The Government Pension Offset and The Windfall Provision, and What They Mean For CSRS

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It is quite the norm to hear from some federal workers that are under the Federal Employees Retirement System (FERS) that one of the things they don’t like about their retirement program has to do with fewer benefits within FERS, compared with the previous program called the Civil Service Retirement System.

However, the employees under the CSRS system tend not to like the fact that the program has a government pension offset and a windfall elimination provision. Both these matters affect federal retirees that have a pension from a retirement system that does not have Social Security as a part of the retirement system.

At the beginning of the 80s, there were provisions made to Social Security to funnel more money into the program, which is why about 96% of the current retirement systems have Social Security as a part of the retirement package. The 4% that do not are under CSRS.

Many tend to believe that FERS took over the CSRS program, but that isn’t completely the case. FERS has been taking its place as the primary retirement system for current federal employees, but currently, CSRS is still quite at large among those that have retired.

Around 70% of retirees are receiving their pension from CSRS at this time, and there are still a lot of seniors that are retiring under the system as well. In 2018, around 43% of people retired under CSRS.

Some of these retirees are currently in their 50s, which means that the CSRS will still be actively disbursing payments for still quite some time.

Unfortunately, these benefits are also being affected by the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

When the retiree is deceased, the benefit for the surviving spouse or beneficiary for Social Security will be cut to a number that will be 2/3rds of the annuity from the CSRS under the GPO.

Under WEP, implemented in 1983, those that have a certain amount of Social Security payments from another source of job or self-employment can have their pension reduced if they have less than 30 years of service. The maximum deduction can be up to $463.

A Congressional Research Service Report states that the reason for the WEP was to eliminate an inadvertent windfall or edge that the standard SS benefit calculation gave to employees that had another pension from employment that was not covered. The standard formula is set to relocate a more significant portion of career-average income for lowe-wage employees rather than for higher-wage employees. But the formula used to calculate this was not able to tell the difference between those that had worked low-wage positions throughout their lives and those that had low wages because they had been employed in positions that were not eligible for Social Security coverage for a lot of years. The years worked that was not covered by SS are counted as 0s for in this SS benefits calculations.

This is why the WEP was implemented to take away this accidental favor.

In regards to the GPO, which was put into place in 1977, its purpose was to reproduce the dual entitlement regulation for spouses and surviving spouses who get pensions that were based on jobs that were not covered by SS. So under the dual entitlement rule, the pension a spouse can get based on their spouse’s job is lowered for each dolly by the amount of their own SS benefit. The spousal or survivor benefit is 50% of the employees’ own benefit, which typically takes out the benefit under this dual policy.

In theory, the GPO calculations reducing 2/3rds of the benefit is superior to the dual entitlement policy. But due to the CSRS benefit normally being more than a spousal SS benefit, the result is usually the same: ending the spousal benefit.

Since the GPO is something that affects everyone under Social Security, there hasn’t been as much scrutiny as the WEP. Throughout the years, there have been attempts at removing the WEP or adjusting it so that the results would be less harsh.

The most recent proposal that has been introduced is to have a revised formula for those under 59 at enactment, which would be more benevolent than the formula now. When the Federal employee retires, they can select the new formula or the traditional calculation. For individuals that are at least 60 years old, the current calculation would still be used, but as a sort of compensation, their Social Security payments would seem a $100 increase every month.

However, with knowing the purposes of these deductions, Social Security’s financial needs, and how other reform suggestions turned out, what do you think will happen?

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