In writing about Social Security reform, I get a lot of feedback from my readers, and nothing drives the rabbit wheel quite like commentary on the Windfall Elimination Provision(“WEP”) or Government Pension Offset (“GPO”). These provisions are the “evil twins” to distractors, and any criticism of the repeal of these rules rallies the readers.
The Social Security Fairness Act of 2023 put these rules back into the headlines. This awkwardly named legislation would mean that people who don’t pay into Social Security should have better access to benefits than someone who paid in for a lifetime. That is the strangest version of fairness I can imagine.
The benefit formula of Social Security dates back to 1977, with modest upgrades over the decades following. At that time, Congress established a societal judgment that certain people get access to survivor benefits at a very low cost. Ever since, people have been bitter and resentful that they do not qualify.
Specifically, Congress created a break for beneficiaries who either dedicated a portion of their career to home and family and those who simply didn’t earn a lot in their working career. In the extreme, the stay at home mom/dad gets a free ride, collecting survivor benefits without having contributed a penny to the program.
This payment structure reflects a societal value that favors the non-working spouse dating back to the era of one income families. In the mind of Congress, spousal benefits and to some extent widow benefits are not meant for career workers.
On the other hand, people who earned a work-related pension like Social Security must forgo some portion of their eligible survivor benefits. Specifically, anyone who qualifies for Social Security benefits must give up 100% of their pension in order to collect survivor benefits. This is the price of survivor benefits.
To illustrate how that cost hits the worker who contributes to Social Security, the average teacher in the United States in 2022 earned $69,544. That type of job over a full career would generate a benefit check of roughly $2,500 (2024) every month. Because of this check, the person would not be eligible for any spousal benefits even if they were married to a Congressman who deferred his benefit to 70. The teacher made too much in their career to get spousal benefits.
With that judgment in place, Congress established the GPO in 1977 to ensure that full-career workers could not shop for survivor benefits at the low-cost window simply because they didn’t participate in Social Security. This rule is an issue today in part because in 1977 federal workers did not participate in Social Security. So many of these workers are now affected by the rule, and wish to shop for benefits at the low-cost window established for people who didn’t work.
Clearly, Congress considered whether people who opt-out of Social Security deserve to shop at the low-cost line. They said no: retirees shouldn’t make money on Social Security simply because they didn’t contribute to it during their working career. Anyone subject to the GPO should be glad. The cost of survivor benefits is only 2/3rds of pension. The rest of us lose 100%.
Access to the low-cost line is under consideration today because Congresswoman Abigail Spanberger and Congressman Garrett Graves want to open the window to people who opted-out of Social Security for some portion of their career.
Neither has responded to the question of why should anyone get better benefits simply because they didn’t contribute to it as a worker. If the Social Security Fairness Act of 2023 becomes law, the hard-working teacher whose job is covered by Social Security would get zero survivor benefit, while the same teacher who opted-out of Social Security might get as much as $30,000 – having never paid a penny to the program.
The societal valuation created in 1977 is a subsidy which transfers income from those with long or successful careers to those with careers that did not offer the same opportunities. While I may not agree with it, I at least understand the reasoning for it. In the case of this legislation, the income transfer is from future retirees to people who may have had a long and successful career. That I do not understand.
If Rep. Spanberger and Rep. Garrett Graves wish to open the low-cost line to people who opt-out of Social Security, these lawmakers should pay for the “expansion” from the general fund, not the pockets of unsuspecting future retirees.
We are creating a financial incentive to opt out of Social Security. It is a profoundly bad idea, given the shaky state of the program’s finances today.
