OPERS works to ensure Social Security benefits are fairly calculated
By Christopher Collins, Ohio Public Employees Retirement System
April 4, 2017 — We often receive feedback from our members regarding the extent to which their Social Security benefits are impacted by the Windfall Elimination Provision. In fact, it’s one of the most-frequent issues we hear about from our retirees.
There seems to be a misunderstanding regarding how WEP and a companion provision affecting spouses, called the Government Pension Offset, work, or how they can be modified. First, let’s define what they are.
What are WEP and GPO?
Under WEP, a Social Security retirement or disability benefit might be reduced if a recipient receives a public pension from a job where he or she did not pay into Social Security.
Most public employees in Ohio are not covered by Social Security for their retirement benefit. Instead, they belong to one of five statewide public retirement systems that pay their pension upon retirement. However, if they worked for a period of time in the private sector, they also may be entitled to a Social Security benefit when they retire.
If that’s the case, they are subject to WEP, a provision of federal law that potentially reduces the amount they may collect in Social Security benefits. GPO affects their spouses in the same way.
In some cases, the reduction can be as much as one-half the amount of the person’s pension benefit. GPO has a different calculation, but the end result is a significant reduction of a Social Security benefit based on a spouse’s work record.
WEP and GPO are federal laws
WEP and GPO are part of the Social Security Act, which is a federal law. We cannot control whether and when they are repealed. WEP and GPO were originally adopted to address legitimate concerns regarding the way Social Security benefits are calculated. The Social Security formula provides a level of benefits based on how much you earn. The formula was designed to provide higher replacement rates for lower-income workers.
Normally this is not a problem. However, for certain individuals who are eligible to receive Social Security benefits and who also receive a pension from non-Social Security-covered employment, such as OPERS, the formula often produces results that are out of step with individuals’ total career earnings.
Each year an individual works in non-Social Security-covered employment appears as a zero in the benefit formula. Adding zeroes to the formula’s average calculation tends to lower the average, making it seem like the individual had lower total earnings than he or she actually did, and creating a higher replacement rate than was warranted. Congress enacted WEP to address this inequity.
Of course, we know now the formula does not always function as intended, and that WEP (and the GPO) need to be revisited, but it has been difficult to build consensus around a workable solution.
OPERS advocates for change
Virtually each Congressional session, legislation is introduced to repeal WEP and/or GPO. However these bills have never progressed through the legislative process despite having hundreds of co-sponsors. Why? The simple answer is cost.
The Social Security Administration has estimated that a full repeal of WEP and GPO would cost tens of billions of dollars over a 10-year period. The current political climate in Washington makes it highly improbable to pass any repeal legislation that would cost the Social Security trust fund that much money without some way to offset the cost.
That said, OPERS is in continual communication with the members of the Ohio congressional delegation, advocating in favor of legislation and policies that improve our members’ retirement security, including WEP/GPO relief.
The downside of a repeal effort
OPERS advocates for a more equitable calculation of WEP and GPO, if not a full repeal; however, we do not want the solution to result in legislation that would require all public employees to participate in Social Security.
Mandatory Social Security coverage for public employees in non-covered states would be devastating to the public retirement systems in those states if contributions previously made to the funds were instead diverted to Social Security.
A more likely alternative to (and perhaps a first step toward) total repeal is reform of the WEP and/or GPO formula to make them more equitable.
The latest attempt: The Brady bill, HR 711
Congressman Kevin Brady (R-Texas), chairman of the U.S. House of Representatives Committee on Ways and Means, has been working on legislation to modify the WEP formula over the last several years. The latest version of this legislation, the Equal Treatment of Public Servants Act, HR 711, would have reduced the existing WEP for individuals who were 62 or older before 2017, and replaced WEP with an entirely new formula for individuals who turned 62 on or after 2017.
After making significant progress, HR 711 stalled in committee in July. From its inception, HR 711 had critics. There were a number of reasons why, including opposition from groups who would not support anything other than full repeal of WEP (and GPO).
For our part, we viewed HR 711 as the closest we had come to true WEP reform in the 30-plus years since the provision was enacted. We sought to keep the discussion going in spite of the many concerns that were raised, hoping that some compromise could be reached. Through each step of the process, we worked with Congressman Brady and committee staff to make them aware of the real-life consequences of the WEP and to ensure that our members’ needs and concerns were heard.
While there were attempts to address as many of the critics’ concerns as possible, it became clear that a consensus could not be reached, and subsequently, the bill was pulled from consideration pending further discussions. HR 711 died when the previous Congress ended Jan. 3.
We fully expect that a new version of HR 711 will be reintroduced in the current Congress. The coalition that supported the bill has continued to engage with Congressman Brady, encouraging him to move forward with WEP reform. As we have since HR 711 was first introduced, OPERS intends to closely review any legislative proposal to determine its impact on our members.
You will have a chance to participate in this process as it will likely be necessary for OPERS to seek additional data from our members about their Social Security status to help inform our analysis of any forthcoming WEP reform proposal.
Once OPERS has had a chance to review the details, we will communicate with our members about how they can help advocate for a WEP reform solution that helps improve the current situation.
Stay tuned for more information.