CHICAGO (Reuters) - Relief may soon be on the way for more than 2 million Americans who face big cuts in their Social Security benefits simply because they worked in government jobs that come with a pension.
The reductions stem from two little-understood rules, the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). Both are designed to prevent double-dipping from Social Security and public-sector pensions.
The cuts in benefits can be very sharp. Under the WEP, a worker retiring this year who might otherwise receive a $976 monthly Social Security benefit could see that chopped to $548, according to the Congressional Research Service. The GPO can result in even sharper cuts to spousal and survivor benefits.
“These are grossly unfair laws,” says Jessica Klement, legislative director for the National Active and Retired Federal Employees Association, one group that has lobbied to get rid of WEP and GPO.
Legislation has been introduced in both chambers of Congress that would repeal both WEP and GPO, but the plan that seems to have traction takes an incremental approach and focuses on WEP only.
The Equal Treatment of Public Servants Act of 2015, sponsored by Representative Kevin Brady, a Texas Republican who chairs the powerful Ways and Means Committee, initially aimed to reduce the WEP penalty by 50 percent.
But a revised version that surfaced in July pushes that relief back to 2026 and would only reduce the penalty by 14 percent, averaging $77 per month for future retirees. If applied in 2016, the proposal would help about 1.25 million beneficiaries.
The National Active and Retired Federal Employees Association would prefer full repeal but supported the original version of Brady’s bill. And the group is pushing back on the revisions.
“Full repeal is the holy grail,” Klement said.
WEP affected 1.7 million beneficiaries at the end of 2015, according to the Social Security Administration, while GPO impacted about 652,000.
Why would government workers be treated differently from everyone else? The answer begins with the way that Social Security benefits are distributed across wage-earners with varying incomes.
Social Security’s benefit formula is progressive; workers with low average lifetime earnings get a higher benefit amount compared with their earnings than people who are better paid.
The formula does not distinguish between workers who had low wages and those who worked for part of their careers in jobs not covered by Social Security. Many federal and state jobs are outside the system because they are covered by government pension plans.
The WEP aims to eliminate the high benefit return these workers get on their Social Security income when they are not really low-income.
The impact of the WEP is reduced for workers who spend 21 to 29 years in Social Security-covered work, and it is eliminated entirely for those who spend 30 years or more in such jobs.
For federal employees, the WEP applies only to workers who started their federal employment before 1983, were covered by the Civil Service Retirement System and did not contribute to Social Security.
The provision does not apply to people covered by the newer Federal Employees Retirement System, which is a defined contribution plan. Those workers contribute to Social Security.
WEP and GPO make some sense to policy folks but look unfair to beneficiaries, who believe they are entitled to the full benefit earned in private-sector work - full stop.
Moreover, the cuts can come as a surprise when workers file for benefits. Until 2005, no law required employers to tell workers they were affected. Even now, they must only inform new workers of the possible impact on Social Security benefits earned in other jobs.
The annual statement of benefits issued by the Social Security Administration has included a description of the possible impact of WEP and GPO since 2007; for workers who are affected, the statement includes a link to an online tool to help them calculate the impact (bit.ly/2aTCFvG).
People who have worked only in jobs not covered by Social Security get a letter indicating that they are not eligible.
If you think your Social Security benefits might be affected by WEP or GPO, check out this page of resources on the topic from the Social Security Administration (bit.ly/2axfdBK).
Editing by Lauren Young and Lisa Von Ahn