Government pensions are valuable retirement benefits but can come with a downside. A non-covered pension could reduce someone’s Social Security benefits by hundreds of dollars each month.
That’s because of two provisions of law: the Windfall Elimination Provision and the Government Pension Offset, commonly known as WEP and GPO. Each reduces the Social Security benefits of someone who also receives a pension from a job that did not pay taxes into the system.
“There was this concern initially that they were double-dipping,” says Yuval Bar-Or, a professor at the John Hopkins Carey Business School. It was deemed that someone receiving a government pension should not also receive Social Security benefits under the same formula as a retiree with no similar pension.
Now, more than 40 years after WEP was enacted, the Social Security Fairness Act seeks to roll it back. While it has bipartisan support, it remains to be seen whether the bill will be passed and signed into law this year.
The Basics of WEP and GPO
While the GPO traces its roots to 1977, the WEP was established as part of the 1983 reforms to the Social Security system. Each has similar provisions, but they affect a different set of beneficiaries:
- WEP reduces the Social Security benefits of a person receiving a non-covered pension. For example, teaching jobs in some states do not pay into the Social Security system, but these workers may have second jobs that qualify them for Social Security benefits. Under WEP, their Social Security benefits are reduced due to their teacher pension.
- GPO is similar to WEP except that it affects the Social Security spousal and survivor benefits of someone receiving a non-covered pension.