Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)

Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)

July 10, 2014
Social Security: The Windfall Elimination Provision (WEP) and
the Government Pension Offset (GPO)
Overview
For people who worked in employment covered by Social
Security for 20 or fewer years, the WEP reduces the first
The Windfall Elimination Provision (WEP) and the
factor from 90% to 40%, resulting in a maximum reduction
Government Pension Offset (GPO) are two separate
of $408 (90% of $816, compared with 40% of $816). For
provisions that reduce standard Social Security benefits for
each year of work in covered employment in excess of 20,
people who have pensions from employment that was not
the first factor increases by 5%. For example, the first factor
covered by Social Security, such as some employment in
is 45% for those with 21 years in covered employment. The
state, local, and federal government.
WEP factor reaches 90% for those with 30 (or more) years
in covered employment and at that point is phased out.
The Windfall Elimination Provision
(WEP)
What is the Rationale for the WEP?
How does the WEP Work?
The Social Security benefit structure is progressive: It helps
workers who spent their working lives in low paying jobs
The WEP applies to most people who both receive a
by providing them with a benefit that replaces a higher
pension from uncovered work and receive Social Security
proportion of their earnings than the benefit that is provided
benefits based on fewer than 30 years in covered
to workers with high earnings. Without the WEP, people
employment. It reduces a worker’s standard monthly Social
who spent only part of their careers in covered employment
Security benefit by up to 55%, with a maximum reduction
would be provided with the same benefit as those who had
of $408.
lower annual earnings but had a full career in covered
employment. The WEP removes this advantage.
The Social Security benefit formula is designed to benefit
workers with low average lifetime earnings in Social
How Many People Are Affected by the WEP?
Security-covered employment. Those workers receive a
benefit that is a larger proportion of their earnings than do
As of December 2013, 1.5 million people, or 2.7% of all
workers with high average lifetime earnings. The benefit
Social Security beneficiaries, were affected by the WEP.
formula does not distinguish, however, between workers
The vast majority of those—1.4 million people—were
who worked for many years at low wages in Social
retired-worker beneficiaries, which was 3.8% of all retired-
Security-covered employment and those who worked
worker beneficiaries. The remainder were disabled-worker
briefly in Social Security-covered employment at higher
beneficiaries and family members of workers.
wages. Under the benefit formula, workers who split their
careers between Social Security-covered and non-covered
The Government Pension Offset (GPO)
employment would therefore receive higher total benefits—
sometimes referred to as a “windfall”—than would exist in
How Does the GPO Work?
the absence of the WEP.
The GPO reduces spousal and widow(er)'s benefits received
The standard Social Security benefit formula applies three
by people who receive a pension from employment not
progressive factors—90%, 32%, and 15%—to three
covered by Social Security. The Social Security benefit is
different levels, or brackets, of a worker’s average indexed
reduced by an amount equal to two-thirds of the pension.
monthly earnings (AIME), which is a measure of lifetime
earnings. The result is the “primary insurance amount”
Social Security pays benefits to spouses of retired and
(PIA), which is the base benefit amount. In 2014, the PIA is
disabled workers and to widow(er)s of deceased workers. In
determined as follows:
general, the spousal benefit equals 50% of the worker’s PIA
and the widow(er)’s benefit equals 100% of the worker’s
Table 1. 2014 Social Security Benefit Formula PIA. Those benefits are intended to help support financially
dependent spouses.
Factor Portion of Average Indexed Monthly Earnings
90%
of the first $816 of AIME, plus
Under its “dual entitlement” rule, Social Security does not
32%
of AIME over $816 and through $4,917, plus
provide both a full retired-worker and a full dependent
15%
of AIME over $4,917
benefit to the same individual. In general, beneficiaries
receive either a benefit based on their own work or the
dependent benefit, whichever is larger.
www.crs.gov | 7-5700

Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)
The actual benefit for a spouse or widow(er) is figured by
were likely affected indirectly, because some people who
reducing the dependent benefit by 100% of the amount of
were potentially eligible for spousal or widow(er)'s benefits
his or her own worker’s benefit.
were probably deterred from filing for them because of
their expectation that the GPO would eliminate the spousal
Table 2 shows scenarios in which “Mary,” who is eligible
or widow(er)’s benefit). Of the people directly affected by
for a spousal benefit,
the GPO, 56% were spouses and 44% were widows and
1) works in employment covered by Social Security,
widowers.
2) works in noncovered employment, if the GPO
Legislative History
were repealed, and
3) works in noncovered employment and is subject to
The WEP was enacted as part of Social Security
the GPO, as under current law.
Amendments of 1983 (P.L. 98-21). The 40% WEP formula
The benefit is lowest in the first scenario and highest in the
factor was the result of a compromise between a House bill
second scenario.
that would have substituted a 61% factor for the regular
90% factor and a Senate proposal that would have
Table 2. “Mary’s” Benefit in
substituted a 32% factor. Before that, the standard benefit
Three Hypothetical Scenarios
formula applied to workers regardless of whether they
received a pension from uncovered employment.

“Mary”
works in
The GPO was originally established in 1977 (P.L. 95-216)
Social
“Mary” works in
and replaced a “dependency test” for spousal benefits that
Security-
Non-Social
had been in law since 1950. Under the 1977 law, the Social
Covered
Security-Covered
Security spousal or widow(er)’s benefit was reduced by
Position
Position
100% of the non-covered government pension, in effect
treating the entire pension as equivalent to a Social Security

Without
With
worker’s benefit. The offset factor was reduced from 100%
GPO
GPO
to two-thirds by the Social Security Amendments of 1983.
One section of the House version of this law proposed that
1) Retired-worker
the amount used in calculating the offset be one-third of the
benefit (based on
$900
$0
$0 government pension. The Senate version contained no such
Mary’s earnings record)
provision and would therefore have left standing the 100%
2) Non-Social Security-
offset that existed at the time. The conferees adopted the
covered pension
$0
$900
$900 two-thirds offset that is now law.
3) Maximum spousal
benefit (50% of
$1,000
$1,000
$1,000 Dozens of bills to repeal or amend the GPO and WEP have
husband’s benefit)
been introduced since 1983, but no other legislative action
has been taken on the issue. For example, the Social
4) Reduction in spousal
Security Fairness Act, which would completely repeal both
benefit (from line 1)
$900
n.a.
n.a. the GPO and the WEP, has been introduced in the House of
5) Reduction in spousal
Representatives and Senate in every Congress since 2001.
benefit due to GPO
n.a.
n.a.
$600 No legislative action on the bill has been taken. (In the
(2/3 of line 2)
current Congress, the bill was introduced in the Senate as
S.896 and in the House as H.R.1795.)
6) Net spousal benefit
$100
$1,000
$400
“Mary’s” total benefit
Related CRS Reports
(lines 1+2+6)
$1,000
$1,900
$1,300
For more information, see CRS Report 98-35, Social
Source: Illustrative example provided by CRS.
Security: The Windfall Elimination Provision (WEP) and
Notes: n.a.=not applicable.
CRS Report RL32453, Social Security: The Government
Pension Offset (GPO), both by Gary Sidor.
What is the Rationale for the GPO?
When a spouse or widow(er) receives a pension based on
For general background on Social Security, see CRS Report
uncovered federal, state, or local government employment,
R42035, Social Security Primer, by Dawn Nuschler, and
the dual entitlement rule does not apply, so the GPO was
CRS Report R43542, How Social Security Benefits Are
adopted with a similar goal. Under the GPO, spousal and
Computed: In Brief, by Noah P. Meyerson.
widow(er)’s benefits are reduced by two-thirds of the
Noah P. Meyerson, nmeyerson@crs.loc.gov, 7-4681
pension from non-covered government employment.
Gary Sidor, gsidor@crs.loc.gov, 7-2588
How Many People are Affected by the GPO?

IF00035
About 615,000 Social Security beneficiaries, or about 1%
of all beneficiaries, had spousal or widow(er)'s benefits
reduced by the GPO in December 2013. (Additional people
www.crs.gov | 7-5700

Document Outline

Overview

The Windfall Elimination Provision (WEP)

Table 1. 2014 Social Security Benefit Formula

The Government Pension Offset (GPO)

Table 2. “Mary’s” Benefit in Three Hypothetical Scenarios

Legislative History

Related CRS Reports