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)

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Updated February 28, 2024
Social Security: The Windfall Elimination Provision (WEP) and
the Government Pension Offset (GPO)
Background
eligible for benefits in 2024, the PIA is determined based
Social Security is a work-related, federal insurance program
on the formula in Table 1. The dollar amounts in the table,
that provides monthly cash benefits to workers and their
known as bend points, are adjusted annually for average
eligible family members in the event of the worker’s
earnings growth.
retirement, disability, or death. A worker’s employment or
self-employment is considered covered by Social Security
Table 1. Social Security Benefit Formula for Workers
if the services performed in that job result in earnings that
Who Attain Age 62, Become Disabled, or Die in 2024
are taxable and creditable for program purposes. Although
participation in Social Security is compulsory for most
Factor
Average Indexed Monthly Earnings (AIME)
workers, about 6% of all workers in paid employment or
90%
of the first $1,174 of AIME, plus
self-employment are not covered by Social Security.
Noncovered workers include state and local government
32%
of AIME over $1,174 and through $7,078, plus
employees covered by alternative staff-retirement systems;
most permanent civilian federal employees hired before
15%
of AIME over $7,078
January 1, 1984, who are covered by the Civil Service
Source: CRS, based on Social Security Administration, Benefit
Retirement System (CSRS) or other alternative retirement
Formula Bend Points.
plan; employees covered by the Railroad Retirement
system; domestic, election, or farm workers with earnings
For people with 20 or fewer YOCs who become eligible for
below certain thresholds; people with low levels of net
benefits in 2024, the WEP reduces the first factor from 90%
earnings from self-employment; and certain nonimmigrants.
to 40%, resulting in a maximum reduction of $587 (90% of
$1,174 minus 40% of $1,174). For each year of substantial
The Windfall Elimination Provision (WEP) and the
earnings in covered employment or self-employment in
Government Pension Offset (GPO) are two separate
excess of 20, the first factor increases by 5%. For example,
provisions that reduce regular Social Security benefits for
the first factor is 45% for those with 21 YOCs. The WEP
workers and their eligible family members if the worker
factor reaches 90% for those with 30 or more YOCs and at
receives (or is entitled to) a pension based on earnings from
that point is phased out.
employment not covered by Social Security.
The Windfall Elimination Provision
The WEP includes a guarantee that the reduction in the
benefit amount caused by the WEP formula can never
The WEP applies to most people who receive both a
exceed more than one-half of the noncovered pension.
pension from noncovered work (including certain foreign
Thus, for workers who become eligible for benefits in 2024,
pensions) and Social Security benefits based on fewer than
the maximum reduction under the WEP may be less than
30 years of substantial earnings in covered employment or
$587. In addition, because the WEP reduces the initial
self-employment. In 2024, the amount of substantial
benefit amount before it is reduced or increased due to early
earnings in covered employment or self-employment
retirement, delayed retirement credits, COLAs, or other
needed for a year of coverage (YOC) is $31,275. This
factors, the difference between the final benefit with the
amount is adjusted annually by the growth in average
WEP and the final benefit without the WEP may be less
wages in the economy, provided a cost-of-living adjustment
than or greater than $587. However, the maximum WEP
(COLA) is payable. The WEP affects retired- or disabled-
reduction is still limited to 50% of the noncovered pension.
worker beneficiaries and their eligible dependents.
However, it does not affect survivor beneficiaries.
How Many People Are Affected by the WEP?
As of December 2023, about 2.1 million people (or about
The Social Security benefit formula is progressive,
3% of all Social Security beneficiaries) were affected by the
replacing a greater share of career-average earnings for
WEP. Nearly 2.0 million of those affected were retired-
low-paid workers than for high-paid workers. The regular
worker beneficiaries, which was about 4% of the entire
benefit formula applies three factors—90%, 32%, and
retired-worker beneficiary population. The remaining
15%—to three different brackets of a worker’s average
affected individuals were disabled-worker beneficiaries and
indexed monthly earnings (AIME), which is a measure of
eligible family members of retired- or disabled-worker
career-average earnings in covered employment or self-
beneficiaries.
employment. The result is the primary insurance amount
(PIA), which is the worker’s basic benefit before any
Legislative History and Rationale
adjustments are made for factors such as COLAs, early
The WEP was enacted in 1983 as part of major
retirement, or delayed retirement. For workers who become
amendments designed to shore up the financing of Social
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Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)
Security. Its purpose was to remove an unintended
her Social Security spousal benefit. For example, if the
advantage or “windfall” that the regular Social Security
same person were also entitled to a spousal benefit of $800,
benefit formula provided to workers who also had pensions
then he or she would receive $200 per month from Social
from noncovered employment. The regular formula was
Security ($800 - $600 = $200). The other one-third of the
intended to help workers who spent their careers in low-
noncovered government pension is assumed to be
paying jobs, by providing them with a benefit that is
equivalent to a supplementary private pension, which would
relatively higher in relation to their career-average earnings
not cause a reduction in the Social Security spousal benefit.
in covered employment than the benefit that is provided for
workers with high career-average earnings.
How Many People Are Affected by the GPO?
In December 2023, 745,679 Social Security beneficiaries,
However, the formula could not differentiate between those
or about 1% of all beneficiaries, had their benefits reduced
who worked in low-paid jobs throughout their careers and
by the GPO. Of those directly affected by the GPO, 51%
other workers who appeared to have been low paid because
were spouses and 49% were widow(er)s. About 68% of all
they worked many years in jobs not covered by Social
GPO-affected beneficiaries had their benefits fully offset,
Security (these years are shown as zeros for Social Security
and about 32% had their benefits partially offset.
benefit purposes). Thus, under the old law, workers who
were employed for only a portion of their careers in jobs
Legislative History and Rationale
covered by Social Security—even highly paid ones—also
The GPO was enacted in 1977, after the Supreme Court
received the advantage of the weighted formula, because
ruled that men were not required to prove that they received
their few years of covered earnings were averaged over
at least one-half of their support from their wives in order to
their entire working career to determine the average
qualify for husband’s or widower’s benefits. (Women were
covered earnings on which their Social Security benefits
not subject to an explicit dependency test, as they were
were based. The WEP is intended to remove this advantage.
presumed to be dependent on their husbands.) This ruling
made hundreds of thousands of male retirees who worked
The Government Pension Offset (GPO)
in noncovered government employment immediately
The GPO reduces the Social Security spouse’s or
eligible for Social Security benefits as spouses or widowers,
widow(er)’s benefits (hereinafter “spousal benefits”) of
adding hundreds of millions of dollars annually to the cost
most people who also receive a pension based on federal,
of the program and raising questions about whether these
state, or local government employment not covered by
were unnecessary or “windfall” benefits. To prevent the
Social Security. The program provides benefits to the
payment of full Social Security spousal benefits to people
spouses and widow(er)s of insured workers, because
receiving a pension from noncovered government
immediate family members are presumed to be dependent
employment, Congress created the GPO as part of the
on a worker for their financial support and thus are
Social Security Amendments of 1977 (P.L. 95-216), which
presumed to be in need of such benefits when the family
provided that 100% of the noncovered government pension
experiences a loss of income due to the worker’s retirement,
be subtracted from the Social Security spousal benefit.
disability, or death. In general, a spouse receives up to 50%
of the worker’s PIA, and a widow(er) receives up to 100%.
The dollar-for-dollar reduction implicitly assumed exact
equivalency between government pensions and Social
Under Social Security’s dual entitlement rule, a person’s
Security worker benefits. However, government pensions
spousal benefit is reduced, dollar-for-dollar, by the amount
often combined the elements of a worker’s Social Security
of his or her own Social Security retired- or disabled-
benefit and a pension intended to supplement Social
worker benefit but not below zero (i.e., a 100% offset). The
Security. Although a spouse covered under Social Security
difference, if any, is paid as a spousal benefit and is added
may have his or her spousal benefits reduced under the dual
to the worker’s Social Security benefit. In effect, the person
entitlement rule, that rule takes into account only his or her
receives the higher of the two Social Security benefit
worker’s Social Security benefits and does not count
amounts, but not both. For example, if a person is entitled
income he or she may have from a private pension.
to a $600 retired-worker benefit (based on his or her own
work history in covered employment) and an $800 spousal
In response to this criticism, Congress lowered the GPO
benefit (based on his or her spouse’s work history in
reduction to two-thirds of the noncovered government
covered employment), then the person would receive the
pension under the Social Security Amendments of 1983
$600 worker benefit plus the $200 difference between the
(P.L. 98-21). The House version of the 1983 amendments
worker benefit and the spousal benefit ($800 - $600 =
called for the reduction to be lowered to one-third of the
$200). The dual entitlement rule is an implicit test of a
noncovered government pension. The House proposed a
spouse’s or widow(er)’s dependency on an insured worker
one-third reduction the previous year based on the rationale
for his or her financial support.
that “thirty-three percent approximates the portion of the
CSRS annuity which is equivalent to social security
The GPO is intended to replicate the dual entitlement rule
retirement benefits for the average earner.” The Senate
for spouses and widow(er)s who receive pensions based on
version of the bill contained no such provision and thus
noncovered employment. The Social Security spousal
would have left standing the existing 100% offset. In
benefit is reduced by an amount equal to two-thirds of the
conference, lawmakers agreed to a two-thirds reduction.
noncovered government pension (i.e., a 67% offset). If a
person receives a monthly noncovered pension of $900,
Zhe Li, Analyst in Social Policy
two-thirds of that amount (or $600) is deducted from his or
IF10203
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Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)

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https://crsreports.congress.gov | IF10203 · VERSION 17 · UPDATED