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Congress is working hard to pass legislation that will reward those who opt out of Social Security financially.
H.R. The legislation, H.R.82 Social Security Fairness Act (2021), would eliminate the Windfall Elimination Provisions (WEP) as well the Government Pension Offsets (GPO) provisions in Social Security. These rules aim to equalize the playing field for those who are unable to work and have received pensions.
This would allow people to opt out of Social Security for a cash handout. Even worse, this would lead to people abandoning Social Security. This change in policy is extremely ill-considered, especially considering the questionable long-term stability.
This issue is almost 100 years old. Congress made it exempt for local and state governments to participate in Social Security. There are many employers who provide pensions to their workers, which is required by law to be at least as generous and as affordable as Social Security. In other words, everyone pays into a “Social Security” system – the only difference is who runs the program.
Unfortunately, this separation of pensions in this manner means that some retirees collect from more than one version of “Social Security.” These dually entitled retirees (about 2 million and counting) have an unfair advantage over the rest of us because the benefit formula mistakenly treats them as a lower-income worker with a spotty work history – even when they had a good job over a long career.
In short, the WEP/GPO rules protect future retirees – i.e. the rest of us — from the quirks of the benefits formula that would reward people who chose to work in a job not covered by Social Security. Let’s be honest, this legislation might as well be called the “How Congress Can Push Social Security into Insolvency Even Faster Act.”
Insolvency Isn’t ‘Fair’
Only 25 percent of civil servants participate in an alternate pension plan. The law is a compromise between the needs of teachers and those of other educators. It also allows police officers to choose from different states over the ones who reside in different areas.
The chart below compares annual benefits for identical workers earning $50,000 over a 40-year career, where the only difference is the choice to work for an employer who doesn’t participate in Social Security.
- The WEP would not apply to teachers who work full-time in Social Security. Teachers who opt out of the National Pension will likely be paying twice the amount for their benefits. That isn’t fair.
- Even with the WEP, the teacher would still collect more than the person who was in Social Security during the entire 40-year period. That isn’t fair, too.
Social Security and WEP Rules Apply
| An annual
Income |
Years Working in Social Security | Annual Benefit Check | What Does it Cost to Purchase?
$1 of Benefits |
WEP Adjustment | Adjusted Cost For Benefits | |
| $50,000 | 40 | $23,127 | $ 9.17 | 0 | $ 9.17 | |
| 30 | $20,841 | $6.54 | 0 | $6.54 | ||
| 10 | $11,698 | $4.53 | $6,144 | $ 10.90 | ||
| Source: AARP Benefit Calculator | ||||||
Similar to the GPO, it adjusts spouses’ and widowers’ benefits that are included in Social Security. According to Andrew Biggs, a policy expert in the area of retirement with the American Enterprise Institute, “the GPO is designed to treat state and local government employees, approximately how they would be treated under Social Security.”
An example of this is the $64,524 average salary for a teacher in the United States. Given that salary over a 35-year career, teachers who work a full career in Social Security on average aren’t eligible for spousal benefits because they make too much under their own record – even if their spouse earned 100 percent of the taxable wages, and deferred claiming benefits until he or she reaches the age of 70 (see here.)
Without GPO, the teacher who opts out of Social Security would be eligible for spousal benefits that the teacher who remained in Social Security for a full career couldn’t receive. That isn’t fair.
GPO Rules and Social Security Repealed
| Teachers with a 40-year career
Social Security |
Teacher with 40 years of experience in non-covered work | |||||
| The Average Wage/
Pension Benefits |
Spouse’s
Average earning |
Eligible
Spousal Annual Benefit |
Annual Benefits | Spousal
Annual Benefit Without GPO |
Combined Annual Benefits | |
| $50,000/
$23,127 |
$50,000 | $0 | $23,127 | $11,725 | $34,852 | |
| $75,000 | $0 | $23,127 | $15,484 | $38,611 | ||
| $100,000 | $0 | $23,127 | $17,359 | $40,486 | ||
| On average, a worker makes $50,000 per year with a spouse earning $50,000, $75,000, and $100,000 | ||||||
Antiquated Rules
These rules are unquestionably invalid. These rules offer a temporary solution for a 100-year old problem that is 50 years old. Any measure of “fairness” that comes out of the adjustments today is a matter of dumb luck rather than thoughtful planning.
This legislation isn’t meant to be fair. The Congress hopes that some votes will be bought with a small amount of money in November.
Bribing voters with benefits on the cheap isn’t the answer – it is the problem.
Brenton Smith[email protected]) is a policy advisor at The Heartland Institute, with work appearing in nationally recognized publications including Barron’s, Forbes, MarketWatch, The Hill, USA todayYou can find out more.
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