New paper: “The Social Security Windfall Elimination and Government Pension Offset Provisions for Public Employees in the Health and Retirement Study”

A new Michigan Retirement Research Center Working Paper is available for download. View the Abstract and Key Findings below.

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The Social Security Windfall Elimination and Government Pension Offset Provisions for Public Employees in the Health and Retirement Study (WP 2013-288)

by Alan L. Gustman, Thomas L. Steinmeier and Nahid Tabatabai

Abstract:

This paper uses data from the Health and Retirement Study to investigate the effects of Social Security’s Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) provision on Social Security benefits received by individuals and households. WEP reduces the benefits of individuals who worked in jobs covered by Social Security and also worked in uncovered jobs where a pension was earned. WEP also reduces spouse benefits. GPO reduces spouse and survivor benefits for persons who worked in uncovered government employment where they also earned a pension. Unlike previous studies, we take explicit account of pensions earned on jobs not covered by Social Security, a key determinant of the size of WEP and GPO adjustments. Also unlike previous studies, we focus on the household. This allows us to incorporate the full effects of WEP and GPO on spouse and survivor benefits, and to evaluate the effects of WEP and GPO on the assets accumulated by affected families. Among our specific findings: About 3.5 percent of households are subject to either WEP or to GPO. The present value of their Social Security benefits is reduced by roughly one fifth. This amounts to five to six percent of the total wealth they accumulate before retirement. Households affected by both WEP and GPO lose about one third of their benefit. Limiting the Social Security benefit to half the size of the pension from uncovered employment reduces the penalty from WEP for members of the original HRS cohort by about 60 percent.

Key Findings:

* About 3.5 percent of households in the Health and Retirement Study (HRS) are subject to either the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO) provision, features of the Social Security benefit determination process that limit the benefits of employees who worked in jobs not covered by Social Security, but who are also are eligible for Social Security benefits.

* The present value of the Social Security benefits of affected households is reduced by roughly one fifth, amounting to five to six percent of the total wealth affected households accumulate before retirement.

* Households affected by both WEP and GPO lose about one third of their benefit.

* Limiting WEP adjustments to Social Security benefits to half the size of the pension from uncovered employment, as in current law, reduces the penalty from WEP for members of the original HRS cohort by about 60 percent and substantially affects any interpretation of the law’s impact that is based solely on the provisions of the adjustment to the Primary Insurance Amount formula (PIA) under WEP.

View/Download Working Paper (PDF):

http://www.mrrc.isr.umich.edu/dl.cfm?pid=915&type=102