That meant she was earning about $3,100 a month to live on, combining her survivor’s pension and state pension.
That was enough to cover her living expenses and give her some breathing room, but then the Social Security Administration, apparently after a routine audit, determined that they had mistakenly overpaid her for more than a year, and her survivor benefits were cut from about $1,300 a month to about $100.
In addition, the Social Security Administration told Cox Pay back more than $16,000 to make up for the overpayment.
Cox was devastated.
“That letter was a real shock,” Cox, now 68, told me. “It’s forced me to go back to work part-time, and I have no idea how I’m ever going to pay back the $16,000.”
The reason Cox’s survivor benefits were cut to almost nothing was because of a program called the government pension credit, which she had never heard of before the Social Security Administration imposed it on her. If she had known about it before she left, she might have stayed on in her secretary’s job longer to improve her long-term financial situation.
Cox is seeking forgiveness (or at least a payment plan) from the Social Security Administration, arguing that it would cause her financial hardship. A hearing is scheduled for next week. She also argues that she provided the Social Security Administration with all the information it requested when she left the agency, and that the agency, not her, is to blame for the miscalculation.
If you work for a city, town, or state government and are expecting to receive a state pension in the future, it’s important to know about the Government Pension Offset Program and a program called the Windfall Elimination Provision, which can reduce Social Security benefits for people who start receiving a state pension.
Here’s what you need to know:
What is the Government Pension Credit?
It’s a law passed 40 years ago that primarily affects state and local government employees, such as teachers, police officers, and firefighters. These employees receive pensions based on earnings that are exempt from Social Security payroll taxes. In contrast, private sector workers pay 6.2 percent of their pay in Social Security taxes, which are paid by their employers. Congress enacted the GPO in 1983 to address apparent preferential treatment for government employees who don’t pay into the Social Security system.
Why did you introduce GPOs?
It’s complicated, but essentially Congress concluded that people who receive both a public pension and some form of Social Security benefit (as a spouse, widow, or widower) are treated better than people who work exclusively in the private sector — a move intended to eliminate an obvious, though unintended, inequity. The debate continues in parliament to this day. Whether your GPOs have gone too far (or not far enough) and need to be adjusted.
How does it work?
If you are receiving a Social Security survivor benefit and begin receiving a public pension, the Social Security Administration will reduce your Social Security benefit by an amount equal to two-thirds of the amount you would receive in your new public pension.
How did that impact Venera Cocks?
After retirement, Cox was estimated to receive $1,800 per month in pension. This triggered a GPO (which Cox was unaware of). This meant that her existing survivor’s pension of $1,300 had to be reduced by two-thirds of her pension amount. Two-thirds of $1,800 (her monthly pension amount) is $1,200. Therefore, her Social Security benefit of $1,300 was reduced by $1,200, leaving her with only $100 per month.
What happens if a retiree’s pension exceeds his or her survivor’s pension by two-thirds?
Survivor’s pensions will be reduced to zero.
Does the GPO only affect survivors, i.e. widows and widowers, who receive Social Security benefits?
No, there is another category of people who may be affected by the GPO: married people who may be eligible to receive up to 50 percent of their spouse’s Social Security benefits.
How many people will the GPO affect?
As of 2023, the GPO has cut benefits for approximately 745,000 Social Security recipients, or about 1% of all recipients. According to the American Society of Pension Professionals and Actuaries:.
About half of those were spouses, and the other half were widows or widowers. In about two-thirds of cases, the GPO cut off benefits altogether, according to the pension association.
Why did Cox not notice the GPO?
Cox said he provided all the information requested by the Social Security Administration when he left the company. She also had pre-retirement discussions with the Falmouth Superannuation Board, which manages her pension, but she says no one ever spoke to her about the GPO and how it would affect her.
Should the local retirement board have discussed this with Mr Cox?
The director of the Falmouth Superannuation Board told me he is “not qualified” to advise members on Social Security law. He said people approaching retirement are “routinely advised to consult with the Social Security Administration.” He also said: Falmouth Retirement Board website The GPO said it “may reduce and possibly eliminate benefits.” Social Security Administration website Let’s take a closer look at the GPOs.
What is the Windfall Elimination Provision?
The WEP applies when you start receiving a public pension while still receiving your earned Social Security benefits. To qualify for basic Social Security retirement benefits, you must have worked in the private sector (paying Social Security taxes) for at least 10 years, but the years do not have to be consecutive (you must have 40 quarters, or 40 three-month periods). Once you qualify and start receiving earned Social Security benefits, those benefits are reduced when you start receiving your pension.
What was the rationale for WEP?
The formula is complicated, but suffice it to say that the program is intended to provide a safety net, especially for long-term low-wage workers. It does this by counting 90 percent of the first $1,174 of monthly earnings toward benefits. As earnings increase, the percentage used to calculate benefits decreases on a sliding scale. One unintended consequence of this sliding scale calculation is that it gives a financial advantage, or “windfall,” to retirees who worked long enough in the private sector to qualify for benefits before joining the public sector and earning a pension. The WEP was intended to eliminate this advantage. Like the GPO, the WEP remains controversial and the subject of ongoing political debate.
How much will WEP reduce my Social Security benefits if I start receiving a public pension?
The WEP reduces your Social Security benefits by a percentage based on the number of years you had substantial private sector income — the more years you have (and therefore the more you have paid into the system), the higher percentage of your Social Security benefits you get to keep. The Social Security Administration provides an online WEP calculator..
The bottom line? To avoid what happened to Cox, do your research before you retire.
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