The Social Security evil twins WEP and GPO get a fresh look from Capitol Hill

The Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP) have for decades limited Social Security payments available to certain federal employees; mainly those under the old Civil Service Retirement System and anyone else who receives a pension from earnings that were not taxed by Social Security. A bill to repeal GPO and WEP had a Congressional hearing last month at a field hearing in Louisiana. For analysis, the Federal Drive with Tom Temin spoke with John Hatton, the Vice President for Policy and Programs at the National Active and Retired Federal Employees Association.

Interview Transcript:

Tom Temin John, before we get to the hearing and your feeling about what it was revealing, let’s talk about WEP and GPO, often touted as the so-called evil twins here. There’s a difference, though. They’re not quite the same. Tell us the difference between WEP and GPO, for starters.   

John Hatton So WEP reduces the primary Social Security amount for somebody who has a non-covered pension. So for the federal community, that’s the CSRS pension. But it also affects police officers, teachers, firefighters, in particular states and localities where they had a similar system, CSRS, where they’re only paying into their pension system and not paying into Social Security because you earn that pension through that non-covered work. But then you go out and you earn your Social Security through private sector work or covered work. You get a hit from your Social Security benefits. And so that’s WEP. So we feel it’s unfair for the Social Security law to penalize people simply for earning that public sector pension when they earn separately through separate work, their Social Security benefits.   

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Tom Temin Right. So if they did not have separate work and only did the public sector job and only have the pension from there, you would say then WEP should be in place because in theory the pension they receive offsets what they would have received from Social Security.   

John Hatton Right. Well, WEP wouldn’t even be in place at all because they wouldn’t get any Social Security benefits because you have to work and get credit for Social Security benefits as an earned benefit as well. So, yeah, it’s not in place and it doesn’t need to be in place when you don’t earn that Social Security benefit through your private sector work.   

Tom Temin And GPO, then on the other hand, what?   

John Hatton So that takes away part of or all of the spousal benefit or the survivor benefit for individuals based on their CSRS or other non-covered pension. It takes two third of that pension amount. So if you had 10,000, you know, in benefits, you would take 6700 and reduce that spousal benefit you get for Social Security or the survivor benefit. I really think the worst situations for GPO are really where that that CSRS or teacher pension are just big enough to wipe out the entire survivor benefit. So there you have a married couple and they have these two sources of income and maybe the spousal benefit they weren’t getting. But then, you know, the one spouse passes away and then they have that entire income wiped away. Whereas when you have Social Security, at least get the better of the two formulas and you get you know, it’s usually not as hard of a hit. Whereas GPO really has some situations where people are really left out to dry.   

Tom Temin So should the WEP and GPO be eliminated, or should they have their formulas adjusted such that they’re more equitable?   

John Hatton So NARFE’s primary view is that they should be eliminated and repealed. They were very unfair to begin with and they base basically reductions in Social Security benefits on income earned outside of that system. But we’ve also supported reform bills. Right now there’s mostly just WEP reform bills. There’s not as much on the GPO side for reform versus repeal, but we support a modest reform bills that are in the House on both the Democratic and Republican side that are very similar but a little bit different. So we’re willing to see some improvement in the status quo, even if our primary goal is that full repeal.   

Tom Temin And so those bills would do what precisely that are out there now.   

John Hatton So they would provide some relief for current beneficiaries that are affected by WEP. There’s a Neal bill, that’s Richie Neal, who’s the ranking member of the Ways and Means Committee, and that would provide $150 per month increase in benefits for those affected by WEP, and it would create this new proportional formula going forward. The Arrington Bill, he’s also a member of the Ways and Means Committee from Texas that has a lot of state employees affected. That bill would do something very similar to increase the primary benefit by 100, spousal benefits affected by WEP by 50 for current beneficiaries. And it would also create the same proportional benefit formula going forward. The big difference between the two is that at some point in the future, the Arrington bill only gives you that new formula, whereas the Neal bill protects people and gives them the better of the two. So that creates potential costs on the Neal side for the Social Security Trust fund. And on the Arrington side, potential benefit cuts.   

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Tom Temin We’re speaking with Jon Hatton. He is vice president for policy and programs at the National Active and Retired Federal Employees Association. At the hearing, which took place, as we mentioned, in Louisiana, because a much larger proportion of state employees tend to come under WEP and GPO than at the federal level, what was the sense of the hearing?   

John Hatton Well, I think it really provided an opportunity for some members of the Ways and Means Committee, in particularly the Ways and Means Chairman Jason Smith, to hear directly from people how they’re impacted. And I thought the stories that were given by police officers, fire fighters, teachers, you know, we’re very persuasive, I think, to the committee members in a sense that people weren’t expecting this. It’s caused them a lot of financial heartache and they felt it was very unfair. And I and I think those points got driven home to the committee members. And it was noteworthy that there is a hearing on this bill. You know, we’ve had high levels of co-sponsors in the past. Now we have a very high level of 300 co-sponsors in the House on the repeal bill. But the committee has always been the place where the bill has kind of gone to die. And so seeing the committee take some action and going through that process is a good sign for good development for this issue. Where the next step goes, it’s unclear. You know, the biggest obstacle to repealing these provisions is the cost of it. It costs $146 billion over ten years. So there need to be some offset. So that’s largely the biggest obstacle. Now, is there some reform path or something else? And so having the committee take a closer look, take this a little bit more seriously than they have in the past is clearly a good sign for us.   

Tom Temin Yes. The $146 or $150 billion of strain on the Social Security trust fund comes when, you know, we already know from an actuarial standpoint it’s out of money already.   

John Hatton Yeah, I mean, Social Security is going to go insolvent without any changes in law in the early 2030s according to the actuaries. So, you know, people are talking about Social Security reforms already right now. My guess is they don’t deal with that until 2030 something when they’re about to go insolvent. And it’s just really a matter of balancing out the revenues, the money out. And with the aging population, there’s more money going out now than there is coming in. And at some point that will draw down that bank of money that was put there or really it’s budget authority. But, you know, I would bet on the Congress figuring out eventually, but not really any time before that.   

Tom Temin Well, they can figure it out. They just don’t have the guts to do anything about it until they have to it with the last minute.   

John Hatton It’s not until they’re facing the beneficiaries of potential benefit cuts that I think they’ll actually do something on this. But we will see.  

Tom Temin And of course, as we speak, we’re in the second continuing resolution and no one knows what’s going to happen in the middle of next month or early February. I’ve already heard predictions of a full-year C.R. but as they discuss all of this, there is the talk of that fiscal commission which would try to maybe have some kind of an academic or comprehensive approach to the deficits which keep mounting year after year, adding to the national debt. Your look shows that there could be some real implications for federal employees there.   

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John Hatton Yeah, if they do pass a fiscal commission as part of a new deal on government funding, certainly federal benefits like federal retirement benefits and federal health benefits could be on the table. You know, it’ll depend on the details of how they construct that commission proposals that we have seen include kind of if a majority of both parties on the commission support a provision or measure, then that would go as part of a package. If they support the package, it would go to the floor for an expedited vote. So it really sets up a more likely scenario for there to be passage of these provisions, taking it away from kind of the normal congressional process. So I think it depends on what the details of how that commission would be constructed. You know, who’s on that commission, kind of what the approach would be from leaders in appointing members to it. But certainly, if it is passed as part of a deal, we’ll start fighting on those federal benefits issues as part of that commission process.   

Tom Temin Right. That this could give the umbrella protection, you might say to some members of Congress, anyhow, for talking about increased employee contributions to the federal pension program, you know, the FERS program or even to get rid of the defined pension system and go to the pay as you go fully TSP. What you save is what you’re going to have type of system.   

John Hatton Yeah, there’s a whole host of proposals that come on the table as part of this. I mean, we saw coming out of the last fiscal commission, which was the Simpson-Bowles commission that didn’t get that expedited vote, but it still put a number of proposals on the table. The first thing that came out of that that actually passed was a pay freeze for federal employees for three years. So, you know, that was a proposal from the commission and actually got enacted. Even though the commission didn’t get a vote. There was other suggestions like increasing your retirement contributions. Now, that actually happened as part of offsets for sequestration. Now that new hires are paying 4.4% into their retirement instead of 0.8%, which is just an additional tax on top of their earnings. So, you know, other proposals that we see out there, the Republican Study Committee has proposals to get rid of FERS entirely for new hires, to change retirement calculations for current employees, to get rid of cost of living adjustments. So there is a ton of proposals out there that they could find savings from on the backs of federal workers or federal retirees.   

Tom Temin Yeah. So you’re worried that this commission, this idea of a fiscal commission, could open the Pandora’s box, so to speak, to all kinds of lurid proposals?   

John Hatton It certainly could. And I think, again, we would have a job to do if this commission has put in place about pushing back and talking to the right people. I think the federal community would have that job as well to make sure members knew what the impact would be. Right now, it’s kind of about the design of it and how is it set up and what is the purpose of it being set up to do? And is that taking aim in part at federal benefits? We will see.   

Tom Temin And in the meantime, there is a federal pay raise on the horizon in a couple of weeks.   

John Hatton Yeah. You know, it’ll just take an executive order from the president. But that’s basically already put in place in terms of the alternative pay plan that was sent to Congress in August. So a 4.7% across the board pay increase for the non-locality pay part and a 0.5% increase in locality pay on average across the board. So that’ll be welcome news for federal employees in January. And I think the one benefit of a C.R. going through the beginning of the year is that Congress isn’t going to have an opportunity to kind of mess with this before it goes into place.  

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