The 'Offset', What It Means to You

The Government Pension Offset, or Public Pension Offset, as it is often called, spells bad news for virtually anyone retiring under the Civil Service Retirement System. As of December 1999, 305,000 (96,000 men and 206,000 women) government retirees had their Social Security spousal benefits fully or partially offset due to the GPO. This law was passed in 1977 and reduces and often eliminates a spousal or widow’s benefit payable under Social Security.

Until the 1970’s, Social Security provided benefits only to dependent wives of Social Security covered workers. When their husbands retired, women were eligible for up to half of their husband’s Social Security benefit. If they were widowed, women could take over, receiving up to the full amount of their husband’s “earned” Social Security benefit. Men usually fell into one of two categories; either they worked and earned their own Social Security or they were exempt from Social Security and provided for their retirement through savings or other pensions (like CSRS).

There was an important court case (Califano v. Goldfarb, 430 U.S. 199 (1977)) that occurred during this time where the practice of providing “spousal” benefits only to women was challenged. The court ruled in favor of allowing men to claim spousal benefits if they were dependent on their wives. Most men would not qualify if they were entitled to a higher Social Security retirement benefit of their own and the same for women who had earned higher Social Security benefits during their working years. But there was one group of people who had very little “earned” Social Security, but often had a spouse who had paid into Social Security for many years. As you may have guessed, this group of people included many of those who retired from the CSRS because they had been exempt from Social Security coverage during their federal careers. It didn’t take long for a provision to be enacted that would cause government retirees to become ineligible for Social Security spousal and widow’s benefits. This was the GPO and it caused a reduction in spousal or widow’s benefits by two thirds of the CSRS retirement benefit.

For example: Mary is receiving a CSRS benefit of $1,500 per month and her husband, John, is receiving a Social Security benefit of $800 a month. Mary is entitled to Social Security spousal benefits of $400 a month (half of John’s benefit amount). Before she would receive these benefits, they would be subject to an offset of two thirds of her CSRS retirement benefit. In this case that would be two thirds of $1,500 or $1,000. If $400 is offset (reduced) by $1,000, it is very clear that there would be no spousal benefit payable to Mary. This offset does not affect the amount that Mary is entitled to receive from her CSRS retirement benefit, however.

This law is designed to replicate the dual-entitlement provision of the Social Security program. The dual-entitlement provision, which has applied since 1940, requires that Social Security benefits payable to a person as a spouse or surviving spouse be reduced by the amount of that person's own Social Security worker's benefit. Thus, a person who works in a job that is covered under Social Security and receives a Social Security worker's benefit cannot also receive a full Social Security spouse's benefit. The dual-entitlement provision was intended to restrict the payment of benefits to those family members who were actually dependent on the worker.
Under the dual entitlement provision, there is a dollar-for-dollar reduction: If a woman gets a monthly Social Security benefit of $300 based on her own work, then $300 is subtracted from any Social Security benefit she would get as a wife. Under GPO, there is a two-thirds reduction.
The GPO replicates the Social Security dual-entitlement rule by assuming that two-thirds of the government pension is approximately equivalent to a Social Security retirement benefit the worker would receive if his/her job had been covered by Social Security. Therefore, only two-thirds of the government pension is used to offset Social Security benefits.
Why do so many government workers see this as unfair? According to testimony before Congress, the provision is not well understood and many people are unprepared for a smaller Social Security benefit than they had assumed in making retirement plans. Reducing everyone's spousal benefit by two-thirds of their government pension is an imprecise way to estimate what the spousal benefit would be had the government job been covered by Social Security. Ideally, the way to compute the dual entitlement rule would be to apply the Social Security benefit formula to an individual's total earnings, including the noncovered portion, and reduce the resulting Social Security benefit by the proportion of total earnings attributable to noncovered earnings. However, this is not possible from an administrative standpoint because SSA does not have information on a person's noncovered earnings history.
The GPO unfairly singles-out workers with government pensions compared to those with private pensions.
What is being done? There is a Bill pending in the House of Representatives, HR-64 by Rep William Jefferson (D- La.), to amend the Social Security Act to provide that the reductions in Social Security benefits which are required in the case of spouses and surviving spouses who are also receiving certain government pensions shall be equal to the amount by which the total amount of the combined monthly benefit (before reduction) and monthly pension exceeds $1,200. Instead of being two-thirds of the CSRS benefit, it would be two-thirds of the amount of the combined benefit that exceeds $1,200. Using Mary and John, her combined benefit amount is $1,500 + $400, the amount in excess of $1,200 is $700. Two-thirds of $700 is $466. Her spousal benefit would still be fully offset, using this modified formula since $400 - $466 is still a total offset. If Mary were widowed and entitled to $1,500 CSRS + $800 widow’s benefit, the offset would be two-thirds of ($2,300 - $1,200) or two-thirds of $1,100 = $733. Mary would
be entitled to $800 - $733 or $67 a month (under the original law, the offset would have also eliminated the entire widow’s benefit).
Obviously this would not help everyone affected by the GPO, but it would certainly provide some relief to those who are hardest hit. The bill currently has 280 cosponsors with the last name added on October 16.
Another way that some employees have avoided the GPO is by transferring to the Federal Employee’s Retirement System. Those who transferred during the first open season in 1987 were automatically exempt. Those who transferred after 1988 had to remain under FERS for five years to be granted an exemption. Also, employees who are currently employed under the CSRS-Offset retirement system also are automatically exempt. Finally, those CSRS employees who are entitled to spousal or widows benefits and who have not retired before age 65, may receive the full amount of their benefit as long as they remain employed and are not receiving their CSRS retirement benefit. Once they retire, the GPO will be applied.
(Prepared by Tammy Flanagan, Senior Benefits Director, National Institute of Transition Planning, Inc., which has been conducting federal retirement planning seminars for many years.)

Submitted by:

Tammy Flanagan
Senior Benefits Director
National Institute of Transition Planning, Inc.
www.nitpinc.com

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