Social Security: The Government Pension Offset (GPO)
Released: 2018-06-14T00:00:00

Background

In general, Social Security spousal and survivor benefits are paid to the spouses of retired, disabled, or deceased workers covered by Social Security. The spousal benefit equals 50% of a retired or disabled worker's benefit and the survivor benefit equals 100% of a deceased worker's benefit.

Spousal benefits, which Congress created in 1939, are intended for individuals who are financially dependent on a working spouse. For this reason, but also because of the costs, Social Security does not provide both full worker and full spousal benefits to the same individual. For persons who qualify for both a Social Security worker benefit (retirement or disability) based on their own work history and a Social Security spousal benefit based on a spouse's work history, the "dual entitlement" rule effectively caps total benefits at the higher of the worker's own benefit or the spousal benefit. The Government Pension Offset (GPO) is analogous in purpose to the "dual entitlement" provision and applies to individuals who qualify for both a pension based on their own non -Social Security-covered government work and a Social Security spousal benefit based on a spouse's work in Social Security-covered employment. The intent of the dual entitlement rule and the GPO is the same—to reduce the Social Security spousal benefits of individuals who are not financially dependent on their spouses because they receive their own retired-worker or disabled-worker Social Security benefits, or their non-Social Security pension benefits.

Social Security Covered and Non-Covered Work

A worker is "covered" by Social Security if he or she works in "covered" employment and pays into Social Security through the Federal Insurance Contributions Act (FICA) payroll tax. To be eligible for a Social Security retired-worker benefit, a worker generally needs 40 earnings credits (10 years of Social Security-covered employment). Disabled workers are generally required to have worked fewer years, depending on the age at which the worker became disabled. Approximately 94% of workers were covered by Social Security as of December 2017. The majority of non-covered positions are held by government employees: most federal employees hired before 1984 and some state and local government employees. Nationwide, approximately 72% of state and local government employees are covered by Social Security in 2015. However, coverage varies from state to state. For example, approximately 96% of state and local employees in New York are covered by Social Security, whereas less than 3% of state and local employees in Ohio, and about 3% in Massachusetts, are covered.

The Dual Entitlement Rule and the GPO

The GPO is intended to approximate Social Security's dual entitlement rule. The intent of both provisions is to reduce the Social Security benefits of spouses or widow(er)s who are not financially dependent on their spouses because they receive retirement benefits based on their own work records.

Dual Entitlement Rule

In the absence of the dual entitlement rule, a couple with two earners covered by Social Security would receive two full primary benefits as well as two full spousal or widow(er)'s benefits. The Social Security dual entitlement rule requires that a beneficiary effectively receive the higher of the Social Security worker's benefit or of the spousal or widow(er)'s benefit, but not both. The total benefit received by a worker consists of his or her own worker benefit plus the excess of the spousal or widow(er)'s benefit (if any) over his or her own benefit—not the sum of the two benefits. So, in cases where the spousal benefit is higher than the worker's own benefit, the worker receives his or her own worker benefit plus the reduced spousal benefit, which is the difference between the spousal benefit and the worker's own benefit (100% reduction). In cases where the worker's own benefit is higher than the spousal benefit, the worker receives only his or her own benefit.

Table 1 demonstrates how the Social Security dual entitlement rule is applied to spouses.

In this example, both John and Mary have worked enough years in Social Security-covered positions (i.e., paid into Social Security) to qualify for Social Security retirement benefits. John has earned a monthly Social Security worker benefit equal to $2,000. His wife Mary has earned a monthly Social Security worker benefit equal to $900. Both Mary and John are also eligible for spousal benefits based on the other's earnings: John is eligible for a $450 monthly spousal benefit, and Mary is eligible for a $1,000 monthly spousal benefit. Under the dual entitlement rule, Mary's worker benefit of $900 must be subtracted from her potential $1,000 spousal benefit, and only the difference of $100 is paid as a spousal benefit. In total, Mary will receive $1,000 monthly—$900 as a Social Security worker benefit and $100 as a Social Security spousal benefit. John will not be paid a spousal benefit because his $2,000 worker benefit based on his own earnings is higher than and more than offsets the potential $450 spousal benefit. The Social Security benefits received by the couple would total $3,000 per month.

If John were to predecease Mary, Mary would then be entitled to a monthly widow's benefit of up to 100% of John's monthly amount. Mary would continue to collect her own benefit of $900 monthly, and that amount would offset John's full monthly benefit amount of $2,000. Thus, Mary would receive a Social Security worker benefit of $900 and a Social Security widow's benefit of $1,100 ($2,000 - $900), for a total monthly benefit of $2,000.

Because most workers are in Social Security-covered employment, the dual entitlement scenario is more common than the GPO among two-earner couples. In 2017, approximately 7.2 million out of 42.4 million Social Security retired worker beneficiaries, or about 17%, were dually entitled.

Government Pension Offset Formula

The Social Security spousal or widow(er)'s benefit of a person who also receives a pension from government employment (federal, state, or local) that was based on work not covered by Social Security is reduced by a provision known as the GPO. The GPO reduction to Social Security spousal and widow(er)'s benefits equals two-thirds of the pension from non-covered government employment. If the pension from non-covered work is sufficiently large in comparison to a person's Social Security spousal or widow(er)'s benefit, the GPO may eliminate the entire Social Security spousal or widow(er)'s benefit.

In December 2017, about 682,933 Social Security beneficiaries (about 1% of all Social Security beneficiaries) had spousal or widow(er)'s benefits reduced fully or partially by the GPO (this figure does not include persons who were eligible for spousal or widow(er)'s benefits but were deterred from filing for them because of the GPO). The GPO has no effect on the amount of the Social Security benefit a worker may receive based on his or her own work in Social Security-covered employment, but it does limit the amount that can be paid to his or her spouse or widow(er) who has worked in non-Social Security-covered employment.

Table 2 provides an example of how the GPO is applied, assuming that John worked in Social Security-covered employment while Mary spent her full career in state or local government employment that was not covered by Social Security.

In this example, John worked enough years in Social Security-covered employment to qualify for a monthly Social Security retired-worker benefit of $2,000. His wife, Mary, is not eligible for a Social Security retired-worker benefit because she worked in a non-Social Security-covered government position and did not contribute to Social Security. Instead, Mary is eligible for a $900 government pension based on her work in a non-Social Security-covered position. Mary is also eligible for a Social Security spousal benefit of up to $1,000 based on John's work history. Under the GPO, Mary's potential Social Security spousal benefit is reduced by an amount equal to two-thirds of her non-Social Security-covered government pension (or $600), and the difference of $400 ($1,000 - $600) is paid to her as a Social Security spousal benefit. In total, Mary will receive retirement benefits of $1,300 per month: $900 from her non-covered pension and $400 as a Social Security spousal benefit.

If John predeceased Mary, then two-thirds of her $900 non-covered pension ($600) would be used to offset the $2,000 Social Security benefit she would be eligible for as a widow based on John's worker benefit. She would receive a $1,400 monthly widow's benefit from Social Security (in addition to her $900 monthly non-covered pension benefit).

Table 3 highlights the differences between the dual entitlement rule and the GPO.

Rationale and Legislative History

Spouses' Financial Dependence

The policy rationale for Social Security spousal benefits has been, since the creation of spousal benefits in the 1930s, to support spouses who are financially dependent on the working spouse. The dual entitlement rule has operated since 1939 as a gauge of financial dependence.

Parity Between Spouses Subject to the Dual Entitlement Rule and the GPO

The GPO is intended to place spouses and widow(er)s whose government employment was not covered by Social Security in approximately the same position as spouses whose jobs were covered by Social Security. Before the GPO was enacted in 1977, workers who received pensions from a government job not covered by Social Security could also receive full Social Security spousal or widow(er)'s benefits even though they were not financially dependent on their spouses. The scenarios below demonstrate why the law was changed.

Table 4 shows how the spousal benefit of the same individual, Mary, would vary under three scenarios: (1) as a dually-entitled recipient of Social Security retirement and spousal benefits; (2) as the recipient of a non-covered government pension and Social Security spousal benefits before the GPO was enacted; and (3) as the recipient of a non-covered government pension and Social Security spousal benefits after the GPO was enacted. In all three examples, it is assumed that Mary is potentially eligible for a Social Security spousal benefit of $1,000 per month, computed as 50% of her husband's monthly Social Security benefit of $2,000.

As a dually entitled retiree, under the first scenario, Mary's $1,000 Social Security spousal benefit is reduced by her own Social Security retired-worker benefit of $900, leaving her with a net spousal benefit of $100 and a total Social Security benefit of $1,000. Under the second scenario (where Mary receives a non-covered government pension instead of a Social Security retirement benefit), before the GPO takes effect, Mary's Social Security spousal benefits are not reduced at all and she receives a full Social Security spousal benefit of $1,000, plus the non-covered pension of $900, for total monthly pension benefits of $1,900. Under the third scenario (after the GPO was enacted in 1977), Mary's Social Security spousal benefit is reduced by two-thirds of her $900 non-covered government pension, leaving her with a net Social Security spousal benefit of $400 ($1,000 – $900*2/3) and a total monthly pension benefit of $1,300 ($900 from the non-covered pension + $400 from the Social Security spousal benefit).

Note that the reduction to Social Security spousal benefits is smaller under the GPO than it is under the dual entitlement rule : Mary receives monthly Social Security spousal benefits of $100 under the dual entitlement rule, compared with $400 under the GPO. Her total monthly retirement benefits are $1,000 under the dual entitlement rule, compared with $1,300 under the GPO. For those under dual entitlement, the Social Security spousal benefit is reduced by one dollar for every dollar of Social Security retirement benefits based on their own work histories in Social Security-covered employment. For those under the GPO, however, the Social Security spousal benefit is reduced by approximately 67 cents for every dollar of a pension from non-covered government employment.

Why a Two-Thirds Reduction?

The GPO was originally established in 1977 ( P.L. 95-216 ) and replaced an earlier "dependency test" for spousal benefits that had been in law since 1950. The 1977 law provided that 100% of the non-covered government pension be subtracted from the Social Security spousal or widow(er)'s benefit. If the original legislation had been left intact, the treatment of individuals affected by the dual entitlement rule and the GPO would have been identical because, in both cases, the Social Security spousal benefit would have been reduced by 100% of pension from non-covered employment.

The GPO's two-thirds offset rule to the non-covered government pension was established by the Social Security Amendments of 1983 ( P.L. 98-21 ), which made a number of amendments to Social Security. One section of the House version of this law proposed that the amount used in calculating the offset be one-third of the government pension. The Senate version contained no such provision and would therefore have left standing the 100% offset that existed at the time. The conferees adopted the House bill except that the offset was fixed at two-thirds of the non-covered government pension.

Who Is Affected by the GPO?

In 2015, approximately 6.4 million state and local government workers (28% of all state and local government workers) were in non-Social Security-covered positions. A government worker who does not pay into Social Security may potentially be affected by the GPO if he or she is entitled to a Social Security spousal benefit based on a spouse's or ex-spouse's work in Social Security-covered employment.

Generally, employees of the federal government hired before 1984 are covered by the Civil Service Retirement System (CSRS) and are not covered by Social Security; therefore, they may be subject to the GPO. Most federal workers first hired into federal service after 1983 are covered by the Federal Employees' Retirement System (FERS), which includes Social Security coverage. Thus, although FERS retirees are not subject to the GPO, they, like all covered workers, may be subject to the Social Security dual entitlement rule.

As of December 2017, about 682,933 Social Security beneficiaries, or about 1% of all beneficiaries, had spousal or widow(er)'s benefits reduced by the GPO (not counting those who were potentially eligible for spousal or widow(er)'s benefits but were deterred from filing for them because of their expectation that the GPO would eliminate the spousal or widow(er)'s benefit). Of these persons subject to the GPO, 55% were spouses and 45% were widows and widowers. About 82% of all affected persons were women. Table 5 provides a breakdown of the affected beneficiaries by state and type of benefit.

In December 2017, the average non-covered government pension amount for persons affected by the GPO was $2,396 per month ($2,177 for women and $3,383 for men). The average pre-offset Social Security spousal benefit at that time was $832 per month ($899 for women and $529 for men). The average reduction caused by the GPO was $674 per month ($709 a month for women and $516 for men). The average Social Security spousal benefit component after application of the GPO was $158 per month ($190 a month for women and $13 a month for men). Among the beneficiaries affected by GPO in December 2017, 73% of them had their potential Social Security spousal or widow(er)'s benefit fully offset by GPO reduction. For the average beneficiary who received some Social Security spousal benefit after GPO reduction (partially offset), the spousal benefit comprised about 40% of the total payment received (non-covered government pension amount and Social Security spousal benefit after GPO reduction).

In comparison, in 2017, the dual entitlement rule affected approximately 7.2 million beneficiaries. About 6.9 million (97%) of all affected beneficiaries were women. Wives made up 43% of all affected, and widows made up 54%. Among dually-entitled workers, the average Social Security total benefit (retired worker plus spouse or survivor benefit) received was $1,261. Of this amount, $715 was the retired worker component of the benefit. The spousal benefit component was $546 (after reduction for dual entitlement). For the average dually entitled worker, therefore, the spousal benefit comprised about 43% of the total Social Security benefit received.

Issues

Opponents argue that the GPO is not well understood and that it harms lower-income workers. Defenders of the GPO maintain that it helps ensure that only financially dependent spouses receive the Social Security spousal benefit, while curtailing what otherwise would be an unfair advantage for government workers who are not covered by Social Security.

Awareness of the GPO and Retirement Preparedness

Critics of the GPO say that it is not well understood and that many affected by it are unprepared for a smaller Social Security benefit than they had assumed in making retirement plans. Supporters of the provision say it has been law for more than 40 years (it was enacted in 1977); therefore, people have had ample time to adjust their retirement plans. P.L. 108-203 , passed in 2004, included a provision that sought to ensure that SSA and government employers notify potentially affected individuals about the effect of the GPO and the Windfall Elimination Provision (WEP).

The SSA's personalized mailings to workers, entitled "Your Social Security Statement," contained a paragraph explaining the GPO and the WEP. Though SSA suspended the universal mailing of annual statements in 2011 due to budget constraints, an online version that has retained the GPO and WEP educational material can be created for those who establish an online account. So the material in the statements can continue to reach a broader audience, Congress directed SSA, in conjunction with the adoption of P.L. 113-76 , the Consolidated Appropriations Act, 2014, to resume the mailing of statements to targeted groups and to those who are not able to successfully register for an online account.

GPO Reduction Smaller than Dual Entitlement Reduction

The reduction to Social Security spousal benefits is smaller under the GPO than it is under the dual entitlement rule. Those under dual entitlement face a 100% offset to spousal benefits for every dollar received from a Social Security retired-worker benefit, whereas those under the GPO face an offset to spousal and widow(er)'s benefits equal to two-thirds of a non-Social Security-covered pension. In the example shown in Table 4 , in which comparable spouses each receive a $900 retirement benefit based on their own work histories, the application of the 100% offset of the dual entitlement provision results in a $100 monthly Social Security spousal benefit for Mary. Comparatively, Mary qualifies for a $400 spousal benefit under the two-thirds offset of the GPO.

Parity Among Social Security-Covered Workers and Non-Covered Workers

The majority of state and local government workers, and federal employees hired since 1984, are covered by Social Security. Some argue that eliminating the GPO would be unfair to government employees in Social Security-covered positions, who would continue to be subject to the dual entitlement provision. As discussed above, for those under dual entitlement, the Social Security spousal benefit is reduced by one dollar for every dollar of Social Security retirement benefits based on their own work history in Social Security-covered employment. For those under the GPO, however, the Social Security spousal benefit is reduced by approximately 67 cents for every dollar of a pension from non-covered government employment.

Impact on Low-Income Workers

There is disagreement about the original intention of the GPO, which was enacted in 1977. Some argue that the original purpose was to prevent higher-paid workers from reaping over-generous spousal benefits. Others contest this, saying that the GPO was never targeted to a particular income group.

Opponents of the GPO argue that the provision hurts lower- and middle-income workers such as teachers and in some circumstances is sufficient to throw these workers into poverty. Opponents also say that the GPO is especially disadvantageous for surviving spouses.

Evidence of the effect of the GPO on low earners comes from Social Security Administration data on the program. While 73% of those affected by the GPO have their benefits fully offset (December 2017), about 23% of those with non-covered pensions of less than $1,000 per month had their benefits fully offset, compared with 70% of those with monthly non-covered pensions between $1,001 and $1,999, 93% of those between $2,000 and $2,999 and nearly 100% of individuals with non-covered pensions over $3,000 per month. Among the group of individuals whose benefits were completely eliminated by the GPO, about 7% of this group had a non-covered pension amount lower than $1,000 per month. And among the beneficiaries who received some Social Security spousal benefit after GPO reduction (partially offset), about 64% of them had a non-covered government pension amount less than $1,000 per month, and almost 100% of them had a non-covered government pension amount less than $3,000 per month. Thus, if the non-covered pension amount is a reflection of the approximate earnings levels of individuals affected by the GPO, a greater percentage of those with lower earnings receive at least a partial Social Security benefit relative to the overall GPO-affected population.

Regarding concerns about pushing those affected by the GPO into poverty, in 2001 the poverty rate among those affected by the GPO was approximately 6.0%, whereas the poverty rate for those affected by the dual entitlement rule was approximately 8.9%. The poverty rate for all Social Security beneficiaries aged 65 and older was about 8.5%. For comparison purposes, the poverty rate for the general population at that time was approximately 11.3%.

Imprecision of the Two-Thirds Offset to Non-Covered Government Pensions

Opponents point out that whatever the rationale for the GPO, reducing everyone's spousal or widow(er)'s benefit by two-thirds of their government pension is an imprecise way to estimate what the spousal benefit would have been if the government job had been covered by Social Security. If two-thirds of the government pension were in fact a good proxy for Social Security retirement benefits, there would be no significant difference in outcomes between the dual entitlement rule and the GPO. As noted above (see the previous section, " Impact on Low-Income Workers "), however, there is great variation in outcomes. The GPO may lead to a smaller offset relative to the dual entitlement rule for low earners than for high earners.

Ideally, opponents argue, the way to compute the offset to replicate the dual entitlement rule would be to apply the Social Security benefit formula to a spouse's total earnings, including the non-covered portion, and reduce the resulting Social Security spousal benefit by the proportion of total earnings attributable to non-covered earnings. Currently, however, the SSA does not have complete records of non-covered earnings histories. Although SSA started collecting W-2s in the early 1980s, the initial records were sometimes incomplete. The Social Security benefit formula requires earnings data for a worker's entire lifetime.

Application of the GPO to Government versus Private Pensions

Some question why the GPO does not apply to the spousal benefits received by the spouses of private sector workers, who may receive private, employer-sponsored pensions (defined benefit or defined contribution) in addition to Social Security benefits. Generally, the private sector employment on which the private pension is based would be covered by Social Security. Therefore, the dual entitlement rule (which the GPO is meant to replicate) would instead take effect to reduce any Social Security spousal benefits for which a beneficiary might be eligible. As noted earlier, in many cases the dual entitlement rule would produce a higher reduction in spousal benefits than does the GPO.

Cost of Eliminating the GPO

Some argue that weakening or eliminating the GPO would be costly at a time when neither Social Security nor the federal budget is in sound financial condition. In 2007, SSA projected the 10-year cost of repealing the GPO to be about $42 billion. In 2016, SSA estimated that it may cost about 0.06% of present-law taxable payroll to eliminate the GPO. Such a move could also lead to demands for repeal of the dual entitlement rule to ensure parallel treatment for those working in Social Security-covered employment. In 2003, SSA estimated that eliminating the dual entitlement rule would cost approximately $500 billion over a five-year period.

The GPO "Last-Day" Rule

A burgeoning controversy arose in the 108 th Congress with the revelation that a growing number of state and local government workers had been making use of a little-known provision of the law that allowed them to escape the application of the GPO if they switched jobs at the very end of their government careers. That provision granted an exception to the GPO if, on the last day of one's government service, he or she worked in a Social Security-covered position. On August 15, 2002, the Government Accountability Office (GAO) released a report that found that, as of June 2002, 4,819 individuals in Texas and Georgia had switched to Social Security-covered positions to avoid the application of the GPO to their Social Security spousal benefits. The GAO projected that the cost to the program for these cases could be about $450 million.

On February 11, 2004, the House of Representatives agreed to Senate amendments and passed H.R. 743 , the Social Security Protection Act of 2003, which became P.L. 108-203 . As discussed below, P.L. 108-203 eliminated the last-day exception clause by requiring those workers switching from non-covered positions to Social Security-covered positions to work in the covered position for at least 60 months (five years) before being exempt from the GPO. The new GPO provision became effective for Social Security spousal benefit applications filed after March 31, 2004.

How Does the Last-Day Rule Affect Exemption from the GPO?

Any current Social Security beneficiary who is receiving spousal benefits and is exempt from the GPO because they retired from their non-covered position in government under the last-day rule would continue to be exempt from the GPO. Individuals may still be exempt from the GPO if

They applied for Social Security spousal benefits before April 1, 2004, and work their last day in a Social Security-covered position within the same retirement system. In this case, an individual who received a Social Security spousal benefit before April 1, 2004, could continue to work in a non-covered position and still make use of the last-day rule when he retires from government employment, regardless of when the retirement occurs. Their last day of government service occurred before July 1, 2004, and they worked their last day in a Social Security-covered position within the same retirement system. In other words, if a worker switched from non-covered government work to Social Security-covered work for her last day of work within the same retirement system, she is exempt from the GPO, even if she files for Social Security benefits at a later date. However, if a worker returns to work in a non-covered position in the same retirement system that she previously retired from and new contributions are made by either the employee or employer to the non-covered pension system, her last-day exemption from the GPO will be revoked and she will be subject to the new 60-month requirement for exemption from the GPO. Their last day of government service occurs on or after July 1, 2004, and before March 2, 2009, and they work a total of 60 months in a Social Security-covered position within the same retirement system. The required 60-month period of Social Security-covered employment would be reduced by the number of months the worker performed in Social Security-covered employment under the same retirement system prior to March 2, 2004. However, in no case can the 60-month requirement be reduced to less than one month. For example, a teacher who is currently working in a non-covered position but who previously worked for 12 months in a Social Security-covered position under the same retirement system would have the 60-month requirement reduced to 48 months. The remaining months to be worked (in this case 48 months), must be worked consecutively and after March 2, 2004. Thus, if he switched to a covered position in the same retirement system as his prior government work for at least the final 48-month period of his employment and his last day of employment was before March 2, 2009, he would be exempt from the GPO. Their last day of government service occurs after March 3, 2009, and they work their last 60 months in a Social Security-covered position within the same retirement system.

All other individuals receiving government pensions based on non-covered employment would be subject to reductions in Social Security spousal benefits under the GPO.