Thursday, July 22, 2010

Some public sector workers being overpaid by Social Security

Mary Walsh in the New York Times
writes about a Social Security Inspector General's report on the payment of benefits to public sector workers who have pensions from non-covered employment. Social Security has two provisions – called the Windfall Elimination Provision and the Government Pension Offset – that are designed to adjust benefits for people who receive a pension from state or local government, where employees often are not covered by Social Security.

People who worked part of their careers outside of Social Security will look "poor" from Social Security's point of view, since the program can't "see" their non-Social Security earnings. For instance, someone who worked every year at the economy-wide average wage but spent half his career in non-covered employment would look to Social Security as someone who earned half the average wage over his working lifetime. Likewise, some individuals will apply for spousal benefits based on their spouse's Social Security contributions, even if they receive a pension benefit themselves from state/local employment. The WEP/GPO provisions can reduce Social Security benefits for people with state/local pension income to prevent over-generosity or double-dipping.

But for these provisions to be implemented correctly depends on SSA knowing the pensions people are actually receiving from non-covered employment. The SSA IG's report says that in a significant number of cases SSA's information is incorrect and therefore it overpays these individuals. The report estimates that around 8,500 public sector retirees are overpaid each year, by an average of almost $2,500 per person. This is pretty big money, considering that the typical Social Security retirement benefit is only around $14,000. The IG found that benefits were paid correctly in around 90 percent of cases, but in one case out of 20 errors were made.

Sometimes these errors were inadvertent, while in other cases it appears that beneficiaries did not disclose – as they should – that they were receiving pension income from non-covered employment. One reason for this, I think, is that neither SSA nor public employers nor public sector unions do a particularly good job explaining to affected individuals why their benefits might be reduce. As a result, public sector retirees view the WEP/GPO provisions as unfair and often get very upset about them. This can't be conducive to getting accurate information voluntarily from these individuals.


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