMAN, SUBCOMMITTEE

ON SOCIAL SECURITY, PENSIONS, AND FAMILY POLICY,

COMMITTEE ON FINANCE

Senator KERRY. This hearing will come to order, though I have

never seen such an orderly group without being asked to be orderly. So, thank you. You make my job useless.

[Laughter.]

Senator KERRY. Almost.

Senator Collins, thanks for being here. We really appreciate it.

I am going to get to your testimony really quickly here. Let me just

make a couple of opening comments, if I may.

This morning, earlier, Senator Collins and I joined together with

a number of folks to underscore the importance of this hearing, and

this issue, more importantly. Now we are formally, at this hearing,

going to have an opportunity to hear from workers who are not covered by the Social Security system.

That probably comes as a surprise to some people in America. I

think some of our colleagues even are not completely aware of the

anomaly and how it works. But for many of my constituents, and

those in at least 15 others States—and in every State. Every State

has employees that are, in one way or another, affected, but not everybody is focused on it.

I have personally heard from SEIU workers, from the fire fighters, police officers, teachers, different chapters of AFSCME, Massachusetts Retirees, and others. We keep hearing the stories, very

personal stories, of individuals and families of public servants who

are being unfairly penalized and do not receive the benefits that
2

they believe that they have earned, and that they know they have

well earned over a lifetime of hard work and public service.

The Windfall Elimination Provision and the Government Pension

Offset affect a small percentage of retired workers who are drawing

benefits, but it is in the millions, and all you need to do is be one

of those millions to have a situation that is, frankly, intolerable.

Let me give a little bit of background to this if I can so the record

is clear here. And let me just say a word about the record. There

were a lot of folks who wanted to testify, and we are limited, both

by the rules as well as by the time frame, in how many people are

able to do so. But I want to invite groups that have an interest in

this one way or the other to make their comments and observations

part of the record. We will leave the record open for 2 weeks in

order that people may be able to submit that testimony in full.

Around 96 percent of all the workers in America are covered by

Social Security. Every State in the Union is home to some public

employees who are not covered by Social Security, mostly government employees at the State, local, and Federal levels.

The details of their relationships to the pension system and Social Security vary from State to State, but nationwide, 29 percent

of State and local workers are not covered—that is a pretty hefty

percentage of our State and local workers—and most Federal workers who were hired before 1984.

Overall, there are about 6.8 million State and local workers participating in public pension plans who are not covered by Social Security. In my home State of Massachusetts, for instance, we have

more non-covered workers than most. Ninety-seven percent of State

and local workers are not covered.

These public employees are totally outside of the system. However, there are provisions of Social Security that affect them because they have a spouse contributing to the Social Security system

or because they have worked in a position covered by Social Security at some point in their careers. The Government Pension Offset

provision reduces benefits for a spouse of a person receiving a government pension. It was enacted to mirror the dual entitlement

rules of the Social Security system. In order to reduce a spousal

benefit for those who, in theory—and I underscore, in theory—do

not need it because they receive their own benefit.

The Windfall Elimination Provision was designed to remove an

unintended advantage in the Social Security benefit formula for

some people receiving a government pension, but the reality is, it

causes hardworking people to lose a significant portion of the benefits that they earned in return for a lifetime of hard work and public service, and that is not fair. These provisions often leave individuals with less of a benefit than they have counted on for retirement.

Now, I agree with House Ways and Means Chairman Rangel

that the Windfall Elimination Provision and the Government Pension Offsets are, what he termed ‘‘blunt instruments.’’ These provisions often treat public sector employees worse than private sector

employees. Most troubling at all, at a time when we need the service of people in the public sector the most, it frankly discourages

teachers, firemen, and others who are staying in public service.
3

So I am pleased that we have a compelling panel of witnesses to

discuss these provisions and their impact. We will hear, as we did

earlier this morning, from my constituent, Peggy Kane, who taught

English for 35 years at Medford High School, and she will discuss

how the Government Pension Offset has affected and impacted her

retirement, which is a very similar experience to many other retired public service employees, not just teachers, but also police,

fire fighters, and State and local government employees.

Another group heavily impacted by these provisions are the postal employees. The former Postmaster of Framingham, MA is not allowed to receive a Social Security survivor benefit because of the

benefits she gets from the Postal Service, but the result is, her ability to take care of her ill husband, who is the Social Security beneficiary, is impacted. She is the primary caretaker, and her spousal

benefits are unfairly reduced by that government offset provision.

That is one of many of 1.6 million Federal retirees who are impacted by those provisions.

We are also going to hear from Priya Mathur, an elected member

of the Board of Administration of the California Public Employees

Retirement System, and a member of AFSCME, which is the largest union for workers in public service.

As I mentioned earlier, I wish we could have all of those service

industries represented here, but I think they will be well represented by the folks who are testifying.

We will start this afternoon with testimony from Senator Collins,

who, together with Senator Feinstein, who could not be here but

whose statement will be placed in the record as if delivered in full,

has developed legislation which I am pleased to be a co-sponsor of

to repeal these two provisions.

So I hope we can use this hearing to lay the groundwork of understanding for our colleagues and the record that is appropriate

for the Congress to be able to understand why it is imperative for

us to move forward with this. Those who are affected by these provisions that have unintended consequences are people that, frankly, we need to value the most in our society. None of our communities can work without them. We will not have community without

them. The word ‘‘community’’ without teachers and police officers

and fire fighters just does not work.

So it is important to guarantee that we attract people to a career

that, from the moment you make the choice to enter it, you know

you are not going to be hitting the jackpots that are hit on Wall

Street, and a lot of other places, but you know you have chosen a

different path to contribute. That needs to be valued and honored

appropriately by the laws that we put in place, and that is what

this hearing is really all about.

[The prepared statement of Senator Feinstein appears in the appendix.]

Senator KERRY. Senator Collins, thanks for being here.

STATEMENT OF HON. SUSAN COLLINS,

A U.S. SENATOR FROM MAINE

Senator COLLINS. Thank you. Thank you, Mr. Chairman, for the

opportunity to appear before your subcommittee to discuss the So-
4

cial Security Fairness Act, which our colleague from California,

Senator Feinstein, and I have introduced.

I do want to point out that this has been a completely bipartisan

effort. I know that Senator Feinstein very much wanted to be here

today. We have talked about this. We wrote together to you to ask

you to hold this hearing. I commend you for seizing hold of this important issue, and for your leadership.

Our bill repeals both the Windfall Elimination Provision and the

Government Pension Offset. I believe that these two provisions unfairly penalize individuals for holding jobs in public service when

the time comes for them to retire. Indeed, as we discussed earlier

today, it is a powerful disincentive for people to work for a while

in the private sector and then come into the public sector.

These two provisions have enormous financial consequences for

many of our teachers, police officers, fire fighters, postal workers,

and other public employees. Given their important responsibilities,

it is simply not right to penalize them when it comes to their

earned Social Security benefits. I emphasize that word ‘‘earned,’’

Mr. Chairman. These public servants or their spouses have all paid

taxes into the Social Security system on their private sector wages.

So have their employers. They have also worked long enough to

earn their Social Security benefits.

So in a normal situation, since they paid in their taxes, their employers paid in their share of the tax, and they have worked long

enough to qualify, one would think that they would be able to collect the benefit for which they are eligible. Yet, because of the way

the provisions of these offsets work, they are unable to receive all

of the Social Security benefits to which they otherwise would be entitled. What a disincentive to come into critical professions, like

teaching, like police work, like being a fire fighter or a Federal employee!

As you mentioned, Mr. Chairman, the impact of these two provisions is most acute in 15 States, including yours and my home

State of Maine, which have State retirement plans that lack a Social Security component. But I think it is important for our colleagues to realize that these two provisions affect public employees

and retirees in every State. The effect is more profound in our

States, but there are individuals in every single State who are adversely affected.

In particular, many of our emergency responders, our postal

workers, and other Federal employees, people whom we count upon

each and every day, are harmed by these provisions. Nationwide,

more than one-third of teachers and education employees and more

than one-fifth of other public employees are affected by these offsets. Almost 1 million retired public employees across the country

have already been harmed by these provisions, and many more

stand to be harmed in the future.

At a time when we should be doing all that we can to attract

qualified individuals to public service, this reduction in retirement

benefits makes it even more difficult for our Federal, State, and

local governments to recruit and retain the public servants who are

so critical to the safety, well-being, and education of our families.

What is most troubling to me, Mr. Chairman, and I know that

it is to you as well, is that this offset is most harsh for those who
5

can least afford the loss, and that is lower-income women. In fact,

of those affected by the GPO, more than 70 percent are women. According to the Congressional Budget Office, the GPO reduces benefits by more than $3,600 a year. That is an amount that can make

the difference between a comfortable retirement and being on the

edge of poverty for far too many retirees.

Many Maine teachers, in particular, have talked to me about the

impact of these provisions on their retirement security. They love

their jobs. They are so devoted to the children whose lives they

have such an impact on, but they cannot help but be worried about

their future and their financial security.

Mr. Chairman, in September of 2003, 4 years ago, I chaired what

I believe was the first oversight hearing in the Senate to examine

the effect of these offsets on our public employees and retirees. I

have shared with you this morning the compelling testimony that

we heard from a teacher in Maine. For the record, I hope you will

allow me to repeat it one more time because I think it is important

that we put a human face on exactly the people who are affected

by these unjust provisions.

Julia Worcester of Columbia, ME was 73 at the time when she

testified before me. She had worked for more than 20 years, first

as a waitress, in a variety of factory jobs. Then at age 49—49—she

decided to go to college to pursue her dream, her lifelong dream of

becoming a teacher. She began teaching at age 52. She taught fulltime for 15 years before retiring at the age of 68. But because she

had only taught for 15 years she does not receive a full State pension, yet she is still subject to the full penalties under the GPO and

the WEP. That is despite having worked for 20 years in low-paying

jobs in the private sector.

As a consequence, she receives just $156 a month in Social Security benefits, even though she paid into the system and worked so

hard for 20 years. As a consequence, Mr. Chairman, her monthly

pension income is under $800. That is just not fair for someone

who has worked an entire lifetime.

After a lifetime of hard work, Mrs. Worcester is still substitute

teaching just to make ends meet. At age 77, she simply cannot afford to fully retire. That is the impact of these two provisions, and

that is simply not right.

Mr. Chairman, I so appreciate your holding this hearing and

moving this bill along. I urge the subcommittee to take action. I am

so willing to help in any way that I can. I know that fixing this

problem will cost some substantial sums over time, but surely we

can start right now by taking the incremental steps toward full repeal to modify the effect of these two unfair provisions.

Finally, Mr. Chairman, I hope we can structure this bill so that

it is helping people who are retired now. I do not think anyone is

seeking a retroactive payment, but if we could help those like Mrs.

Worcester, who simply are being so unfairly penalized by these provisions on a prospective basis, as well as those who retire later, I

think we will be performing a great service.

Again, thank you, Mr. Chairman, for your leadership on this

issue. I hope you will count on me as your partner as we continue

to work together to correct this terrible inequity. Thank you.
6

Senator KERRY. Well, thank you very much, Senator Collins. I

think you obviously not only care about the issue enormously, but

you understand it. You have a lot of folks in your State who are

living it. So, I think your testimony today is really important. Your

leadership has been terrific on this. You are the folks who got the

ball rolling, together with Senator Feinstein, and I am happy to be

your partner.

We are going to do what we can in this committee. I agree with

you completely in the judgment you just made, that at least we can

sort of start to move down the road and cope with this and prove

to people that we are really trying to tackle it in a serious way.

So we are all most appreciative for your testimony here today, and

I look forward to working with you as we go forward.

Senator COLLINS. Thank you, Mr. Chairman.

Senator KERRY. Thanks for taking time to be with us.

Senator COLLINS. Thank you.

Senator KERRY. Thank you.

If I could ask the second panel to come up at this point in time,

Margaret Kane, Barbara Bovbjerg, and Priya Mathur, then Larry

Thompson.

Priya, am I pronouncing that correctly? Mathur?

Ms. MATHUR. Mathur.

Senator KERRY. Mathur. Mathur. You got it.

Ms. MATHUR. Thank you.

Senator KERRY. And Margaret, why don’t you lead off? We are

delighted to have you here. Just share with everybody. If you can

all try to summarize your testimonies. Your full testimony will be

put in the record in its entirety. If you can try to summarize in

about 5 minutes, that would be terrific. It will give us a little time

to chat about it.

STATEMENT OF MARGARET KANE,

RETIRED TEACHER, MEDFORD, MA

Mrs. KANE. Thank you, Senator Kerry, Senator Ensign, and

members of the subcommittee. On behalf of the Massachusetts

Teachers Association’s more than 107,000 members and the 3.2

million members of the National Education Association, I would

like to thank you for the opportunity to speak to you today about

the Government Pension Offset and the Windfall Elimination Provision, policies affecting pensions from work not covered by Social

Security, which unfairly penalize educators and other public employees.

My name is Margaret Kane. I am retired after teaching English

for 35 years at Medford High School in Medford, MA.

As you know, the Government Pension Offset reduces the Social

Security benefits paid to a spouse or a survivor by two-thirds of the

individual’s public pension. Thus, a teacher in Massachusetts who

receives a public pension for a job not covered by Social Security

will lose much, or all, of any spousal survivor benefits she would

expect to collect based on her husband’s private sector earnings.

I know all too well what the impact of the Government Pension

Offset means to a surviving spouse. My husband, Dennis, joined

the Navy at a young age and served for 4 years before we were
7

married. After leaving the Navy, Dennis got a job at General Electric as a machinist. He worked there for 26 years.

I began my job as a public school teacher immediately after graduating from college. My husband and I worked very hard to raise

our son and two daughters. Like other young couples, we thought

we would watch our children grow into adulthood and perhaps

start families of their own. We could never have imagined what a

serious illness would do to our family.

In 1996, Den was diagnosed with terminal cancer. While this disease progressed, he continued to gather all of his strength to try

to work for as long as he could. Dennis died on December 23, 1998

at age 53. Two days prior to his death, Dennis asked me how long

I thought he would live. I knew that he did not have much time

left.

One of the last things Dennis told me was that he would be able

to rest in peace knowing that I would have his Social Security benefits to supplement my pension when I retired. Dennis contributed

to Social Security for more than 30 years. These contributions were

taken from our family income and Dennis and I both thought that

full Social Security benefits would be available to us.

Fortunately, Den never knew that I would not be able to collect

one penny of his Social Security benefits as his spouse. I am one

of many women whose retirement years have been affected negatively by the Government Pension Offset. My colleague at Medford

High School, Josephine Parella, tragically lost her husband, Carmine. Carmine had been an officer in the Air Force for 16 years,

when he died in 1970 while returning to Vietnam. He had spent

his career serving his country. Josephine was left to raise their four

children, ranging in age from 3 months to 10 years old.

When the youngest entered school, Josephine returned to work

as an adjustment counselor. In 2002, after 26 years in public education, she retired and was unable to receive any survivor benefits

from her Vietnam veteran husband.

My colleagues in Massachusetts are also affected by the Windfall

Elimination Provision, which reduces the earned Social Security

benefits of an individual who also receives a public pension from

a job not covered by Social Security. Joan Piacquadio, a registered

nurse, worked for more than 50 years in western Massachusetts.

Twenty-five of those years were spent treating students in the Lee

Public Schools. Today, both the Government Pension Offset and the

Windfall Elimination Provision are making Joan’s retirement years

less secure than they should be.

Joan retired in 1998 at 64 to care for her seriously ill husband.

Because of her public pension, Joan was able to receive only about

half of her own Social Security benefits. After her Medicare payment and the Windfall Elimination Provision, Joan’s Social Security benefit was $167 a month. Joan’s husband died in 2000, and

Joan was notified that she would be unable to collect an estimated

$869 per month in survivor benefits from her husband’s Social Security because of the Government Pension Offset.

Joan returned to work for over 6 years, but recently had to stop

working because of a tripe-bypass operation. At 73 years of age,

Joan is able to remain in her home only because her children have

taken over the responsibility of maintaining her house.
8

On behalf of all Massachusetts Teachers Association members, I

urge the committee and the Congress to enact S. 206. Please do not

continue to penalize those of us who have dedicated our lives to

public service and to educating public school students.

Thank you, Senator Kerry, for allowing me to speak today.

Senator KERRY. Well, thank you very much, Mrs. Kane. We really appreciate the testimony, very important testimony. I appreciate

your giving the breadth of those other experiences. It is very, very

helpful. Thank you.

Mrs. KANE. Thank you.

[The prepared statement of Mrs. Kane appears in the appendix.]

Senator KERRY. Ms. Bovbjerg?

STATEMENT OF BARBARA D. BOVBJERG, DIRECTOR, EDUCATION, WORKFORCE, AND INCOME SECURITY ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC

Ms. BOVBJERG. Thank you, Mr. Chairman.

I am pleased to be here today to discuss the Government Pension

Offset and the Windfall Elimination Provision of Social Security.

Social Security is designed to be a universal social insurance system and, indeed, covers about 96 percent of American workers.

The non-covered status of the other 4 percent, who are nearly all

public employees, poses issues of fairness in the program which the

GPO and the WEP are designed to address.

My testimony is in three parts: first, a discussion of Social Security’s coverage of public employees; second, a description of the

GPO and the WEP; and, third, the potential implications of actions

to alter those provisions. My statement is based on a body of work

GAO has published on these topics in recent years.

First, public employee coverage. Approximately one-fourth of the

Nation’s public employees are not covered by Social Security, which

means they do not pay Social Security taxes on their earnings from

government employment.

At its inception, Social Security did not cover government employees because they had their own retirement systems and there

was concern over Federal authority to impose a tax on State governments.

Since then, many State and local governments have elected Social Security coverage, and Congress has covered all Federal Government workers hired after 1983. However, nearly 7 million State

and local government workers today and about half a million Federal workers remain outside the Social Security system.

Even though non-covered employees may have many years of

earnings on which they did not pay Social Security taxes, they can

still become eligible for Social Security benefits. But because their

earnings records would show low, or no, covered earnings, these

workers would be treated like low earners and would gain from the

Social Security program’s progressive benefit structure. To avoid

paying what would be windfall benefits to such workers, Congress

enacted provisions designed to recognize non-covered workers’ special circumstances.

So, let me turn to those provisions. The GPO, enacted in 1977,

reduces Social Security spousal benefits for those receiving noncovered government pensions. The reduction is equal to two-thirds
9

of the non-covered pension. The WEP, enacted in 1983, employs a

modified benefit calculation formula for those with careers in noncovered employment. Both provisions are designed to prevent

awarding windfall benefits.

But, unfortunately, the provisions are confusing to many and

their administration has been problematic. The provisions are complex and many individuals in non-covered employment had not understood that the GPO and WEP may affect them. The Social Security Protection Act requires better notification to such individuals,

and that may help reduce confusion.

Also, SSA needs to know whether beneficiaries received noncovered pensions in order to administer the provisions, yet the

agency is often unable to obtain this information. To address the

problem, we suggested that Congress direct the IRS to collect and

report this information. We still believe this approach would be

beneficial, as long as the GPO and the WEP remain in effect.

Let me speak now about proposals that would alter the GPO and

WEP. Some specifically seek to reduce or repeal the provisions, and

according to SSA, eliminating them would cost about $80 billion

over 10 years and would increase the long-range trust fund deficit

by about 6 percent. Further, repeal would, in fact, redistribute income from those who have contributed to Social Security for a

working lifetime to those who have not, which creates other issues

of fairness.

Other proposals would make Social Security coverage mandatory

for all. Mandating coverage for public employees would reduce the

long-term trust fund deficit by 11 percent. It could also enhance

benefits for many employees who would otherwise remain outside

the Social Security system.

Although Social Security coverage for all could improve benefits

for currently uncovered employees, such a mandate could also increase costs for the affected State and local governments, or, if the

affected governments decided to keep their costs level, employees

could suffer benefits lower than those promised today.

Finally, mandatory coverage would not immediately address the

issues and concerns regarding the GPO and WEP, although ultimately those provisions would become obsolete.

In conclusion, there are no easy answers to the difficulties of

equalizing Social Security’s treatment of covered and non-covered

workers. Any reductions in the GPO or WEP would ultimately

come at the expense of other Social Security beneficiaries and of

taxpayers. Mandating universal coverage would promise eventual

elimination of the GPO and WEP, but at a potentially significant

cost to affected State and local governments. Whatever the decision, it is important to administer all elements of the program effectively and equitably.

On the administrative side, I once again urge you to give the IRS

the authority it needs to identify recipients of non-covered pensions

and help SSA maintain the integrity of its programs.

That concludes my statement, Mr. Chairman. I am happy to answer any questions.

Senator KERRY. Thank you very much. I am just writing a note

down. I apologize. Thank you.
10

[The prepared statement of Ms. Bovbjerg appears in the appendix.]

Senator KERRY. Ms. Mathur? Thank you very much.

STATEMENT OF PRIYA MATHUR, BOARD OF ADMINISTRATION,

CalPERS, AND MEMBER, AFSCME LOCAL 3993, SACRAMENTO,

CALIFORNIA

Ms. MATHUR. Thank you. Good afternoon, Mr. Chairman. I am

Priya Mathur, an elected member of the Board of Administration

of the California Public Employees Retirement System, CalPERS,

and a member of the American Federation of State, County, and

Municipal Employees, AFSCME, Local 3993 in Oakland, CA.

I appreciate the opportunity to be here today to testify on behalf

of CalPERS, the largest public pension system in the Nation, and

AFSCME, the largest public employee union, on the Government

Pension Offset, GPO, and the Windfall Elimination Provision,

WEP.

CalPERS and AFSCME are strong supporters of the Social Security system and are troubled that the benefits of many of our members are unfairly reduced through the arbitrary application of these

two laws.

Nationally, about 25 percent of public employees are not covered

by Social Security and are subject to the offsets, but 36 percent of

CalPERS are in this category. We often hear panicked concerns

about the GPO from our retirees, particularly low-wage workers

with modest pensions.

We often hear from women pensioners who started their careers

expecting to retire with both a public pension and a Social Security

spousal benefit. Many of them worked in relatively low-paying occupations, such as school custodians, nurse’s aides, and clerical

workers. It is a frightful shock when they realize that they will not

receive a much-needed portion of their expected retirement income.

Over 400,000 retired Federal, State, and local government employees have already had their spouse or widow’s benefits cut, or

completely eliminated, by the GPO. Thousands more will be affected in the future. The GPO assumes that two-thirds of a public

pension from work not covered by Social Security is equal to a Social Security earned benefit.

Social Security’s dual entitlement rule is then applied to this

amount. The rule says no beneficiary can receive a Social Security

benefit based on their own work record and also receive a full

spouse or widow’s benefit. Rather, they can collect only the larger

of the two.

We believe the two-thirds offset is capricious, and the reasoning

behind it faulty, because it ignores the generally large contributions made to public pensions by both employers and their employees. In jurisdictions that do not participate in Social Security, the

average total contribution to a public pension can amount to 21

percent of pay or more, compared to a much lower total of only 12.4

percent under Social Security.

Most private pensioners contribute only to Social Security and

not to their private pension plans, which are usually financed entirely by their employer. Like public employees, they contribute
11

only to one system, yet they can receive a full pension and a full

Social Security benefit with no offset of any kind.

Additionally, a public retiree’s entire pension is subject to Federal income tax, including the part that is deemed equivalent to Social Security. Most Social Security benefits, however, are tax-free.

To illustrate the devastating effects of the GPO, I would like to

share some typical examples with you. Annette Williams is an

AFSCME retiree member and a pensioner in the Los Angeles City

Employees Retirement System, and Mary Ferreira, a retired city of

Fremont employee who receives a CalPERS pension.

Annette retired in 2003 from her job as a clerical worker employed by the city of Los Angeles. She had never heard of the GPO

and thought she would be able to collect a Social Security widow’s

benefit based on the work record of her deceased husband. But she

had a rude awakening. She found out that applying the GPO’s twothirds offset to her $1,300 a month pension would completely eliminate her Social Security widow’s benefit of $812 a month.

Mary Ferreira has an almost identical story. When her husband died last year, her CalPERS of $1,378 a month was offset against

her Social Security’s widow’s benefit, which was completely eliminated. The Windfall Elimination Provision is an added penalty for

the same public employees to come under the GPO. Instead of

spousal benefits, the WEP applies an offset to the Social Security

benefits these workers earned through their jobs in the private sector. This year, the WEP can reduce the earned Social Security benefit by as much as $340 a month. Both Annette Williams and Mary

Ferreira are affected by the WEP, as well as the GPO.

The WEP was created as a way to distinguish between career

low-wage workers and those who only appear to have had low-wage

careers. Instead of using Social Security’s normal benefit formula,

Social Security calculates the benefits for WEP retirees using a

modified formula. It is faulty to assume, however, that public employees would get an unfair advantage from the normal weighted

Social Security benefit formula that helps low earners.

The Social Security Administration, SSA, never determines what

a public employee has earned in total wages, so SSA does not know

whether these workers are actually high earners or low earners,

but treats them all as high earners. The WEP creates a totally arbitrary penalty that is especially unfair, because these workers pay

the same percentage in payroll contributions on their Social Security-covered earnings as everyone else. Why should they be penalized by this unfair statutory provision?

Before I close, I would like to make one more important point.

In our opinion, the problems with the GPO and WEP in no way

justify consideration of mandatory Social Security coverage in the

public sector. Reforming the GPO and WEP makes far more sense

because we think the GPO and WEP unfairly penalize average

public sector retirees. Both AFSCME and CalPERS strongly support S. 206, the bill sponsored by Senators Feinstein and Collins,

to repeal both offsets.

We look forward to working with the committee to finally rectify

these arbitrary and unwarranted penalties to retired public employees.

Thank you again for the opportunity to be here today.
12

Senator KERRY. Thank you, Ms. Mathur. That was very helpful.

I appreciate it. There are a few questions I will follow up with

afterwards.

[The prepared statement of Ms. Mathur appears in the appendix.]

Senator KERRY. Mr. Thompson?

STATEMENT OF LAWRENCE THOMPSON, SENIOR FELLOW,

URBAN INSTITUTE, WASHINGTON, DC

Mr. THOMPSON. Thank you, Mr. Chairman. I am a senior fellow,

as the roster says, at the Urban Institute, but I think I am here

because I am also a retired Federal civil servant with a long background in working at Social Security at the Government Accountability Office.

In my written statement, I begin by pointing out that we are

dealing with three problems that arise as the result of the existence of parallel systems which are uncoordinated.

The first problem is gaps in coverage. In my statement, I note

that if someone works in non-covered employment and then shifts

to Social Security-covered employment, they can discover that for

the first one and a half years there is no protection for their survivors, should they die; for 5 years, they are not covered for disability by either system.

When they move from Social Security to a municipal employment, they can have a similar gap. When they reach the end of

their working career, if they have not worked a full 10 years under

Social Security but they have worked some time under Social Security, they will lose all of their Social Security credits and end up

with a lower pension than they would have gotten had everything

been covered. So, there are gaps. That is the set of problems that

exists that has not been discussed yet.

The second problem is that these benefit payments would become

larger than intended if you repealed the two provisions we are discussing today, larger than intended because Social Security was explicitly set up to redistribute from high-wage workers to low-wage

workers, from singles to families, particularly one-earner families.

People who are not low-wage workers or from one-earner families

can look like low-wage workers or one-earner families if their earnings came from non-covered employment.

So the result is the creation of these two instruments, which are,

I think everyone admits, at best, rough justice: they take too much

away from some people and they do not take enough away from

other people. That was the only thing the Congress could think of

to do at the time.

There is a third problem that arises because of the lack of coordination. It is that, in fact, the non-covered State and local workers

escape paying their fair share of the cost of redistribution under

Social Security. Social Security is a pot: the high-wage workers get

back less than an actuarial equivalent of what they paid in, lowwage workers get back more.

The average earner under Social Security makes about $36,000

this year, and State and local workers, on average, will make more

than that. So, were they participants—the people who are not now
13

covered—in the Social Security system, we would probably be redistributing from them to low-wage workers elsewhere.

I explain in my written statement that there are really two ways

to address this problem. One of them involves extending coverage,

which has been discussed here. The other involves simply exchanging credits, coordinating the benefits and the financing without extending coverage.

This strategy of exchanging credits is, in fact, the way that the

Congress decided to deal with the parallel set of problems between

Social Security and the Railroad Retirement System, and it is also

the way we deal with people who have earnings credits under Social Security systems in different countries and reach the end of

their career and we want to coordinate their benefits. We have

agreements with 21 different countries that follow this approach.

The approach would basically be that when someone reached retirement, died, or became disabled, you would take their credits

under Social Security and under a non-covered system and you

would combine them, and you would look at the combined total to

see whether they were eligible for a benefit, and if they were eligible, you would use the combined total to calculate that benefit.

Then you would divvy up the cost of financing it between Social

Security and the non-covered employer on some basis, probably

based on the ratio of the earnings under each system. By doing

this, you could then get rid of these windfalls and GPOs that we

are talking about. You would close the gaps and you would even

the playing field in terms of participating in the cost of redistribution.

Now, the numbers that are quoted as to the cost to State and

local governments of being included, which I am not advocating, actually, I think, overstate the cost by, as near as I can tell, a factor

of two. That is because what is quoted is usually the contributions

that would be diverted to the Social Security system and are being

diverted from these State and local governments’ own pension systems.

But we have to recognize that if those people come under Social

Security, the government will probably reduce the pension that

they would get from the State government so that that would offset

a part of the liability. It looks like it only offsets about half the liability, so that, in fact, bringing State and local workers, all of

them, under Social Security will increase the costs in the end probably because there are certain ways in which Social Security is a

better package than what the State and local government workers

now have, and that costs money. Because of this impact, they will

be asked to be contributors to the redistribution inside the program.

So my advice, if you want it, is that the best way to proceed is

to see if some sort of exchange of credits cannot be worked out so

we can put this problem to bed once and for all, and do it in a way

that calibrates it correctly and makes sense. Thank you.

[The prepared statement of Mr. Thompson appears in the appendix.]

Senator KERRY. Well, thank you, Mr. Thompson. That is a helpful way to lead into the question period here.
14

Ms. Mathur, I saw you writing some notes down while he was

talking, so I think you want to comment.

Ms. MATHUR. I was seriously writing down notes. I think there

are a couple of things that Mr. Thompson mentioned that I would

like to respond to. One, is that benefits end up being larger than

intended for public employees if there is not an adjustment. I think

that again assumes that public employees are high-wage workers.

We have a lot of workers who are actually low-wage workers. People who work in school districts often are very low-wage workers,

and so I think that is one issue.

Senator KERRY. But do you not think that the way he framed it,

in terms of either the credits or accountability, you would look at

the overall package and then measure the redistribution issue?

Ms. MATHUR. The other point I wanted to bring up actually, it

is not just about the benefits, it is also about what the employees

are contributing. Public sector workers contribute much more into

their public pensions than private sector workers. In fact, private

sector workers generally do not contribute anything at all to their

private defined benefit pensions. You have to account for the contributions as well.

Senator KERRY. Yes.

Mr. Thompson, what about this question—well, let me come

back. You talked about the redistribution issue, which is an important component of Social Security. I mean, we have attempted to

try to make it progressive. How do you, Ms. Mathur or Ms.

Bovbjerg, gain that in melding these two without actually requiring

people—let us say you leave out the choice of going into the Social

Security system, but you want to try to get credit and have a fair

balance here. How do you deal with the redistribution issue? Any

ideas? Ms. Bovbjerg, do you want to tackle that or not?

Ms. BOVBJERG. Well, I think that——

Senator KERRY. In other words, Mr. Thompson is saying, look,

here we have 30 percent of our employees around the country who

are not paying into the Social Security system. But the Social Security system is attempting to adjust for levels of income, and if they

are not taken into account they are not part of that redistribution

at all.

So I think what he is trying to get at is, if you are going to have

part of the balance, you have to have the whole balance. Am I correct, Mr. Thompson?

Mr. THOMPSON. Yes.

Senator KERRY. So how do you do that, in your judgment? What

do you think about this idea of the credits or measuring the whole

thing as a first step towards moving towards an integration, if you

will?

Ms. BOVBJERG. I think it is an interesting idea. I mean, I think

that the GPO and the WEP, as Larry says, are really rough justice.

As a recent report from the Congressional Research Service points

out, sometimes the WEP disadvantages higher-income workers and

advantages lower-income, and it is not exactly accurate. There are

ways to think about that——

Senator KERRY. Is there a way to make it accurate? Could we get

a better reflection of what the reality of income levels and contributions are?
15

Ms. BOVBJERG. Hypothetically, yes. Could you administer it?

That is the question. I think that is the question I would ask about

the credits. I think it is a really interesting idea that bears examination.

Senator KERRY. Mr. Thompson, I assume that, if somebody is

working in a family job for a lifetime and they are paying X

amount of dollars into the Social Security system and their partner—husband, wife, spouse—is a local employee who then is retiring, they die ahead of them, there ought to be some way of having

a fair expectation about the transfer of the fruits of that labor over

that period of time. It should not be this rough justice of sort of

an automatic two-thirds arbitrary cut-off, and boom, off you go,

which has no relationship to what their need may be or their reallife situation, as we have heard from Mrs. Kane and others.

Mr. THOMPSON. Yes. We have to be careful when we use the

word ‘‘fair’’ in this conversation. What these provisions are trying

to do is reproduce the result that would occur if they were covered

by Social Security. That means they are trying to reproduce the

rules about dual entitlement, which a lot of people do not think are

fair in and of themselves. In the example you gave, the worker

would not get any benefit from the record of his deceased spouse

if her earnings were not higher than his and they were both covered by Social Security.

Senator KERRY. Under the dual entitlement rule.

Mr. THOMPSON. Yes. Which is an injustice that many want to

deal with, which would also then affect how these offsets work. But

you are absolutely right. The two-thirds is totally arbitrary. It was

100 percent when we first enacted it. We realized then that that

was too much. Now it is two-thirds. What is the right number?

There is no right number. There is no single right number because

the right number would depend upon knowing the generosity of the

particular pension and the actual workings of the particular worker.

Senator KERRY. Do you accept the idea that this provision could

actually discourage individuals from taking a public service position? If they are covered by Social Security, it would discourage

them from taking a position that is not covered by it?

Ms. MATHUR. I think it could. If I could, I would like to share

an example that actually compares a public sector worker with a

private sector worker to really illustrate this point. Sarah is a public sector retiree with a pension from work non-covered by Social

Security. Her pension is $1,200 a month, based on an average income of $35,000 to $40,000 a year. Her husband John’s Social Security benefit is $1,055 a month, the average benefit in 2007.

The GPO requires Sarah to offset two-thirds of her monthly pension, $900, against her Social Security spouse benefit of $528. That

completely eliminates the spouse benefit for Sarah, leaving her

with a total retirement benefit of $1,200 a month, which is just her

pension. Sarah pays Federal income tax on the full amount of her

income, which reduces it by 15 percent——

Senator KERRY. Which she would not do under Social Security.

Ms. MATHUR [continuing]. Which she would not do under Social

Security, or $180, leaving her with a net income of $1,020.
16

Now, Ruth is a private sector retiree with an average income similar to Sarah’s. She, too, receives a pension of $1,200 a month,

a private pension. Based on her own work record, Ruth receives a

monthly Social Security benefit of $1,055, and Ruth’s husband

Dave also receives Social Security. His benefit is the same as

Ruth’s: $1,055 a month.

Under Social Security’s dual entitlement rule, Ruth can receive

her benefit, or 50 percent of Dave’s, whichever is higher, so of

course she chooses her benefit, which is higher than half of his. So

Ruth’s total benefit is a combination of her $1,200 a month pension

and her $1,055 a month Social Security benefit, for total retirement

income of $2,255 a month.

Ruth pays taxes on her pension benefit, but not on her Social Security benefit because her income, including 50 percent of her Social Security benefit, is less than $25,000 a year. So her Federal

taxes reduce her total monthly income by $180, leaving Ruth with

$2,075 a month. Now, that is twice of what Sarah gets as a public

sector retiree.

Senator KERRY. What was the income differential?

Ms. MATHUR. The income was the same for both women.

Senator KERRY. Same income.

Ms. MATHUR. Their retirement pension was the same.

Senator KERRY. Understood. It is just the private/public component that is different.

Ms. MATHUR. Exactly.

Senator KERRY. Well, let me ask you this. What do you say to

people—and some people throw this out there—when they say,

well, why do they not all join Social Security? You hear that. Then

you have an even playing field and even treatment. Because what

is happening now is, you are trying to take separate approaches

and create equal treatment, which means you have to somehow

mesh rules in a more complicated way. What is the response to

that when people do say that? Anybody?

Ms. MATHUR. I know the subject of this hearing is not really

mandatory Social Security, but I can answer that question. If mandatory Social Security were implemented——

Senator KERRY. It is what some people who sort of look at the $80 billion and they balk and say, how are we going to do this? You

hear this, so it is important to try to just——

Ms. MATHUR. Sure. So then public employers would either have

to reduce their contribution to their employees’ public pension or

they would have to pay whatever that additional increment is,

which otherwise would also be lost at the bargaining table for

wages for those employees as well.

But let us just say that they offset the public pension. What happens then, at least in CalPERS, for every dollar of benefit that we

pay out, about 12, 13 cents comes from the employer, about 13

cents comes from the employee, and a full 75 cents comes from investment earnings. So, if you reduce the contributions on the front

end that employer is making, that leverage of the investments is

lost, so that significantly reduces the benefit that can be paid on

the back end when the individual retires.

Senator KERRY. Ms. Bovbjerg, what was the original rationale for

the enactment of the GPO provision in 1977?
17

Ms. BOVBJERG. It was a reaction to a Supreme Court decision.

Senator KERRY. And that was Califano v. Goldfarb?

Ms. BOVBJERG. Yes.

Senator KERRY. And what role did the decision of the Supreme

Court have in the enactment of the provision, in your judgment?

Ms. BOVBJERG. Well, that provision eliminated this thing called

the dependency test. We, the government, were treating women

and men differently for spousal benefits, and the Supreme Court

decision said that you cannot do this anymore, so suddenly men

who were in non-covered employment were going to receive spousal

benefits. This created a financial issue and an equity issue, and resulted, in 1977, in the GPO. At that time, as Mr. Thompson says,

it was a one-to-one offset, as with spousal benefits and covered employment.

Senator KERRY. And why was the provision modified in 1983?

Ms. BOVBJERG. Honestly, I think it was a compromise. I think

there was a concern that it was too much, and there had been a

proposal to make it one-third instead of one-for-one, so they went

for two-thirds.

Senator KERRY. Just a compromise settlement, in other words.

No fundamental equity or rationale as to the measurements that

Mr. Thompson is talking about?

Ms. BOVBJERG. I do not want to say that no one knew what

might happen. I am sure there was some analysis behind it. But

I think it is a relatively arbitrary amount.

Senator KERRY. And the legislative history and rationale for the

WEP?

Ms. BOVBJERG. Well, the WEP was in 1983, the same time that

GPO came down to two-thirds. It too was an issue of equity and

an issue of finances. That was a time when they were looking to

strengthen Social Security finances overall.

Senator KERRY. How difficult is it to administer these? Mr.

Thompson? Or Ms. Bovbjerg, go ahead.

Ms. BOVBJERG. Oh, please let me talk about this. We did a report

on this in 1998. We found that it was not going very well, that SSA

gets much better information on Federal employees than it does on

State and local retirees as to who is offsettable.

Senator KERRY. If that information, which in the age of the virtual world we live in ought to be more achievable, if that were

more accessible, could it be administered with greater simplicity

and fairness just the way it is?

Ms. BOVBJERG. I think the current law could be administered

better. I do not think that the people sitting here would think it

was more fair. It would be the same law.

Senator KERRY. But would there not be a better way to get the

measurements that then could apply to some of what Mr. Thompson was talking about so that you are getting a better balance of

somebody’s overall situation and, therefore, creating equity in the

income distributed to somebody rather than having the disparity of

taxation between Social Security versus the public and so forth, so

that the income differential on $40,000 of income is, in retirement,

two to one?

Ms. BOVBJERG. Well, better information always improves administration. But really, I think that one of the things that is the most
18

important to do if the GPO and WEP are to continue, is for people

to know that these provisions apply, because so many of the stories

we have heard today are from people who had no idea that these

things would apply to them.

Senator KERRY. Well, even if they knew it was going to apply to

them, would it be right?

Ms. BOVBJERG. It depends on who you are thinking about. Everyone here is thinking about the non-covered spouse and how they

compare to the non-working spouse. But what about the covered

working spouse?

Ms. MATHUR. These were working. My examples, anyway, were

working women.

Ms. BOVBJERG. But when you compare to how the covered spouse

is addressed, the covered spouse is offset one to one. So as when

Larry talks about, there are sort of different forms of equity, if you

were to repeal the GPO/WEP, it would be important to think about

how we treat spousal benefits generally.

Now, GAO has called for a reexamination of spousal benefits, because, when Social Security was created in 1935, we were a Nation

of stay-at-home moms and single-earner households. It is different

today, and perhaps there are other ways to approach the spousal

benefit issue.

Senator KERRY. What do you think about that, Mr. Thompson?

Mr. THOMPSON. I want to throw something out which my friends

at Social Security will not be happy with me for saying. There is

one thing that is different today than in 1977 and 1983. Since

1978, if I am not mistaken, Social Security has been collecting information on wages and uncovered employment because they process all of the W–2s for the income tax. They save that data.

So there actually is a potential to think of constructing these offsets in a way that was more tailored to the individual worker, but

it might be complicated. I mean, I have not thought through how

you might do that. But there is information which exists today that

did not exist when they constructed these things, so there are potential options that could be constructed today that could not have

been examined in years past.

Ms. MATHUR. But again, there would only be information about

the benefits paid out, not the contributions paid in by the individual employee.

Mr. THOMPSON. Well, you would know the earnings of the individual employee and you could then construct a more accurate representation of what the situation would be had those earnings been

under Social Security. Then you can work with that principle to

say, we know how much of this pension that they are getting actually is replacing Social Security and how much of it is in addition

to Social Security, and we can calibrate our offset accordingly.

Senator KERRY. Well, do you, both of you, Ms. Bovbjerg and Mr.

Thompson, believe that the Government Pension Offset actually

replicates the dual entitlement rule?

Mr. THOMPSON. Well, it replicates the principle but mathematically it does not produce the same result because it is this sort of

arbitrary number.

Senator KERRY. Right. So, therefore, it begs to be adjusted, does

it not?
19

Mr. THOMPSON. If possible and practical.

Senator KERRY. Ms. Bovbjerg?

Ms. BOVBJERG. We have suggested that both the GPO and the

WEP, and particularly the WEP, be examined for greater accuracy.

But it will be hard for SSA to do those things if they do not have

the right information. So we are concerned about administrability.

Senator KERRY. Why should we not be able to make that administration adjustment? I do not understand that. Why is not administrable?

Mr. THOMPSON. Well, I think you need to look at that. As I say,

it may be possible today to do things that could not have been done

in 1977 when Social Security had no records of the earnings in

non-covered employment.

Senator KERRY. Yes. It would seem to me more than, it may be

possible, that it is sort of staring us in the face that it ought to be

pretty feasible to be able to work those kinds of adjustments.

Mr. THOMPSON. We need to talk to the agency. I mean, it may

be that they have doubts about how accurate those are. I know

they collect the information because they process it for the Internal

Revenue Service for the income tax, but beyond that, exactly what

they do with it and how well they store it, I do not know.

Senator KERRY. Ms. Mathur, in your testimony you talk about

the difference between Social Security and the government pension

that you have worked under. Do you believe that the higher contributions that you have referred to and talk about, that that, in

effect, eliminates the need for a pension offset?

Ms. MATHUR. I cannot speak to every single case, but I do think,

in general, that public employees contribute much more significantly to their own public pension than private sector employees.

I think that is borne out by the evidence. As a result, they are contributing to their ultimate retirement, and yet they are also getting

penalized on the other end by this offset.

Senator KERRY. Right. So they put in more, but in effect they are

being penalized for putting in more, and they take it away at the

back end. I understand.

Ms. MATHUR. They pay more, and they get a smaller benefit.

Senator KERRY. Right.

Ms. MATHUR. It just seems arbitrary and unfair.

Ms. BOVBJERG. But if I can jump in here. I know I risk being

booed again.

Senator KERRY. That is all right. It is bouncing off your back. It

is all right.

Ms. BOVBJERG. Public pensions were designed in particular governments to replace Social Security, to be more than Social Security. That is why they do not participate in Social Security. So as

a general rule, they are more——

Senator KERRY. Right. But they are designed to be better than,

which is a right that some people ought to have. But if one spouse

or the other paid into Social Security, they should not be penalized

because they are making a choice to be better off.

Ms. MATHUR. They should not be worse off.

Ms. BOVBJERG. But, Senator, I do not want to leave this group

with the impression that people with private pensions are not——
20

Senator KERRY. Well, that is what is happening. The current system is taking you backwards for all of your effort to go forwards.

It is, in effect, penalizing good savings and good investment policy.

I mean, we save precious little in America. We have one of the lowest savings rates of anywhere in the world.

We should be encouraging people to be able to save and put away

and not be penalizing them so they turn around and they pay a

higher price for having done so—twice, incidentally: once in the

system they chose to be part of and the other in the one they are

automatically part of because of somewhere they work. I sort of

find that this type of action by the Government gives it a bad reputation.

Ms. BOVBJERG. Well, we absolutely agree that people should be

saving more and that people should be able to keep more money

for retirement.

Senator KERRY. But the system currently penalizes people for

doing that, which does not make a whole lot of sense.

So the big issue is, where do you find the money? How do you

fix this? Is that part of this? Is there a sliding scale adjustment or

do you just eliminate it in one fell swoop?

Ms. MATHUR. I would advocate for eliminating it. Right now it

is just not rational law. So there might be some other solution. I

do not know. But I think these particular laws, GPO and WEP,

need to be repealed.

Senator KERRY. Mr. Thompson, is a public employee who is not

covered by Social Security, but receives a government pension, disadvantaged compared to a worker who does receive Social Security?

Mr. THOMPSON. Is a government employee who receives a noncovered pension disadvantaged?

Senator KERRY. Are they disadvantaged? If you are not covered

by Social Security and you get a government pension, are you disadvantaged compared to the person who retires on Social Security?

Mr. THOMPSON. In what sense? I do not——

Senator KERRY. In terms of the rules that would be applied to

them, i.e., taxation. That is one.

Mr. THOMPSON. Oh, taxation is one.

Senator KERRY. So they are disadvantaged in that sense.

Mr. THOMPSON. In that respect they are, yes.

Senator KERRY. And they are also done for whatever that other

pension is.

Mr. THOMPSON. Well, they are not.

Senator KERRY. In other words, the two-thirds rule applies to

them to try to work the equity of the whole entitlement, but in a

very arbitrary way.

Mr. THOMPSON. If their spouse is covered.

Senator KERRY. So there is an arbitrariness that disadvantages,

correct?

Mr. THOMPSON. We all have to agree it is arbitrary. Whether

zero is the right offset, I would question, but I would not defend

two-thirds as the right amount.

Senator KERRY. Yes. Are you arguing, sir, that you believe—in

your testimony you talk about how people who support national

coverage do so to improve the condition of Social Security itself.
21

Mr. THOMPSON. I said that I feared that was their primary motive.

Senator KERRY. You fear that is their primary motive?

Mr. THOMPSON. It appears that way from the way they described

it. It is all part of a financing package, so the attraction seems to

be that there is money in it for Social Security, at least over a 50-

year period.

Senator KERRY. Help me to understand this duality that you

think might work, the better coordination between the two. Would

that be easier to administer than the GPO and the WEP?

Mr. THOMPSON. Probably. It would not be any more difficult. You

could probably do it more effectively. I mean, let us face it. What

Barbara is trying to tell you is that the GPO is, in effect, zero for

a lot of people for whom it should not be zero because Social Security does not know they have a non-covered pension.

So we are getting cases here of people who are unjustly, or feel

unjustly, affected by this. But there is another set of cases of people who are benefiting that should not be, and probably through a

little fault of their own, because probably they were really under

an obligation to inform Social Security that they were getting this

pension.

Senator KERRY. Peggy, I think you had your hand up, am I

right?

Mrs. KANE. I did.

Senator KERRY. I am sorry. Yes.

Mrs. KANE. I am getting the impression here that some people

at our table in our panel feel that that old adage that they talk

about, double dipping, that some of us are double dipping. I am

getting that impression. I just think, as part of the educational

part of this, is we are not asking for anything that we have not

earned. We have put the money in.

[Applause.]

Senator KERRY. Let me say, I have to enforce the rules of the

Senate, which are not to have public demonstrations at the hearings of one kind or another, so I hope everybody would just respect

that.

Mrs. KANE. Thank you. We have put the money in. My husband

put money in to Social Security for 30 years. My friend Lola, whose

husband put money into Social Security—this is another little twist

of the Social Security which we cannot understand. While she was

still teaching—she stayed teaching until she was 65, so from 62 to

65—she did get her husband’s Social Security. She received that.

The day she stopped teaching, she was not supposed to receive it,

however, they kept sending it to her.

So she knew enough to put that money into a side account and

sent letters to them, to the Social Security people, telling them, I

am not supposed to be getting this money, and they sent letters

back telling her, yes, you are. Then one Friday she receives a bill

from Social Security saying that, by Monday, we need a check for

$8,000 because you were overpaid your Social Security.

So I do agree with you, there are problems there with the administration. But why is it that she is allowed to have her Social Security when she is still working, but when she is not working and
22

needs it, she is not allowed to have it any more? Her husband paid

into the Social Security system.

Then when I work an outside job and I am paying Social Security, every time I pay Social Security now for work that I do teaching or consulting, I know that I am never, ever going to see a

penny of that money, so I am contributing to a system that is not

allowing me to get back what I put in, which is all right, because

the rule is your 40 quarters, and I am never going to have that,

but also it is not allowing me to have the money that my husband

put into it. It is totally unfair.

I think that educational component still needs to be gotten out.

We still need to work in getting that message out there. We are

not double dipping. We paid that money in and we earned it, and

we deserve to have it. Thank you.

Senator KERRY. Anybody want to add anything to that?

[No response.]

Senator KERRY. It is probably a very good note on which to bring

this to a conclusion. I want to emphasize, as I said earlier, that

there were a number of folks here who had testimony, and I particularly want to thank Ralph White of the Retired State, County,

and Municipal Employees Association of Massachusetts. He is the

president of that. His testimony, and the testimony of Terri

Bierdeman, Director of the Coalition to Preserve Retirement Security, will be submitted into the record.

[The prepared statements of Mr. White and Ms. Bierdeman appear in the appendix on pp. 178 and 95, respectively.]

Senator KERRY. As I said earlier, statements for the record can

be submitted to the Finance Committee within 2 weeks from today.

The instructions for doing so are on the Finance Committee’s

website. We invite you to look at that.

One thing I might say is, you heard the questions and many of

you know the arguments that are raised, so, if you do want to submit some of that testimony, you certainly are free to try to address

some of those kinds of questions as you do so, or, if you have been

sitting there, burning up, saying, boy, I would like to let them

know this or that, this is your opportunity to let them know this

or that.

I think, clearly, the system is not fair, what is happening today.

It does not make sense. It is penalizing, as I said, people who are

making a good choice about how to retire decently in this country.

That is getting harder and harder to do, folks, with the costs of everything, from energy, to health care, tuitions. Trying to live the

so-called ‘‘golden years’’ has become a tougher task than it was,

and a lot of people are opting not to retire.

I think the benefit, the presumption of the Congress and those

of us in public life, particularly in a Congress that seems to be

pretty good at taking care of our own health care and pensions and

matching funds and other kinds of things, ought to be pretty much

bending over backwards to find a way to empower people, not to

punish them or create hurdles and stand in their way.

So we need to find a way to rectify these two diverging systems.

It just seems to me it should not be that difficult to have a kind

of income-based capacity, with all the redistribution elements we

try to do in a fair-minded way that does not penalize people, which
23

is what is happening in the arbitrariness of the system as applied

today. So we have to work to find that.

I think Senator Collins and Senator Feinstein are helping to set

us on the right track, and I hope this committee can do further diligence to pull together the ability of the committee itself to try to

move as we grapple with some very big tax issues in the next

months. There is a lot on the table, but this ought to be part of

it, no question about it.

So I thank you for coming today. As I say, the record remains

open.

We stand adjourned for this hearing. Thank you.

[Whereupon, at 3:43 p.m., the hearing was concluded.]

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A P P E N D I X

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