Congress is currently considering three separate amendments to the Social Security Act which would change the Government Pension Offset (GPO) and Windfall Elimination Provisions (WEP) rules.
Probably the most visible of these proposals is the Social Security Fairness Act of 2021 (H.R. 82), which would repeal the provisions entirely. As of today, the bill has 269 co-sponsors in the House alone. The Senate version is the Social Security Fairness Act (S. 1302) with 38 co-sponsors.
This specific proposal would create a financial incentive for workers to opt-out of Social Security at the exact time that the program is struggling with the possibility of insolvency. These changes would cost the system roughly $700B in solvency and move the projected date of insolvency forward by a year.
That isn’t fair. That isn’t even thinking.
In the past writing on the subject, I have argued that it is not fair or wise to ask future retirees to reward people who opted-out of Social Security. (Read more on MarketWatch). Thereafter, I argued the adjustments based on WEP and GPO aren’t really all that harsh when compared to what you would have earned had you worked a full career in Social Security. (Read more on RedState)
These articles have drawn a lot of feedback. Almost all of that response suggests I do not know how WEP/GPO works, and yet none of it explains where my facts are wrong.
Before you sit down to write me another missive, we have to have some boundaries.
- If you work for wages and don’t pay FICA taxes, you have opted-out of Social Security. You have reached Libertarian Nirvana, where the Kool-Aid is free and cold.
- You may not be aware that you opted-out, but that really doesn’t change the fact that you opted-out.
- Your occupation is an exercise of free will. The pension is a consequence of that choice. If you want to be a doctor in Kazakhstan, the pension you get is a reflection of the choices that you made.
Probably the heaviest response comes from people who feel the GPO unfairly reduces their benefits. Here is the fact: a person who opts-out of Social Security gets better spousal benefits than the person who worked a full career in Social Security. In the table below (adapted from an example on the Social Security Administration’s website), the hypothetical retiree collects as much or more in spousal benefits than the person who worked a full career in Social Security.
How is this more unfair?
|Spouse’s Benefit $1,800/mo||Benefit Before GPO||GPO Adjustment||Final Spousal Benefit||Combined Pensions By Opting Out||If Covered By Social Security||Final Spousal Benefit|
Readers feel cheated because there are spouses who haven’t worked that collect benefits. Rightly or wrongly, that is the design of the system. These benefits are intended for people who haven’t worked.
Thus, the problem for my readers is not GPO. The problem is they worked – and are lucky that it wasn’t in a job covered by Social Security.
Everyone wants to give dually-entitled retirees what they deserve. The only difference of opinion is the calculation of deserve. Keep in mind that Social Security provides benefits based on career earnings.
- Some want what they would get in the first years of benefits – which is not a career
- The WEP attempts to provide the middle of career benefits – which is a partial career
- Honestly you deserve the end years – just like everyone else.
This chart below means that if you contributed to Social Security for 10 years as part of a 40 year career, the check should be $190/mo – just like the rest of us. You shouldn’t be able to profit because you choose to divide your career between covered and non-covered employment.
WEP Benefit Checks
|Average Wages of $50,000||Benefit Without WEP||Career Income Replacement||GPO Adjustment||WEP Benefit Check||Career Income Replacement|
|10 Year Career||$974/mo||82%||$512/mo||$463/mo||39%|
What Someone Working a Full Career in Social Security Gets By Time Period
|Years of Service||Increase in Benefit Check||Social Security Benefit (Based on 10 Years Work Reduced By WEP)|
Worker with average earnings $50,000 (wage indexing neutralized)
While it is possible to construct a career where WEP adjustment reduces the benefit too much, it is simply not easy if you accept the premise that no one should collect more from Social Security simply because they quit contributing to it.
Maybe I do not understand how the rules underlying the WEP or GPO provisions work. Feel free to educate me, but make sure that you explain why it is that someone who didn’t contribute to Social Security should get more than someone who did.