June 27, 2000 | Testimony on Social Security
I appreciate the opportunity to appear before you today to discuss Social Security's Government Pension Offset (GPO). This is an extremely important subject, and I would like to thank the Chairman for scheduling this hearing. Let me begin by noting that while I am the Senior Policy Analyst for Social Security at the Heritage Foundation, the views that I express in this testimony are my own, and should not be construed as representing any official position of the Heritage Foundation. In addition, the Heritage Foundation does not endorse or oppose any legislation.
GPO affects the spouses of workers who held jobs that were not covered by Social Security. Most of these workers were either state and local government employees or joined the federal government prior to 1984. Spouses of Social Security recipients also qualify for a benefit equal to 50 percent of the worker's benefit. However, the dual entitlement rule (see below) reduces that benefit dollar for dollar by any Social Security benefits that the spouse qualifies for under his or her own earnings record.
Since government workers who were not covered by Social Security do not have any of their own Social Security benefits, theoretically, they would qualify to receive the full spousal benefit. Thus, a person who joined the federal government prior to 1984 would be able to receive both his full Civil Service Retirement System (CSRS) pension and a Social Security spousal benefit equal. In order to eliminate this dual benefit, Congress created the GPO in 1977.
Under this rule, two-thirds2/3rds of the CSRS pension would be treated as though it were a Social Security benefit, and the spousal benefit that worker could receive is reduced dollar for dollar by that amount. Thus, if the CSRS worker had a $1,200 a month pension, $800 of his or her CSRS pension (2/3) would be treated as coming from Social Security. If that worker's spouse also received $1,200 a month from Social Security, that worker would also be eligible for a Social Security spousal benefit of $600 (1/2 the spouse's basic retirement benefit). However, it would be eliminated because the portion of the CSRS pension that is treated as coming from Social Security under GPO is larger ($800) than the potential spousal benefit ($600).
As a result of the GPO, the CSRS worker and his or her spouse have received the same treatment as if both of them were covered by Social Security. GPO affects about 300,000 retirees, and reduces Social Security's aggregate benefits by approximately $1 billion annually. While a major proportion are retired federal workers, most of the rest were employed by state and local governments which chose not to participate in the Social Security program. The vast majority of these workers come from eight states: Alaska, California, Colorado, Louisiana, Maine, Massachusetts, Nevada, and Ohio.
It has long been a principle of Social Security that a worker cannot qualify for full benefits under both his or her earnings record and that of a spouse. Accordingly, although a married worker theoretically qualifies for both retirement benefits from his or her own earnings record and a spousal benefit equal to 50 percent of the spouse's retirement benefit, this comes under the dual entitlement rule.
The dual entitlement rule reduces the spousal benefit dollar for dollar by the amount of the retirement benefits the worker qualifies for under his or her own earnings record. Thus, if two spouses each qualify for $1,200 a month from their own earnings record, and a spousal benefit of $600 a month (1/2 the basic retirement benefit), they would still only receive a total benefit of $1,200. The $600 spousal benefit is eliminated because it is less than their earned retirement benefit.
On the other hand, if one spouse received $1,200 a month and the other $400 a month from Social Security, the lower earning spouse would also qualify for a $200 spousal benefit. In that case, the $600 spousal benefit from the higher earning spouse would be reduced by the lower earning spouse's benefit ($600--$400), leaving a $200 spousal benefit. The dual entitlement rule potentially affects 96 percent of the work force.
Social Security is the government's most popular program, yet few Americans know very much about how it operates or why certain policies were implemented. Although the average American strongly supports Social Security, only a very, very few have any conception of how benefits are calculated, what a "'bend point" is, or how the trust fund relates to the payment of benefits.
GPO is an excellent example of this confusion. To the 4 percent of the work force, whose benefits could be altered by GPO, it is patently unfair, and reduces the benefits they or their spouses paid for with hard-earned money. In addition to federal workers hired before 1984, most of those people will be located in 8 states. To them, the seemingly arbitrary cut in their spousal benefits is made even worse by the fact that many only learn of the provision after they don't receive retirement benefits they had counted upon.
Those who support eliminating GPO make an emotional case, but there is also another side to the issue. While GPO's formula is arbitrary, it is also on the average fair. For government workers who are not covered by Social Security, GPO is the equivalent of the dual entitlement rule that affects the other 96 percent of American workers. Without it, government workers would have an unfair advantage over those who were part of Social Security for their entire working life.
Proponents of eliminating GPO or limiting it to cases where the individual's' retirement income is under $1,200 a month state correctly state that private pensions have no effect on the amount of spousal or survivors benefits that an individual can receive. However, the comparison between private pensions and non-Social Security government pensions misses the point. Those who receive private pensions are part of Social Security, and are therefore subject to the dual entitlement rule. This is also true for those who have either no retirement income other than Social Security or those government workers who also participate in Social Security.
It is simply not fair to the remaining 96 percent of the workforce to give some government workers special treatment. Most government workers- - and especially teachers- -- perform a valuable service to society. However, this alone should not justify eliminating GPO for them, while still retaining the dual entitlement rule that affects everyone else. If this subcommittee decides to eliminate or limit GPO, it should also give the same treatment to those affected by the dual entitlement rule. Doing both would be fair, but it would also be quite expensive. For that reason, I am not advocating such a step. However, there may be some other smaller changes that would benefit the larger group of beneficiaries that the subcommittee could also include in this bill.
This is not to minimize the shock that an individual, and especially a recently bereaved spouse, faces when they receive a much smaller retirement check than they anticipated. However, GPO has been part of the Social Security program since 1977. It is neither complex nor complicated. While I would not blame any individual for not understanding the provision, I would also not excuse any non-Social Security government retirement program that does not vigorously work to inform workers that they could be subject to it. Today's retirees may be stuck in a bad situation, but there is no reason for those who are still working to face such an unpleasant surprise.
I am also not making any case that $1,200 a month, much less a lower figure, is sufficient for a comfortable retirement. Clearly, it is not. As the son of a teacher, it is truly shocking to me that all anyone has to show for a lifetime of public service is memories and such a tiny check.
However, GPO is not the major reason that those pensions are so low. It may be a contributing factor that further lowers an extremely low pension, but it is no more than that. For that reason, altering GPO does little more than making a bad situation slightly better. The real reason why individuals have such low pensions is the subject of another debate- - reforming Social Security and increasing opportunities for individuals to save for retirement. This subcommittee and its members have taken a leading role in that debate, and I look forward to continuing to work with you in the future to truly increase both the security and the retirement income of American workers.
For today, it is true that the elimination of GPO would increase the retirement incomes of nearly 300,000 government retirees by an average of $340 a month. However, those millions of other Social Security recipients who are subjected to the dual entitlement rule, and who will not be getting any relief have a valid reason to ask why their plight has been ignored.
One alternative to eliminating the dual entitlement rule might be to provide all Social Security recipients with a legal guarantee to their benefits. One of the consequences of this year's debate on the future of Social Security is that existing retirees may have some concern that their full benefits may not be paid. Because of the Supreme Court rulinged in the case of Flemming v. Nestor that retirees have no ownership over their benefits and that Congress could adjust their benefits at will, retirees may not be willing to simply accept the word of public officials that their benefits are safe. One low-cost, but effective action would be to grant existing and future retirees a written property right to their benefits. Attaching such a simple measure to legislation dealing with GPO would expand its coverage from benefiting only a small segment of Social Security recipients to legislation that benefits everyone who receives Social Security.
David C. John is Senior Policy Analyst, Social Security at The Heritage Foundation.