Advanced Underwriting Consultants

Ask the Experts – April 29

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: Can you explain the Social Security Government Pension Offset?

Answer: The Government Pension Offset (GPO) is similar to the Windfall Elimination Provision (WEP) in that it applies to an individual who receives a pension based on her employment with a federal, state, or local government, and who wasn’t required to pay Social Security taxes on such employment. Unlike the WEP, the GPO only applies to Social Security spousal and survivor benefits.

The GPO is much simpler to calculate than the WEP: if applicable, a spouse’s or survivor’s benefits will be reduced by two-thirds of her government pension. For example, if Martha receives a $600 per month civil service pension and is eligible for a $500 per month spousal benefit, because of the GPO, her spousal benefit is reduced by $400 (two-thirds of $600) to $100. If she also receives her own retirement benefits, the WEP might also apply.

Understanding why Congress enacted the GPO might help understand its application. Spousal and survivor benefits were established to compensate spouses who stayed home to raise a family. If the spouse also worked, her benefit is reduced dollar-for-dollar by the amount of her own retirement benefit.

For example, suppose Martha received an $800 monthly Social Security benefit, and her spouse is entitled to a $1,000 monthly benefit. Her spousal benefit of $500 (half of $1,000) is reduced by her own retirement benefit of $800, resulting in no spousal benefit.

If instead she earned a $600 governmental pension and no Social Security retirement benefit, without the GPO, she would still receive the full $500 spousal benefit in addition to her $600 government pension. However, because the GPO applies, her spousal benefit is reduced from $500 per month to $100 per month.

There are a few minor exceptions to the GPO. It does not apply if the employee: Is receiving a government pension that isn’t based on her earnings

    •  Is a federal, state, or local government employee whose government pension is based on employment where she was paying Social Security taxes and either (1) filed for spousal or survivor benefits before April 1, 2004; (2) ended employment before July 1, 2004; or paid Social Security taxes on earnings during the last 60 months of government service;
    •  Is a federal employee who elected to switch from the Civil Service Retirement System to the Federal Employees’ Retirement System after December 31, 1987, and either (1) filed for spousal or survivor benefits before April 1, 2004; (2) ended employment before July 1, 2004; or paid Social Security taxes on earnings during the last 60 months of government service;
    •  Was eligible to receive a government pension before December 1982 and met all the requirements for Social Security spouse’s benefits in effect in January 1977; or
    •  Was eligible to receive a federal, state, or local government pension before July 1, 1983, and was receiving spousal support.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.