Government Pension Offset (GPO)
The Government Pension Offset (GPO) is a provision of the Social Security law that affects most Public Sector employees including Federal, State and local government employees who are entitled to a pension, but who were not covered by Social Security, and who did not pay Social Security taxes. If you are curious about whether or not GPO will impact your retirement please contact a Financial Professional who has been trained in Public Sector retirement benefits.
GPO affects the Social Security benefits you may be entitled to as a spouse, former spouse or surviving spouse of someone who is eligible for a full Social Security benefit.
Under the GPO, if you are or were a Federal, State or local government employee who was not covered by Social Security, your spousal or survivor’s Social Security benefit will be reduced by $2 for every $3 you receive from your Civil Service Retirement System (CSRS) annuity. That is, your spousal and survivor’s Social Security benefits are reduced by two-thirds (2/3) of the pension from the non-covered job.
Individuals who have paid Social Security taxes are not affected by the GPO.
In addition to affecting people who work under the CSRS, the GPO also affects employees who transfer to the Federal Employees Retirement System (FERS) but do not work for at least five years under FERS. It does not affect employees who were required by law to have Social Security coverage, such as employees who were automatically covered by FERS without electing it, and people with CSRS Offset coverage.
Example of How the GPO Works
Here’s an example of how the GPO works: A retired teacher who was not covered by Social Security during her career receives a pension of $1,200 a month, and her husband collects a Social Security benefit of $1,500 a month based on his work in the private sector. Spouses typically can collect either their own Social Security benefit or one-half of their spouse’s benefit, whichever is higher. Since the teacher in this case receives no Social Security retirement benefit, she would expect to collect a spousal benefit of $750 a month – one-half of her husband’s benefit – just as a woman who never worked outside the home would. But because of the GPO, the spousal benefit would be reduced by two-thirds of her husband’s $1,200 pension – or $800. This is greater than the $750 she would have received absent the GPO, and therefore she receives no Social Security spousal or survivor’s benefit.
You Must Review Your Spouse’s Statement
Your own annual Personal Earnings and Benefit Estimate Statement will not provide you with information about the impact of the GPO. To learn this information, you need to review your spouse’s statement, which will give you information about your spousal benefit.
The GPO Often Comes as a Big Surprise
For many public retirees, the worst part about the GPO is that it often comes as a big surprise, taking away a large amount of money that they had been counting on for their retirement. For this reason, employers are now required to notify each new employee about the GPO and the Windfall Elimination Provision (WEP) (which is the subject of another article). The employers must: (1) obtain each new hire’s signature on a document attesting that they have been notified about these provisions, and (2) forward a copy of the document to the public pension that will cover the worker.
Exemptions from the GPO
Some individuals are exempt from the GPO. Generally, your Social Security benefits as a spouse, widow or widower will not be reduced if you:
- Are receiving a government pension that is not based on your earnings; or
- Are a federal, state or local government employee whose government pension is based on a job where you were paying Social Security taxes; and
- You filed for and were entitled to spouse’s, widow’s or widower’s benefits before April 1, 2004 or
- Your last day of employment (on which your pension is based) was before July 1, 2004; or
- You paid Social Security taxes on your earnings during the last 60 months of government service. (Under certain conditions, fewer than 60 months may be required for people whose last day of employment fell after June 30, 2004, and before March 2, 2009.)
There are other situations where Social Security benefits, as a spouse, widow or widower will not be reduced. That will be true, for example, if you:
- Are a federal employee who elected to switch from the Civil Service Retirement System (CSRS) to the Federal Employees Retirement System (FERS) after December 31, 1987; and
- You filed for and were entitled to spouse’s, widow’s or widower’s benefits before April 1, 2004; or
- Your last day of service (on which your pension is based) was before July 1, 2004.