The Government Pension Offset (GPO) is a Social Security Administration (SSA) law that affects spouses, former spouses, widows or widowers. But not CSRS Annuitants.
Edward A. Zurndorfer
The Government Pension Offset (GPO) is a Social Security Administration (SSA) law that affects spouses, former spouses, widows or widowers. The GPO works as follows: If an individual receives a guaranteed retirement or disability pension from a federal, state or local government based on services for which the individual did not pay Social Security (FICA) taxes, the GPO will reduce – most likely eliminate – the amount of any spousal, former spousal or widow/widower Social Security disability or retirement benefit.
This column discusses why CSRS Offset annuitants are not affected by the GPO. One reason behind the writing of this FEDZONE column is that unfortunately there have been occurrences in which CSRS Offset annuitants and employees were given erroneous information by SSA employees and Human Resource/Personnel offices. In particular, some CSRS Offset annuitants were advised that because they are CSRS Offset annuitants, they are subject to the GPO and therefore are ineligible to receive any spousal, former spousal, or widow/widower Social Security benefits. As explained below, this advice is erroneous. CSRS Offset annuitants are not affected by the GPO.
Some Background Information on CSRS Offset Annuitants
Federal employees hired into federal service before Jan. 1,1984 were covered by the Civil Service Retirement System (CSRS). By law, CSRS-covered federal employees are excluded from Social Security coverage and do not pay Social Security (FICA) taxes while they are in federal service.
Congress made some significant changes to the Social Security laws in 1983. One of the most major changes was to require Social Security coverage for newly hired federal employees, effective for employees hired into federal service after Dec. 31,1983. Also, those federal employees who were rehired into federal service after Dec. 31,1983 after a break in CSRS coverage of more than one year that once rehired into federal service, will now be covered by Social Security. These employees initially were placed in an interim retirement plan that provided full Social Security deductions from pay and reduced CSRS deductions. This was the precursor of the CSRS Offset plan.
On Jan. 1,1987, the new Federal Employees Retirement System (FERS) started. In the legislation that created FERS, Congress created the CSRS Offset retirement plan. Typically, the CSRS Offset retirement applies to CSRS employees (hired before Jan. 1, 1984), who left federal service with a break in service that exceeded one year, returned to federal service sometime after Dec. 31, 1983, and had at least five years of creditable (CSRS) service as of Jan. 1, 1987. Another category of CSRS Offset employees included employees who were hired before Jan. 1, 1984, acquired CSRS Offset “interim coverage” between 1984 and 1987, and had at least five years of creditable federal service as of Jan. 1, 1987.
What is Different About Being CSRS Offset?
A federal employee who is employed under the CSRS Offset provisions is both contributing to the CSRS Retirement and Disability Fund and covered by Social Security. The employee is earning Social Security retirement credits under the CSRS formula and earning Social Security credits, adding to any Social Security credits already earned. If the employee continues to work in private industry (and therefore be covered by Social Security) after retiring from federal service, the retired CSRS Offset employee will continue to earn Social Security credits and enhance their Social Security retirement benefit.
When a CSRS Offset employee retires from federal service, the employee’s CSRS annuity will be computed in the same manner as a retiring CSRS employee’s CSRS annuity is computed. However, when a retired CSRS Offset becomes eligible for Social Security benefits (usually at age 62), the CSRS Offset annuitant’s CSRS annuity will be reduced (“offset”) by the value of the Social Security benefit the CSRS Offset annuitant earned during his or her years of federal service as a CSRS Offset employee. In other words, instead of getting one check from the US Office of Personnel Management that reflects all of the CSRS Offset employee’s federal service, some of the retirement income will come from the Social Security Administration when the CSRS Offset annuitant applies for his or her Social Security retirement benefit. As discussed below, if the CSRS Offset annuitant is married or was married (divorced or widowed) and is eligible for a Social Security spousal or widow/widower survivor benefit that is at least twice as much as their own Social Security benefit, then the CSRS Offset annuitant is eligible to apply for the latter benefit.
When and How the CSRS Annuity is Offset (Reduced)
When a CSRS Offset employee retires before age 62, the retired employee will receive a full CSRS annuity that is computed based on the retired employee’s total years of service as both a CSRS employee and as a CSRS Offset employee. No distinction is made.
When the CSRS Offset annuitant gets closer to his or her 62nd birthday, OPM’s Retirement Office will contact the SSA to obtain a Social Security retirement entitlement determination on behalf of the CSRS Offset annuitant. SSA will specifically provide OPM with information concerning the amount of the CSRS Offset annuitant’s Social Security retirement benefit. Based on this information, OPM will compute the offset or reduction to the CSRS annuity. Note that even if the CSRS Offset annuitant does not apply for his or her Social Security benefit, there will be a reduction or offset to the annuity.
If a CSRS Offset employee retires at age 62 or later and already is entitled to a Social Security retirement monthly benefit, then the offset calculation is performed by OPM’s Retirement Office when it adjudicates the CSRS Offset employee’s retirement application.
When OPM contacts the SSA on behalf of a CSRS Offset annuitant in order to calculate the offset amount, the SSA computes two separate Social Security retirement benefit amounts. The two computed amounts are then sent to OPM in order for OPM to determine the CSRS Offset amount. The offset reduction amount is subtracted from the CSRS Offset annuitant’s CSRS annuity to become the new CSRS annuity rate.
Why CSRS Offset Annuitants Are Not Subject to the Government Pension Offset (GPO)
The offset reduction amount is the lesser of:
- The difference between the Social Security monthly benefit amount with and without CSRS Offset Service, service after Dec. 31, 1983. This service is covered under the interim CSRS provisions or the CSRS Offset provisions; or
2. The product of the Social Security monthly benefit amount, determined by using all Social Security-covered employment including CSRS Offset service, by a fraction in which the numerator is the CSRS Offset annuitant’s total years of CSRS Offset service (rounded to a whole number of years) and the denominator is 40.
Social Security benefit X [ (total years of CSRS Offset Service)/40]
The following illustrates:
Example 1. Irma is a CSRS Offset annuitant. She had a total of 35 years and 6 months of federal service of which 24 years and 8 months were CSRS Offset, and 10 years and 10 months were CSRS. She retired at age 60 in 2017 as a CSRS Offset employee.
Computation number 1:
|Social Security monthly benefit including CSRS Offset Service||$3,000|
|Social Security monthly benefit without CSRS Offset Service||$1,200|
Computation number 2:
Social Security monthly benefit including CSRS Offset Service:
= $3,000 x [25* years/40] = $1,875
* Nearest full year to 24 years and 8 months
Result. Since the CSRS Offset reduction amount is determined by taking the lesser of Computation 1 and Computation 2, the CSRS Offset reduction monthly amount in this example is $1,800.
CSRS Offset Reduction and Effect on the CSRS Offset Annuitant’s Social Security Benefits
Some CSRS Offset annuitants are under the impression that they are permanently losing a portion of their earned CSRS annuity, a result of the CSRS Offset reduction. This is not true. The reason they are not losing a portion of their CSRS annuity is that once a CSRS Offset annuitant applies for his or her Social Security retirement benefit – either his or her Social Security retirement benefit, or if greater, a spousal or a widow/widower survivor benefit, the amount of that benefit should exceed the amount of the CSRS Offset amount reduction. Both of these benefits are explained below.
Benefits Based on the CSRS Offset Annuitant’s Social Security Earnings
A Social Security provision known as the Windfall Elimination may affect the amount of the CSRS Offset annuitant’s Social Security benefit. The Windfall Elimination Provision (WEP) applies to individuals who receive guaranteed pensions based on work in which that was not subject to Social Security (FICA) taxes and who have less than 30 years of “substantial earnings” under Social Security. An example of a guaranteed pension which employees did not pay into Social Security are CSRS-covered employees.
Since CSRS Offset annuitants are receiving a CSRS annuity, they may be subject to the WEP. Each year the SSA defines what is that year’s “substantial” Social Security earnings amount. It is possible that a CSRS Offset annuitant may not have accumulated during their working years, including years worked as a CSRS Offset employee, a minimum 30 years of “substantial” Social Security earnings and therefore will be subject to the WEP.
Benefits Based on a Spouse’s (or Former Spouse’s) Social Security Benefits
One difference between a CSRS Offset annuitant and a CSRS annuitant is that if a CSRS Offset annuitant becomes entitled to Social Security spousal benefits, these benefits will not be subject to the GPO. The GPO offset does not apply to any spousal Social Security benefit who retires under CSRS Offset. To understand why, some of the information from the Social Security Fact Sheet entitled “Government Pension Offset” (CLICK HERE) is presented and reproduced.
An individual who receives a retirement or disability pension from a federal, state or local government based on his or her own work for which the individual did not pay Social Security benefits, such as a CSRS annuitant, will have their Social Security spousal or survivor (widow/widower) benefits reduced and perhaps eliminated. The reduction is done by reducing the spousal or survivor Social Security benefit by two-thirds (2/3) of the monthly government pension. The following example illustrates.
Example 2. Robert is receiving a CSRS monthly annuity of $4,800. Robert is married and his wife Janice is currently receiving a monthly Social Security retirement monthly benefit of $3,200. Robert’s own monthly Social Security is $800 per month. This includes the effect of the WEP. Since half of Janice’s Social Security monthly benefit of $1,600 (half of $3,200), he would be eligible for the spousal benefit. However, Robert is subject to the GPO. With the GPO:
2/3 of $4,800 = $3,200 (GPO)
$1,600 (Social Security spousal benefit) less $3,200 (GPO reduction) = $0
The rationale behind the GPO is that the retirement benefit that the SSA pays to spouses, widows and widowers are considered as “dependent” benefits. When these “dependent” benefits were established in the late 1930’s, these benefits were to compensate spouses who stayed home to raise a family and were financially dependent on their working spouse. Today almost 90 years later, it is now common for both spouses to work, each earning their own Social Security retirement benefit. The law requires an individual’s spouse, widow or widower benefit to be offset by the dollar amount of their own retirement benefit. For example, if a woman earned her own $2,000 monthly Social Security benefit but was also due a $1,500 spousal benefit based on her husband’s Social Security, the SSA would not pay the spouse’s benefit because the woman’s benefit of $2,000 offsets the $1,500 spousal benefit. Before the enactment of the GPO, if the same woman was a federal employee who did not pay into Social Security, a CSRS-covered employee, and was receiving a $2,000 monthly CSRS annuity, there was no offset.
If the same woman had been a FERS-covered employee and therefore was covered by Social Security, then the SSA would reduce any spousal, widow or widower benefit because of their own Social Security retirement benefit. The GPO ensures that the SSA calculates the benefits of federal, state and local employees who di not pay Social Security taxes the same as workers in the private sector who pays Social Security taxes.
When SSA Does Not Reduce Social Security Benefits
The SSA will not implement the GPO reducing an individual’s spousal, widow or widower Social Security benefits under the following conditions:
- (1) The individual is receiving a survivor CSRS annuity
- (2) The individual is a federal annuitant in which the individual paid Social Security taxes while in federal service. This includes a CSRS Offset annuitant and the individual paid Social Security taxes during the last 60 months of his or her federal service. Any CSRS Offset annuitant whose last day of federal service was before July 1,2004 is not subject to the GPO, and
- (3) The individual is a FERS-covered employee who transferred to FERS from CSRS, with at least five years of CSRS service, and has at least five years of FERS-covered service.
The following is an excerpt from the Social Security Fact Sheet “Government Pension Offset”:
Note the last paragraph in which it says “you paid Social Security (FICA) taxes on your earnings (wages) during the 60 months (five years) of government service”. A CSRS Offset annuitant must have paid Social Security taxes during the last 60 months of federal service because as a CSRS Offset employee the employee is paying the FICA tax and was doing so starting when they returned to federal service (after leaving federal service for at least one year) until they retired from federal service (in almost all cases at least five years later following their return to federal service).
There are other exceptions to the GPO, but the ones listed are the relevant ones for CSRS Offset annuitants. Those CSRS Offset annuitants who were given erroneous information and told that they are subject to the GPO (and therefore not entitled to any spousal, widow or widower Social Security benefits) are strongly advised to contact the SSA as soon as possible to correct the error. When speaking with a Social Security representative they are advised to cite the Social Security fact sheet “Government Pension Offset” together with their CSRS Offset federal background information.
Edward A. Zurndorfer is a Certified Financial Planner, 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 the employees of Serving Those Who Serve 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.