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Social Security Offsets

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OK, teachers, firefighters, police officers and other government workers who will get a pension from a job not covered by Social Security, this column is for you. It explains the rules that may require a reduction to any Social Security benefits you might have earned while working at jobs where you did pay into Social Security. And it also explains the law that says a portion of your pension will offset any benefits you might potentially be due on a spouse's Social Security record.

And because so many of you folks impacted by the laws don't understand them, you mistakenly think you are being singled out for Social Security reductions that don't impact anyone else. And you are simply wrong about that.

One offset is called the "windfall elimination provision." This is the one that impacts your own Social Security benefit. The other is called the "government pension offset," and it reduces any spousal benefits you might be due.

The key to understanding the WEP provision is to realize that the word "social" in Social Security means something. Unlike private and other public sector pension plans, there are social goals built into the Social Security program. One of those goals is to raise the standard of living of lower-income workers in retirement. This is accomplished through a benefit formula that is designed to give lower-paid workers a better deal than their more highly paid counterparts. Very low-paid workers could get a Social Security benefit that represents up to 90 percent of their earnings. This percentage is known as a "replacement rate." People with average incomes (the middle class) generally get a 40 percent replacement rate. Higher-income people get a rate around 30 percent.

The problem is that if you spend the bulk of your working life not paying into Social Security, you are automatically treated as a low-income person by the Social Security Administration's computers. That's because there are "zeros" on your Social Security earnings record for every year you spent in your non-Social Security job. SSA's records won't show that you were actually working at the other job and earning another pension. Instead, your Social Security earnings record simply shows gaps in your work history. So when figuring your Social Security retirement benefit, SSA's computers automatically use the formula intended to compensate a lower income person.

But if you are a teacher, police officer, firefighter, or other government employee, you generally can be classified as a person with an average income, so you should get the same Social Security replacement rate paid to all middle class workers. That's why a modified formula is used to refigure your benefits and give you the proper — and fair — replacement rate.

If you're an employee impacted by this law, that modified formula takes you from the 90 percent (poor person's) replacement rate to the 40 percent (middle-class person's) replacement rate, thus reducing estimated benefits by about half.

Most career teachers and government employees generally have just barely over the qualifying 40 quarters (10 years) of Social Security covered work. But if you have 30 or more years of "substantial" Social Security earnings, the windfall provision won't apply and your benefit will not be reduced. If you have between 20 and 29 years of substantial earnings, your Social Security benefit will be only partially reduced. A chart giving a year-by-year breakdown of what the government considers substantial earnings is available at www.socialsecurity.gov/pubs/EN-05-10045.pdf.

The other rule that so many people misunderstand is the government pension offset, or GPO. In a nutshell, that law says that an amount equal to two-thirds of your non-Social Security-covered pension must be deducted from any Social Security dependent's benefits you might be due from a spouse.

If you are impacted by GPO, what you probably don't realize is that this law simply treats you in the same way that all other working people have always been treated. For example, if a woman who worked at a job that was covered by Social Security gets a Social Security retirement pension, that pension has always offset any spousal benefits she might have been due. Before the GPO law went into effect, a similar woman who was getting a non Social Security pension could get that pension AND a Social Security dependent spouse's benefit. This simply didn't make sense. In effect, GPO simply treats a non-Social Security pension like a Social Security retirement pension.

Actually, if you are impacted by GPO, you get a bit of a break. Social Security retirement pensions offset spousal benefits dollar for dollar. But a non-Social Security retirement pension causes only a three-for-two offset. In other words, for each $3 you get in a teacher's or other non-covered pension, you lose only $2 from Social Security spousal benefits.

SSA has prepared a fact sheet that further explains the GPO and that gives some rare exceptions to the law. You can find it at www.socialsecurity.gov/pubs/EN-05-10007.pdf.

Many unions representing state and local government employees have been fighting for years to "correct this injustice" by trying to get Congress to eliminate these offsets. I hope this column helps people understand that there is no injustice to correct, which is why the law has never been, nor ever will be, repealed.

By the way, as a retired federal government employee, I am also impacted by both WEP and GPO. Because I understand the reasoning behind the laws, I have never been concerned about them.

If you have a Social Security question, Tom Margenau has the answer. Contact him at thomas.margenau@comcast.net. To find out more about Tom Margenau and to read past columns and see features from other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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