Social Security’s Government Pension Offset (GPO)-A Common Sense Explanation
This article deals with the second provision that may limit the amount of Social Security benefit you are eligible to receive if are you a public sector/civil service employee under (STRS, PERS, CSRS, Railroad Retirement, etc.).
Last month I wrote about the Windfall Elimination Provision (WEP) which is the other limiting provision. Read more about the WEP here.
Like the Windfall Elimination Provision, the reduction in Social Security benefits does not take effect until you start drawing your public sector government pension. Unlike the Windfall Elimination Provision which affects only your own personal Social Security benefit, the Government Pension Offset applies only to spousal, ex-spousal and survivor benefits you may be eligible for.
Enacted in 1977, the Government Pension Offset (GPO) ensures that benefit calculations of public sector government employees who don’t pay into Social Security are calculated the same way as workers in the private sector who do pay into Social Security. This provision affects people who have a public sector government pension from employment that did not contribute to Social Security like:
- Federal, State or Local government
- School systems
- Colleges or Universities
- Civil Service Retirement System (CSRS)
Before this provision, many public sector government employees were eligible for their own public sector government pension and full spousal, ex-spousal, or survivor benefits. Initially Social Security benefits were intended for spouses who were financially dependent on the other spouse. Now, many spouses are not financially dependent on their spouse. The GPO prevents spouses, ex-spouses, and survivors from receiving a higher benefit than they would have received if they were totally reliant on their spouses Social Security benefit to receive their benefit.
The GPO reduction in Social Security benefits is 2/3rds of the monthly amount of the public sector government retirement benefit you receive. Of note, if you receive a lump sum payment from a public sector government pension, the lump sum will be converted into a monthly annuity benefit by Social Security. For example, let’s assume you and your spouse have both reached your full retirement age for Social Security purposes. That would mean you are between the ages of 66-67. Your public sector government pension is $3,000/month and you have no Social Security benefit of your own. As a spouse, you are entitled to a spousal benefit of 50% of your spouse’s full retirement age Social Security benefit. Assume your spouse’s Social Security full retirement age benefit is $2,500, so therefore you would be entitled to $1,250. Since 2/3rds of your public sector government pension is $2,000 ($3,000 x 66%) and is greater than the spousal benefit of $1,250, the spousal benefit is reduced to zero.
Now let’s assume your public sector government pension is $1,500, then you would be entitled to a $250 spousal benefit. Here’s the math: $1,500 x 66% = $1,000. The Social Security spousal benefit reduced by the GPO of $1,000 produces a spousal benefit of $250. From this last example you can see that the full 50% spousal benefit of $1,250 is made up of $1,000 from your public sector government pension and $250 from Social Security.
As you can see from the above example, the GPO can reduce your Social Security spousal benefit to zero. This is different from the WEP on your own Social Security benefit in that the WEP will never reduce your own benefit to zero and there is no 30-year phase out of the GPO like the WEP.
With regards to Social Security survivor benefits in relation to a person who has a public sector government pension, the calculation of the GPO reduction is the same 2/3rds reduction, but survivors need to be aware that as a spouse you may not have qualified for Social Security spousal benefits, but you may qualify for a Social Security survivor benefit. In the above example as a survivor, you would be entitled to a Social Security survivor benefit of $2,500 before any GPO reduction. The GPO reduction of $2,000 results in a survivor benefit of $500. So, don’t think that because you didn’t qualify for a Social Security spousal benefit, you automatically do not qualify for a Social Security survivor benefit.
Always be proactive and inquire as to what Social Security benefits are available to you. Social Security will not contact you to tell you that you qualify for an additional benefit. I can tell you from experience that there are many widow/widowers out there that are eligible for additional benefits and have just assumed they don’t qualify for any. Just taking the additional $500 monthly survivor benefit above for 15 years amounts to $90,000.
Don’t leave money on the table!