The “Offset” And What it Means to You

This article explains the Government Pension Offset and how it impacts retired federal employees

The Government Pension Offset, or Public Pension Offset as it is often called, spells bad news for virtually anyone retiring under the Civil Service Retirement System who is counting on receiving Social Security benefits based on the work record of a spouse, former spouse, or deceased spouse.

According to the Social Security Administration, as of December 2002, 367,000 (two-thirds are women) government retirees had their Social Security spousal benefits fully or partially offset due to the GPO. This law was passed in 1977 and reduces and often eliminates a spousal or widow’s benefit payable under Social Security.

Example: Mary is receiving a CSRS benefit of $1,500 per month and her husband, John, is receiving a Social Security benefit of $800 a month. As his wife, Mary is entitled to as much as one-half of John’s $800 benefit. Before she can receive this benefit, an offset of two-thirds of her CSRS retirement benefit would be applied. In this case that would be two-thirds of $1,500 or $1,000. If $400 is reduced by $1,000, it is very clear that there would be no spousal benefit payable to Mary.

If Mary becomes widowed, she would be entitled to as much as 100% of John’s $800 Social Security benefit. Again, before she would receive a widow’s benefit, it would also be reduced by two-thirds of her $1,500 CSRS benefit, leaving Mary with $0 Social Security widow’s benefit.

Background of the Government Pension Offset

Until the 1970s, Social Security provided benefits only to dependent wives of Social Security covered workers. When their husbands retired, women were eligible for up to half of their husband’s Social Security benefit. If they were widowed, women could take over, receiving up to the full amount of their husband’s “earned” Social Security benefit. Men usually fell into one of two categories; either they worked and earned their own Social Security or they were exempt from Social Security and provided for their retirement through savings or other pensions (like CSRS).

There was an important court case (Califano v. Goldfarb, 430 U.S. 199 (1977)) that occurred during this time where the practice of providing “spousal” benefits only to women was challenged. The court ruled in favor of allowing men to claim spousal benefits if they were dependent on their wives. Most men would not qualify if they were entitled to a higher Social Security retirement benefit of their own. But there was one group of people who had very little “earned” Social Security, but may have a spouse who had paid into Social Security for many years. As you may have guessed, this group of people included those who retired from the CSRS.

It didn’t take long to enact a law that would cause government retirees to become ineligible for Social Security spousal and widow’s benefits. This law was named the Government Pension Offset (GPO) and reduced a spousal Social Security benefit by two-thirds of the CSRS retirement benefit.

Why did Congress think the Offset was necessary?

This law is designed to replicate the dual-entitlement provision of the Social Security program. The dual-entitlement provision, which has applied since 1940, requires that Social Security spousal or widow’s benefits be reduced by the amount of that person’s own Social Security worker’s benefit. Thus, a person who works in a job that is covered under Social Security and receives a Social Security worker’s benefit cannot also receive a full Social Security spouse’s benefit. The dual-entitlement provision was intended to restrict the payment of benefits to those family members who were actually dependent on the worker.

Under the dual entitlement provision, there is a dollar-for-dollar reduction: If a woman gets a monthly Social Security benefit of $300 based on her own work, then $300 is subtracted from any Social Security benefit she would get as a wife. Under GPO, there is a two-thirds reduction. The GPO replicates the Social Security dual-entitlement rule by assuming that two-thirds of the government pension is approximately equivalent to a Social Security retirement benefit the worker would receive if his/her job had been covered by Social Security. Therefore, only two-thirds of the government pension is used to offset Social Security benefits.

Why do government workers see this law as unfair?

According to testimony before Congress, the provision is not well understood and many people are unprepared for a smaller Social Security benefit than they had assumed in making retirement plans. Reducing everyone’s spousal benefit by two-thirds of their government pension is an imprecise way to estimate what the spousal benefit would be had the government job been covered by Social Security. Ideally, the way to compute the dual entitlement rule would be to apply the Social Security benefit formula to an individual’s total earnings, including the noncovered portion, and reduce the resulting Social Security benefit by the proportion of total earnings attributable to noncovered earnings. However, this is not possible from an administrative standpoint because SSA does not have information on a person’s noncovered earnings history. The GPO unfairly singles-out workers with government pensions compared to those with private pensions.

What can be done?

One way that some employees have avoided the GPO is by transferring to the Federal Employee’s Retirement System. Those who transferred during the first open season in 1987 were automatically exempt. Those who transferred after 1988 had to remain under FERS for five years to be granted an exemption. Also, employees who are currently employed under the CSRS-Offset retirement system also are automatically exempt. Finally, those CSRS employees who are entitled to spousal or widows benefits and who have not retired before age 65, may receive the full amount of their benefit as long as they remain employed and are not receiving their CSRS retirement benefit. Once they retire, the GPO will be applied.

There have been various bills proposed in Congress that would alleviate or eliminate the effect of the GPO. There is legislation currently proposed this year that would modify the effect of the GPO. Contact you representative if you wish to show your support for such legislation. Until there is a change, be aware that CSRS retirees rarely receive Social Security benefits based on the work record of a Social Security covered spouse and when they do, they have been drastically reduced.

Tammy Flanagan is the Senior Benefits Director at NITP, Inc.