The Social Security Offset and How It Affects Some Federal Employees

Understanding the Social Security Government Pension Offset and How It Affects CSRS Annuitants by Ed Zurndorfer

Ed Zurndorfer-

The previous FEDZONE column discussed the Social Security Windfall Elimination Provision (WEP) and how the WEP affects some federal government retirees. This week’s column discusses the other Social Security offset that affects some federal government retirees. This offset is called the “Government Pension Offset” or GPO.

The Origin of the GPO Rule

In 1977, the Social Security Administration (SSA) introduced an amendment creating the GPO. The purpose of creating the GPO rule at that time was to address Congressional concerns that individuals who received a pension from a federal, state, or a local government not covered by Social Security (such as Civil Service Retirement System or CSRS) were “double-dipping” by also receiving a Social Security spousal or survivor benefit in which they never contributed or contributed little because of limited or non-covered Social Security employment.

 To better understand the GPO and why it became law, it is important to explain the purpose and the need for Social Security spousal and survivor benefits. Social Security spousal and survivor benefits were intended mainly for spouses (and former spouses) who had not worked (and therefore could not earn for themselves their own Social Security retirement benefit) or who worked little to the extent that their earned Social Security retirement benefit was less than half of their spouse’s benefits. These spouses or former spouses were financially dependent on their working spouses for financial benefits, especially retirement benefits. The SSA therefore passed into law 44 years ago the “dual entitlement” law which states a spouse is eligible to the higher of their own Social Security benefit or half of their spouse’s Social Security benefit.

 But a spouse who was covered a pension plan in which they did not pay into Social Security (like CSRS) could therefore apply for a spousal Social Security benefit (from their spouse who had Social Security-covered employment) based on no or low Social Security-covered earnings. In the meantime, this “no or low Social Security earning” spouse was receiving a guaranteed government-sponsored pension while not contributing little and sometimes nothing to Social Security during their working career. In other words, the equivalent of a “stay-at-home mom or dad”.  This was not fair, and that is why the GPO was passed into law – to remove this unfairness. Through participation in a government job not covered by Social Security, for example a CSRS employee, and an individual was able to earn a guaranteed pension and a Social Security spousal or survivor benefit as though they had never worked. This is because with a “non-covered” (for Social Security purposes) job an individual is considered to have “never worked” for Social Security purposes.

Who is Affected by the GPO Rule?

Individual who are subject to the GPO rule include individuals who meet the following criteria:

1. Worked at a federal, state or local government job in which they did not pay Social Security (FICA) taxes;
2. Qualified for a pension from that job (that did not pay into Social Security); and
3. Are eligible to receive spousal or survivor’s benefits from a spouse who did work in a job covered by Social Security.
4. As will be discussed, the GPO rule affects only CSRS annuitants, but not CSRS Offset and FERS annuitants.

What is the Impact of the GPO on Social Security Spousal and Survivor Benefits?

The GPO results in a reduction – most likely in an elimination – of the amount of a Social Security survivor or spousal benefits for beneficiaries who also receive non-covered government pension benefits from their own work. That is, they did not pay Social Security (FICA) taxes while working for any type of government- federal, state or local.

To determine how much the GPO reduces a retiree’s Social Security benefits, first determine how much a regular, spousal or survivor benefit they could receive. Then take the gross amount of their pension from the non-covered employment and subtract two-thirds of that amount from the spousal or survivor’s benefit. The following example illustrates:

Angela was a CSRS employee from 1980 through 2019 and retired in early 2019 with 39 years of CSRS service. Angela’s husband, Jeff, was a lawyer for a private firm working nearly 35 years before retiring in 2015. When Angela retired, she started receiving her CSRS annuity, currently equal to $3,600 per month. In 2020, Jeff filed for his Social Security retirement benefit, currently equal to $3,000 per month. If Angela had simply been a homemaker who did not qualify for her own Social Security benefits, she would have been entitled to a 50 percent spousal benefit of $1,500 per month. However, because of her “non-covered” CSRS annuity pension of $3,600 per month, 2/3 of that benefit, or $2,400, is greater than the $1,500 spousal benefit that she would have received. Angela is therefore not entitled to any Social Security spousal benefit based on Jeff’s Social Security work record. The reduction amount of $2,400 exceeds the entitled spousal Social Security benefit of $1,500.

Jeff passed away early in 2021, six years after retiring. Angela was devastated to find out that she was not eligible to receive a full Social Security spousal survivor benefit of $3,000 (based on 100 percent of Jeff’s benefit). This is because the GPO rule offset (reduced) that benefit by $2,400 (2/3 of her CSRS annuity), leaving her with only a $600 per month Social Security survivor’s benefit ($3,000 less 2/3 of $3,600 equals $600).

What is the Impact of a Spouse’s Own Social Security if the Spouse Inherits a Non-Covered Spouse’s Pension?

A common question often asked by individuals affected by the GPO rule: If I leave my pension payments to my spouse, will that cause the GPO to affect my spouse’s own Social Security benefit after I die? The short answer is no- A surviving spouse’s own individual Social Security benefits would not be affected if the other spouse with the non-covered pension named them as a beneficiary on that pension. The GPO applies only to a spouse’s benefit for any month the spouse receives a pension based on his or her government employment not covered under Social Security. The following example illustrates:

Frank and Maureen are married and each retired from federal service. Frank is a CSRS annuitant while Maureen is a FERS annuitant. Both have elected to give the other spouse a spousal survivor annuity. If Frank predeceases Maureen, then Maureen’s CSRS spousal survivor annuity will not affect her Social Security benefit. If Maureen predeceases Frank, then Frank’s own CSRS annuity will affect his spousal survivor Social Security benefit from Maureen because of the GPO rule.

Which Federal Annuitants Are Affected by the GPO Rule?

It needs to be emphasized that like the WEP rule, that federal annuitants and not federal employees, can be affected by the GPO rule. An individual who remains in federal service is not affected by either the WEP or the GPO rule. It is only when a federal employee retires and becomes eligible for a government-sponsored, “non-covered” guaranteed pension that WEP and GPO take effect. The following chart summarizes which federal annuitants are potentially affected by the GPO and WEP rules:

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Social Security Offset